How municipalities arrive at values for properties

BY BONNY FOURIE bronwyn.fourie@inl.co.za

Officials from Cape Town and Joburg explain the process

PROPERTY owners often have concerns about the municipal values placed on their investments and this is never more evident than when the General Valuation Rolls (GVR) are published.

Homeowners often appeal against the new values – on which their monthly rates bill will be based – some with justification and others without. This is often a result of not understanding how the value was arrived at.

Officials from the cities of Cape Town and Joburg share how their valuation processes work:

City of Cape Town’s Louise Muller, director valuations

Q: How does your municipality work out a property’s value? How are these values calculated?

A: The valuation is determined on the market value at a particular date in the valuation cycle. Thus, for the 2018 GVR, the valuation date was July 2, 2018. The valuation of residential properties on the GVR 2018 was mainly derived from comparable sales data of an area. Valuations are done by professional valuers and the city’s valuation roll is audited by an independent body.

The city understands property values are not static and therefore ensures that independent property valuations are carried out regularly to ensure the rates charged reflect the most current market values. This ensures all residents, regardless of when they purchased their properties, are paying rates reflective of the most recent valuation and all valuations are reflective of the market conditions at one particular date. Q: How do estate agents arrive at their property valuations?

Opinions of estate agents are generally not viewed as market evidence of the property valuation as these are indications of what potentially could be achieved but is not a final sale value.

It may give a property owner an indication of the valuation of the property but it must be noted estate agents work on a daily basis, while all city valuations are representative of market conditions on a specific date and are based on specific comparable sales.

Q: How closely aligned are estate agencies’ values and the municipality’s?

A: Municipal valuations are based on the analysis of current market trends and the attributes/features of the properties being valued, as well as comparable sales of properties. Estate agents’ values indicate an estimated value that a property may achieve in an open market, where there is a willing buyer and a willing seller, as at the current conditions when the valuation is requested.

Q: What factors are taken into consideration when valuing a property?

A: Valuation is a highly technical process. The methodology depends on which type of property is being valued. But, in this case, it is assumed the emphasis is on residential properties.

The most acceptable method of valuing residential properties is by direct comparable sales method analysis. This will entail comparing the subject property with prices of recent sales of similar properties in a particular area. Attributes such as sizes of erf, improvements, condition, quality, accommodation, location, finishes, accessibility, view and security etc, are all taken into account and analysed.

Property valuation principles are internationally recognised. It is also important to note that there are different methods of property valuation, depending on the type of property that is being valued.

Q: What factors add to a property’s value?

A: Factors that determine the value of a property are both external and internal.

External means economic factors and market conditions at the time of valuation and internal includes features and attributes of the property itself, such as location, size of erf, improvements, condition, quality, finishes, accommodation, security, view, accessibility and proximity to amenities.

Q: What factors detract from a property’s value?

A: These will be the same as mentioned above but will be inferior to average standard in a particular area. Specific area attributes, such as high crime or close to amenities, will also impact on value.

City of Joburg’s Nthatisi Modingoane, deputy director of communications

Q: How does your municipality workout a property’s value? How are these values calculated?

A: The value of a property is determined in terms of section 46 of the Municipal Property Rates Act 6 of 2004 as amended.“Subject to any other applicable provisions of this act, the market value of a property is the amount the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer.”

There are several types of properties in the municipality – residential, sectional title, nonresidential and agricultural.

Each type is valued on a different basis, although they all relate to market value:

• Residential property and sectional titles – the comparable sales method.

• Commercial property –income basis.

• Institutional properties – cost basis.

It should be noted when a property is valued it should relate to a valuation date: The date of valuation refers to the date at which property values are determined and fixed for the purpose of the GVR. For the GVR 2018 the date of July 1, 2017 was set as the valuation date.

Q: How do estate agents arrive at their property valuations?

A: The estate agent also uses the comparable sales method of valuation. However, the difference will be in the date of valuation. For example, if the agent values the property today, he will use sales that have recently happened. The same property valued for the GVR 2018 would have been valued using sales around July 2017. Therefore, the difference in value will relate to the different markets.

Q: How closely aligned are estate agencies’ values and the municipality’s?

A: The municipal valuation will stand for the period of validity of the valuation roll, which is four years, whereas the agent value is as at today. Therefore, at the end of a valuation roll period, the difference in time can be four years.

Q: What factors are taken into consideration when valuing a property?

A: For residential properties this would include the size of the dwelling; outbuildings and other improvements; condition of improvements; quality of improvements; view; security; location of the property relating to schools and shops etc.

On business properties this includes potential rental income, expenses, condition of building, location and quality of finishes.

Q: What factors add to a property’s value?

A: All attributes as above where it is positive, such as good finishes, good location (close to all amenities).

Q: What factors detract from a property’s value?

A: All attributes as above where it is negative such as dilapidated finishes, bad location.

Municipal property valuations are undertaken by professional valuers.