Enhancement of South African Municipalities

South African Municipalities


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Municipal Revenue Loss Reduction through Improved Municipal Valuation Methodologies:

Balance Sheet Enhancement of South African Municipalities to Improve Rates and Taxes Revenue Generation



This study examines the property valuation process of Municipalities in South Africa and develops a strategy for strengthening that process in order to more efficiently value properties and ultimately to enhance municipal balance sheets and increase revenue streams. This study proposes an innovative valuation method based on using the valuations provided by Publicly-Traded Companies as they are published in their annual reports.

The first outcome of this study is the recommendation that any ratepayer whose property is listed on the Municipal Valuation Roll, and where such ratepayer is seeking a reduction in the Municipal Property Value, such ratepayer shall submit the following supporting documentation together with the application for reduction in property value:

Letter from ratepayers/property owners bank/mortgage lender who has underwritten mortgage loan or similar security over the property, confirming that, as the mortgage holder and funder of the property which is their security for the loan, they agree with the ratepayers request for a reduction in the property value/security held by them;

A copy of the ratepayers/property owners latest audited financial statements submitted to their bank and signed by the company directors wherein the value of the property in question is listed.

The second outcome of this study is the recommendation that municipal valuers should be linking municipal valuations to the property values as listed in annual reports of publicly traded companies.




Table of Contents

1 Introduction 8

1.1 Problem to be addressed 9

1.2 Purpose of this study 9

1.3 How this study contributes to existing literature 10

1.4 The methodology 13

1.5 Importance of the findings: Outcomes of the study 15

1.6 Assumptions 15

1.7 Limitations 16

1.8 The Following Chapters 16

2 Literature Review 18

2.1 Current Status 18

2.2. Current Valuations Methodology 21

2.21 How a Valuation is Conceived 21

2.22 The Purchase Price Method of Establishing Value 24

2.23 The Municipal Valuation Roll 28

2.24 Guidelines on Valuations for Municipalities (from Municipal Property Rates Act No. 6 2004) 31

2.25 CAMA 34

2.26 An Example of How a Metro Uses CAMA and Performs Valuations 35

2.27 The South African Property Owners Association 38

2.28 Dr. Boshoff, Valuation Standards and Accuracy Tests 45

2.29 The Supplementary Valuation Roll 53

2.291 Valuations according to Rates Watch 54

2.292 Other Valuation Methods Studies and Considerations 58

2.3 External and Internal Factors 64

2.31 External Factors: A Market Forever Changed by Unconventional Monetary Policy 64

2.32 Internal Factors: Political and Social Instability 69

2.33 When the Two Collide: The Need for a Stable but Efficient System 71

2.4 Issues and Objections 76

2.41 Accidental Devaluations? 76

2.42 How the Municipality Attends to Valuation Disputes 79

2.5 Other Valuation Considerations 94

2.51 Theoretical Frameworks 94

2.52 Discussion on various property ownership models and frameworks in developed countries (citing examples from US, UK, Europe, China and Australia) and developing countries (sub-Sahara Africa, Ghana, South Africa, Indonesia and Nigeria) 102

2.53 Advantages and disadvantages of adopting a conceptual framework 103

2.6 On Audits, Insurance and Adjustments 105

2.61 On the Application of Special Valuation Audits which can benefit the Municipality 105

2.62 Requirements for Valuers to Have Professional Indemnity Insurance and Benefits Thereof? 106

2.63 Adjustments of Valuations by A Municipal Valuer 107

3 Methodology 109

3.1 Introduction 109

3.2 Obtaining Data from Publicly-Traded Companies 110

3.3 Obtaining Data from Professional Valuers 112

3.4 Framework 114

4 Findings 116

4.1 Introduction 116

4.2 Discovery 116

4.21 Regarding Municipal Valuations, Corruption & Incorrect Valuations 123

4.211 Problems in Joburg: Valuers and Corruption 123

4.212 Problems in eThekweni (Durban) and Tshwane (Pretoria) 132

4.213 Problems in Ekurhuleni 134

4.22 The Appeals Process: An Example of How Municipalities are Losing 136

4.23 On Valuer Competency 159

4.3 Real Estate Investment Trust Valuation Processes 160

4.31 Growthpoint 160

4.32 Vukile 164

4.33 Emira 167

4.34 Fortress 175

4.35 Attacq Limited 176

4.36 Resilient 177

4.37 Other Publicly-Traded Companies 179

4.4 Massels Critique 180

4.41 On Auditing 187

4.42 On the Availability of Data 189

4.43 On the Valuation System Itself 190

4.44 On a Lack of Resources and the Valuation as the Heart and Soul of Revenue Base 191

4.45 On the Municipalities That are Most Efficient 197

4.5 Structured Survey 206

4.6 Interviews 225

4.7 Comparing the Valuation Roll to the Publicly-Traded Companies Valuations (Market Value) 231

4.71 Key Highlights from the Comparison 274

4.8 Important Issues to Address 275

5 Discussion 276

5.1 Introduction 276

5.2 Survey Data 277

5.21 The Interview Data 285

5.22 On the Function of the Valuer 285

5.3 On Massels Critique 287

5.4 Poor Organization 287

5.5 Too Little Time 289

5.6 The Need for Substantial Experience 290

5.7 The Problem of Rates Loss 291

5.8 A Failure to Effectively Audit 293

5.9 Obtaining and Keeping Data 294

5.10 On the Necessity of Physical Inspections in Case of Appeal 296

6 Recommendations 298

6.1 Addressing the Limitations of this Study 304

References 306



List of Abbreviations

AEP Adaptive Estimation Procedure

AVM Automated Valuation Model

B-BBEE Broad-Based Black Economic Empowerment

BEE Black Economic Empowerment

CAMA Computer Assisted Mass Appraisal System

CB Central Bank

COGTA Department of Cooperative Governance & Traditional Affairs

DRS Deeds Registration System

EEPFP The Entrepreneur Empowerment Property Fund Programme

EMM Ekurhuleni Metropolitan Municipality

ERPM East Rand ProprietaryMines

FEC Financial Economic Crisis

GAAP Generally Accepted Accounting Principles

GASB Governmental Accounting Standards Board

GARCH Generalized AutoRegressive Conditional Heteroskedasticity

GDP Gross Domestic Product

GIS Geographical Information System

GV General Valuation Roll

IAAO International Association of Assessing Officers

IFRS International Financial Reporting Standards

JSE Johannesburg Stock Exchange

JV Joint Venture

MEC Member of the Executive Council

MPRA South African Municipal Property Rates Act

NCAVPS Net Current Asset Value Per Share

PAJA Promotion of Administrative Justice Act

REIT Real Estate Investment Trust

RFP Request for Proposal

RICS Royal Institution of Chartered Surveyors

SA South Africa

SAIV South African Institute of Valuers

SANAS South African National Accreditation System

SACPVP South African Council for the Property Valuers Profession

SAPOA The South African Property Owners Association

SAPV South African Property Valuations

QE Quantitative Easing

USAID United States Agency for International Development


1 Introduction


One of the most important sources of revenue for South African local authorities is rates and taxes. Therefore, the dependency on rates and taxes revenue and collection cannot be understated.

It is common knowledge that the South African Municipal Property Rates Act (MPRA) provides for, amongst others, the fair and equitable valuation methods of properties. However, despite accepted valuation models being adopted by Municipalities, and rates and taxes being levied accordingly, scope exists for significant increased rates and taxes revenue generation and revenue loss reduction.

As French and Gabrielli (2015) note, since the global Financial Economic Crisis (FEC) hit the world markets in 2007/2008, therole ofproperty valuationhas been under greater and greater scrutiny (p. 1). As budgets become tighter, greater attention is turned towards balance sheets. Reducing revenue loss is a primary method of securing municipal stabilityand property valuation tactics are the main avenue towards such reduction.

Revenue loss reduction and the resulting increased revenue base will provide Municipalities with access to funding to advance Municipal service delivery. For example, R1bn increased revenue per annum could be leveraged to supply a R10bn loan, which is repaid over 10 years from the additional income received. There are obviously many benefits to a Municipality enhancing revenue collection.

1.1 Problem to be addressed

Municipalities in South Africa are required to value all properties in their jurisdiction every 4 years. Various valuation methodologies are applied. The South African Municipal Property Rates Act (MPRA) provides guidance on determining Market Related values. Whilst municipalities seek to ensure the determining of market value in the most cost effective manner possible, the private sector adopts sophisticated valuation methods to appraise property investments.

Currently, there are a number of methods for appraisal of property investments, which include:

1) the direct capitalization method

2) discounted cash flow method

3) replacement valuation

4) comparative sales

5) remunerative valuation methods

However, in recent years municipalities have adopted mass valuation methods which have proved to be more cost-effective but which have also yielded substantially inaccurate reflections of real property value (Levy, Dong, and Young, 2016.).

1.2 Purpose of this study

This study identifies areas of property valuation anomalies (municipal valuation roll property values are significantly lower than publicly available open market property values), which may be pointed to as a cause of Municipalities rates and taxes revenue loss.

This study also provides methods to increase revenue through revenue loss reduction by implementing methods developed by the researcher.

This study accomplishes these tasks through investigation of balance sheet enhancement methods of Municipalities in South Africa, not only by using the Municipal Valuation Roll and Supplementary Valuation Rolls but also by expanding the municipal property valuation process to consider property owner market valuations.

The purpose of the study is to develop a better method for South African Municipalities to enhance their balance sheet by improving revenue generation through more effective property valuations.

This purpose is achieved by:

1) Developing a strategy that municipalities can use to prevent abuse of the valuation objection process.

2) Recommending methods to increase municipal revenues and restrict claims for municipal value reductions relating to the Municipal Valuation Roll and Supplementary Valuation Rolls.

The basis for this pursuit is that large discrepancies in property values in annual reports of publicly traded companies vs. municipal valuation rolls are evident.

1.3 How this study contributes to existing literature

To more effectively address the issue of adequately reflecting actual property value, this study takes into consideration the valuation methods applied as outlined in annual reports of various publicly traded companies (REITs as well as other firms) and as advised during personal interviews and/or online surveys of private sector valuers, bank valuers, bank mortgage finance officials and municipal valuers.

This study examines a sample of properties in 5 of the largest metropolitan municipalities in South Africa and compares the municipal value to the annual report values of the publicly traded companies. In doing so, it outlines and evaluates the following points:

1) The Municipal methods of valuation for rates and taxes determination; and

2) A sample of private sector (not government owned properties) properties reflecting the municipal valuation of properties versus market values of properties; and

3) Property owners rights to object to municipal valuations and resulting impact of decreasing rates and taxes revenue through municipal rates and taxes reductions (when in fact many property owners object to get their property values decreased in order to benefit from lower rates and taxes WHEREAS in reality their properties are worth significantly more); and

4) Current revenue losses to municipalities through municipal undervaluation of properties thereby negatively impacting on rates and taxes revenues accruing to Municipalities; and

5) Publicly traded companies such as Corporations and REITS (Real Estate Investment Trusts) whose balance sheet values and revenues have a direct impact on share values; yet strangely, municipal values of such properties are significantly lower than publicly disclosed in annual reports and balance sheet values; and

6) Methods to reduce current rates and taxes revenue losses due to incorrect valuations and ultimately increase rates and taxes revenues through:

a. Implementation of improved valuation methodology (when compiling the Municipal Valuation Roll) at little or no cost to municipalities by way of ensuring valuers are advised to assess private valuations per financial statements and balance sheets of publicly traded companies at time of undertaking municipal valuation roll valuations;

b. Introducing a requirement for supporting documentation by companies, Trusts, etc., who wish to motivate for rates and taxes reductions, such supporting documentation to be provided by property owners seeking a decrease in municipal valuation roll value, should include the following:

i. Copy of property owners current years audited financial statements and annual report of company (property owner) wherein the most recent market value of the property is stated and reflected in the balance sheet and annual report; and

ii. Letter from the financial institution who financed the property confirming and acknowledging the proposed new lower market valuation proposed by the property owner;


This study proposes that the Municipalities and their appointed Municipal Valuers overseeing the Municipal Valuation Roll should use not only Mass Appraisal/Mass Valuation Methods but also the method of identifing market values as determined by referencing property values of properties as reflected in publicly available Annual Reports of publicly traded companies. Share prices are linked to company performance and therefore market value of real estate assets listed in annual reports of publicly traded companies should be used as a minimum value for municipal valuation roll purposes. In addition, whilst the Municipal Valuation Roll is only undertaken every 4 years we believe that the supplementary valuation roll should be updated annually to align with Publicly Traded Company increase in property values as disclosed in their annual financial statements. This paper will show the losses to the municipalities currently and the increases in revenue to the Municipality should this method of market value determination be adopted. The Rates Act makes mention that municipalities should determine market values for valuation rolls, on which rates and taxes are determined.

Those property owners who are benefitting from low municipal valuations are reducing the Municipalities ability to deliver services to clients, not to mention that the more rates and taxes collected could result in higher service delivery.


1.4 The methodology

There are two methodologies applied in this study. The first is the gathering of market value valuations from South African Publicly-Traded Companies to compare them to the valuations of the Municipality Valuation Roll. The second is the obtaining of qualitative data from questionnaires distributed to valuers in South African to better understand the methods they themselves utilize when valuing a property. This mixed-methods approach will be described in more detail in Chapter 3. For now a brief description will suffice:

In determining the methodologies utilized by valuers, two questionnaires have been developed and distributed:

1) One for professional valuers to determine the most commonly used valuation methods both in the private sector and by municipalities

2) A second for banks engaged in mortgage financing, to determine the importance of market value to banks and whether valuers are required to have professional indemnity insurance coverage andif sowhy.

The data collected from this diverse group of property owners, valuers, bank finance lenders and participants in the market were analyzed. An assessment of the data collected revealed that in the private sector the most commonly used methods of valuation are the direct capitalization of first years net income. However, from a Municipal Valuation perspective, the Mass Valuation Methodology was utilized.

A case study approach was undertaken involving real estate portfolio valuation methodologies together with an assessment of market values of properties (2016 annual reports of Publicly-Traded Companies) in respect of publicly traded entities. Market values were then compared with municipal values of properties (based on 2016 Municipal Value on record) to determine discrepancies.

Discrepancies were documented to illustrate impact on revenues to both Municipalities (loss of revenue due to incorrect valuation methodologies applied in instances of the Municipal Valuation Roll and Supplementary Valuation Roll) and property owners (lower rates and taxes based on lower municipal valuations, results in higher property values and share prices due to lower operating costs to property owners).

Ultimately, loss of revenue to Municipalities results in reduced Municipal ability to render services to inhabitants in Municipal areas. Conversely, those property owners benefitting from incorrect (lower) municipal valuations will benefit from lower operating costs (rates and taxes) applicable to properties in question thereby resulting in higher property values in the open market.

1.5 Importance of the findings: Outcomes of the study

The importance of the findings is that it is evident that municipalities could be generating more revenue by more effectively valuing properties. By more effectively valuing properties, municipalities could fill shortfalls in budgets that currently restrict the local governments ability to spend on infrastructure and other programs that are important to constituents. The benefits of increased rates and taxes revenue include the following:

Enhanced municipal balance sheet and credit rating;

Additional borrowing achieved by municipality based on future income;

Additional earnings contribute towards municipal service delivery, bulk services installations, economic growth, and job creation.

1.6 Assumptions

For the purposes of this study, it is assumed that the annual reports of the Publicly Traded Companies are correct. It is also assumed that the Municipal Valuation Rolls are correct for when comparisons are made between Municipal Valuations and Publicly-Traded Company valuations. A discussion of how these assumptions might impact the studys outcome is provided in more detail in Chapter 3. The limitations presented by these assumptions are provided in the following section.

1.7 Limitations

The limitations of this study are: 1) obtaining valuations of properties from Municipal Valuation Rolls is not always easy or even possible; different Municipalities have their own search methods, and in some cases no data is obtainable for a specific property. Thus, it was not always achievable to do a comparison of valuations for every property; 2) while this study proposes a method of valuing properties that could enhance the balance sheet of Municipalities and increase their revenue stream, it does not evaluate the effect that this valuation method might have on business or property owners; one concern is that property owners may find this method too constraining on their own portfolios, investments or budgets and thus seek to move to other more tax-friendly communities. To fully appreciate the findings of this study, future research will have to be conducted to evaluate and understand how this studys proposed method might be received by the business/property owning community. More will be said about this limitation in the Recommendations chapter.

1.8 The Following Chapters

Current methodologies used by valuers in South African Municipalities is evaluated in Chapter 2, which examines published literature relevant to the topic, and in Chapter 4, where valuer responses are provided. These responses are discussed in Chapter 5. Chapter 3 provides an examination of the methodology used to obtain data about property values, both from the Municipal Valuation Roll and from the publicly traded companies, which publish market values of properties in their annual reports. In Chapter 6 recommendations for valuation methodology and for answering valuation objections are provided so as to give Municipalities a better opportunity to enhance their balance sheets and increase their revenue streams. The chapter ends with a conclusion that also gives guidance for future research.




2 Literature Review

2.1 Current Status

The Municipal Property Rates Act (MPRA) signed into law by the President of the Republic of South Africa on 11 May 2004 provided the Municipality with the right:

To regulate the power of a municipality to impose rates on property; to exclude certain properties from rating in the national interest; to make provision for municipalities to implement a transparent and fair system of exemptions, reductions and rebates through their rating policies; to make provision for fair and equitable vaiuation methods of properties; to make provision for an objections and appeals process; to amend the Local Government: Municipal Systems Act, 2000, so as to make further provision for the serving of documents by municipalities; to amend or repeal certain legislation; and to provide for matters connected therewith (ocal Government: Municipal Property Rates Act, 2004).

Those powers were substantially increased and defined with the 2014 Amendment, Act No. 29. Among the new insertions were the right:

To provide that a rates policy must determine criteria for not only the increase but also for the decrease of rates; to delete the provisions of section 3(4) and to provide for a rates policy to give effect to the regulations promulgated in terms of section 19(1)(b); to provide that by-laws giving effect to the rates policy must be adopted and published in terms of the Municipal Systems Act; to provide for the determination of categories of property in respect of which rates may be levied and to provide for a municipality to apply to the Minister for authorisation to sub-categorise property categories where it can show good cause to do so (Local Government: Municipal Property Rates Amendment Act, 2014).

Joburg, the Official Website of the City of Johannesburg, states that there are about 826 000 registered properties in the City, and the property rates levied by the City is the single most important basic revenue source for the City – about 20 percent of total income, says the City’s director for rates and taxes, Erika Naude (Citys new General Valuation Roll, 2012).

There is a need for the MPRA in South Africa for numerous reasons, as the Cooperative Governance & Traditional Affairs Ministry (COGTA, 2017) states on its government website; COGTA summarizes the most essential aspects of the MPRA for the Republic of South Africa by highlighting the following pointsnamely that the Act is needed

To regulate the power of a municipality to impose rates on property (in accordance with section 229(2) of the Constitution);

To provide a uniform framework for regulating the rating of property throughout the country

To exclude certain properties from rating in the national interest;

To make provision for municipalities to implement a transparent and fair system of exemptions, reductions and rebates through rating policies;

To make provision for fair and equitable valuation methods of properties;

To make provision for a fair objections and appeal process regarding valuation of property (COGTA, 2017).

The emphasis on a transparent and fair system and on fair and equitable valuation methods, as pointed out both in the sections of the MPRA identified at the beginning of this chapter and by the COGTA (2017) in its summation of the Act, is important to note because in the Republic of South Africa, equitability, transparency and fairness are serious issues that have impacted the country for decades as it has struggled with a wide-ranging variety of local and national matters. As the country works towards bettering itself, its government, its communities, and its infrastructure, it stands to a reason that a system of valuation should also reflect the values and ideals the nation seeks to implement throughout the land. The literature discussed in this chapter focuses on providing an understanding of the current fair and equitable valuation methods so as to allow for an intellectual basis upon which further development can be conducted.

