It is crucial for homeowners to understand how property rates are calculated. This knowledge empowers them to effectively manage finances, make informed property decisions, and ensure fair assessment for local taxes. 

Having better knowledge about these rates assists in recognising exaggerated property values and engaging in a rates objection procedure in case of overestimation, which could potentially reduce tax liabilities. Mirfin’s residential and commercial property valuations can assist in verifying fair property rates, offering professional reports for the municipal rates objection or appeal when required.

What Are Property Rates?

Property rates, also known as municipal rates or property taxes, are charges imposed by municipalities on property owners. These rates are a significant source of revenue for local governments, enabling them to provide essential services to residents, such as road maintenance, refuse removal, and local infrastructure development. The amount you pay in property rates is determined by the municipal valuation of your property. 

Municipal Valuation

The first step in understanding your property rates is knowing the municipal valuation assigned to your property. Municipalities conduct valuations annually to assess the market value of all properties within their jurisdiction. However, the decision regarding whether to adjust the rates based on these valuations is at the discretion of the municipality.

You can find the municipal valuation of your property on your municipality’s website or by visiting the municipal offices. Click here to access a compilation of websites belonging to metropolitan municipalities in South Africa.

Should you perceive an overvaluation of your property by the municipal valuer, it is advisable to contest the assessment. If your reasons are well-founded and adequately justified, the municipal valuer may make the necessary amendments. Objecting to your municipal valuation successfully necessitates a thorough market price assessment conducted by a qualified valuer. While you are not required to obtain a professional valuation to object to your property rates, it can significantly strengthen your case. A professional valuer can provide an unbiased assessment of your property’s value and support your claim with relevant market data and valuation methodology.

Rateable Value

The second factor in determining your rates and taxes is the rateable value. The rateable value is a percentage of the municipal valuation that is used to calculate your property rates. The rateable value is determined by the municipality and is applied to the municipal valuation to arrive at the final property rates amount.

Different deductions, discounts, and adjustments may be applied to the municipal valuation before establishing the property’s rateable value. Consider a commercial building: the municipality may factor in deductions and adjustments based on its age, structural condition, and local market trends, culminating in a reduced valuation. Furthermore, adjustments may accommodate relevant tax incentives, further lowering the rateable value to ensure fair taxation.

Property Rates Formula

Once you are aware of the property value determined by your municipality and understand the rateable value, calculating your property rates in South Africa is relatively straightforward:

[Property Rates = Municipal Valuation X Rateable Value/Cent amount in Rand]

The municipal council establishes the specific Cent value in Rand for each locality.

For example, if your property has a municipal valuation/market value of R1,000,000 and the rateable value/Cent amount is set at R0.0075, the calculation would be:

Property Rates = R1,000,000 X R0.0075 = R7 500 for the whole year 

As per the Municipal Property Rates Act, specific deductions are made from a property’s market value based on its type (e.g., residential or commercial) before applying the Cent value. The municipal council determines the Cent value in Rand after considering public comments, submissions, and inputs on the council’s draft rates policy and budget.

The monthly billing statement sent by the municipality to property owners should contain both the property’s municipal valuation and ratable value. This provision allows property owners to cross-check their rates and taxes.

Additional Factors

While the basic formula gives you an idea of how property rates are calculated, it’s important to note that municipalities may consider additional factors that could affect the final amount. These may include rebates, discounts, or special levies imposed for specific purposes.

Understanding how your property rates are calculated is essential for budgeting and financial planning. By staying informed about your property’s municipal valuation and the rateable value set by your municipality, you can better anticipate and manage your property tax obligations. Regularly check with your municipality for updates on valuations and any changes to the property rates formula. Being proactive in understanding these calculations ensures that you can budget effectively and contribute to the local community through your property taxes.

Varying Property Rates Across South Africa

Property rates in South Africa differ across municipalities due to several factors. These variations can include differences in the way municipalities assess property values, the methods used for calculating rates, and the specific services funded by these rates. Here are some key points on why property rates can differ across municipalities:

1. 1. Valuation Methods: Each municipality uses its own methods to determine the municipal value of properties within its jurisdiction. These varying methods can result in different property values assigned to similar properties in different municipalities. If you believe that the municipal value of your property is either too high or too low, you can get a market-price valuation from a professional property valuation company that can be used to contest or object to your rates and taxes.
   2. Rate Determination: Municipalities set their own rates for property taxes. As mentioned earlier in the article, these rates are typically calculated as a percentage of the municipal value of the property. The percentage rate can differ between municipalities based on their budgetary requirements and the services they provide.
   3. Property Categorisation: Different municipalities may categorise properties differently, such as residential, commercial, industrial, agricultural, etc. They might apply different rates to these categories, leading to variations in tax amounts for similar properties across regions.
   4. Services Provided: Different municipalities have varying services funded by property rates, leading to differences in rates due to varied service levels, infrastructure priorities, and maintenance needs. Additionally, the costs of service providers can also vary among municipalities, impacting the rates for property owners.
   5. Economic Factors: Economic disparities across regions can also contribute to variations in property rates and taxes. Areas with higher property values or higher demand might have different rate structures compared to areas with lower property values or lower demand. Let’s consider two regions: Sandton, a well-off suburb in Johannesburg known for its high property values, and a township like Soweto, characterised by lower property values. If we consider the property values and demand, Sandton typically features higher property values due to its affluent status, with demand driven by amenities, security, and proximity to business centers. Conversely, Soweto may have lower property values due to factors such as historical underdevelopment, limited infrastructure, and lower-income households.
   6. Local Governance Policies: Each municipality operates under its own governance policies and financial strategies. These policies can affect how they collect and allocate revenue from property rates. 
   7. Changes in Legislation: Changes in national or local legislation can also impact property rates and how they are calculated. Local governments might adapt to new regulations, which can result in changes to property tax structures.

As property rates are influenced by multiple factors specific to each municipality, it’s essential for property owners to directly engage with their local municipality or council to understand the specific rates and taxes applicable to their property within that area. This helps in gaining accurate and up-to-date information tailored to the particular region of interest.