Wrong property category is costly

Property that is wrongly categorised could cause a huge increase in your municipal property tax account. So says Ben Espach, director of valuations at rates Watch and municipal property tax expert.Werner Sarvari, head of valuations at the property group Lightstone and former head of valuations in Johannesburg, agrees. "Lots of properties are categorised as undeveloped land while there are buildings on it," says Sarvari.

"Municipalities often load the tariffs so that undeveloped land is taxed at up to four times more than the rate for residential property."

He says this encourages densification and dissuades owners from leaving their land undeveloped as it leads to problems such as squatters and illegal dumping.

Espach says Art. 3 of the Municipal Property Tax Act obliges every municipality to divide property into different categories for tax purposes. These are based on:

- Use

- Approved use (zoning);

- Geographic area where the property is located

Most municipalities base the category on the actual use of the property.

The Act proposes certain categories, which include residential, business and agriculture. The Act further provides for the relationships between tax rates on the different categories to be controlled with regulations.

The minister of provincial and local government earlier announced that agricultural and public infrastructure may not be taxed at more than a quarter of the residential property rate. However, every municipality has to formulate an annual property tax policy which sets out these categories. The council has to consult the residents and stakeholders on this.

The following elements need to be included in the policy:

- An explanation of the council's considerations in the stipulation of the policy and the legal framework;

- Which categories will be used, with a definition of each;

- Exemptions decided on by the council, such as charity organisations;

- Discount, such as 35% on all residential properties;

- Reductions on valuations, for example that the first R150k of the valuation of properties owned by pensioners will be exempted of tax.


Espach says property which is used for more than one purpose is usually valued proportionally, each part according to its use. But the Act also allows in Art. 9 for it to be categorised according to the dominant use or according to zoning.

Furthermore, the Act stipulates that property which is used illegally for other purposes than that which it was zoned for, must be valued as if the use is legal.

For instance, someone who runs a business in a residential property can't insist on the lower tariff which applies to residential property because he did not have it rezoned.

The tariff for every property category is determined during the council's budget process. Yet again the public has an opportunity to comment on it.

Ekurhuleni on the East Rand makes provision in its draft budget for four categories of farm land, each with its own tariff:

- Farms: agricultural – R0,0015 for every rand in the valuation;
- Farms: residential – R0,006;
- Farms: business activities – R0,012; and
- Farms: other – R0,024.

Someone whose farm is valued at R4m and who's farming on his land, is supposed to pay R6k per year. If it is wrongly categorised as if he's running a business on the farm, his account will be R48k, an eightfold increase.

Owners who discovers that their property was wrongly categorised, can submit an objection to the municipality.

If the time for objections has already lapsed, it can still be brought under the council's attention so that it can be rectified in the supplementary valuation list.

Owners can also give input with regard to the tariff policy in order to influence the municipality's way of thinking when tariffs are determined. For instance, they can suggest extra categories and bring circumstances under the council's attention that justify discount for property and owners in certain categories.

When the budget is announced to the community, owners also have the opportunity to give input regarding the tariff as included in the draft budget. - Antoinette Slabbert, Geldsake24

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