Indeed, provisions of the Municipal Properties Rates Act have specifically addressed the issues of the importance for valuations of property to be based on fairness and equality:

a. The Act also requires monitoring and there is a duty on the municipality to ensure that the valuation roll submitted is a fair reflection of Market Valueacross the entire spectrum of properties comprising the valuation roll; and

b. Section 3(3) of the Act specifically mentions the aspect of fairness and equality

For these reasons, the current study, which places its focus on arriving at a better understanding of market value and how a fairer and more equitable system can be devised, proceeds with an examination of the content that follows.

2.2. Current Valuations Methodology

2.21 How a Valuation is Conceived

Definitions and Terms to Know

The following list of terms is by no means exhaustive and does not include every important concept discussed in this paper. The following is merely provided to give some basic background information on valuations. The definitions are retrieved from UniqueCo Property Valuers (2017) and apply to Municipalities in South Africa.


Municipal Rates PolicyThe rates policy of a municipality must: 1) treat persons liable for rates equitably; 2) determine the criteria to be applied by a municipality if ita) levies different rates for different categories of properties, b) exempts or grants rebates or reductions, and c) increases rates; 3) provide for appropriate measures to alleviate rates burden on the poor; 4) take into account effect of rates on public service infrastructure; 5) take into account effect of rates on registered public benefit organizations; and 6) allow a municipality to promote local, social and economic development.


Valuation RollA valuation roll of a municipality 1) must list all rateable properties in the municipality; and 2) is valid for four financial years (but may be extended by one financial year


How a valuation is conceived is highly important when it comes to engaging in the process of valuing properties. This is true for countries the world overnot just for South Africa. The case of Freemont (Denbigh) v Knight Frank LLP [2014] EWHC 3347 (Ch) is an important case in global valuations history because it highlights the role that context plays in determining a propertys precise value at a given point in time. Context determines the parameters of the propertys value by identifying whether the property is planned for a particular use or function, whether any contracts are established upon the property, and so on. As Vigus and Crossingham (2016) explain, there is every reason for valuers themselves to value contextualization:

The case of Freemont (Denbigh) v Knight Frank LLP [2014] EWHC 3347 (Ch) is a good example of a valuer successfully relying on a narrow contractual definition of the services which it was retained to perform, and reminds us of the importance of controlling the scope of the services offered. In this case, the surveyor valued a property at 17m with outline planning permission, and 18.7m with detailed planning permission. After the purchasers acquisition of the property, it then took no steps to develop the site and the buildings became dilapidated. In the circumstances, the purchaser sought to dispose of the property and put it on the market, receiving a number of offers but rejecting them, it said, on the basis of the surveyors initial valuation which was given in the entirely different context of the purchasers initial acquisition. Ultimately, the purchaser sued the original valuer saying that, had the initial valuation been accurate, they would have accepted lower offers and that, having rejected a number of offers, they had lost the chance to dispose of the site on best terms. Having reviewed a number of the seminal cases in the area Smith v Eric S Bush [1990] 1 AC 831; Scullion v Bank of Scotland [2011] 1 WLR 3212; Caparo v Dickman [1990] 2 AC 605 the judge held that the valuer was not liable for the claim. The contract between the valuer and the purchaser was key: it narrowly defined the scope of services as relating to the security valuation only, there could be no suggestion that there was a wider or longer-tail liability in relation to any later or other reliance by the purchaser on the advice, and the advice could not be relied on by the purchaser in considering the subsequent disposal of the site. So, largely as a result of the clear and narrowly defined scope of the valuers contractual retainer, its advice could be relied on only for the purpose for which it was intended, and the circumstances of the claimwere therefore outside the contractual and tortious scope of the valuers duty. The lesson for practitioners is to be as clear as possible about the scope and purpose of their advice and to limit this as far as possible.

As Vigus and Crossingham (2016) show, valuers must protect themselves from legal recourse by specifically and accurately showing how and what facts their valuations are based upon. So much is dependent upon proper valuationsfor example, owners may make business or investment plans based on property value, and if that valuation is not correct or accurate those plans could suffer considerably. Therefore, valuers themselves are in need of a system that helps to protect them from lawsuits that could threaten their productivity, career, and livelihoodnot to mention the Municipalitys or banks reputation and own balance sheet, which is dependent also upon acquiring accurate valuations of properties.

Therefore, how a valuation process is conceived makes a great deal of difference in what type of outcomes may be expected. If the process is conceived in terms of maximizing the Municipalitys ability to tax and apply rates to service its own programs and policies provided to communities, then there should be a system of valuation in place that supports such a conception. If the process is conceived in terms of providing an easy, one-stop valuation method that can be applied using a mass valuation system, then the current set-up may be judged to be sufficient. The conception is what frames the end goaland in todays credit-crunched, debt-laden world, where countries are focusing more and more on enhancing balance sheets and increasing revenue streams to meet the demands of infrastructural growth and development, the former conception should be the primary focus of a Municipality engaged in valuations practices under the MPRA.

2.22 The Purchase Price Method of Establishing Value

As Mangioni (2016) notes, In the competitive residential mortgage market there is pressure on the valuer to suggest that the purchase price of property is ultimately the best evidence of value (p. 2). This pressure stems from both buyers and sellers and is reflective of a desire to attach more or less weight to a banks valuation as authoritative. The criteria of such a valuation, however, stems not from banks themselves but rather from laws and court-based rulings. Inez Investments Pty Ltd v. J.L. Dodd 1979 NSWSC established criteria for valuers in Australia, and Mangioni (2016) examined how this criteria impacted the concept of using purchase price of property as best evidence of value.

What Mangioni (2016) found was that one factor that goes into how valuations are utilized is loan insurance. Mortgage insurance covers the lender in case the borrower defaults, and the amount of mortgage insurance purchased depends on the valuation of the property given by the lender. Mangioni (2016) shows that using purchase price as a valuation method is problematic and not a precise way to determine the best valuation. What is a more evidential approach is that of the market valuation: The formulation of market value and deriving of the value of property is largely predicated on evidence that supports the market value assigned by the valuer. Without evidence, the valuers opinion is no better informed than another opinion of value. This is highlighted in Reading v. The Valuer General (1923), 6 L.G.R. 132 in which Pike, J. stated: Every expert is entitled, if he sees fit, to ascertain the market valueto rest on his own opinion apart entirely from any market transactions, but if he does so he is liable to be met by three things: a. The opinions of other people. b. Values based on sales; and c. Any previous opinion that he himself might have expressed as regard to values. Mr. X like all of us, was not born with an opinion of land values (Rost & Collins 1984:86) (Mangioni, 2016, p. 4). Why a market value valuation should be used instead of a purchase price becomes evident once the variables are considered: so many factors are based on purchase price to such a degree that it is often in the owners best interest to get that price as low as possible. In doing so, the owner is not interested in ensuring that price reflects actual market value: his aim is to reduce payments and fees that might be charged, based on the purchase price of the property. The lower the purchase price, the lower the fees. A valuer who bases valuation on this price may fail to accurately reflect the actual or market value of the property. How market value is determined, however, is a question that Mangioni (2016) asserts should receive more attention.

Mangioni further points out that in mortgage lending practices, valuation is determined differently: In mortgage lending valuations, valuers are provided with the property purchase details and asked to confirm the purchase price as value (p. 4). Yet, as Rooke (2002) notes, recent experience has shown that current major mortgage lending institutions are applying great pressure for valuers to place greater emphasis on the subject sale (p. 48) and so as a result valuers are impacted significantly in how they approach their properties. Mangioni (2016) goes on to find that valuers may inappropriately give greatest weight to the most recently considered information, which would place disproportionate emphasis on one set of materials (p. 5). Or, as happens, valuers set out with a preconceived notion of how a property should be valued and then seek evidence that will fit the pre-conception: even expert valuers indicated that they make early, preliminary judgements and then seek evidence in support of these opinions (Mangioni, 2016, p. 5). Thus, there is ample reason to conclude that valuations in Municipalities are likely to be impacted by variables that do not end in the accurate reflection of real market value. Mangioni (2016) adds that in contrast to this phenomenon in some circumstances it is difficult for the valuer to determine the value of the subject property due to a lack of sales evidence and that the valuation process is thus further compounded when the valuation being sought is for refinancing purposes and there is no sale over the subject property being valued. In these cases, the duty on the valuer is not lessened. It is the role of the valuer to look geographically further or outside the radius of sales that a valuer would ordinarily look at, as well as further back in time for sales (Mangioni, 2016, p. 5). In other words, there is no effective or systematic way that can be established to efficiently value a property based on sales records, as the prices are indeterminate of the way in which the market realizes that value.

Nonetheless, the Australian Prudential Regulation Authority (2000, p. 1) stipulates that all assets taken as security should be valued, wherever possible, at their net current market value. This indicates that regardless of how valuers go about their job, authorities would like to see valuations provide an accurate reflection of market value. Problems persist, however, in realizing market value for valuers. Various researchers and academics have attempted to solve these problems by extrapolating data from other valuation exercises (as in the valuation of publicly held companies, for instance, where shares are seen as a store of value to help appraisers identify the actual real market value of a companyan idea that is not too distant from what this study attempts to describe). More shall be said of how valuations can be conceived in later sections of this chapter. For now, net current asset value per share or NCAVPS is one such method that has been developed in this vein: it is a value that Benjamin Graham developed in the 20th century as a means of evaluating whether a company was trading at what could be called fair market value. Graham calculated NCAPVPS by subtracting total liabilities from a companys current roster of assets and dividing the total by the O/S (outstanding shares) of te firm in question (NCAVPS, 2017). In terms of applying this method to real estate, the same principles would still work: a propertys condition and contextual purpose/plans/contractual obligations and so on would be considered along with all other assets connected to the property; debts and other liabilities would be subtracted from the total and if shares of the property are sold to investors, their worth would be the divider by which that total is evaluated.

In Mangionis (2016) study on valuation methodology, he conducted a survey of valuers to determine their approaches to valuing properties and asked a series of questions that were primarily oriented towards understanding valuations as achieved through analysis of property sale prices. One critical question that is very useful to this study comes at number 7 in Mangionis (2016) survey. He asks: Is property transaction information available in an acceptable timeframe? and receives the following reply:

32 respondents said no, while only 11 said yes (p. 9). That means that nearly 75% of valuers feel that there is insufficient information available to them to make a timely valuation of a property. That finding alone has tremendous impact on the valuation process: it indicates that valuers may be making, in most cases, inadequately informed valuations on propertiesvaluations that impact municipalities considerably, since tax revenue is generated from the value assigned to real estate through this process. What this finding indicates is that even if Municipalities wanted to depend upon valuations or mass valuations for accurate assessments of property valuation, they would really be relying, in all likelihood, on inaccurate readings of the real estate in question. The facts show that professional valuers themselves find it exceedingly difficult to obtain enough data on the property they are valuing in order to offer a substantially supported and accurate assessment of the property. This leaves Municipalities depending on a weak system of appraisal to collect revenue. A better method can undoubtedly be obtained: it simply requires that more access to information be made available. However, this may not be as easy as it sounds. Valuers are limited in terms of what they are able to doand for Municipalities, this means attending to the Valuation Roll, according to the terms of section 33(1) of the Municipal Property Rates Act (MPRA).

2.23 The Municipal Valuation Roll

As the municipal valuer and director of the valuations department in the property unity of Johannesburg stated clearly: Values cannot be influenced or dictated by any party (Oxford, 2013). The director further explained that the main purpose of the valuations directorate is to compile valuation rolls and there are two types of these. The general valuation roll is where we value all the properties in the city. The supplementary valuation roll sees us assessing changes to a property that occur during the lifecycle of the general valuatios role. With the latter we revalue property that has changed, for example if a house has been built on a vacant piece of land. This also applies to changes in zoning, such as from residential to business (Oxford, 2013). What the SA Municipality does to compile its valuation is important to understand and Oxford (2013) provides some detail on how that process is accomplished: First is the physical assessment where the department uses pictometry aerial images taken of a property from five angles and photographs of the fronts of properties to glean valuable data about the value of a property. Then there is the date of valuation, possibly the most important point of reference in this process. As one can imagine, the process is quite detailed and reliant a number of channels of data. However, the date of valuation, as is noted, is extremely important because of the fact that market values will rise and fall over the course of a few years, and having that date as a reference enables valuers to see at what point in the valuation wave the property was pegged at a specific price.

Oxford (2013) states that the Municipal valuer of Johannesburg uses the property market values of a specific year when it comes to valuing all the properties for the new general valuation roll and that whenever we valued a property for this roll we used the prices from that specific year. For residential properties, house sale values from the four years prior are used to provide an accurate assessment of where market values currently are.

But what if there was a more accurate way to determine market values? What if the Municipality could turn to a source of information that published this data publicly in its annual reports? For instance, what if a Municipality like Johannesburg examined the annual reports of Publicly-Traded Companies in South Africa to determine where investment properties in a given portfolio were being valued by the market? Indeed, this study attempts to answer this very question.

Returning to current practices, however, it may be seen that there is ample room for improvement. Oxford (2013) notes that Johannesburgs director of valuations analyzes the sales of prior years to obtain a basis of valuation for residential properties in each suburb. For example, if you stay in Blairgowrie we published all the sales in that area on our website along with the selling date, the selling price, the physical address of the property and we explained how we valued this property. People were then able to look at those sales, compare them to their properties and make an informed decision. This is, in one sense, no different from turning to the annual reports of South African publicly-traded companies, which publish similar data on valuations. Where the sources do distinguish themselves is in the actual valuation applied by each. This study will have more to say on that later. For now, it is enough to know that there is a distinct difference between Municipal valuations and the valuations of properties provided to the public by investment companies.

Another important point to note about the Valuation Roll is that when it is compiled, all the property values are now fixed at this date of valuation until the next general roll and are assessed against this benchmark (Oxford, 2013). The reason this valuation procedure is problematic is self-evident in a simple examination of a 5-year chart of South African Housing Index from 2012-2017. What the chart shows is that a valuation applied in 2012 to properties in 2015, for instance, would substantially undercut the actual market value of the property by more than 100 pts.

By using the general roll as a principle benchmark, the Municipality is admitting that its values are cemented and not subject to change over a given period of time. But values do change and cementing is obviously not the case as far as the actual market is concerned. The market is never static but is always moving, as it is impacted by a number of complex and interlocking variables that stem from social, political and economic spheresand not only locally but also globally. Before external and global market factors are discussed, a closer examination of the valuation process according to the guidelines of the Republic of South Africa for Provincial and Local Government will now be provided.

2.24 Guidelines on Valuations for Municipalities (from Municipal Property Rates Act No. 6 2004)

The valuation process as proposed by the Republic of South Africa for local government has been outlined by the Director General.

It is worth noting that public awareness of valuations is very important to the Republic of South Africa, according to the Guidelines on Valuations, in which it is stated that:

Municipalities are encouraged to involve and educate the community in the valuation process. The Rates Policy specifically calls for public participation. It is important that the following persons be enlightened in regards to te valuation process:

Councillors and municipal officials;


Agricultural unions and farming associations;

Ratepayer associations;

Business associations; Civic associations.

It is suggested that the municipality as part of its tender conditions require the valuer to implement a programme of public awareness. This could include:

Call centres

Attendance by the valuer to ward committee meeting



Radio and television interviews (Guidelines on Valuations for Municipalities, 2016, pp. 4-5)

According to the Guidelines, the Valuation Process begins with the obtainment of data. For deeds-related data, this data can be obtained from the Registrar of Deeds relating to properties within the jurisdiction of the municipality (Guidelines on Valuations for Municipalities, 2016, p. 5). A Deeds Registrations System (DRS) is available through Deeds Weban Internet interfaceto allow registered users to obtain deeds registration online. For general data, a database is developed and compiled by Municipalities, who must ensure that the database is incrementally added or built upon in perpetuityi.e., the database must never be allowed to stagnate because property is always being added or subtracted from the Municipality and values are constantly shifting (Guidelines on Valuations for Municipalities, 2016, p. 5).

For specialized properties, the Guidelines (2016) indicate that municipalities may need to employ the services of private valuers. In such cases, the Guidelines (2016) stipulate that

Private valuers appointed by them have the necessary skills, expertise and knowledge to compile valuations of this nature. Examples could include, mining, forestry, substantial public infrastructure such as major harbours, airports etc. In these cases, municipalities must satisfy themselves that they have clearly identified these properties in their tender requirements and that the valuer has the necessary expertise or professional assistance to draw upon in the compilation of these highly specialised properties. In the case of mining land, municipalities and valuers must have a clear understanding of the definition of a mine and mineral as defined in the Act. Valuers must clearly understand what constitutes equipment and what is deemed to be buildings or improvements with regard to such land and the resultant implication on value. In the case where the freehold owner of land is not the mining title holder, it is essential that both the municipality and the municipal valuer fully understand that the freehold is encumbered by the mining title and that the value of the freehold in such circumstances is a residual land value (p. 7).

The Guidelines (2016) also recommend that a valuer may use a mass valuation system especially with regard to residential properties (p. 5). A mass valuation system commonly used today is CAMAa computer-assisted mass appraisal system, which is an automated system that maintains property data and performs property valuations, sends notifications to owners, and ensures tax equity through uniform valuations. South Africa uses a CAMA system. A basic CAMA system is described in the next section along with how the Johannesburg Municipality employs CAMA in its valuations process as an example of how the system works.

2.25 CAMA

Many governments utilize CAMA, which is best described in the following terms by the Massachusetts Department of Revenue Division of Local Services/Bureau of Assessment (2016):

In mass appraisal, valuation involves automated applications of the sales comparison, cost, and income approaches to value. A good system should support all three approaches. Some specific desirable features include the following:

(1) A replacement cost module tied to commercially available cost manuals, so that costs can be routinely updated.

(2) Flexibility in depreciation schedules, so that users can develop and modify the schedules by property type, building quality and neighborhood as appropriate.

(3) Cost trend capabilities that allow users to adjust cost values to the market by at least property type and neighborhood.

(4) A land valuation module that allows the user to determine units of comparison (acre, square feet, front feet, depth, site), standard unit values, and site, topographic or neighborhood adjustments.

(5) Standard statistical procedures, including measures of dispersion and graphics, that can be used to compute typical sales price per unit and help develop benchmark values, depreciation schedules, and market adjustments.

(6) A sales comparison module that will retrieve a desired number of the most comparable properties to a given subject property based on a mathematical algorithm. Optionally, the system may adjust the comparables to the subject.

(7) A multiple regression feature for use by jurisdictions with adequate sales. Adaptive estimation procedure (AEP or feedback) can also be used.

(8) A spreadsheet module for use in income and expense analysis (Massachusetts Department of Revenue Division of Local Services/Bureau of Assessment, 2016, p. 2).

CAMA has many benefits to Municipalities, as the above makes clear: it is a user-friendly system that reduces a lot of the pain and toil of obtaining and producing data to be used in a valuations process. The proposed method of this study should not be considered necessarily exclusive of CAMA. On the contrary, it could easily be incorporated into CAMA systems to allow for the benefits of mass valuation to still be applied in the valuation process. The problem with CAMA systems as they currently apply have more to do with the valuation method inherent to the system than to the system itself. An example of how the Municipality of Johannesburg uses CAMA shall now be described.

2.26 An Example of How a Metro Uses CAMA and Performs Valuations

The City of Johannesburg is one example of how a Metro uses CAMA. As such, the Municipality of Johannesburg answers frequently asked questions regarding its General Valuations Roll (as of the time of this writing, still as of yet not updated from 2013 on its government website). The following exchanges provide some illumination with respect to how a South African Municipality engages in the valuations process and how mass valuationi.e., specifically by means of CAMA systemis used to aid in that process. Joburgs Frequently Asked Questions (2013) provide the following by framing the information within a question-answer format; these questions and answers are taken directly from Joburgs Valuation Services website:

How does the City Value your property?

The purpose of the valuation project is to determine a market value of all properties, which implies the most probable price that a property would realise on the date of valuation, if sold on the open market by a willing seller to a willing buyer.

