July tariff increase set to be major influence on sales
MAIN IMAGE: Herschel Jawitz of Jawitz Properties
This month even more pressure on disposable income struck already hard-hit consumers with a general rise in electricity tariffs and municipal rates and taxes.
The electricity tariff increases will continue to put more pressure on consumers in terms of their disposable income and especially now with the country in the grips of a third Covid pandemic wave.
“It is important to note that in addition to the 14,6% increase in electricity tariffs, water and sanitation is going up by 6,8%, refuse removal by 4,3% and property rates by 2%,” “says Herschel Jawitz of Jawitz Properties.
“Other than property rates, all the increases are above inflation. Any increase above inflation reflects the inefficiency of the organisation as opposed to consumer being able to expect an improvement in services.
“Having said that, I don’t expect it will impact on the residential market. I think people are finding ways to reduce their electricity consumption and water usage to reduce these costs. The thinking is more about how we cut back on usage as opposed to how we can’t afford to buy at the price level we want to or can afford to,” Jawitz says.
Berry Everitt, CEO of Chas Everitt International property group, says the increases will be bigger than usual.
“The annual increase in what consumers pay for municipal services, which is due to be implemented in most municipalities this week, will be bigger than usual and is likely to reinforce a long-term trend towards smaller, greener and smarter homes.
“The main element in the overall hike in municipal charges will of course be the huge jump in electricity tariffs this year, in line with an agreement between Eskom and the National Energy Regulator (NERSA). This will be as much as 15% in many areas and will no doubt prompt an instant increase in demand among existing homeowners for solar geysers, heat pumps, solar (photo-voltaic) panels and other energy-saving equipment.
“In fact, the installation of such equipment is already one of the most popular types of home improvement, and the trend is being fuelled by the fact that certain banks and finance companies are already offering specific “green” loans to finance these upgrades – or to purchase a “green certified” new home,” Everitt commented.
Continuous increases in municipal tariffs are among several factors that have been driving a growing demand for smaller homes for several years now. The fact is that most of these buyers are still only buying as much home as they and their family need.
“This is in line with the trend towards smaller homes over the past decade due to a growing consumer awareness that reduced size means reduced costs across the board – and can actually enable home buyers to aspire to more sought-after areas.
“A smaller home will of course mean lower energy and water costs, but will also attract lower property taxes, even in an upmarket area. It will also cost less to maintain and insure. And these savings will come on top of a lower purchase price and thus lower monthly bond repayments.”
Everitt says affordability remains a serious concern for most buyers in SA because they are still labouring under relatively heavy debt loads – and worried about ever-rising taxes and food, fuel and utility costs.
“SA consumers are generally much more conservative spenders now than they used to be and really careful about getting in over their heads, so while they are buying more homes now, the average size is definitely shrinking, and this is reflected in the huge growth in sectional title over the past few years relative to freehold purchases.”
Gerhard Kotzé, MD of the RealNet estate agency group, says the current round of municipal tariff hikes could substantially increase holding costs for a home seller and can cut deeply into their proceeds.
He notes that according to the latest research by the South African Cities Network (SACN)*, the average municipal bill for the four main household types in nine major municipalities in SA (Buffalo City, Cape Town, Ekurhuleni, eThekwini, Johannesburg, Mangaung, Msunduzi, Nelson Mandela Bay and Tshwane) ranges from R1425pm for low-income households, up to R6119pm for high-income households.
The research also shows that electricity charges make up the biggest percentage of all municipal bills, ranging from 42,3% to 54,7% of each bill, and that water comes second, accounting for between 16,7% and 28,2% of the total charge. “And for most households,” says Kotzé, “the cost of both these commodities will rise substantially from this week.
“Those who receive their electricity supply directly from Eskom have already been paying around 15% more since April, and electricity costs for most municipal customers will rise by about the same amount now, thanks to the recent High Court order formalizing an agreement between Eskom and the NERSA.
“Meanwhile municipal water costs will be rising by between 6% and 10% in most municipalities, having already risen by far more than the rate of inflation over the past few years, while refuse removal and sanitation cost increases will also be higher than the rate of inflation in most cases.”
Many cities have also announced stiff rates increases in the 2021/ 22 financial year to try to claw back some of the revenue lost due to the Covid19 pandemic-related job and business losses and the resulting inability of many property owners to pay rates last year, as well as the exodus of many ratepayers to smaller towns on the coast and in rural areas.
“It is not unreasonable to say that the monthly municipal holding costs on an unsold property at the upper end of the scale could easily top R10 000 pm now. And to that one must then add the monthly bond repayment, insurance, maintenance costs and any levies payable if the property is in a sectional title complex or estate. On a property valued at R1,5 m, the total monthly holding cost could in fact easily add up to around R25 000.”
According to the latest FNB statistics, some 70% of home sellers currently have to drop their initial asking price by around 10% in order to achieve a sale, which translates into R150 000 on a home initially priced at R1,5m, for example. Many sellers may feel that this is just too big an adjustment to make, but it is the job of estate agents to point out to customers that the chances are good that they will end up making it anyway, while also possibly incurring several months’ worth of holding costs if their property is regarded by potential buyers as being overpriced and remains unsold.
“And those holding costs can quickly add up to a large sum of money that most home sellers could put to much better use – to pay a bigger deposit and reduce the monthly bond repayments on their new home, for example, or to settle some debts, which is what many home sellers are currently seeking to do.”
The FNB statistics show that the current average listing time is 67 days, but a good agent should be able to cut that time down substantially and the need to do so is even more relevant at the moment due to the extended transfer registration times being experienced due to Deeds Office delays.
The average period between sale and registration is now at least three months, and home sellers cannot access the proceeds of their sale until registration is complete, so it is important to get the process started as soon as possible and avoid high holding costs by pricing very accurately.