Last year's introduction of the new municipal rates valuations in Cape Town were the forerunner of the implementation of the new system around the country.

Although the reasons given for the revamp of the rates made sense in theory, in practice many homeowners have seen their properties valued either far higher than the market value or far lower.

"Either way, the cash-strapped homeowner is at a disadvantage," says Richard Gahagan, managing director of Property24.

In the case of under-valuations, this could have far reaching consequences for the homeowner. "The municipal valuation has historically not been taken into account when the property is valued, but this could change and a lower-than-market valuation could become a negative proposition in the long term," says Gahagan.

For those whose properties have been over-valued - in some cases by as much as 40% on market value - the disadvantages are even more obvious. "We believe the new system could see rates increase by nearly 150% in some instances," says Gahagan.

"This, coupled with the recent rate hikes and the other demands on the consumer at the moment, could result in forced sales. It could also further slow the property market as buyers turn to smaller, lower priced properties." However, he believes that a benefit of this could be the regeneration of some of the older suburbs and the inner cities.

According to the City of Johannesburg, over-valuation doesn't necessarily mean the actual rates levied will be exorbitant. The municipality has been at pains recently to explain that the rates will be based on a few cents in the rand, and that homeowners may qualify for a variety of rebates, which will allow an amount of the value of the property to account for zero in the calculation of rates.

But none of this has seemed to convince consumers.

Interestingly, over-valuations seem to be mostly applicable in the more affluent areas, while cases have been reported of municipal values that are way below market prices in township areas.

"What this means is that the middle and upper income levels will have the biggest increases in rates while many lower income areas may actually see a decrease."

"Buyers may also be affected in terms of affordability," says Gahagan.

"Since National Credit Act (NCA), the banks are required to check the client's financial situation much more closely, and the application for a home loan on a specific property may well end up being subject to the difference the monthly rates payments will make on the client's surplus."

Although the municipalities have allowed for a period during which objections can be lodged, the general feeling is that this process will not be worth the time and effort it takes to lodge the objection.

And in terms of sectional title ownership?

Traditionally, rates for sectional title properties were worked out collectively and then allocated proportionately to the various owners within the development by the Body Corporate. Now, sectional title units will be individually valued and rated. This is also cause for concern, as the individual rates levied are generally expected to be higher than the collective rates would have been.

"The bottom line is that for the next 12 to 18 months, hanging onto a home is going to be very difficult for the average consumer. Selling is not really an option, with prices of 70% to 80% of asking prices being achieved. Re-negotiating a home loan is impractical and expensive in the long term. Renting is increasingly expensive, as landlords try to cover their own costs through rental increases, so what choice is there really?"

However, Gahagan believes that there is hope for the future, and that homeowners will sufficiently reduce their household debt to keep servicing their bonds for the time it takes for the market to correct itself once more.

"It's simply not viable to exit the property market, because it's going to be so hard to get back into it later." - Sapa

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