There are several types of properties in the municipality residential, sectional title, non- residential and agriculture. Each is valued on different basis, although they all relate to the market value. For example, residential property (including sectional titles) is valued on a comparable sales method. Most commercial property (including retail, offices, warehousing) are valued on an income basis, while institutional properties such as schools, hospitals and clinics are valued on a cost basis.

When valuing the properties, the Municipal Valuer establishes the market conditions, and this is based on recent sales and market information activity in the various areas. Therefore this will take into consideration areas where values have declined, increased or remained stagnant due to the current state of the economy as on the Valuation date.

Did You Inspect my property?

As this is a mass valuation, the Municipal Valuer uses a computer aided mass appraisal (CAMA) system to determine the values of all properties. This is based on statistical analysis and geographical information systems (GIS), and therefore requires reliable and accurate data.

For residential property, obtaining access to all properties is not possible, and as such, the Municipal Valuer makes use of advanced technology that allows the collection of data. This includes the use of building plans and Pictometry, which is the state of the art 3D aerial photography that allows the valuers to see the properties from all angles, and be able to measure the extents and heights of the buildings, as well as other information relating to quality, condition and other improvements. This is augmented by the used of street level video footage which is collected by driving down each street and recording the street frontages. This method is acceptable in terms of the MPRA, and endorsed by the International Association of Assessing Officers (IAAO) the international body that sets standards to mass appraisal importantly endorses more.

However, in cases where the aerial photography and other imagery is not useable, usually in the cases where properties have a lot of foliage, or high security walls, then physical inspection of the site is undertaken.

The data collection process is independently reviewed for quality assurance purposes to ensure the data collectors are consistent in their approach and the data they record is correct for the subject property.

For non-residential properties, field visits are undertaken to obtain data such as the property use, rentals and financial records of businesses (Frequently Asked Questions, 2013).

Issues do arise within the Johannesburg Municipality when it comes to the efficiency of mass valuations and CAMA. These issues are discussed in section 2.4 Issues and Objections, particularly with reference to a case that made headlines in 2013 regarding a Gupta property that saw its valuation decrease drastically by what the director of valuations in the Municipality described as a mix-up. The decrease shocked property owners, tax payers, estate agents, media outlets and government agents, as it indicated a serious flaw in the valuations systems as currently employed by the Municipality. Before getting into those details, it is helpful to further examine the nature of the valuations process as it described according to the Municipal code.

The valuations of other Municipalities are discussed in Chapter 5. For now a brief examination of the growth of rates and taxes across South Africa as compared to inflation will help to give an idea of how Property Owners feel towards Municipal valuations and valuer methods.

2.27 The South African Property Owners Association

The South African Property Owners Association (SAPOA) has noted that over the last decade rates and taxes have consistently increased at a faster rate than inflation and has increasingly come under the microscope as Property Owners focus on preserving their net income (SAPOA, 2016, p. 3). A look at how rates and taxes have grown, SAPOA states that in real (inflation-adjusted) terms, rates and taxes amounted to R2.2/sqm in 2000. By 2015, this had escalated to R4.1/sqmalmost doubling in real terms (p. 3). The following chart provides a graphic representation of this significant growth in rates and taxes.


Source: SAPOA, 2016.


As SAPOA notes, given its above-inflation growth and its higher growth relative to other operating costs, rates and taxes have increased as a % of total operating costs (p. 5). This puts businesses and property owners at a disadvantageand raises the specter of one of the main problems of raising rates and taxes on property owners: the threat that they might revolt and seek friendly regions in which to settle and do business. To this end, SAPOA asks, Has the growth in rates and taxes been consistent with the growth in property values? which is a question that strikes at the heart of this thesis: How can valuers provide fair and equitable valuations in South Africa in a manner that does not cause alarm to owners, who may have a different concept of what the term value constitutes?

SAPOA answers its own question by stating that during the early 2000s, municipal rates and taxes trended largely in line with the move in property values. The period 2005-2007 saw a significant increase in commercial property values underpinned by real economic growth of 5.5% which saw a gap between commercial property values and rates and taxes (bearing in mind that rates are based on municipal valuations rather than capital values) (p. 6). The fact that rates are based on municipal valuations rather than capital values is indicative, again, of the problem inherent in the valuation of properties among so many different stakeholders. Every stakeholder wishes to construct his own concept of value, with its own determinants. Without some universal standard of assessment or external third party that can offer a valuation that all can agree upon, there will continue to be discrepancies.

Following SAs recession, rates and taxes increased again, climbing even faster than commercial property values resulting in an over recovery of commercial property municipal rates (p. 6). This over recovery has since reversed and entered into a phase of under recoveryhowever, the correlation between the two over time has stayed fairly consistentor so it would seem. SAPOA takes a closer look at this consistency and expands the question to ask: Are rates and taxes consistent with property values across similar property types? and finds that consistency is indeed lacking, with the largest mispricing being found in the industrial sectors, a sector where properties have very unique characteristics which could affect its valuation (p. 7). See the chart below:


Source: SAPOA, 2016.


SAPOA further notes substantial variations across Municipalities with respect to valuations. For instance, on a municipal level, the EThekwini municipality has the highest rates and taxes per square meter and as a % of capital value for all three main property sectors being Retail, Office and Industrial. The City of Tshwane has the second highest rates and taxes relative to capital values across all three property sectors followed by the City of Johannesburg (p. 9).

SAPOAs May 2015 Rates and Taxes Report shows, moreover, the total municipal value of commercial and industrial properties in the large Municipalities. It also shows that the commercial and industrial properties account for 54% of all rates and taxes collected by Municipalities. This is a considerable percentage and indicates that Municipalities have a lot to lose by undervaluing commercial and industrial properties.


Source: SAPOA, 2016.


The discrepancy in rates and taxes and valuations among the various Municipalities is an indication of the need for more standardized valuation methods. To that end, researchers have studied the efficacy of some of the most common valuation systems to assess their effectiveness. Dr. Douw Boshoffis one such researcher. A discussion of his article on the effectiveness of Automated Valuation Models and other issues related to valuation standards can be found in the following section, 2.28 Dr. Boshoff, Valuation Standards and Accuracy Tests. For now, it is helpful to continue to examine some of the information that SAPOA has provided SA in recent years regarding the valuations problem that Municipalities face.

During the 46th SAPOA International Conference, Ben Espach delivered an important paper that was meant to address this very issue of valuations problems in South African Municipalities. The paper was titled Property Rates Making Cents of It. Espach outlined the challenges fcing the property industry relating to municipal valuations and rating. He highlighted the curse of under valuations, the tedious process of lodging objections and appeals, the lack of quality control, inadequate monitoring, incorrect implementation of rates policies, incorrect implementation of effective dates and the resultant burden falling onto the property owners throughout the country. More importantly he stressed the fact that the majority of municipalities were under administrative collapse (Massel, 2014). What was Espachs solution? His solution was for property owners to take control of the valuation and rating process. He introduced the concept of Self Determined Municipal Valuations (SDMV). The principle of SDMV is for municipal valuations to be determined by representatives of the property owner and negotiated with the various municipal valuers prior to the publication of a valuation roll (Massel, 2014). SDMV is, in spirit, very similar to the proposal that this study makesexcept in the case of this study it not only calls for owners to take part in the valuations process but rather for qualified professional valuers employed by the owners to take part in the process. In other words, it calls for Municipalities to turn to Publicly-Traded Companies, which own and invest in properties and which have a team of valuers working for them, for their valuations. This would solve many of the problems that Municipal valuers faceand it would satisfy the demand that property owners have for fairer and more equitable valuations. The following information from various presenters was delivered at the 46th SAPOA International Conference:

Escalation in rates is causing value destruction he stated.He stressed that there was a need to have the municipal valuations negotiated well before the valuation was published and was of the view that the SDMV concept was a definite possibility.

Douw Boshoff of the Pretoria University stated that the current process of implementation was unfair. There is a need for property owners to manage the challenge of rating in conjunction with municipalities. Accurate and up to date data is the key factor to correct and accurate municipal valuations. Data must be owned by the municipality and a valuation process should be instigated that will result in objections being the exceptions rather than the norm.

Rob Kane of Vunani Property Fund advised that the ever increasing rates are having a major negative impact on the economy. This is causing value destruction and in reality the Rates Act is not working. He stressed the lack of municipal skills and concluded by saying that property owners should be focusing on their core business and not rating issues.

Izak Peterson of Dipula Income Fund stressed the need to avoid objections and to hasten the lead time to obtain a result. He said that municipalities require more competent teams and that the current turnaround time for objections and appeals is too long. He said that SDMV will assist in avoiding the current delays.

Veronica Mafoko representing Cogta stated that market value was here to stay. She emphasised the need to trust a municipal valuation roll. There is currently a lack of data integrity as well as unrealistic time frames given by municipalities to a municipal valuer to compile a valuation roll. She was aware of the general inconsistencies in municipal valuations and the need for valuations to be market related. Any fixed type formulas to determine municipal valuations would be in conflict with the current provisions of the Rates Act.

Werner Sarvari excelled himself in his role as the facilitator. He advised that the negotiation process was already happening but at the end rather than in the beginning. Negotiating and determining municipal values upfront would solve a lot of the difficulties currently being experienced by property owners across the country. Is SDMV not the solution he asked?



2.28 Dr. Boshoff, Valuation Standards and Accuracy Tests

Dr. Boshoff and Leane de Kock published an article in 2013 on the accuracy of Automated Valuation Models (AVMs). They found that the adoption of Automated Valuation Models (AVMs) in the field of property valuation is a trend, considered controversial and not readily accepted by the valuation profession (p. 1):

AVMs are a relatively new concept in South Africa; however, they have been operational in various countries for a number of years. In South Africa, these models are used for municipal valuation purposes for all types of properties and, in the mortgage sector, primarily for residential property valuations. Residential mortgage valuations are currently moving from traditional valuation approaches and are adopting AVMs. In both these fields, the correct property value needs to be determined. Incorrect values will lead to over- or undervalued properties, with a negative influence on the general property market and municipal property taxation bases.

The AVM is described as a mathematically based computer software programme that produces an estimate of market value based on analysis of location, market conditions, and real estate characteristics from information collected. The distinguishing feature of an AVM is that it produces a market valuation through mathematical modelling. The credibility of an AVM is dependent on the data used and the skills of the modeller or operator producing the AVM (Boshoff and Kock, 2013, p. 5). This issue of credibility is one that is also raised in Chapter 4 with respect to Municipal valuers who lack all of the necessary data to make an accurate reflection. Here, the issue is not the valuers themselves but rather the modeler. What is significant and similar about both the Municipal valuer and the AVM is that both rely upon and require data inputs in order to make effective valuations. If the data is not being collected efficiently or effectively, by either the valuer or the AVM, then the outputs will be over or under. The problem, therefore, is the same regardless of whether it is man or machine. (Once the findings of this study are examined in full and discussed, the only logical recommendation that can be made for Municipalities is provided in Chapter 6).

Returning to the issue of the AVM, the researchers purpose in evaluating the effectiveness of the AVMs was to determine whether the commercial property sector in South Africa is ready to accept and adopt or reject AVMs and to investigate the possibility of AVMs replacing professional valuation services for commercial property valuations (p. 1). What they found was that:

Limited research was available both nationally and internationally on commercial property AVMs. It was found that AVMs utilised for the valuation of commercial property are still in the development phase and cannot be considered feasible as yet. The major concerning factor is that commercial property markets are heterogeneous. AVMs offer various advantages over traditional methods, but there are also some disadvantages, which were identified in the study.

The general attitudes towards AVMS were negative and a small percentage of respondents indicated that there may be future potential. AVMs were also regarded as a threat to the valuation profession. It was established that there is scope for commercial property AVMS, however, on a limited basis, and the results could be improved by combining these with traditional valuation techniques. Commercial property AVMs will never replace traditional valuations and can be implemented as a useful tool for verification and auditing of values (Boshoff and Kock, 2013, p. 1).

Boshoff and Kock (2013) described four main valuation standards are services currently in use in South Africathe Gold Standard, the Drive by and broker price options, the Desktop, and the AVM. They describe each respectively:

Gold standard After a physical internal and external inspection of the property, a qulified and registered valuer prepares the professional standard of valuation in writing, and supported by market information.

Drive by and broker price opinions The next service level down from the gold standard is a drive by or external valuation, which involves an external physical inspection in order to confirm the propertys existence and some of its physical characteristics.

Desktop A desktop valuation excludes any inspection of the property, and the valuer may use satellite photos, owner contact and market knowledge to establish information, as well as select and analyse appropriate comparables.

AVM An AVM, at its most basic, provides only a valuation output; however, some AVM systems supplement the figure with various features, the most important being a list of comparable transactions and a measure of the expected accuracy, expressed as a confidence score (Boshoff and Kock, 2013, p. 3).

As Boshoff and Kock (2013) point out, it is highly critical that a balance between among standards and services be achieved simply for cost-benefit purposes: In each case, there must be a balance between savings in time and cost versus the property risk factors. More automated models replace traditional valuation approaches. It is important to review the cost benefit relationship of replacing gold standard valuations with automated valuations or values. Gold standard valuations are referred to as high quality, comprehensive reports, which include a physical inspection and a detailed market analysis (Boshoff and Kock, 2013, p. 4). For Municipalities, the highest standard is the most desirablebut, as shall be shown in the following chapters, this standard is not always possible, especially when Municipalities struggle with the funding needed to acquire Gold Standard valuers.

Valuation methods have advanced over the years, but Boshoff and Kock (2013) identify the main components of the methods still used todayincluding both traditional and modern approaches: Traditional methods include the sales comparison method, the investment method or discounted cash flow analysis, the cost method, the profits method and the residual method. Advanced valuation or data-analysis methods developed from advanced technology and include hedonic pricing methods, artificial neural networks, spatial analysis methods, fuzzy logic, autoregressive integrated moving average, real options method and rough set method. Advanced valuation methods are mainly used for the construction of AVMs, and a better terminology includes data-analysis methods or decision support tools for values (p. 4). AVMs of course have their advantages and disadvantages. Advantages include lower cost, time-saving, consistency, transparency, easier data management, and the ability to combat fraud and valuer bias. Disadvantages include data limitations, public opinion, the lack of property inspections, financial regulation, risk acceptance, and transparency (Boshoff and Kock, 2013, p. 5).

However, one of the big problems of AVMs is when they are used to value commercial properties. As Boshoff and Kock (2013) point out, the use of AVMs is far more complex for commercial valuations than for residential valuations, as limited comparable data is generally availableScarcity of evidence makes the consideration of AVMs for commercial property much more complex. The complexity and the lack of recorded transactions require professional judgement to analyse the data. (p. 6). Other researchers have come to the same conclusion: Tretton (2007) also has pointed out that commercial AVMs have limited usefulness and that while some models have appeared, they require constant maintenance and work best in a supportive role rather than in a primary valuations method role. Municipalities in South Africa currently use variations on the AVM, such as CAMAthe computer assisted mass appraisal system. More shall be said on that in the following sections.

Boshoff and Kock (2013) note that the implementation of AVMs is not the solution for valuation problems and difficulties in South Africa: There is concern regarding AVM accuracy, and the expectation is that 30% of valuations will in future be done by AVM for easy-tovalue standard properties in the mid-range market. According to Seota (2011: personal communication), the South African Council for the Property Valuers Profession (SACPVP) does not favour the use of AVMs and no guideline has been formulated to date. The accelerated adoption of residential AVMs by the commercial banks, combined with the limited consultation held with the valuation profession regarding these models, are cause for concern. One should address this approach for future commercial property AVM use or implementation (p. 7).

Yet, while the problem of a lack or shortage of valuers in South Africa is admitted (Robson & Downie, 2007), the use of AVMs is not viewed as the answer that Municipalities need. AVMs will only further take jobs away from citizens by making the task automated. The automation of the task of valuations, however, is not suitable. Boshock and Kock (2013) explain: This is evident in South Africa where there is a shortage of valuers, as the majority of them are approaching retirement age. AVMs can alleviate this problem to some extent; however, they are also viewed as a threat to jobs. In addition, professional bodies initially regarded AVMs as a threat to valuers employment. In mature markets, guidance to members on using them is now incorporated in professional standards. Valuers are open to the notion of using AVMs as a supplement rather than a replacement for their traditional services (p. 7). One researcher even went so far as to assert that AVMs may constitute a threat to the very profession of valuers (Mooya, 2011).

As Boshoff and Kock (2013) assert, however, the greatest risk to the valuation profession is commoditisation and automation, which reluctant professional valuers ignore. There is no substitute for the skill of a competent and experienced valuer. As part of what is essentially a risk-management exercise, data and output analysis by appropriately trained valuers can avoid pitfalls (p. 8). This point about there being no substitute for skill and competency should be well-heeded, as it is one of the main points that this study makes in order to justify its proposed solution to the problems that plague Municipalities with regard to the valuations process.

Finding valuers who are skilled and competed, who are audited and trusted, sounds difficultespecially in todays South African climate. The reality, however, is that these valuers are working right under the noses of the Municipalitiesand their valuations are not even being regarded. This study is, of course, referring to the professional valuers of South Africas Publicly-Traded Companies. More shall be said on that in the following sections as well.

Boshoff also has shown that valuers need to be respected: When Municipalities choose to select tenders to do the valuations for their region, they should do so based on quality and not on the fact that the tender is the lowest cost. The problem, however, is that Municipalities simply do not have the budget to hire always the best valuers. In going for the cheapest option, Municipalities undermine their own credibilityand the case of Kouga Municipalities represents this fact well. See section 2.42 How the Municipality Attends to Valuation Disputes for more information on that particular scandal.

Boshoff is not alone in decrying the state of valuation standards in the Municipalities of South Africa. Another valuer has experienced similar problems and his case is worth describing in order to better understand the environment in which valuations for Municipalities are being conducted and why there is such great and urgent need to amend this situation. The following information is supplied by Massel (2014):

Well known and highly experienced mass valuer, Niel de Klerk attened a tender briefing of the Matjhabeng (Welkom) Municipality relating to the award of a tender for their general valuation roll commencing 1stof July 2015. There are approximately 110,000 properties to be valued. The requirements of the tender are that the successful tenderer must supply new aerial photographs, draw up a geographical information system and supply a download of all properties from the deeds office. Tenders close on the 22ndof August 2014.

The valuation roll has to be submitted by the 1stof December 2014! This is humanly impossible and goes against every guideline set out by COGTA in their time line guideline issued to all municipalities. This must call for government intervention to avoid a pending financial disaster for this municipality. Readers will recall that Rates Watch stated that the completion of the Johannesburg and Ekurhuleni municipalities within the specified time period was mission impossible. We were certainly not wrong as is evident by the fact that Johannesburg has lodged 63,000 objections against their own valuation roll. Something is very wrong somewhere. A valuation roll needs to gain the trust and respect by all affected parties. If a municipality has no confidence in their own roll where does it leave the ratepayer?

This anecdote and the conclusive question gets straight to the heart of the matter. The Municipal valuers of South Africa need clear assistance in providing fair and equitable valuations of properties. That assistance is not forthcoming from the Municipalities. Thus, it stands to reason that an external source must be sought.

2.29 The Supplementary Valuation Roll

An explanation of the Supplementary Valuation Roll helps to complete this section on Valuations and the problems associated with them. (More shall be discussed in the coming sections to provide even greater depth and scope to the issuesbut for now it is important to move and cover other relevant topics). The Supplementary Valuation Roll is designed to address issues that arise over the year to impact the General Valuation Roll. The Supplementary Roll allows for changes to be made and the roll to be updated in a separate compilation.

