Big property owners in Buffalo City are warning of a major slowdown in development, a massive hike in rent, an exodus of capital, job losses and a legal battle if Buffalo City Metro pushes ahead with a 35% to 50% increase in property rates.
In August, BCM increased the rates based on a reworked rates formula which property owners say it refuses to publish, disclose or discuss.
The shock new rates have prompted the formation of the Buffalo City Property Owners’ Forum (BCPOF), representing 60 of the city’s commercial and residential property owners.
BCPOF spokesperson Graham Hardy said their members contributed a collective R500m in rates to BCM annually. He said the forum was aware that some owners got a zero increase, others an eye-boggling 250%.
The increases were way above the Consumer Price Index (CPI) and this was illegal in terms of the Rates Act, he said, adding that rates increases were meant to stick close to the inflation rate, and anything above was generally “smoothed in” over five years, to avoid the kind of financial chaos BCM was inflicting.
It was a “mistake”, said Hardy, that would rake in an extra R30m to R46m a month on top of the monthly R91m, based on the previous rates calculation.
Meyers Motors chair and BCPOF member Mick Webb said the increase was fundamentally flawed.
Since September 7 he had repeatedly requested meetings with BCM.
“They have responded but only to inform me that the officials cannot meet us, for whatever reason, including being out of town. It is a delaying tactic.
“I believe BCM is hoping that if they avoid a confrontation this will go away. It cannot. It will put property owners out of business, and stop future development.”
Hardy, echoing Webb, says BCPOF was taken aback that no consultative process was followed by BCM, and that they had not met.
Many of their members are also members of the SA Property Owners Association (Sapoa) which is also attempting to make representations to BCM.
In response, BCM spokesperson Samkelo Ngwenya said: “I would advise the association [BCPOF], like all key stakeholders who have an interest in municipal processes, to participate in the institutional IDP and budget processes that deal with tariffs, and service delivery, rather than seeking private meetings [with BCM].”
Ngwenya said: “We are going towards the mayoral imbizos in a fortnight, where the public will be afforded an opportunity to raise issues with the municipality on public platforms. These are then channelled accordingly.”
Ngwenya said BCM had offered legal avenues aimed at ensuring that the municipality received advice and objections and this was done in a transparent manner. Ngwenya, in an earlier statement, questioned if BCPOF had ever attended an IDP and budget process.
Hardy said BCPOF members were never informed of a meeting in the past, and the latest information should come from BCM, not the media.
“We represent a body paying R500m in rates and should have access to BCM’s management, especially on an issue that is potentially ruinous to the city.”
Hardy said if BCM’s rates increase was not revised downwards, the people of the metro would suffer great hardship.
Property owners, developers, tenants and financiers would be hard hit, and this would trickle down to the commercial, retail, residential, state and private sectors.
Alastair Schwulst, a chartered accountant whose family owns the New Colonnade building, a mixed-use development in Vincent with more than 40 tenants, said their BCM rates had doubled. “I have done the numbers. We need an immediate rent increase of 20% just to break even. Our tenants will not accept it. The increase makes East London a very unattractive place to do business.”
Hardy said many businesses, under pressure to remain profitable, would struggle to pay the increases if they were passed on by property owners.
Eventually evictions would follow, firms would close and jobs would be lost. Developments, priced on a historic anticipated 7% increase, would not go ahead.
He said BCM had yet to explain why it had strayed so far from the National Rates Act, and why it still refused to publish its rates guide. While the increase is reversible, the chaos flooding through business sentiment was not.
Trafalgar property management’s Andrew Schaefer said East London was going through the pain that Johannesburg had dealt with earlier in 2018. Trafalgar manages 3,500 East London properties.
Border-Kei Chamber of Business CEO Les Holbrook said: “BCM’s revisions are a critical mistake, which will have dire consequences if pushed through and implemented.
“Many of these fundamental mistakes will lead to the ‘new’, rates being deemed illegal and unenforceable. The consequences will be an inevitable, costly and unnecessary legal challenge, which BCM will lose.
Hardy said many developers and investors bought or developed properties when rates and valuations were market related, and rent increases were predictable, leading to stability.
When granting loans, banks took occupancy into account. Increased rents, due to draconian rates increases, would result in tenants moving out, or defaulting.
This, in turn, would drop the value of the property. Banks would look for more surety, or a cash settlement, to bring loans in line with rental revenue.
Hardy said they wanted BCM to concede it had made a genuine mistake, to scrap the rate increase and replace it with an inflation-linked substitute, while it reworked the rates formula. He warned that a court case was looming...