South African landlords under pressure

South African landlords are under significant pressure from high interest rates, constant load-shedding, increased crime, and struggling consumers. 

Director and principal commercial property broker at Ask Ash, Ash Müller, told 702 that “landlords are sitting in a pressure cooker”.

This is because their loan-to-value ratios have changed substantially over the past few years and are now out of proportion. 

Müller’s comments come in light of the landlord of Parow Shopping Centre in Cape Town defaulting on its loan payments.

Law firm ENSAfrica sent letters to the tenants of the 86,000 m² Parow Shopping Centre in Cape Town stating that their landlord is in default with Investec. 

Cession agreements have been put in place, and going forward, tenants have been instructed not to make rental payments into the landlord’s bank account.

Parow Shopping Centre was previously known as the Sanlam Centre and was opened in 1972. The shopping centre has over 150 retail tenants, including Woolworths, Checkers, Foschini, Truworths, Mr Price and Pick n Pay. 

In recent years, the centre experienced significant upgrades to the newer sections, entertainment areas and food court.

Müller said it is unsurprising that landlords are coming under pressure in the current property market and expects more landlords to be in similar situations. 

“Landlords are sitting in a pressure cooker because their loan-to-value ratios are disproportionate,” Müller said. 

“Being a landlord is not the fantastic investment it was 20 years ago with high interest rates, elevated levels of load-shedding, increasing operating costs, and rates and taxes which have increased at above the inflation rate.”

Müller added that it is unsustainable for municipalities to rely on rates and taxes from a declining number of landlords to make up for their budget shortfalls. 

The City of Johannesburg recently experienced pushback from property owners following a significant rate increase at the beginning of July. 

It received over 42,000 objections to its new property rates as the value of properties had allegedly been inaccurately assessed. 

The city explained that it levies its current property rates on the market value of a property determined in July 2022, with the period for objections to the new valuations having ended on 5 May.

Properties are grouped into categories and rated according to their values in the city’s General Valuations Roll (GVR) which are based on the size of the property and improvements to the building. 

The city received 42,053 objections, representing 4.5% of the GVR, which inspected 934,652 properties. Of all the objections lodged, the city has settled only 13,000 objections. 

The city has come in for sharp criticism, with the Organisation Undoing Tax Abuse (OUTA) saying they have inaccurately assessed the value of properties and disregarded objections. 

OUTA believes its method contradicts what the city says because it merely does a desktop analysis of areas within the city and not the individual properties.

The city pools properties together and gives what OUTA calls a ‘guesstimate’ of individual property values, inflating the value and leaving the property owner to prove them wrong at the owner’s expense. 

The method applied is also not sustainable as rate increases are significantly above inflation and the increase in property value. The organisation warned that this might force residents to semigrate out of Johannesburg.

A recent Lightstone property indices report in April 2023 showed that property value has compounded annually at 8.8% within Johannesburg. However, property rates have compounded at 17%. 

From initial responses to OUTA’s survey, residents in Johannesburg have seen their property value increase by 45% on average following the city’s latest inspections.

OUTA said municipalities need to review their valuation methods before ratepayers decide to leave in search of better-run areas.