In Johannesburg, the Municipality is compelled by legislation to reflect all changes on properties in a Supplementary Valuation Roll (Frequently Asked Questions, 2013). Thus, the Supplementary Valuation Roll is the index through which the City maintains updated records affecting existing properties and the existing General Roll. Additionally, the Supplementary Valuation Roll is updated annually as opposed to the General Roll which can go more than four years before being updated. Thus, one sees that in the Municipality, supplementary valuations are performed during each financial year, according to the relevant legislation, to supplement the current general valuation roll with any new properties and/or changes to property values contained in the current general valuation roll (Frequently Asked Questions, 2013)but if it is possible for the Municipality to provide annual updates to its Valuations Roll, using a public record of market valuations such as those made available through the annual reports of Publicly-Traded Companies, should not be an issue. More will be discussed on this in the following chapters.


2.291 Valuations according to Rates Watch

Rates Watch is a Monitoring Company based in Ekurhuleni and has had many successes representing clients in their disputes with appeal boards regarding property valuations. The company has issued the following declaration on its website as of 2017:

Rates Watch is proud to advise of their resounding success at the recent hearings of the Ekurhuleni Appeal Board. The Appeal Board hearings were in regard to Section 78 Applications submitted by Rates Watch on behalf of numerous clients. Many of the applications were reconsidered by the Municipal Valuer and reductions were then made by him. Eighteen appeal cases were handled by the Ekurhuleni Appeal Board. Rates Watch were the major appellants at this hearing. Reductions in value of over R23 million were upheld by the Appeal Board, with a resultant saving in rates and taxes of R1, 4 million being achieved!!Two appeals lodged by Rates Watch against incorrect category entries on the original general valuation roll resulted in rates savings of R175, 000 to the delight of the appellants. A significant reduction in a mining property from R22, 6 million to R12, 6 million brought about a rates saving to the property owner of approximately R800,000! Rates Watch are particularly proud of these results, as they related to properties against which no objections were lodged or alternatively were incorrectly categorised on the general valuation roll. A section 78 application relates to a property that was incorrectly valued and against which no objection was lodged when the general valuation roll was open for objections. Rates Watch compliments the Ekurhuleni Valuation Section for the expeditious way in which they handled the outcome of the cases heard at the Appeal Board.Within a few days, official notices were forwarded to Rates Watch.

Rates Watch has also provided a description of the valuation process as it understands it. It is important to note that the term market value is here defined as the price upon which a property is able to sell. This study uses the term market value in conjunction with the price at which an investor values the property (as in a Publicly-Traded Companys property portfolio). According to Rates Watch, the following information should be considered by all individuals interested in appealing a valuation by their Municipality:

Residential properties are valued on the Direct Comparison method of valuation.This means that the Municipal Valuer will obtain data relating to the property itself, the surrounding area and compare this data with sales in the immediate vicinity of the subject property. There are highly sophisticated tools available which enable the Municipal Valuer to predict Market Value. The most important aspect of any municipal valuation is the collection of correct and accurate data relating to a property. In suburbs that are mainly homogeneous the collection of accurate and meaningful data is a fairly easy task. The challenge is where properties differ in terms of location, views, aesthetic design etc. In these types of suburbs, it is far more difficult to compare properties on a mass basis and the municipal valuer has to adjust his norm valuations to allow for positive features such as: view, locality, special features, ambience and the physical design of the property. Conversely, negative features must also be taken into account. These may include:-proximity to a taxi rank, busy roads, flooding etc. Residential property owners should keep records of the following: Size of buildings. Description of buildings. Features such as swimming pools, landscaped gardens, boreholes, etc. Any aspect that may have a negative impact on the property. If the property has been offered for sale, copies of the advertisement showing the asking price. Length of time the property has been on the market. Documentation of any additions and photographs of the stage of completion as at the date of valuation. If a property owner can show that he was selling the property for R1million and the Municipal Valuer has valued the property at R1, 5million, the chances of success at an Appeal Board hearing will be very good.

Clearly, Rates Watch has succeeded in challenging Municipalities for better valuations for the firms clients. Considering the approach of Rates Watch will help a Municipality better establish its own defense of its valuation and valuation process in the future.

The CEO of Rates Watch, Clive Massel, has also written an evaluation of the current difficulties that Municipalities are experiencing in both the compilation and administration of their valuation rolls (Rates Watch, 2017). Tha article is worth assessing in its own right to assist in the understanding of the valuation process as it exists in South Africa at the moment.

Massel (2011) begins his assessment of the MPRA of 2004 by asking: What we need to establish is whether the MPRA has achieved the objectives envisaged by the legislators when the Act came into effect and whether the municipalities have been able to implement the Act fully. Massels full evaluation will be discussed in a later section of this chapter. For now, an examination of Rates Watchs success is helpful in seeing some of the shortcomings of the MPRA. Rates Watch (2017) reported in 2012 that:

It is exactly three years since Rates Watch commenced business and starting challenging municipal valuations. A key factor of the Rates Watch success story has been their ability to challenge municipalities and their municipal valuers regarding the correct interpretation of the MPRA. The results to date are nothing short of phenomenal. In Ekurhuleni alone, Rates Watch has achieved a 2,4 billion rand reduction in value, with a resultant saving of nearly R130 million in rates and taxes!! Nationally, we have obtained valuation reductions in excess of 3 billion rand. Rates Watch have been extremely innovative in challenging municipalities regarding incorrect and unjust implementation of the MPRA. Currently, Rates Watch are in the process of bringing about High Court declaratory orders against the Ekurhuleni Metro relating to the “no change” policy of their Municipal Valuer as well as a further order regarding the back dating of rates and taxes as a result of incorrect category entries in their general valuation roll – ab initio. These applications are time consuming, costly and require a very clear understanding of not only the MPRA, but also the Promotion of Administrative Justice Act (PAJA). Rates Watch has already successfully brought about a High Court mandamus application compelling the Municipal Valuer of Ekurhuleni to provide proper and adequate reasons for his objection decisions. Currently, Rates Watch is the only company in South Africa dedicated to monitoring and auditing of municipal valuations and rates accounts.


Recent National Results of Valuation Objections and Appeals


(1stApril 2009 to 7thMarch 2012)





R1.502 Billion!



R572.0 Million!


Section 78 Applications

R965.4 Million!





Total reduction in value

R3.039 Billion!


Total Rates savings

R151.7 Million!




2.292 Other Valuation Methods Studies and Considerations


The study by Awuah et al. (2017) focused on how valuers obtain market data to aid their valuations. Awuah et al. (2017) noted that adequate reliable property market data are critical to the production of professional and ethical valuations as well as better real estate transaction decision-making. However, the availability of reliable property market information represents a major barrier to improving valuation practices in Ghana and it is regarded as a key challenge (p. 448). In order to better understand how market data is obtained, the researchers study aimed to investigate the sources and reliability of property market information for valuation practice in Ghana. The aim is to provide input into initiatives to address the availability of reliable property market data challenges (p. 448).

Awuah et al. (2017) used a mixed methods approach, consisting of literature review, workshop and questionnaire survey of valuers. The researchers found that there are seven property market data sources used by valuers to obtain market data for valuation practice. These are: valuers own database; public institutions; professional colleagues; property owners; estate developers; estate agents; and the media. However, access to property market information for valuations is a challenge although valuers would like to use reliable market data for their valuations. This is due to incomplete and scattered nature of data often borne out of administrative lapses; non-disclosure of details of property transactions due to confidentiality arrangements and the quest to evade taxes; data integrity concerns; and lack of requisite training and experience especially for estate agents to collect and manage market data. Although professional colleagues is the most used market data source, valuers own databases, was regarded as the most reliable source compared to the media, which was considered as the least reliable source (p. 448). The implications of the study were that there existed a need for the development of a systematic approach to property market data collection and management (p. 448). Such a systematic approach is precisely what this present study sets out to provide for Municipal valuers. The study by Awuah et al. (2017) notes that the systematic approach should require practitioners to demonstrate care, consciousness and a set of data collection skills suggesting a need for valuers and estate agents to undergo regular relevant training to develop and enhance their knowledge, skills and capabilities. The establishment of a property market databank to help in the provision of reliable market data along with a suitable market data collection template to ensure effective and efficient data collection are considered essential steps (p. 448).

A study by Visser (2014) examined the impact of the MPRA on valuation techniques in South Africa. Visser (2014) found that the present Municipal Property Rates Act, particularly the above-mentioned sections, did not make allowance for the accommodation of unique property developments such as Midstream Estate (p. 1). This is important because valuing unique properties is something that Municipal valuers must do on a regular basis. If the MPRA does not accommodate such, it itself is faulty when it comes to allowing Municipalities to properly assess properties. Vissers (2014) study looked at the Municipal Property Rates Act to find out whether Midstream Estate and similar locations have sufficient reason to request that the present system be amended to address their concerns (p. 1). Visser (2014) showed that a study of relevant literature on the South African property tax assessment system supported the study of the Act though a further field study was done to contest the Municipal Property Rates Act and in this field study, various key words were used to conduct searches. Those key words included: need to participate; owners satisfaction; selfassessment; owners objection (p. 1). Visser (2014) concluded that the current system of valuation is inadequate to assess the unique properties situated in Midstream Estate and that there existed a need for the property owners to participate in their own property assessment process (p. 1). This study is useful because it shows how inherently inefficient the present valuations process still is and that there needs to be implemented a better and more trustworthy process that Municipalities can rely upon since property valuations are so important to their revenue streams and balance sheets.

Du Preez and Sale (2015) conducted a very technical study to examine whether sales price was a good indicator of value when determining valuations. Their study is important because of their finding, which was that valuers must be careful in how they approach valuations when using specific models. The researchers noted that in most hedonic price model studies, the actual sales price of a property is employed as the dependent variable in the parametric regression analysis (p. 35). Du Preez and Sale (2015) also stated that although the use of this price is pervasive, alternatives to it do exist. One such alternative is the assessed proprty value, which is more readily available than the actual property price. The researchers then compared implicit price estimates of property characteristics (both structural and locational) based on actual sales price data and assessed property values. To this end, a seemingly unrelated regression with two hedonic price equations is used, one which employs actual market prices as the dependent variable and the other which employs assessed values. The results show that the hypothesised influence of structural and locational housing characteristics on residential property prices is the same for assessed values, and actual market prices cannot be accepted. This finding should act as a caution for hedonic practitioners not to base their conclusions and recommendations solely on the use of assessed values in hedonic price models. From this study can be ascertained the fact that basing valuations on a single set of data can bring about negative consequences for a Valuation Roll.

Du Plessis (2015) has also set out to understand how property valuations are conducted under the MPRA and whether a fair and equitable valuation is being given to properties. Du Plessis provides a good examination of the difficulties of identifying market value:

Section 12(1) of theExpropriation Actsets out how compensation should be calculated, namely through the determination of the value that property would fetch in the open market. This amount is commonly referred to as the market value. The determination of market value as the compensation norm is based on the assumption that in the property market there will always be a free interchange between supply and demand. The rationale is that the market price will be determined by the economic principles of supply and demand, thereby determining the equivalent in value … of the property loss. This method of calculation was adopted in South African case law.

Yet, as Du Plessis (2015) notes, market value is a problematic concept, which is discussed elsewhere in this study. Du Plessis (2015) contends, nonetheless, that:

Market value is a problematic concept because in transactions of sale the market is a relatively unrestrained phenomenon where sellers and buyers bargain until they reach an acceptable price level, and such bargaining is usually done without many artificial constraints. The problem thus lies in the fact that one must imagine compensating a compulsory purchase in terms of exactly the opposite, namely a free market transaction where the price level is determined by the relatively free will of the buyer and the seller. The determination of market value is therefore an informed guess.

Further, market price is not static. Changes over time can influence the price, and inflation can play a big role. Events that lead to a sudden increase in the market price are often ignored, especially in cases where the comparative methodis used to determine the market value and the properties used in comparison were sold before such rapid fluctuations took place. Such a determination of market value does not attempt to consider or capture the value of the properties to the owners themselves.

Notwithstanding the problems with this approach, the courts have usually found a way to apply the open market test, even where it has been very difficult to do so.

The market value test plays a central role in South African expropriation law, and in order to determine the market value one has to hypothesise what the property would have realised if sold on an open market by a willing seller to a willing buyer.

But the willing buyer willing seller method of determining market value has also been described as illusory, since the bargaining process is constrained by a compulsory sale, and the seller is more often than not unwilling to sell.As King J stated inSouthern Transvaal Buildings (Pty) Ltd v Johannesburg City Council:

Notwithstanding, the law enjoins me to transport myself into a world of fiction and to don the mantle of a super valuator, overriding, if necessary, the views expressed by men experienced in the valuation of property and whose views are relied upon almost daily by willing purchasers and sellers. I must at one and the same time be the willing seller and the willing buyer, both well-informed, and I must arrive at a price in a market that did not exist at the time of expropriation. This is sobecause I must ignore any enhancement or diminution in value flowing from the expropriation or the scheme causing the expropriation. It is an Alice in Wonderland world in which the consideration of principles of valuation and the opinions expressed by experienced property valuators make the task of the super valuator seemingly curiouser and curiouser.

Despite theConstitutionrequiring just and equitable compensation, not much has changed.

This concise examination of the meaning and problems surrounding market value is very helpful in understanding more of the issues that plague Municipal valuations in South Africa. It also helps to illustrate why it is so important to rely upon publicly-published market values provided by professional valuersbut more will be said on that point in time. In a study by Babawale (2013), the researcher simply adds to the above conclusions that true market value is unattainable (p. 387). While this present study does not make any judgments about whether or not Babawales conclusion, as well as Du Plessis (2015) findings, are just or not, both do help to illustrate the finer point that valuations are extremely difficultand should be left to professionals who have the experience, the expertise, the first-hand knowledge of the property types, and the ability to operate in a workplace environment where auditing and oversight are routine. More shall be said on that in due time in the course of this study. With these points in mind, it is now important to examine the market place itself.


2.3 External and Internal Factors


2.31 External Factors: A Market Forever Changed by Unconventional Monetary Policy

The real estate market, currency markets, derivatives markets, PM markets, commodities markets, equities markets, and bond markets all impact one another daily all over the world. Nowhere is this more evident than in market evaluations from market modelers. Since 2008, when the central banks of the world responded with a united effort to buy up government and corporate bonds, chasing fund managers into a yield-depleted market environment, asset classes have been driven up. This artificial drive reflects the purchasing process of the CBs along with the devaluation of currencies (the more that CBs print, the less value each fiat note retains). Markets have been reacting to this phenomenon for nearly a decade nowand there is plenty of concern that normalization, at this point, is impossible. Durden (2017) has pointed out as much by echoing the findings of Goldman Sachs Global Investment Research:

The long economic cycle that we have been enjoying is, in part, a reflection of loose monetary conditions and low interest rates. Exhibit 17 is a simple but effective way to demonstrate this effect. Taking data back to 2009, the start of the period of extraordinary monetary policy, we can see a very big difference between prices in the real economy measures of wages, consumer price inflation, house prices, commodities and asset prices. Also shown here is the long-run average nominal GDP growth and nominal GDP growth over this period for the US and Europe (in red).Financial assets have significantly outstripped both nominal GDP growth and inflation in the real economy, largely as a result of rates staying low.




Source: Durden, 2017.


One can see that asset prices have been inflated by CBs unconventional or loose monetary policy since 2008. Markets have reacted accordinglyand by not tking this factor into consideration, Municipalities that are using old or outdated valuations (which do not contextualize in terms of real market valuewhich is determined by a considerable number of factors, not the least of which is monetary policy and currency devaluation) have failed to benefit from an appropriate reform of their own valuation methods.

Indeed, as United States Agency for International Development (USAID) shows in its report on Municipal Infrastructure Investment, Municipalities in South Africa are experiencing soaring debt as the chart below shows. This debt does not occur in a vacuum, but is rising alongside that of the developed world as well. The global marketplace is interlocked to such a degree that no nation exists totally free of interacting mechanisms. Yet South Africa alone must address the issues of debt that it faces. Still, it is necessary to understand how the global market forces work to impact it.



Source, USAID, 2016.


It is worth describing how substantial the spillover effect resulting from an era of quantitative easing has been on assets. Sakthivel, Bodke and Kamaiah (2012) show that as a result of globalization, the spillover effect has become far more commonplace than what once used to be the case. This directly impacts property valuations in South Africa because world financial markets and economics are increasingly integrated due to free flow capital and international trade (Sakthivel et al., 2012, p. 253).

Park and Um (2016) likewise highlight the spillover effect of unconventional monetary policy in the US on bond markets and note that a mere mention of news of unconventional monetary policy in the US is enough to trigger a short-term spillover in the bond market in Korea. Short-term hedges in gold during such swings have been found by Baur and Lucey (2010) to be effective in protecting a portfolio from headline-driven spillover between equities and bond markets. But for forecasting the spillover effects, todays GARCH models may need to take into consideration a rapidly changing market culturenamely, one that is driven by algorithms which have been blamed both for flash crashes and for melt-ups in recent years, along with the existence of pure contagion (Jayech, 2016, p. 631; Kirilenko, Kyle, Samadi and Tuzun, 2017). The velocity of volatility, the absence of liquidity (save for that provided by central banks), counter party risk, sovereign debt, risk parity, and overall fundamentals (Amazon is trading currently at a substantially elevated P/E of 250 and is one of a handful of stocks driving the U.S. stock market), are all signs of a market that has changed dynamically in just the past decade (Snider, 2014). In short, both QE and the rise of machines in trading have introduced new dynamics into the market that traditional GARCH models may not effectively factor into their equations. In such a climate, investors seek safe havens and safe havens become more expensivei.e., valuableas they do so. Municipalities that do not consider the overall market environment, market changes as considerable as those implemented by CBs in response to the 2008 global economic crisis, and how those changes will impact their own economies are failing to take advantage of indicators that are there for everyone to see.

In order for Municipalities to enhance their balance sheets, adopting the right business model is necessary. Just like a successful business, a successful Municipality must be able to have effective and efficient teams in place that are able to work towards achieving the organizational aim of the City. USAID (2016) provides the following model for how this should look:




2.32 Internal Factors: Political and Social Instability

This is not to suggest that all value is determined by CBs or market movements related to QE. South Africa has had its own internal issues that have impacted property values: political and social instability, for example, have ravaged some regions and caused depreciation in parts of the country (Cilliers & Aucoin, 2016). This has resulted in a decline in the overall effectiveness of governmental agencies as a whole, as the chart below indicates.



Source: Cilliers & Aucoin, 2016


To the extent that it is a cycle which can be discontinued through economic stability, the problem of social unrest may be mediated: as Cilliers and Aucoin (2016) point out, social instability affects economic growth, while economic growth impacts societies vulnerability to social instability (p. 6). To contain the problem, a Municipality in South Africa should focus on ways to maximize revenue streams, enhance its balance sheet, and provide more aid to social programs and social stability whenever and however possible. Under its current valuation system, such a strategy is not entirely feasible, as it obliges the City to rely upon old or outdated valuations that do not correspond with real market value, which is impacted by external factors such as globalization and unconventional monetary policy in developed markets. The spillover effect from developed markets to emerging markets is particularly important to note because South Africa is on the receiving end of this spillover.

2.33 When the Two Collide: The Need for a Stable but Efficient System

For Publicly-Traded Companies which require an up-to-date market valuation of their properties in order to know the value of their investments at any given time, such a valuation method as applied by the Municipality is unacceptable. It is bad from a business-investment perspective and bad from an accounting perspective. Mark-to-market accounting is an accounting process used by firms that helps them to always recognize current market value. This process is not, however, always recognized as a best practice policyespecially by governments that value transparency. In the U.S. for instance, the Governmental Accounting Standards Board (GASB) exists as the independent, private-sector organization based in Norwalk, Connecticut, that establishes accounting and financial reporting standards for U.S. state and local governments that follow Generally Accepted Accounting Principles (GAAP) (GASB, 2017). Yet, when it comes to accounting, the federal government in the U.S. has shown itself to be woefully neglectful (as in the case of the whopping 2.3 trillion USD gone missing from the Pentagons coffers as reported by Donald Rumsfeld on the eve of 9/11). What publicly traded companies have in their favor is the fact that they must exercise solid accountingor else the same thing will happen to them that happened to Enron in the early 21st century: they will implode. For government offices, accounting and accountability are equally important but when it comes to the public holding elected officials and their offices to higher standards, the bar typically does fall short by the very nature of the bureaucratic beast that it is.

