1 Apr 2014
Buyers would naturally prefer, for example, not to buy in areas where there are known problems with water supply or treatment, or where the electricity supply is erratic.
This is according to Richard Gray, CEO of Harcourts Real Estate, who says buyers are now more concerned about what the monthly municipal bill is likely to be if they move to a certain area, and with good reason. He says different local authorities calculate their property rates and utility charges differently, and this can have quite an influence on the affordability of properties, in terms of the National Credit Act.
The reason is that the Act requires that all debt commitments and all regular and projected household expenditure be taken into account when a potential buyer applies for a home loan, so that he or she will not become overcommitted financially.
Gray says the projected expenditure includes the municipal rates and probable utility costs applicable to the property, so if they would put the buyer beyond his affordability limit, his loan would quite likely not be approved. He says this situation has been exacerbated in the past five years by huge increases in Eskom’s electricity charges and by the higher values placed on many residential properties as local authorities around the country updated their valuation rolls. And it has already prompted many potential buyers, especially first-timers and those on fixed incomes, to turn their attention to areas where property valuations and city council charges are lower, he says. “At the same time, many more homeowners and buyers have started to interrogate just what it is that they are getting or likely to get, in return for their contribution to municipal coffers. Buyers would naturally prefer, for example, not to buy in areas where there are known problems with water supply or treatment, or where the electricity supply is erratic. And homeowners would like their roads to be maintained, their streetlights to work and the rubbish to be collected on schedule.” Gray says as a result of this increase in awareness, badly run local authorities are likely to find it increasingly difficult to attract private sector investment, including commercial or residential property development, which means that their rates bases will shrink and they will have less and less income with which to provide any services. On the other hand, he says those municipalities that are well-managed and perceived to offer good value for the rates and tariffs they charge will thrive as more home buyers move there and more development takes place to accommodate the increase in demand. They will become beacons of prosperity, he says.