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Thursday Nov 07, 2013

Electricity, rates and taxes remain top property costs

Electricity, rates and taxes remained the biggest contributors to operating costs of property owners in the first half of this year, according to a report from the SA Property Owners Association (Sapoa).

Electricity remained the largest cost as a proportion of total operating costs at 32 percent, despite falling by 2 percent in the first half of the year from a year earlier, followed by rates and taxes, which represented 21 percent of total costs and grew by 2.3 percent year on year.

The third highest operating cost contributor was management costs at 8 percent, despite contracting by 5.9 percent over the period, according to the report compiled by International Property Databank for Sapoa.

Fran├žois Viruly, a property economist and professor at UCT's School of Construction Economics and Management, said this week that operating costs had in the past few years increasingly become an issue in the property sector because they had risen at a significantly higher rate than the inflation rate, resulting in the industry looking carefully at green buildings and cost efficiency.

Viruly said vacancy rates were relatively high and it was not an environment where landlords could easily pass on these increased costs to tenants.

He said the growth in operational costs in recent years had placed pressure on the net income of landlords, while also negatively affecting the ability of tenants to afford commercial property rentals, stifling new developments.

'The way municipalities handle budgets has an impact on property development and growth of the built environment and, therefore, also job creation,' he said.

Last week Redefine Properties chief executive Marc Wainer called on municipalities to give property owners some kind of rates holiday to encourage them to redevelop their properties, which would create jobs and in a few years widen the council's rates base.

Wainer said Redefine owned 70 buildings where the rates had increased by more than 10 percent a year and in several instances by over 30 percent.

But Wainer said Redefine's revenues were growing at 7 percent or 8 percent a year and rates by 15 percent, which was an unsustainable model.

The Sapoa report revealed that office operating costs rose the fastest at 12.3 percent in the first half after rising 13 percent last year, but retail property still had the highest absolute levels of operating costs, which grew 3.7 percent.

Industrial property costs decreased by 4.7 percent after growing 18.4 percent last year.

The report said security costs unexpectedly replaced management fees in the top three costs in the retail sector.

Operating costs represented 41.1 percent of total income in the retail sector, 37.5 percent for the office market and 32.2 percent for industrial property.

Business Report

    
 

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