For this reason, it is understandable that the Municipal valuations director of Johannesburg would turn to the Roll for data. But as Oxford (2013) shows, doing so will in turn, affect the rates and taxes issued by the City for the next four years. What is revealing is the fact that Municipalities will hesitate to update their Rolls if they perceive the market to be in a less than ideal state. For example, Johannesburg put off committing new valuations to the 2012 Roll because it expected a shortfall that year: We felt that to go through the process of re-valuing all the properties, looking at the market and financial implications, it would not have been an effective measure to do a valuation at that period, explained the Municipal valuations director, as Oxford (2013) shows. This raises questions about the validity of the valuations process and why the Municipality does not look to an alternate source or method for accomplishing a task that is so critcal and important to its balance sheet and revenue streams.

Oxford (2013) relates that the value of a property is assessed against strict and exacting criteria to ensure that the market value is as accurate as possible. The city requires a certain amount of money to set its budgets and by careful data modelling a suitable tariff is determined for each property category. This is then applied to the calculation of assessment rates for each property in that category. The values of properties form the rates basis for the city and so, based on your value, you pay your assessment rates. Yet if the value assigned to a property is low compared to actual market value as published by investors, the Municipality could be undercutting its own balance sheet. This is a considerable problem because in todays cash-strapped global society, there is little margin of error, and valuations should be taken as seriously by the City as they are by investors. After all, the City is really as much of an investor in the people and properties of its Municipality as the people are in the City. For this reason, the City needs to be able to accommodate programs that benefit the peopleand to do this it must have an adequate source of income.

Determining the depth of that income stream, however, is not easy. The Municipality, to some degree, is willing to increase taxes to offset fluctuations or crashes in the property market, which renders its valuations somewhat useless. The City has benchmarks that it seeks to maintain. Raising tariffs is one to do thatbut if valuations can be set more effectively in the first place, crashes might not become as much of an issue in the future. Oxford (2013) states that the City needs a certain amount of money so if there happens to be a crash in the property market while we are busy with the valuation process and the values are much lower than previously, then the City may increase the tariff to ensure they maintain the same income.

However, in the lifespan of a valuation roll, market fluctuations dont affect the values, because we always go back to the market of the date of valuation to keep things fair and equitable. In other words, the Valuation Roll acts as a peg, and actual market value as it currently stands is ignored. Market value is gauged at precise point in time that the Municipality believes will be adequately beneficial to its aims and then records that value and uses it as an index or benchmark for a stated period of time. Over that period, however, is the possibility that lost revenue is being wasted as there is ample opportunity for values to increasemuch more opportunity in fact than for them to fall. In an age in which fiat money is burning holes in the pockets of so many, investment property appears as a way for investors to get out of cash and place their wealth in real assets. The rising prices of everything from precious metals to equities to real estate is a sign of an underlying inflation occurring all across the globe, which has been primarily spawned by the worlds central banks intervening in the marketplace by purchasing bonds and assets.

One need only analyze the books of entities like the Federal Reserve, the European Central Bank, the Bank of Japan or the Swiss National Bank to obtain an understanding of just who is buying in todays market. Knowing that central banks use fiat systems to make their purchases means that ultimately the currencies in which they participate are being devalued year after year through excessive printingprinting to the tune of trillions. That devaluation prompts investors to flee cash and find safe havens for their wealth. Just over the past four years, property values have climbed substantially. The South Africa Housing Index chart tells all. A Municipality that valued properties in 2012 and adhered to that Roll for four straight years would have missed out more than 100 points of increased revenue from a valuation that had been determined by current market value determined by investors.



Source: Trading Economics, 2017.



2.4 Issues and Objections

2.41 Accidental Devaluations?

While the Municipal valuations director in Johannesburg views his role as one that should ensure that the valuations are fair, so that areas with lower values pay lower tax and vice versa, the question remains: What if there is a valuation that causes consternation? (Oxford, 2013).

The answer to that question is evident in the Municipalitys valuation methodology: After compiling the valuation roll we hand the roll over to the municipal manager and the City sends out a notice to each and every property owner notifying them of the value of their property. The owners then have a specific time period to object to the valuation. In the case of the 2013 general valuation roll it was from February 20 2013 to May 3 2013, 73 days during which we allowed people to look at their valuations and object (Oxford, 2013). Thus, dealing with objections to valuations is thus yet another issue that valuers must attend to lest the Municipalitys revenue stream be further antagonized by owners and investors.

Of course, there is a delicate balance to the proceedings. A property valuer that does not consider an appeal of a property owner risks marginalizing investors in the Municipality, which would further erode the balance sheet by way of lost tax revenue as owners and investors flee for more favorable regions. However, it stands to reason that upgrades in how Municipalities address objections may be developed and implemented. This study aims to assist in that process. But first it is helpful to understand the process as it currently exists: The process that property owners can follow to raise their concerns about the valuation of their property is simple. There is, of course, the obligatory form to fill. It provides the department with the details of your property and the reasons you disagree with their valuation. The department then examines the evidence and makes a decision about whether or not it will change the value (Oxford, 2013). According to Oxford (2013), the best way to convince the municipal valuer to change the value of your property is to show a reference to similar properties that were sold in the same area and use this to prove the property is over or under valued. Based on the evidence the municipal valuer will consider the objection and make an assesment. In other words, the owner will utilize the same methods of the valuerlooking at sale pricesto find a basis for why a rate should be lowered.

In some cases, the Municipality may decline to rectify a valuation according to an owners objection. Other times, the Municipality itself may make a mistake and be required to object to one of its own valuationsespecially if there is public pressure to do so. A case in point is that of the Gupta properties, as identified by Oxford (2013): a highly valued property in Johannesburg owned by Gupta saw a significant decrease in value, according to the Municipalitys Valuation Roll: The property dropped in value on this general valuation roll from R16.8-million to R490 000, a staggering fall that would have far-reaching impact on more than just the Gupta bank account. Indeed, it would mean less income for the City. Such an immense fall in valuation would result in a much lower tax revenue for the Municipalityand the drop in valuation did not go unnoticed by the news networks in South Africa or by estate agents, who called the valuation laughable and outrageous, indicating that no property in the area was even heard of for such a low valuation (Sapa, 2013). Thus, this one case had all the characteristics of a scandal and served as yet another indication that stability within the country is questionable at best. As News24 reported in 2013, The property, one of four adjacent stands bought by brothers Arti, Atul, Chetali, and Rajesh, was valued at R16.8m in the 2008 valuation but plumeted to R490 000 in the last valuation. The decrease in the municipal value meant the rates would drop from about R7 844 a month to about R157.90. According to the Saturday Star this drop went against the tide which saw increases of up to 48% in adjacent neighbourhoods. How could such a poor valuation occurfor such a property that was obviously worth considerably much more?

The Municipality valuations director stated that weve got more than 812?000 property records in the general valuation roll. Thats just in the Johannesburg municipalityresidential, business, sectional title units, parks, museums and hospitals. In valuing that number of properties, errors do slip in and thats why weve got review processes and audits to find them, and why we ask the public to step up and object if they feel that their assessment is incorrect (Oxford, 2013). With that said, having a methodology that values properties by a public catalogue of market valuations as determined by investors could make the process that much easier and less susceptible to fraud and corruption. As Oxford (2013) states, its a continuous process as we look at the factors that contribute to the value of a property, such as the size, where it is located, the finishes, the security and the attributes. We take our sales and then we apply mass valuation principles. Throughout the next four years, we need to update the new additions, the building plans and the new properties in this model. It then takes the information and calculates the value. We need to keep up to date with changes in economic factors and shifts in areas. It is a three-year process to maintain and build the property database. A three-year process, however, puts the Municipality well behind the curve of the kind of economic factors that are most impactful on property prices in this day and age.


2.42 How the Municipality Attends to Valuation Disputes

Valuation disputes are a major part of tending to the Valuation Roll. As SA Valuer shows in its May 2014 edition, the City of Johannesburg alone lodged 64 000 objections to its own roll for its Valuation Roll (Gladwin, 2014).

In Kouga Municipality, a recent dispute over the Valuation Roll erupted into a full-blown scandal in 2014. As reported by The Herald (South Africa), Kouga Municipality received a complaint laid with the public protector accusing the municipalitys new general valuation roll of being incorrect, flawed and containing haphazard valuations. The complaint was compiled by the municipalitys former valuation company, Kouga Consortium of Valuers, which tendered to compile the valuations roll but did not get the contract, losing out to DDP Valuers. Kouga Consortium of Valuers head John Boshoff then filed a complaint with the public protector dated April 8. As a result of the Municipality tendering the contract to DDP Valuers, many disputes arose and many property owners complained: valuations dropped significantly, which had an adverse effect on the property market. The complaint put forward by Boshoff held that the general public is directly affected by haphazard valuations that are being submitted by certain valuers in compiling valuation rolls for the municipality. As a result the Kouga Consortium of Valuers conducted research analysis of the accuracy of the valuation roll. The analysis revealed the valuation of property should not vary by more than 10%. [Yet] in Jeffreys Bay, which has the largest number of properties in the area, 99.65% had values that varied more than 10% from the purchase price which was very concerning for Jeffreys Bay resident Armand Bezuidenhout. If what you are telling me is true then my lifes work has been for nothing. My wife and I owe nothing on this house because we have worked hard to pay it off. Now if I sell I wont get close to its valuethats ridiculous, Bezuidenhout said. Of the 35 464 properties valued in Kouga, 1 200 objections were raised. The Herald also noted that discrepancies were also found in the valuation of farms, with some of the 145 farms on which valuations were done, showing variance of more than 70% from the purchase price. It is no wonder that Municipalities are in such arrears as a result of poor valuations. This one example is enough to show that a solution to the problem is sorely needed.

It is also interesting to note that DDP Valuers, according to the firms own 2016 publication has completed 35 GV rolls in the past 8 years which amounts to an average of 733 141 properties valued every year for rating by the municipal department (p. 2). DDP Valuers, excoriated by Boshoff in the complaint to Kouga, has evidently been utilized by numerous Municipalities, which most likely means that the same problems experienced in Kouga Municipality is also happening elsewhere. In fact, DDP Valuers lists over a dozen Municipalities that it has provided valuations for of all types of properties. In short, the situation is endemic and systemic.

However, there is also another issue that requires attentionand that is the issue of how Municipalities respond to valuations. Currently there are significant backlogs in valuation dispute hearings, which further exacerbates the situation for Municipalities with respect to getting Valuation Rolls published so that revenue streams can be initiated. How Municipalities conduct valuations must, of course, be addressed and improved. But how Municipalities handle disputes also has to be addressed, lest the Cities be taken advantage of when they do perform fair and equitable valuations. For examplenot all property owners want fair and equitable valuations because they do not want to pay the rates and taxes that go along with such valuations. So how do Municipalities deal with this issue? A look at the Municipality of Johannesburg will be sufficient to understand the process as it is fairly representative of the whole of South Africa in this respect.

The Municipality of Johannesburg has addressed the issue of disputes and property owners making objections to valuations, with reference to how property owners should go about the process. From the same governmental website that addresses procedural policies in a question and answer format, the following information is derived (Frequently Asked Questions, 2013):

What do I do if I disagree with my property valuation?

Legislation makes ample provision for any person to object to an entry in a General Valuation roll, provided that such objection takes place in the prescribed manner and within the prescribed objection period. An objection will be considered by the Municipal Valuer and a Valuation Appeal Board, should a property owner wish to appeal against the findings of the former. Each new valuation roll must be advertised in a prescribed manner, and such roll must be made available to the public for inspection and objection. Once the inspection period has closed no more objections will be accepted.

Specific details on the objection dates and venues will be advised in the individual notices to owners regarding their property valuations (sect 49 notices).

What cant I object against?

Legislation allows you to object to any entry or omission from the General Valuation Roll but not the roll in total. A property owner can also not object to the rates that you are paying or are due to pay; The Valuation Services directorate does not determine rates. We are responsible for the determination of property values, which are used as the City’s rates base by the Rates & Taxes directorate to calculate your rates.

Do I need a Lawyer to represent me at the Appeal Board?

The Appeal Board is not a court of law, and you do not need to bring a lawyer, unless you wish to do so. You may also bring any other expert to assist you during your appeal hearing. However this will be for your own account.

The Valuation Appeal Board will consist of a Chairperson with legal qualifications and sufficient experience in the adminitration of justice. The remaining members will be made up of not fewer than two and not more than four other members with sufficient knowledge of, or experience in, the valuation of property. At least one must be a professional valuer registered in terms of the Property Valuers Profession Act 47 of 2000.

The Appeal Board is an independent Body appointed by the MEC Local Government.

How long will an objection take to be resolved?

The number of objection received will have an effect on the process period. The Municipal Valuer will review the objections taking in consideration the information that was provided on the objection form.

The outcome of the Municipal Valuer decisions will be mailed to objectors in phases as per completion.

To what extent is the Municipal decision final?

Section 52(2) of the MPRA states that if the Municipal Valuer changes the value of a property that was objected to by more than 10% upwards or downwards the Appeal Board must review the objection, confirm, amend or revoke the decision of the Municipal Valuer.

I have objected to the new value of my property. Must I continue to pay my rates even though I think I am paying too much?

The MPRA Section 50 (6) states:

The lodging of an objection does not defer liability for payment of rates beyond the date determined for payment.

Therefore the account must still be paid until the objection process has been finalised.

The MPRA Section 55 (2) states:

If an adjustment in the valuation of a property affects the amount due for rates payable on that property, the municipal manager must:

(a) calculate –

(i) the amount actually paid on the property since the effective date; and

(ii) the amount payable in terms of the adjustment on the property since the effective date ; and

(b) recover from, or repay to, the person liable for the payment of the rate the difference determined in terms of paragraph

(c) plus interest at a prescribed rates (Frequently Asked Questions, 2013).

As can be seen from the Municipalitys procedural policy for handling valuation disputes, there is a clear-cut process that the City adheres to. However, as shall be addressed in more detail in the following chapters, there are several ways the Municipality could enhance this process and shore up its own revenue stream and balance sheet as a result.

South African Property Valuations (SAPV) is a BEE Status Verified Level 3 Contributor with 110% Procurement Recognition issued by Empowerdex, a SANAS accredited verification agency. It is helpful to this project to understand how BEE Status can be used by tenderers to award contract jobs to firms that might otherwise not be qualified to perform the necessary appraisals. The importance given to companies that are BEE Status and can show this in their bids to obtain contracts from Municipalities indicates that the qualities that local governments are looking for in bidders may be skewed by the politics of the environment in which they are located. For example, the state-owned company Transnet has a policy in place, which follows government regulations, regarding giving special preference to contract tenders who can show BEE Status verification. The following is just an example of how this preference is illustrated in formal contract negotiations and is taken from Transnets (2016) Request for Proposals to bidders:

As described in more detail in the attached BBBEE Claim Form and as prescribed in terms of the Preferential Procurement Policy Framework Act (PPPFA), Act 5 of 2000 and its Regulations, Respondents are to note that Transnet will allow a preference to companies who provide a valid B-BBEE Verification Certificate. Respondents are required to complete Section 7 [the B-BBEE Preference Point Claim Form] and submit it together with proof of their B-BBEE Status as stipulated in the Claim Form in order to obtain preference points for their B-BBEE status.

B-BBEE Joint Ventures or Consortiums Respondents who would wish to respond to this RFP as a Joint Venture [JV] or consortium with B-BBEE entities, must state their intention to do so in their RFP submission. Such Respondents must also submit a signed JV or consortium agreement between the parties clearly stating the percentage [%] split of business and the associated responsibilities of each party. If such a JV or consortium agreement is unavailable, the partners must submit confirmation in writing of their intention to enter into a JV or consortium agreement should they be awarded business by Transnet through this RFP process. This written confirmation must clearly indicate the percentage [%] split of business and the responsibilities of each party. In such cases, award of business will only take place once a signed copy of a JV or consortium agreement is submitted to Transnet. Respondents are to note the requirements for B-BBEE compliance of JVs or consortiums as required by Section 7 [the B-BBEE Preference Point Claim Form] and submit it together with proof of their B-BBEE Status as stipulated in the Claim Form in order to obtain preference points for their B-BBEE status. Note: Failure to submit a valid and original B-BBEE certificate for the JV or a certified copy thereof at the Closing Date of this RFP will result in a score of zero being allocated for B-BBEE.

Subcontracting Transnet fully endorses Governments transformation and empowerment objectives and when contemplating subcontracting Respondents are requested to give preference to companies which are Black Owned, Black Women Owned, Black Youth Owned, owned by Black People with Disabilities, EMEs and QSEs including any companies designated as B-BBEE Facilitators1 . If contemplating subcontracting, please note that a Respondent will not be awarded points for B-BBEE if it is indicated in its Proposal that such Respondent intends subcontracting more than 25% [twentyfive percent] of the value of the contract to an entity/entities that do not qualify for at least the same points that the Respondent qualifies for, unless the intended subcontractor is an EME with the capability to execute the contract.

A person awarded a contract may not subcontract more than 25% [twenty-five percent] of the value of the contract to any other enterprise that does not have an equal or higher B-BBEE status level than the person concerned, unless the contract is subcontracted to an EME that has the capability and ability to execute the subcontract. In terms of Section 7 of this RFP [the B-BBEE Preference Point Claim Form] Respondents are required to indicate the percentage of the contract that will be sub-contracted as well as the B-BBEE status of the sub-contractors.

One of the most important passages to note in this RFP is the following line: A person awarded a contract may not subcontract more than 25% [twenty-five percent] of the value of the contract to any other enterprise that does not have an equal or higher B-BBEE status level than the person concernedand it is important to note because the condition for subcontracting is not based on skill or merit or experience or reputation or professional certification but rather on the arbitrary and socio-political condition of the enterprise being B-BBEE certified. This shows where the Municipalities focus is and where its priorities are. They are not necessarily focused on obtaining the best worker for the job but rather in fulfilling a mandate placed upon them by the government that restricts their hands in terms of managing affairs appropriately. This condition can have significant ramifications when it comes to valuers and valuations. As is seen elsewhere in this study, when Municipalities award contracts to valuation firms (because they are the lowest bidders and meet the government stipulated requirements), the end result is typically catastrophic for the Valuation Roll. This is shown in Chapter 4 inthe findings obtained when Municipal Values are compared to Market Values obtained from the annual reports of Publicly-Traded Companies. BBEEE Status is so important to Transnet, in this example, that it further states: Transnet encourages its Service Providers to constantly strive to improve their B-BBEE rating. Whereas Respondents will be allocated points in terms of a preference point system based on its B-BBEE scorecard to be assessed as detailed in paragraph 5.1 above, in addition to such scoring, Transnet also requests that Respondents submit a B-BBEE improvement plan. Respondents are therefore requested to indicate the extent to which they will maintain or improve their B-BBEE status over the contract period (Transnet, 2016).

