Among the reasons are the eThekwini municipality’s introduction of a “development surcharge” coupled with having one of the highest rate randages in SA, and high water and electricity tariffs.
The research covered the three biggest cities as well as KwaDukuza, Msunduzi (Pietermaritzburg) and uMhlathuze (Richards Bay).
It was based on existing tariffs applicable to new residential, retail, office and industrial property developments, from zoning and subdivisional fees to building plan fees, connection charges, consumption charges and rates.
The study said eThekwini was on average 30 percent more expensive than the other cities once a property had been developed.
“EThekwini has overwhelmingly the highest rate randages which, when applied to equally valued properties across the various cities, results in the highest annual rates being paid. The vacant land rate randage is particularly high in comparison,” it said.
“The major difference in eThekwini is the existence of a ‘development surcharge’ for residential and commercial developments, which increases the upfront costs substantially in Durban. However, Sapoa is legally challenging this surcharge as it is deemed to be unlawful,” it added.
According to the study, removing the development surcharge and vacant land rates would make Durban more competitive and Cape Town would be the most expensive overall.
Sapoa CEO Neil Gopal has said the development surcharge was “illegal” and was having a devastating impact on property development in Durban.
The surcharge was implemented in the city’s 2010/11 budget for multi-unit residential and commercial developments and is described as a ‘surcharge for infrastructure’. Sapoa said that according to eThekwini’s 2011/12 budget, the surcharge would now be implemented at R16 500 per 100 square meters of gross lettable commercial area developed and R14 227 per unit on multi-unit developments.
Lilian Develing, of the Combined Ratepayers Association, said the study proved what ratepayers had been complaining about for years.
“People are moving out of Durban. In the past six weeks alone two families from the Waterfall area have left. The belief that Durban is a cheaper city to live in is no longer true.”
Develing said ratepayers were being squeezed because there was a small rates base.
“Instead of trying to grow the rates base, the municipality prefers to put more pressure on the current ratepayers and people can no longer support themselves.”
Durban Chamber of Commerce and Industry CEO Andrew Layman said the municipality had unilaterally instituted the development surcharge on property developers without consulting the local business sector.
“This surcharge seems to be a temporary measure by the city until its plans for ‘development charges’ are introduced. Those plans, which have caused an outcry from all quarters, will not only affect developers but ordinary homeowners and businesses,” he said.
“These charges will increase property development costs significantly and thwart property projects in Durban… Chamber members who are active in the property sector are already up in arms about the surcharges and we are opposed to the plan to extend this in the form of development charges,” he added.
Layman had not seen the Sapoa study, but said it was clear property development in Durban was costing more.
“This does not mean the overall cost of doing business in Durban is higher… It means property development costs are higher and this will have a ripple effect on business and ordinary homeowners. There’s a real risk of investment not coming into Durban, but going elsewhere into areas such as Ballito,” he said.
Layman said the city should work with the property industry to find a “more workable solution”.
Referring to the study, property developer Gary Liebenberg, director at Lorber Projects, said high-end prospective home buyers were looking for property outside the municipality because of the high rate randage.
“People would rather move out of suburbs like Berea and Durban North to the housing estates like Zimbali and Simbithi housing estates where they would pay almost half the rates for a property of the same value,” he said.
“Essentially, what the municipality is doing is telling developers to take their skills and go elsewhere.”
Economist Bonke Dumisa said the municipality was frustrating ratepayers and businesses.
“The municipality should stop looking at trying to create more avenues to get revenue. They should rather focus on accessing revenue from several entities that should be paying for services but are not.”
Another developer, Greg Cryer, partner at Key Developments, said the development charge for multi-unit developments was ridiculous.
“I have scrapped three to four projects because of this charge which is about R1.4 million for 100houses that a developer has to pay up front… They should be thinking about the 100 families who would live in those homes and pay rates. In comparison to those families’ rates, their development charge is inconsequential.”