The problem with placing so much emphasis on B-BBEE is that Dzonzi (2017) shows, the certification itself is suspect and is not even trustworthy when it comes to delivering the type of equality the certification is supposed to deliver. Dzonzi (2017) states that benchmarks for measuring whether listed South African companies have adequate black ownership need to be reconsidered, according to a report prepared for the National Treasury and submitted to lawmakers discussing transformation in the economy. What is important is that the measurement process is inadequate for establishing whether B-BBEE companies are even really benefiting the black communityand if not, one might well ask what the purpose of the certification is and why it is being used as a distinguishing feature in choosing a firm to conduct valuations, when there are clearly much more important features that a firm should showsuch as expertise and experience in dealing with the valuations of properties like those that are described in the contract. Dzonzi (2017) states: Black economic empowerment codes have failed to fix inequalities, partly because of the focus on shareholdings rather than on black management of companies, according to the report, prepared for Treasury by Lynne Thomas, an independent researcher and consultant. BEE deals tend to favor direct owners over indirect owners, who hold their stakes through vehicles like pension funds, according to the report. The reason for pointing this out is simply to show that Municipalities are regarding the wrong criteria when it comes to assessing the worthiness of valuers tendering for contracts. Indeed, a study by Akinsomi et al. (2016) examined the utility of using B-BBEE as an efficient way to assess the merits of individual firms. Their study set out explicitly to measure the impact of Broad-Based Black Economic Empowerment (BBBEE) on the risk and returns of listed and delisted property firms on the Johannesburg Stock Exchange (JSE). The study was investigated to understand the impact of Black Economic Empowerment (BEE) property sector charter and effect of government intervention on property listed markets (p. 3). The study found that BEE-compliant firms had better returns than non-BEE-compliant firms but that fact there have been few assessments of this type indicates that there is a great deal more acceptance about BEE-compliancy being taken at face value than may necessarily be the case for all sectors.

With that said, it is also necessary to examine the role that the MPRA plays in directing the valuations process and how its recommendations factor into the methods used to collect valuations of properties.

SAPV (2013) provides its own recommendations to property owners when objecting to Municipal valuations. Posted to its website in 2013, this list of recommended actions provides a comprehensive examination of what owners are thinking when they seek to have valuations overturned. Understanding this perspective can better help Municipalities prepare their own rebuttal. To that end, it is helpful to obtain a grasp of how the public is being advised when it comes to objecting to a property valuation. As SAPV (2013) notes:

The Municipal Property Rates Act (MPRA) stipulates that all properties in each municipal district need to be valued every four years. Mass appraisal techniques based on comparable sales are necessarily used by the Municipal Valuer to fulfill this function. Mistakes will inevitably happen. Values could be incorrect due to differences in quality and characteristics of properties, incorrect comparables being used, incorrect sizes of structures or land (though this is improving due to the use of aerial photography) and even simple typing mistakes in calculations can lead to gross over- or undervaluing.

The MPRA is structured so that these errors can be corrected through public notification of valuations, followed by objections, re-valuations, notification, and then appeal should the objector not agree with the outcome. If your property value is incorrect, you should object and the municipal valuer will adjust it. There are a few things to remember when objecting:

Only object to a specific property, not to the valuation roll in general or in part.

You cannot object based on the value of other property values in the valuation roll (they may also be incorrect).

Do not object based on rates increases. Municipal valuations are based entirely on current market value at the date ofvaluation and are entirely independent of rates. Taxes are calculated by taking the budget of the municipality and dividing it by the total value of all ratable property in the municipality to arrive at a rate in the Rand figure, which is then multiplied by your property value to arrive at the amount due for each property. Though the valuation amount is used to calculate the rates it is the budget that determines the fee you pay and the annual increase.

Use recent comparable sales (that are genuinely comparable) in the area.

If your property is currently for sale or has recently been on the market, this information should be provided, together with any offers received.

You can also object based on quality, size, restrictions, servitudes or other things that materially affect the valueof your property in relation to the comparable sales in the area. Bear in mind that these may already have been taken into account. As mentioned, there could be errors, and there will obviously be issues that theMunicipal Valuer is not aware of due to the nature of mass valuations.

Be sure to provide details and all relevant documentation, without which your value cannot be changed. Remember there is often a different Municipal Valuer for each four year valuation cycle, so information you provided for a previous objection will not necessarilybe known to the new valuer.

Do not object to the category or zoning of your property to the Municipal Valuer. If you need a category change, this must be applied for directly with the municipality. There are specific forms for this and requirements that need to be met (e.g. for a change to agricultural proof of being abonefidefarmer is required).

A change from Vacant to Improved is an exception to this, as it is an obvious change if a new structure has been built or if a property is incorrectly categorized as vacant.

A valuation by a professional valuer or from an estate agent may be attached, but ensure that comparable sales are included in the valuation.

Be sure to provide accurate information. If your property is on the market at a lower price than the municipal valuation, there is clearly an error. However, beware if your house is being marketedat double the price mentioned in your objection.

Do not object if your valuation is correct. There are cases where on closer inspection an increase in the value is justified. Also if taken on appeal and it is found that the objection is frivolous, the objector may be liable for costs.

If your value is too low, you should object. It is up to each individuals conscience, but remember when you want to sellor need a bond, the municipal valuation will be considred.

For commercial properties provide financialinformation (rentals and expenses), but bear in mind that the valuer willuse market related rentals if the rentals are too low (e.g. owner occupier with artificially low rentals).

Finally, object even if you miss the deadline. Your objection will go onto the next supplementary valuation roll.

These recommendations are for the whole of South Africa, as they take into consideration the Republic of South Africas MPRA. While the Municipality is bound by the same MPRA, it may take note of how the public is interpreting it and what methods the public is utilizing in order to work within the Acts framework to obtain an overturning of a valuation it disagrees with. By studying this strategy of the public, the Municipality can formulate a response or counter-strategy that will protect itself and prevent the public from taking advantage of weaknesses in its own procedural policy in terms of how disputes and objections are addressed by the City. More on this will be discussed in the following chapters as this study seeks to develop a strategy that Municipalities may utilize to strengthen and fortify their own systems so that weakness is not a disadvantage and a liability to maintaining revenue streams and a healthy balance sheet.

An example of how the public is given the opportunity to inspect the Valuation Roll and object to a valuation contained therein is supplied by the Cape Town Municipality, with regard to its 2015 Valuation Roll. The public was informed of the following:

2015 General Valuation Roll for the City of Cape Town Notice is hereby given in terms of section 49 (1) (a) (i) of the Municipal Property Rates Act, 2004 (Act No. 6 of 2004), hereinafter referred to as the Act, that the 2015 General Valuation Roll for the period starting 1 July 2016 until the next general valuation roll is produced – is open for public inspection from 19 February 2016 until 29 April 2016. The GV2015 Valuation Roll is available on www.capetown.gov.za/propertyvaluatio ns. You may view your property valuation and submit a well-motivated objection by no later than 29 April 2016 against any matter in, or omitted from, the roll. Please note: The percentage increase (or decrease) in the value of your property or properties is not equal to the percentage increase (or decrease) in future rates payments. The forms for the lodging of objections are obtainable at the venues below, via the Citys e-services portal (for owners) and on the Citys website. NO LATE OBJECTIONS WILL BE ACCEPTED In terms of Section 49(1) (a) (ii) of the Act, any property owner or other person who so desires may lodge an objection with the Municipal Manager in respect of any matter reflected in, or omitted from, the General Valuation Roll within the abovementioned period. Owners will be notified of their valuations in writing at the postal address held on the Citys database. Attention is specifically drawn to the fact that in terms of section 50(2) of the Act an objection must be in relation to a specific individual property and not against the valuation roll as a whole (City of Cape Town, 2016, p. 3).



2.5 Other Valuation Considerations

2.51 Theoretical Frameworks

There are other complexities to the real estate market that might influence valuers assessments. These complexities have been the focus of researchers for a number of years, namely in their attempt to understand how value is derived, how it is applied, and what meaning can be obtained from the phenomenon of property ownership in and of itself.

The analytic conceptual framework of DiPasquale and Wheaton (1992) is based on the concept of viewing the real estate market in two separate and distinct paradigms: first, there is the market where real estate space is sold (the property market); second, there is the market where real estate assets are purchased (the asset market). The analytic framework is used to show the relationship between the space and assets markets; the main outcome depicted by DiPasquale and Wheaton (1992) is that both markets are impacted by the macroeconomy as well as by financial markets, both of which are increasingly intertwined, especially in todays global economy, where offshoring and agglomeration are factors in the establishment of economic equilibrium (Baldwin, Venables, 2013). The essence of the simple analytic framework used here is that homes as assets vs. homes as place of occupancy is the difference between residential and commercial real estate, with the link being that homeowners may occupy both spheres, though they inhabit only one home at a time. DiPasquale and Wheaton (1992) depict the framework thus, with the concept of price being determined by relational axis between the two markets:




As assets and property demands shift within the market, the relationship is impacted directly, and homeownership outcomes are affected in terms of shrinking markets, expanding markets, tightening markets, or bubble economies. This concept is important to understand for valuers because it could play into the formulations they devise when attempting to obtain a specific method of valuation. Leading up to 2008, the developed world witnessed a global bubble economy (from the US to Iceland to Europe, and Australia) as easy credit flooded the worlds major economies (and non-major economiessuch as Icelands) only to see economic booms based on debt evaporate into catastrophic busts once the credit bubble popped. Thus, the analytic framework of DiPasquale and Wheaton assesses the market relationship between home as place of residence and home as commodity in an assessment that underscores the monetary dichotomy in which homeownership is situated throughout the developed world. This dichotomy presents a stark contrast to the concept of homeownership in developing marketsand in countries like South Africa, foreign investment in real estate might add a speculative factor to the market and thus alter perceived values still more according to market movements, trends, and underlying financial currents on the macro stage. Should a valuer take into consideration these numerous variables when untangling the complex relationships between macro and micro data? This question is discussed in Chapter 5 following the presentation of this studys findings in Chapter 4. Suffice to say, valuers seek a stable, consistent method that is rather simplistic in terms of following established valuation patterns; they tend to forego considerations of the type of complexities realized by DiPasquale and Wheaton (1992).

Another theoretical framework that property researchers have applied in the past is the life course sociology framework. The life course framework places homeownership with the context of the socio-economic paradigm of modern society: in this framework, the concepts of family, community and health are situated within a larger economic landscape, where interactions and meaningful relationships among the variables intersect. Value is determined by this arrangement, as it underlines the fundamental aspect of property ownership, which is that it represents a contextualized component in the life of a community and derives much of its stored value from this context. For example, a piece of property that has no fundamental role within a community or that exists on the outskirts of a community may be seen as having less value than one that holds a precise and important role within a community, even if the two properties are unequal in terms of aesthetic value. Functional obsolescence may also play a part in understanding/valuing properties within this framework. The following figure by Lynch and Kaplan (2000) shows the dynamic of these relationships within the framework. It is more highly conceptual than most valuation approaches and represents a current of analysis into which valuations may be situated rather than a precise method in and of itself. I other words, valuers might derive an approach from these considerations but their method is unlikely to reflect much of the theory that Lynch and Kaplan (2000) display in the complexity of relationships.



As Carswell (2012) indicates, the life course framework applied to homeownership describes housing choices of individuals based on life events, with a focus on whether a family owns or rents and what type of housing is owned or rented (Carswell, 2012, p. 343). The framework allows researchers to identify predictors of mobility patterns of homeownership, families in the market, and the pathways between the two. These predictors may be used by valuers to estimate how a neighborhood or community is trending and how properties may be valued in the future based on current predictors. A model of valuation could be developed based on this framework but there whether it would be embraced by valuers is a question that requires more understanding of their own current valuation methods. Such is discussed in more detail in Chapter 5 of this study.

The descriptive analysis framework of Haurin and Herbert (2007) is used to analyze gaps between low-income and minority households and is founded upon the identification of the role of household formation, which leads to the propensity of homeownership as separated by supply and demand variables; cost-approach is examined under the demand side while location and mortgage capacity impacts the supply side of the framework.

There is also the framework of Copur and Zeymep (2015), which is based on the idea that individuals assign attributes to behavior and infer them as causal and in the case of property ownership and valuation, financial risk tolerance is impacted by both dispositional and situational attribution (p. 204), which is more likely to be considered by bank valuers as they take into consideration the lenders role in the property purchasing process.

Damodaran (2012) finds that when it comes to valuing real estate there is really not much difference between it and other financial asset. He notes that they share several common characteristics and that their value is determined by:

the cash flows they generate, the uncertainty associated with these cash flows and the expected growth in the cash flows. Other things remaining equal, the higher the level and growth in the cash flows and the lower the risk associated with the cash flows, the greater is the value of the asset. There are also significant differences between the two classes of assets. There are many who argue that the risk and return models used to evaluate financial assets cannot be used to analyze real estate because of the differences in liquidity across the two markets and in the types of investors in each market. The alternatives to traditional risk and return models will be examined in this chapter. There are also differences in the nature of the cash flows generated by financial and real estate investments. In particular, real estate investments often have finite lives and have to be valued accordingly. Many financial assets, such as stocks, have infinite lives. These differences in asset lives manifest themselves in the value assigned to these assets at the end of the estimation period. The terminal value of a stock, five or ten years hence, is generally much higher than the current value because of the expected growth in the cash flows and because these cash flows are expected to continue forever. The terminal value of a building may be lower than the current value because the usage of the building might depreciate its value. However, the land component will have an infinite life and, in some cases, may be the overwhelming component of the terminal value. (Damodoran, 2012, p. 739).

In short, Damodorans approach to property is that a number of factors must be considered before its true, inherent value can be appreciated. Unlocking this inherent value is a processbut it is essentially also an art and less so a science.

Many other theoretical approaches to property and value exist. Yet, in the final analysis, the factors, themes and theories that have been developed to understand property ownership and value are as diverse as the academic world itself: frameworks can intertwine sociological themes and theories, economic theory, psychological theory, socio-historical factors, geopolitical factors, financial themes, risk-reward concepts, share space economics, and so on. The partiality of some researchers when approaching the question of property and value for one particular conceptual framework over another may be indicative of a research bias, but that is not to say that such is detrimental to their individual studies, but rather indicative of the fact that all research tends to proceed from a theoretical starting pointeven phenomenological research, which focuses on obtaining inputs with as little researcher bias as possible. In the end, the formula or theoretical framework adopted for research is an issue that must be discussed on a case by case basis. This present study has already explained its purpose and approach. The theory that best encapsulates its assessment of the problem is economic and mainly concerned with enhancing Municipalities balance sheets.

It can, however, be strengthened by incorporating more complexly intertwined variables into its analysis. In terms of the life course framework, the factors influencing the concept stem from the sociological field and are informed by a behavioral-based theoretical approach to human interactions; whereas the combination framework of attribution theory and financial risk tolerance takes a completely different approach to the factors relating to property ownership and value by assessing the subject using themes identifiable with risk management and attributive psychology. In these two examples alone, one sees the dynamic possibility for creating various avenues to a subject that invites diverse interpretations.

2.52 Discussion on various property ownership models and frameworks in developed countries (citing examples from US, UK, Europe, China and Australia) and developing countries (sub-Sahara Africa, Ghana, South Africa, Indonesia and Nigeria)

The various property ownership models and frameworks in developed countries compared to developing countries find contrasting elements in the nature of the differences between the two extremes. The developed economies of nations such as the US, UK, Europe, China and Australia were and continue to be in a much more credit-driven financial situation centered on the intervention of central banking strategies, such as quantitative easing (Joyce et al., 2012; Krishnamurthy, Vissing-Jorgensen, 2011; Kapetanios et al., 2012), which both directly and indirectly impacts property ownership in these countries (not just in terms of boom and bust cycles but also in terms of bubbles, as the West saw burst in 2008, prior to the crash in real estate prices, and as Asia and China in particular have seen more recently with real estate prices, as Chinese money seeks escape from capital controls in safe havens abroad and in other more novel assets, like Bitcoin) (Ma, McCauley, 2008).

Thus, the various parameters explored by researchers and theorists is largely dependent upon both a localized sense of dynamics and a larger worldview that can range in the examination of factors of property ownership and value as widely as the world itself. For developing worlds, such as sub-Saharan Africa, Ghana, South Africa, Indonesia and Nigeria, the role of QE in the property market may be viewed by some as less impactful than the socio-political dynamic of these regionsyet by other researchers, the impact of QE on DMs is vastly important. In the case of South Africa specifically there are instances of instability that have indicated problems with the valuation process on a simple, socio-economic level: for instance, there are cases of mansions of upwards of 13,000 sq. f. which would go for millions of dollars in the US or in Europe, being on the market in Johannesburg for a mere fraction of the price. How does value compute in such casesand if value is relative, might a valuation be derived that is considered from a macro perspective rather than from a micro perspective if the macro views the property as having more worth than does the micro?

Without considering the possible disparate predictors of property value and the impacting factors that may be relevant even among the developed world (for example, the characteristics of Indonesia and Nigeria are as different as China and the UK, or as China and South Africa for that matterthough these latter two are part of the BRICS nations and would therefore share that similaritya point that further indicates the problematic nature of classifying nations as either being developed or developing when these terms can even be considered to be outmoded in todays globalized world), a research approach cannot begin to extricate the nuanced variables that impact property value critera from one region to another (or even from one Municipality to another) before it becomes all too apparent that the subject is far more complicated than a simple and generic evaluation or categorization should warrant.

For this reason, it may be understood why valuers adopt for a simplistic method and set of criteria that can be use in property valuations.

2.53 Advantages and disadvantages of adopting a conceptual framework

The advantages of the conceptual frameworks discussed herein are that each provides a representational basis of the field of scholarship in the academic world as it pertains to the dynamic of property ownership and the inherent value derivative of the underlying. This analytic framework takes a purely economic view of property ownership and value, whereas the life course framework takes an effective socio-economic view of property dynamics. The disadvantages of the frameworks discussed is evident in the other side of the coinwhich is to say that in narrowing their focus in terms of theoretical basis, they inevitably provide only a limited explanation of the subject; that is, they offer only one window or perspective onto the issue, which is as good as attempting to gauge the layout of the horizon by glimpsing a small corner of the edge of it through ones fingers. The whole is much more significant than the parts, and the sum of the parts does not in every case add up to be equal to the whole. Thus while there is an advantage to using one particular framework over another for the sake of limiting ones scope and focusing on a specific theme within a specific context, the disadvantage is that the end result is not as comprehensive of the subject as it needs to be in order to have the fullest possible understanding.

In summation, a review of the conceptual frameworks of property ownership and value reveals a diverse, dynamic and wide array of possibilities, from various academic fields, including economics, sociology, geopolitics, socio-economics, psychology, etc. The frameworks discussed show just how many diverse possibilities exist for examining the subject of property and valuation. Conceptual frameworks must necessarily vary from region to region and from developed to developing world as different factors, themes, influences, and theories attempt to distill the issues that determine outcomes in these specific regions.


2.6 On Audits, Insurance and Adjustments

2.61 On the Application of Special Valuation Audits which can benefit the Municipality

Two questions may be asked regarding the validity of the Valuation Rolls by the public: 1) Do Municipalities apply Special Valuation Audits to check integrity of valuation rolls? 2) What would be the benefits of applying special valuation audits?

As far as the public is concerned in South Africa, currently, Rates Watch is the only company in South Africa dedicated to monitoring and auditing of municipal valuations and rates accounts (Rates Watch, 2017). Rates Watch is in the City of Ekurhuleni and has been in business since 2009. Its main objective is to represent clients in seeking valuations corrections.

The benefit of applying special valuation audits would, of course, be to check the validity of the valuationsbut keeping up with the valuation rolls is already a laborious, full-time task for the Municipalities, and auditing them through an internal or external system would be an added element of labor that has not been factored into Municipalities procedural plans. Were a Municipality to be able to evaluate the validity of valuations prior to any challenge from a property owner, a defense might be more readily available. However, even this is difficult to measure given that no auditing system is currently in place.

Moreover, the cost of applying Special Valuation Audits to the valuation system could be considerablethough a cost-benefit analysis has, to this researchers understanding, never been performed. Evaluating the cost-benefit ratio would help to determine a better sense of whether auditing the Valuation Rolls is important enough to have a plan developed and implemented. Currently, the public must rely upon Rates Watch for auditing assistance.

As Massel (2011) notes with regards to the municipal appeals process, the results of the objection process or valuation appeal hearings are not published by the municipalities. The performance of municipal valuers is therefore difficult to monitor or judge (p. 18).

2.62 Requirements for Valuers to Have Professional Indemnity Insurance and Benefits Thereof?

The question of whether Municipalities require professional indemnity insurance of Valuers doing the municipal valuation roll is answered in the survey delivered to participants. The same goes for valuers of banks of corporations.

In South Africa, the Property Valuers Profession Act, No. 47 of 2000 stipulates that all property valuations be performed by a Valuer registered with theSouth African Council for the Property Valuers Profession(SACPVP).

In the event of valuers over-valuing a property on which a bank is granting a mortgage and the borrower has his property repossessed / foreclosed and the bank needs to sell the property at auction and the property is found to have been over-valued and the bank cannot achieve the market value sale price required; then the bank could have a claim against the valuers professional indemnity insurance as a result of the over- valuation. This is why it is important that valuers be protected through insurance.

One question that might be asked in follow-up is: What is the recourse for Municipalities in the event of properties being under-valued and the Municipalities receiving less rates and taxes? If so, there should be recourse for the Municipality to claim loss of revenue due to under valuation. However, this is a sensitive and controversial item and I do not thing Municipalities enforce this item.

2.63 Adjustments of Valuations by A Municipal Valuer

According to Local Government: Municipal Property Rates Act, 2004 (Act 6 of 2004), Chapter 6: Valuation Rolls, compulsory review of decisions of a municipal valuer:

If a municipal valuer adjust the valuation of a property in terms of section 51(c) by more than 10 per cent upwards or downwards

a) the municipal valuer must give written reasons to themunicipal manager; and

b) the municipal manager must promptly submit to the relevant valuation appeal board the municipal valuer’s decision, the reasons for the decision and all relevant documentation, for review.

Additionally, an appeal board must:

a) review any such decision; and

b) either confirm, amend or revoke the decision.

If the appeal board amends or revokes the decision, the chairperson of the appeal board and the aluer of themunicipalitymust ensure that the valuation roll is adjusted in accordance with the decisions taken by the appeal board.

This is important to note because it shows that the valuer of the municipality is not autonomous in overseeing the Valuation Rolls and that there is an independent judiciary that provides guidance and oversight regarding the appeals process. A municipality must be prepared to address all appeals in light of this knowledge and develop a process whereby it can exercise its faculties fairly and efficiently so a favorable decision can be received.


3 Methodology

3.1 Introduction

The methodologies employed for this study were designed to address two issues: 1) gathering information regarding the valuation of properties by Municipalities and by Publicly-Traded Companies in South Africa and comparing the two to determine if one valuation was more appropriate than the other, and 2) obtaining information from professional valuers to determine their chose method of valuation and comparing it to the proposed method of this study.

The methodology proposed herein includes ALL publicly traded companies that reflect their real estate assets in their balance sheets / annual reports. It is proposed in this study, based upon the findings depicted in the next chapter, that the Municipalities can utilize these values which are listed in the annual reports and balance sheets of the publicly traded companies for municipal valuation roll and market related value purposes. When REITs are mentioned specifically in this study, that reference should not be taken as representative of the sample used herein as a whole: rather, REITs provide for literally hundreds if not thousands of properties which are easily accessible, which allows for market values to be easily determined. Nonetheless, they are not the only source for such information. All publicly traded companies will provide a market value of real estate that is under ownership by them.

Thus, it is important to note that other publicly traded companies (whose core business is not real estate investment for purposes of income producing properties) might have their head offices or distribution centres or custom facilities described as real estate assets in their overall company annual reports. For example, major banks might own their head offices, in which case the value of the head office premises is likely to be listed in their annual reports or balance sheets. These real estate assets would also have municipal values on which the publicly traded company pays rates and taxes based on municipal value. In doing so, these publicly traded companies have their company and related assets verified and valued for balance sheet and annual reporting purposes. Therefore, these companies, in addition to REITs, form part of the publicly traded sector whose real estate asset values should be linked to the Municipal Valuation Roll market valuation process.

In the following sections, a description of each method is provided so that the process by which information was obtained can be clearly seen and understood and even replicated if necessary by other researchers.

3.2 Obtaining Data from Publicly-Traded Companies

The researcher first downloaded the annual reports of the Publicly-Traded Companies (as described above) on the JSE (Johannesburg Stock Exchange). The researcher then took a random sample of properties listed in the annual reports, which had property descriptions and Market Values mentioned. Once the researcher had identified a sample of properties (by going through and taking random properties, at high value, low value, medium value, in different property categoriesi.e. retail, industrial, hospitality and office portfolio), the next step was to locate the properties in the Valuation Rolls.

Thus, the next step was for the researcher to contact the applicable Municipality wherein the property was located and checked the value at hand (as documented in the annual report) VERSUS the Municipal Value of the property as per the Municipal Valuation Roll.

The information in the annual reports provided predominantly property addresses (in some instances abbreviated/shortened addresses) and did not provide stand numbers (Erf Numbers). In South Africa valuation records retrieval typically needs a stand number (Erf Number) in order to do a municipal valuation roll search. Some municipalities do provide an option to search using an address. However, the search does not always give a proper result and the result is sometimes empty as the correct property info has not been provided.

The researcher did have difficulties looking up values. In many instances the property descriptions could not be found on the Municipal valuation roll in these instances the researcher simply disregarded that sample and chose another sample property to compare Value as per annual report VERSUS Value as per municipal valuation roll.

The researcher only used the property data of Publicly-Traded Companies which could be used for Municipal Valuations Roll searches (if not enough data was available in the annual report, the researcher tried to obtain the additional property description information).

It should also be emphasized that in some instances the properties listed in the annual report of Publicly-Traded Companies could not be found on the municipal valuations roll. The researchers own explanation as to why this should be is that different municipalities have different search methods, some allowing one to search by property address, others requiring the ERF number. In these instances where no property was found on the Valuation Roll, that property was omitted from the samplebut the question remains as to whether or not rates are being charged on the property. It could also be that the researcher simply could not find enough of the property details to do the municipal valuations search in that particular municipal search index. It could also be the case that the Municipalities simply had no records for these properties as a result of negligence, poor oversight, a lack of auditing, or a combination of any of the above.

In instances where the municipal valuation roll had multiple values for one property the researcher also decided to omit the property as it seemed evident that there was clearly a problem with the records on the Valuation Roll. This just goes to show that the municipal records keeping could stand to use some improvement and cannot even be wholly trusted as a verifiable resource on its own terms. This is indeed highly problematic and the findingsparticularly the critiques of other professional valuersprovided in this study bear that out substantially well.


3.3 Obtaining Data from Professional Valuers


Information from Valuers was obtained in two ways: first, it was obtained through survey method and questionnaire method. The surveys and questionnaires may be found in the Appendix to this study. Second, data was obtained through interviews and research of various valuation firms online. Internet searches were conducted by using a variety of keywords in both Google and Google Scholar. Background information obtained through this method has already been provided in the Literature Review. Data that pertains to the main purpose of this study, which is to better understand valuation methods of professionals and how the Municipality could develop and implement a more efficient valuation method is provided in the next chapter.

Surveys and questionnaires were structured while interviews were non-structured and free-flowing, so as to allow the interview to take a more organic turn and evolve naturally as the union of minds progressed in a conversational manner towards the spontaneous revelation of information. This non-structured interview approach was also useful in preventing researcher bias from presenting itself i an overt form: because questions were not pre-planned or arranged, there was a very limited opportunity for the researcher to insert himself into the data-mining process. Instead, the focus was on prompting the interviewee to talk by showing an interest in his profession as a valuer, allowing the interviewee to speak freely, and asking the interviewee for more details on topics related to valuing properties. As Fischer (2009) states, too often qualitative researchers discover while we are working with interview transcriptions that the interviewer was better at putting aside assumptions than at encouraging participants to fill out their accounts. Engaging participants in elaborating their descriptions allows us to check our earlier understandings and to deepen our attunement to alternative understandings (p. 588). Thus, in accordance with the recommendation from Fischer (2009), the main objective in the interview process was to engage the participant and obtain a full account of the process used by the professional valuer.

The interview and questionnaire methods were used to provide a qualitative examination into the main criteria impacting the valuation process used by professional valuers. Based on the concept of the unstructured interview as a conversation put forward by Burgess (1982), the approach used in this study is similar to the conversational, which has roots in the phenomenological approach to information gathering. As Schwarz (1995) notes, there is a logic of conversation that can yield substantially more in-depth results and comprehensive answers than can a pre-determined set of questions that do not facilitate the natural progression of thoughts that might arise in a respondent when the interview is unstructured and more like a conversation. The aim of this unstructured interview approach is to obtain more genuine insight into the perspectives of the participantsa perspective that is not constrained or contrived in terms of how the interviewer steers the interview. Interviews follow a pre-determined path: conversations follow a spontaneous road that can lead to surprising resultsresults that can be wholly unexpected for the researcher.

While the unstructured interview is more free-flowing and improvisational than a structured interview, the name may be somewhat misleading as there is still a degree of structure in the way the interview is begun. The main interrogative process used for each of the interviews was to begin by asking the participants about their perceptions of the valuation process. The researcher could show interest in properties, having developed an understanding of the real estate market over the years, and was thus able to show informed interest in the concepts and subjects that would come up.

3.4 Framework

The framework for this studys methodology is based on the Interpretivist concept described by Cohen, Manion, and Morrison (2007). Interpretivist theory states that research is best conducted when conducted from the inside. This means that, whenever possible, the researcher should be inside the environment that is the subject under question. He should be directly experiencing the data. This is possible through face-to-face interviews, surveys and all-around immersion in the world of the subject, which in this case is real estate. The Interpretivist Theory is derived from concepts developed by Husserl and Schultz, who advanced qualitative research through the unique phenomenologist approach. Their framework makes it possible for the researcher to understand, explain, and demystify social reality through the eyes of different participants, (Cohen, Manion, Morrison, 2007, p. 19).

All participants and respondents are presented anonymously in this study.


1. Questionnaires And/Or Interviews included the following questions and groups of participants-

a. Valuers Registered With the South African Institute of Valuers (SAIV);

i. How long have you been a Professional Valuer?

ii. Have you ever been involved in valuations for a municipality for the purposes of determining values for the municipal valuation roll?

iii. Is there meant to be a difference between Municipal Value and Market Value and if so, why?

b. Valuers Registered With RICS (Southern Africa)





4 Findings

4.1 Introduction

The findings of this study are divided into the following sections: 1) Discovery, which allowed for a great deal of information related to the subject and issues at hand to be found and examined at length; 2) An examination of the valuation methods of the real estate funds listed on the JSE; 3) Professional valuer critiques of Municipal Valuation conditions and methods; 4) Survey and Interview findings; 5) A comparison of Municipal Property Valuations with actual Property Market Values as assigned by South Africas real estate funds.


4.2 Discovery

A professional associated valuer by the name of Tsietsi Madonsela, on behalf of property valuation firm Lutendo Valuers, gave the following description of property valuation in a presentation from 2013 to The Entrepreneur Empowerment Property Fund Programme (EEPFP): Property valuation may be described as the process which a professional individual qualified to quantify and analyse fixed assets undertakes to establish a range of value or values for a specific property, real estate or property portfolio, taking into account the internal as well as the external environment and all elements that may have an impact on these.

One of the most interesting assertions of Madonsela in his 2013 presentation was his assessment of the function of the property valuer: The valuer should have a broad based knowledge of the following aspects:

1) The locality and local environs of the subject property, its relation to the macro and micro economic factors and its proximity to amenities and major services

2) The financial aspects of the property with specific reference to the income that the property may obtain if fully let at market related rentals, the expenses on the property as well as the capitalisation rate that is applicable on the property. The valuer must be able to analyse and express an informed opinion on these aspects.

3) The internal and external environmental analysis of the property and the impact that these factors may have on the functional, physical and financial obsolescence of the subject property.

4) The correct identification of the property utilising the exact and precise legal description, the scrutinization of the title deed and lease agreements on the property.

5) The local, national as well as international real estate market analysis and indications on these markets with specific reference to the impact on the subject property.

6) The investment potential and institutional investment portfolio aspects and the positive and negative factors that may have an impact on the portfolio or the institutional property investor.

These six functions of the property valuer represent a clear-cut and distinct estimation of the scope that a professional valuer should have when assessing a property. For a municipal valuer, these 6 functions would go a long way towards informing a systematic process by which real estate is appraised. More will be said on that in the following chapter.

According to Madonsela, the reasons for undertaking a valuation included:

Purchase and Sale

Rental Determination

Corporate Reporting /Asset Identification

Public flotation/Listed Funds


Replacement cost



Land Restitution



Estate Duty

Transfer Duty

p>Capital Gains

Madonsela also noted that the valuation or the establishment of value is different for each category and type of property. The valuer then identified the following methods of establishing value:

1) The market approach

2) The income capitalization approach

3) Discounted cash-flow method

4) Depreciated replacement cost method

These four methods mostly aligned with the methods used by the non-municipal professional valuer respondents of this studys survey. (Municipal valuers stated they used the mass valuation system aka CAMA).

Madonsela described each of the four methods in the following terms:

The market approach was defined as a method of direct comparison. This means that the property is compared directly to properties of a similar nature. The similarity of the property in the case of a residential property would then be the location, the extent of the subject property, the finishes, the accommodation, the overall appeal, the proximity to amenities etc. These aspects are then used to scrutinize the subject property and create a range of value based on analysing comparable sales that have the same comparable aspects as that of the subject property. The simplified explanation is comparing an apple with an apple. (This particular approach is most often used for residential type properties).

The income capitalization approach was defined as a financial and economic approach to Real Estate valuation. This approach assumes that the property will be fully let at market related rental rates affording the property to generate a gross income stream over one year. This gross income stream will then be simplified into a net income stream taking into consideration all the expense aspects required in order for the property to function correctly. These expenses include but are not limited to Rates and taxes, Management Fees, Maintenance, Audit Fees, Security, water and lights etc.

Once a net income stream is established the property is than capitalised by an appropriate capitalisation rate. These rates are deduced by the valuer in terms of analysing similar sale in the direct local environment. If the value of sales has been analysed and appropriate market related rentals are applied to the property with a similar on anticipated expense ratio than the specific capitalisation rate may be obtained for the subject node and then applied to the subject property. This method is primarily used for commercial type properties.

As a visual aid to assist in the understanding of the income cap approach, Madonsela offered the following:




One can see that for commercial and/or rental properties, the income cap approach is particularly effective because it takes into consideration the facts on the groundi.e., those variables directly related to the income produced by the property along with the costs. To that end, a suitable valuation is established. As opposed to the market approach, which is more suited to valuing residential properties, the income cap approach views properties as a means of creating rather than storing valueand this difference shapes the method.

The discounted cash flow method was defined as the best method to utilize when a property with a particular investment angle is analysed. This methods takes into consideration the Net Present Value of the asset as viewed from the financial perspective of The anticipated expectations a property would have based on an income stream into perpetuity and then discounted back as of today to reflect that future anticipated returns as a realistic value today.

The depreciated replacement cost method was defined as most often used when the property or the environ lacks the required information to formulate a range of value as afforded by the first two methods. This method anticipates the current replacement value of the improvements in question and then depreciated these improvements utilising a factor of depreciation as deduced from the economic, functional, financial and physical obsolescence that may have an impact on the value. This is not the best valuation approach and is often used in conjunction with one or more of the other major methods.

Another useful source of information obtained through keyword searches, this time associated with South African municipalities and audits, was the 2012 report from international renowned auditing firm Deloitte. Deloitte described the condition of municipal governance and financial accounting in rather deplorable terms. Deloitte (2012) introduced its report by stating that seldom in the history of South Africa has the performance of our system of local government received such close scrutiny as in the last two years. Headlines are dominated by issues of service delivery failures and civil unrest, mismanagement, financial management challenges and poor audit outcomes, skills shortages, inadequate infrastructure planning, maintenance and investment, corruption and abuse, political infighting, labour unrest and various interventions by national and provincial government (p. 1). Deloitte went on to state:

In its own very hard hitting and honest assessment of the state of local government in 2009, the Department of Cooperative Governance and Traditional Affairs (CoGTA) concluded that local government is in distress and that a comprehensive turnaround is needed. Their report inter alia referred to the challenges of huge service delivery backlogs, leadership and governance failures, corruption and fraud, poor financial management, insufficient capacity due to a lack of scarce skills, high vacancy rates, poor performance management and inadequate training. Cadre deployment without adequate assessment of skills during this process has further exacerbated the problem

The above challenges contribute significantly to the current service delivery backlogs in South Africa. These are estimated at 19.3% in water backlogs, 32.6% in access to sanitation, 27.3% in access to electricity and 40.1% in access to refuse removal. Although the reasons for service delivery protests are often complex, these backlogs certainly contributed to the perceptions of poor service delivery and the consequent civil unrest as evidenced by more than 200 service delivery protests during the last 24 months.

The overall conditions of South Africas local government as presented by Deloitte indicated all the more how critical and important having a system in place to effectively value properties could be to the overall stability of the municipality.

4.21 Regarding Municipal Valuations, Corruption & Incorrect Valuations


4.211 Problems in Joburg: Valuers and Corruption


Anderson (2017) reported that a valuer in Johannesburg was arrested on charges of fraud and corruption, which linked the valuer to lowered valuations given to Rebosis Property Fund, which had objected to the valuations applied to a handful of the Funds properties, as shown on the Municipal Valuation Roll. Rebosis Property Fund was, as a result, in the news in Johannesburg. The Fund had indeed appealed several property valuations. This study will examine, however, one property that was not appealed but that was included in several documents provided by the company. It is worth examining because of the clear discrepancy between the manner in which the Fund values its own property and the value applied to that same property by the Municipality. In this case, this study is examining the property located at 64 Eloff Street in Gauteng.

As can be seen from Rebosis Annual Report from 2016, the property is listed and valued at R 83 000 000. A screen capture of the firms publicly published data is provided below:




Five properties up from the bottom is the listing under consideration.

A opy of a tax invoice for the same property, delivered to the firm from the Municipality in 2016 indicates that the propertys Municipal Valuation is far lower at R 20 600 000.




What is more interesting is that the property in question was originally valued according to the General Valuation Roll in 2013 at R5 750 000. The Municipality had raised the valuation but just under R15 000 000but this was still nowhere near the valuation that the firm applied to the property in terms of Market Value, which it shared with shareholders and any and all other interested parties who might examine its annual report. The original valuation is noted in a letter from Rebosis to Carte Blanche. The details of the letter are provided later. First context for the letter is given by way of Andersons (2017) reporting on the firm and its objections to Johannesburgs Municipal valuations of its properties.



One sees from the chart above, provided by Rebosis, is that the property listed firstErf 4767 (the stand number of 64 Eloff Ext Street) had an original valuation from the Municipality of Johannesburg in June 2013 of R5 750 000 and that the valuation had increased to R20 600 000. Yet, in 2016, Rebosis was valuing the property at R 83 000 000more than R60 000 000 over the Municipal valuation of the General Roll.

This is one but one example to show how far apart the Municipal valuations are from the valuations of publicly-traded companiesand how short-changed the Municipalities are as a result of such poor valuations on their part.

Returning, however, to the story described by Anderson (2017) of the Johannesburg valuer arrested on charges of corruption and fraud, it is important to understand the context and how frequently this sort of issue can crop up in Municipalities. As Anderson (2017) reports:

Listed group Rebosis Property Fund has said it welcomes an investigation by the City of Johannesburg into fraud and corruption in the valuing of certain city properties.

Johannesburg mayor Herman Mashaba said a former candidate valuer had been arrested on Wednesday on charges of fraud and corruption.

This followed the airing of an expose by television show Carte Blanche on November 6 2016 into irregularities in the setting of Johannesburg property valuations, as well as an investigation by the citys internal forensic investigations unit, headed by General Shadrack Sibiya.

The valuations caused a loss in municipal revenue to the city.

The valuer was suspected of irregularly and fraudulently devaluing 22 properties in the city, amounting to just under R500m, Mashaba said.

The fraudulent adjustments and changes of the market values of the properties by invalid municipal objection outcome letters resulted in the loss of an estimated R40m worth of revenue over five financial years, Mashaba said.

Rebosis is the owner of four of these 22 properties, which it rented outed largely to state departments.

The investigation was ongoing.

We intend on also going after private companies and individuals who worked with these officials to erode the integrity of the city and steal from our residents. These individuals in the private sector must also face the full might of the law and stolen money returned, said Mashaba.

On Thursday Rebosis responded to Mashabas comments.

The current investigation and action being taken is in the hands of the City of Joburg. Rebosis welcomes the action by the mayor and the citys zero tolerance to corruption, it said.

The company have every confidence in the city to get to the bottom of this matter. As a responsible listed company, Rebosis has zero tolerance to any criminal activities, and have never and will never, involve ourselves in any crime-related or corruption issues. Since the company started in 2010, Rebosis Property Fund has always adhered to strict corporate governance policies and we therefore fully support this investigation to ensure the property sector remains stable, secure and sustainable, it said.


The letter written by Rebosis to Carte Blanch following the airing of the latters television show, stated the following in an effort to clarify the issues presented by Carte Blanche to viewers:


The airing of an episode on property devaluations by Carte Blanche on the evening of 13 November 2016 refers.

This programme insinuated illegal council devaluations of certain properties and made specific reference to the Company, creating an impression that Rebosis was involved in these alleged practices.

At the outset we want to make it clear that Rebosis stands against all and any form of corruption and encourages authorities to expose and deal with such as it corrodes our country and those found guilty must be dealt with accordingly.

These allegations are completely unfounded and misleading.

Carte Blanche engaged with Rebosis on 27 October 2016 on the matter and the Company duly responded in detail on the 29 October 2016. This correspondence as well as supporting documentation is available in attachments hereto.

In 2013, following significant and unrealistic increases in property valuations from the City of Johannesburg, Rebosis appointed Hirsuflo Trading as an independent valuations consultant to deal with the valuations process.

Rebosis does not engage directly with council valuers but utilises valuers and specialised consultants to object to council(s) unilateral increases in valuations each year. This process commences with council valuers and failing resolution it runs through to their independent valuations appeal board consisting of 10 (ten) members, including 7 (seven) independent members.

Of the four properties mentioned by Carte Blanche, our independent valuers objected to three properties in respect of the valuations, and one property in respect of rezoning from residential to commercial (Erf 4767) resulting in an increase in the valuation.

Two of the objections were not successful and the process went through to the valuations appeal board and adjustments were made as per the detailed response herewith. Hirsuflo provided us with all official objection numbers and official appeal numbers. (Refer table below.)

All these objection and appeal numbers are logged and exist in the City of Johannesburg System for the period July 2013 to March 2015.

It is important to note that the difference from the original CoJ valuations dated June 2013 is actually R74 727 500 higher, which equates to a 55% increase in value (R135 072 500 to R209 800 000).

Our response to Carte Blanche (which information Carte Blanche conveniently ignored) stated that Erf Selby South Ext 1 increased in valuation from R0 to R120 million, which was the purchase price.

Our valuers have received official notification today that the valuation increased from zero to R58.4 million, following the Carte Blanche airing.

With regard to Erf Selby South Ext 1 we did not receive any correspondence from the municipality regarding the rates accounts for a period of time. When we informed the municipality that we were not receiving rates accounts they discovered that the erf was not on their records.

Further, as a pre-caution, not only do we utilise consultants with good credentials, we also require them to sign an indemnity whereby they undertake and warrant not to bribe nor solicit undue favour from any council officials in rendering their duties, same is attached for your information dated 03 September 2015. This is over and above the consultants mandate and has become standard practise for Rebosis as a public entity in utilising external consultants.

We will be taking this mattr up with the Mayor of Johannesburg and all other role players concerned and are engaging further with Carte Blanche, reserving all our rights, in particular our right to lodge a complaint with the Broadcasting Complaints Commission.

By order

The Board

4.212 Problems in eThekweni (Durban) and Tshwane (Pretoria)


In response to a post entitled Valuation Scandal by Jonathan Erasmus (2016), which described the work of Dr. Robert McLarena property rates crusader, who was operating a remarkable one-man campaign to ensure that property owners, particularly the very wealthy, shoulder their fair share of the municipal tax burden, a professional valuer responded to the editor of NoseweekOnline to share his own story. McLaren was noted for exposing major deficiencies in the valuation system applied in Durban and various towns in KZN, and most recently extended his campaign to Johannesburg, where the same company which operates in KZN is contracted to do the citys property valuations. He found that their system tends to overvalue low-end properties, while massively undervaluing the properties of the very rich, in many cases not valuing them at all (Erasmus, 2016).

Gerrie Minnaar, the principal professional valuer of CRI Properties C.C wrote that as a professional valuer I found your article Valuation Scandal not only very interesting but also extremely worrying. I am also a principal estate agent specialising in commercial property and have a comprehensive database of commercial properties throughout the Tshwane Metro.

I specialise in commercial property valuations in the area and can confirm that an alarmingly high number of municipal values of commercial properties in the region are under-valued, if the required valuation criteria as prescribed in Chapter 5 of the Municipal Property Rates Act No 6 of 2004 (MPRA) are applied. Clause 46 (1) of Chapter 5 clearly stipulates that Subject to any other applicable provisions of this Act (MPRA), 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. The Act also clearly stipulates in clause 3(3)(a) in Chapter 2 that A rates policy must treat persons (entities) liable for rates equitably.

There are far fewer commercial properties in any municipal area than residential ones and it is understandable that mass appraisal techniques are applied when valuing residential properties. However, there is no reason why a municipal valuer should not deal individually with commercial property valuations by the tested conventional methods.

Also worrying, is that continued annual rates tariff increases, especially for commercial properties in the Tshwane Metro, have resulted in municipal valuers being reluctant to value them strictly in accordance with the Act. This became apparent to me not only from market information on my own database but also when one of the chief municipal valuers at the Tshwane Metro told me he values low to avoid trouble. From this I deduce that, should commercial properties be valued strictly in accordance with the Act, many owners would object to paying the resulting higher rates and appeal their municipal property values. Municipal valuers would be constantly subjected to legal scrutiny by top lawyers, spending endless hours attending to such appeals and facing potential humiliation, as was Robert McLarens experience.

Maybe if the municipal rates tariff for commercial properties was lowered, the municipal valuers could be more inclined to value in terms of the requirements of the Act. As a matter of interest, the Tshwane Metro commercial/business property rates tariff applicable from 1 July 2016 is 0,03362 cents in the rand compared with 0,018287 in the Johannesburg Metro (Minnaar, 2016).

These two articles indicate that, like the Municipality of Johannesburg, the Municipalities of eThekweni and Tshwane have also come under the fire for valuations corruption. Ekurhuleni and Cape Town Municipalities have not come under as much scrutiny for their valuation issues, but as the comparison of Municipal valuations and publicly-traded companies property valuations shows, they too have clear problems that need to be addressed.

However, Rates Watch has provided some coverage of Ekurhuleni valuations that is worth observing.

4.213 Problems in Ekurhuleni

Rates Watch (2012) noted that Ekurhuleni Metro advertised their 9thSupplementary Valuation Roll,without advertising the notice of objections in the Provincial Gazette. The notice was only gazetted on 23 March 2012. As a result, Ekurhuleni Metro was forced to extend their closing date of objections by a month to the 30thApril 2012. The question that comes to mind is whether the metro re-issued their Section 49 notices as a result of their mistake? Did property owners rely on the closing date of the 30th March 2012 or were they made aware that an error had been made by the Ekurhuleni Metro and that the date for objections has been extended to the 30thApril 2012? Rates Watch predicts that it is only a question of time before a High Court Application is sought preventing a municipality implementing a non compliant valuation roll.

Rates Watch (2012) also noted that in Ekurhuleni, contract valuers were appointed on very short notice to compile the 2013 valuation rolls. With due respect to all concerned, this is mission impossible and it is inevitable that serious mistakes will be made. To even think that an accurate valuation roll can be achieved within the space of one year, reflecting market value for all categories of properties is wishful thinking. The attack by Rates Watch against the Ekurhuleni Valuation Roll of 2009 was devasting. To date 1, 5 Billion rand of valuation reductions have been achieved by Rates Watch against this metro alone. To add to our concern, the main contractor to the Johannesburg Metro, is eValuations who are also compiling the Ekurhuleni, Nelson Mandela Bay and Merafong valuation rolls. Between these metros, the collective number of properties being valued by this contactor is in excess of 1, 8 million entries. Due to the extreme narrow time frame, outdated data base in Johannesburg, the shortage of qualified and experienced municipal valuers to compile these rolls, there is no doubt that grave errors will be made in the compilation of these valuation rolls. In other words, Ekurhuleni Municipality is having difficulty accomplishing its valuations. As Rates Watch (2012) also reports: At a recent hearing of the Ekurhuleni Appeal Board, the Municipal Valuer conceded that he made a blatant error ab initio in the category definition of a property. The Appeal Board duly upheld the appeal lodged by Rates Watch. Ben Espach, our Director of Valuations, in a very well presented case argued that accordingly the date of implementation for the appeal decision and the calculation of rates and taxes must be the 1stJuly 2009, being the effective date of the general valuation roll and the date on which the Municipal Valuer made the error. The Municipal Valuer set the effective date as the date upon which the entry appeared on the supplementary roll. The Appeal Board held that the question of back dating was a rating issue over which they had no control or authority to implement. It makes a substantial difference to the property owner regarding the rates refund he is entitled to. Where to from here? The only recourse is for the aggrieved property owner to institute a claim for damages on the basis that, as a result of the incorrect entry made by the Municipal Valuer, he has been paying incorrect rates and taxes and is therefore entitled to a refund between the rates charged on the incorrect category and the rates that should have been charged on the corrected category now appearing in the supplementary roll. This matter also begs the question of whether the Ekurhuleni Metro is acting in goodfaith. Are they following the principles of fairness and equality in terms of their own rates policy and are they not in breach of the Constitution and PAJA? Clearly there are fairness and equitability issues that must be addressed in this Municipality as well.

Of the five Municipalities examined for this study, only Cape Town has been identified by Rates Watch as the country’s leading municipality in terms of implementing and administrating the MPRA (Rates Watch, 2013). Still, its valuations could stand to be better representative of market value, as this studys findings show later in this chapter.

4.22 The Appeals Process: An Example of How Municipalities are Losing


As the letter from Rebosis to Carte Blanche shows, there are a number of problems to be seen in the Municipality valuations process. One of the most glaring problems is the lack of an erf number for a property owned by Rebosis. As the company points out in its letter, the Municipality had no record of the erf number in its possession and therefore the property had not ever received a rates accounts. The firm had to tell the Municipality that it was not receiving a rates accounts for the property in order to have the situation rectifiedand only then did the Municipality begin to receive revenue: When we informed the municipality that we were not receiving rates accounts they discovered that the erf was not on their records, stated Rebosis in its letter. As the later findings of this study show, this is indeed not an isolated incident: there are several properties identified in this studys comparison of Municipal Valuations with Market Valuations from Publicly-Traded Companies that show no information on record for the property, which clearly exists as it is owned and valued by the publicly-traded company and has its value published in the companys annual report.

There is still more of interest in this analysis of the Rebosis incident, dredged up by Carte Blanche. Rebosis had objected to three valuations and to one re-zoning (the property at 64 Eloff). This is discussed in a letter from Rebosis to Carte Blanche, which was conducting its own investigative journalism into property valuations in Johannesburg. Rebosis shows in this letter that it was able to win two of its objections against the Municipality and have the Municipal valuations lowered accordingly. The details of the letter are provided here:

The valuation of properties falls under our operations unit, headed by Mr Nigel Adriaanse who deals with these valuations annually.

All municipalities, including The City of Johannesburg periodically re-values properties on an annual basis. This process makes provision for property owners to appeal the municipalitys assessment, based on valuations provided by qualified, independent third party practitioners. Accordingly it is common practice in the property sector to make use of valuers and consultants to engage directly with municipalities on valuation matters.

The properties mentioned in your report were re-valued by the municipality in 2015. Over a number of months in 2015 and 2016 our rates consultant (Hirsuflo Trading) placed on record our objections to these excessive valuation increases.

The matter was eventually heard by the Valuations Appeal Board, who subsequently found in our favour. (Kindly refer to the documentation attached).

We assume that the valuations would have been made on the system at the City of Johannesburg, pursuant the approvals from the Valuations Appeal Board.

It therefore follows that your information could be factually incorrect in its assumptions of the valuations settled on with the Valuations Appeal Board:

1. Erf 5145 was re-valued at R44.7 million (from the initial R152.2 million)

2. Erf 4767 in fact increased in valuation to R20.6 million (from the initial R3.0 million)

3. Erf 4442 was re-valued at R52 million (from the initial R76.6 million)

4. Erf 1271 was re-valued at R92.5 million (from the original R132.1 million) Point 5 of your letter states that ERF: Selby South Ext 1. was devalued from R0 to R120,000,000.

We wish to point out that Erf Selby South Ext 1 in fact increased in valuation from R0 to R120 million.


As the letter shows, Rebosis was successful in having its objections heard by the Municipality: Erf 5145, Erf 4442 and Erf 1271 were all re-valued and revised lower.

Since Rebosis was successful in having these properties re-valued as per their objections, it is worth understanding the appeals process and examining how this process works. It is also worth understanding how the Municipal Valuers role is understood by the appeals court.

One case that was heard by the court allows an understanding of that role to be clearly depicted. In the case of The City of Johannesburg Metropolitan Municipality v The Chairman of the Valuation Appeal Board for the City of Johannesburg (282/2013) [2014] ZASCA 5 (12 March 2014), the court states (pp. 11-12):

In the scheme of these proceedings, the function of the municipal valuer is of considerable importance. In order to determine the market value of property, valuers should have regard to various factors in order to determine what a notional willing buyer would probably pay to a willing seller in the open market. These include comparable sales of similar properties in the open market; the extent to which the parties to previous transactions acted voluntarily and negotiated on equal terms or acted under compulsion; the motivation of the respective parties in previous transactions to buy and sell; restrictions on the use of the property and the possibility of their removal; the improvements on the land and the depreciation of those improvements; the potential uses to which the land may be put; and the income that may be derived from the property (this list is not meant to be exhaustive). As was said more than a century ago in a passage regularly approved by this court thereafter:

It may not be always possible to fix the market value by reference to concrete examples. There may be cases where, owing to the nature of the property, or to the absence of transactions suitable for comparison, the valuators difficulties are much increased. His duty then would be to take into consideration every circumstance likely to influence the mind of a purchaser, the present cost of erecting the property, the uses to which it is capable of being put, its business facilities as affording an opportunity for profit, its situation and surroundings, and so on. There being no concrete illustration ready to hand of the operation of all these considerations upon the mind of an actual buyer, he would have to employ his skill and experience in deciding what a purchaser, if one were to appear, would be likely to give. And in that way he would to the best of his ability be fixing the exchange value of the property.

This remains as true today as it did then. As was more recently commented, correctly in my view:

The valuation process consequently calls for skill and experience, without which a valuer would find it difficult to arrive at a logical deduction from the facts . . . A valuers awareness of existing market conditions and trends, together with his knowledge of the circumstances and the facts relating to the property concerned, enable him to understand how the buying and selling public think, and through his skill and experience he should be able to recognise the elements most likely to influence intending purchasers.

Valuation is accordingly not an exact science. The market value of a property can only be estimated and not precisely determined, and a valuer is called on to exercise professional skill and expertise in a specialised field by expressing an opinion on the market value in monetary terms.

The description of the valuers role as described by the cour in the case of The City of Johannesburg Metropolitan Municipality v The Chairman of the Valuation Appeal Board for the City of Johannesburg (282/2013) [2014] ZASCA 5 (12 March 2014), the court states makes it clear that the valuer must have skill and capacity to make an informed judgment on a property. Those qualities must also be accompanied by impartiality, as the Court makes clear in its following statements, re-stated here: Simply put, valuers should be impartial in the opinions they express. This issue of impartiality was clearly not the case of the valuer in question, who was charged with fraud and corruption in the Municipality of Johannesburg in connection with the Carte Blanche investigation of Municipal valuations and corruption within the department. Clearly, trusting valuers to always uphold the principles expected of them is part and parcel of governance, and trust is required at all positions. However, if a method of obtaining accurate and efficient valuations were possible and could spare the Municipality the trouble and headache of having to find and field qualified and respectable valuers, should it not be accepted as such and utilized to the utmost? This question is answered in the Discussion Chapter of this study. For now, it is very instructive to see the words of the court regarding the role of the valuer. The court goes on to describe the conditions needed for the valuer to do his job effectively:

In order to do so, a municipal valuer needs to be appropriately qualified. Section 39(1)(a) of the Act requires a municipal valuer to be a person registered as a professional valuer or professional associated valuer under the Property Valuers Profession Act 47 of 2000 (the Valuers Act) whilst an assistant municipal valuer must be similarly registered (although in his or her case, registration as a candidate valuer will suffice). But in order to be registered under the Valuers Act, a valuer needs to satisfy the South African Council for the Property Valuers Profession21 (the council) that he or she has passed the necessary examinations and has gained practical experience in property valuation . . . of the prescribed scope, variety, nature and standard22 as contained in the rules published by the council.23 (Qualification requirements in respect of candidate valuers are also prescribed but are unnecessary to consider for purposes of this judgment.)

The issue of appropriate qualification is certainly an imperative. As is seen elsewhere in this study, qualified valuers are assessed differently by different groups of people. Even the government of South Africa has politicized the concept of qualified by basing an applicants merits for being awarded a contract on whether or not it is a verified BEE company. While the incentive of being BEE is certainly understandable, it does not fall within the realm of having to do anything whatsoever with being qualified to perform valuations. Valuers should be professional, associated with professional bodies, and able to perform the job of finding a propertys true market value. Yet, what this study shows is that the public has one concept of market value and the Municipalities appear to have another. This is evident in this studys section on findings when the Municipal valuations are compared to the market value valuations of publicly-traded companies as they appear in the firms annual reports.

Indeed, as is seen in the case of Rebosis, municipal valuations are often far below the market value appraisals that property owners give to their own properties. Since property owners are quick to see the market value of their own properties, should not valuers who work for the municipalities also be quick to see them? This question is one that has been asked by Rates Watch and raised at a conference covered by the organization and discussed in this study as well. For now, it is enough to note that valuers must be qualified to do their job, as the courts have shown. In the case of The City of Johannesburg Metropolitan Municipality v The Chairman of the Valuation Appeal Board for the City of Johannesburg (282/2013) [2014] ZASCA 5 (12 March 2014), the court goes on to state that:

In addition, but most importantly, valuers function not as arbitrators but as estimators of value and, as such, are called on to exercise an honest judgment and to be influenced by neither who has engaged them nor the purpose for which their valuations are required.

Simply put, valuers should be impartial in the opinions they express.

Any doubt about this is dispelled by clause 5(d) of the Code of Conduct for persons registered under the Valuers Act, drawn up by the council under s 28 of the Valuers Act.26 It prescribes that any person registered under that Act shall act with the strictest independence, objectivity and impartiality in performing a property valuation.

It is worth noting that valuers should be able to act with independence, objectivity and impartiality in performing a property valuation and that valuers who work for publicly-traded companies do indeed work exactly with these qualities, as this study also shows. The court continues:

As already mentioned, s 39(1) requires the municipal valuer to be registered as a professional valuer or professional associated valuer under the Valuers Act. That being so, the municipal valuer is duty bound to comply with the norms of independence, objectivity and impartiality outlined in this code. That this is the case is reinforced by the further provisions in s 39 which provide that a municipal valuer or an assistant municipal valuer may not be a councillor of the relevant municipality.

The object of all of this is clear. The legislation envisages that the valuation of rateable property is not only to be done by an impartial person, but that it be seen to be so done.

Thus the appointment of an independent valuer, together with the right of objection against such valuers compilation of the valuation roll and the right of appeal to the valuation appeal board against any decision made by the municipal valuer in respect of an objection, provides a bulwark between the interests of the municipality on the one hand and the owner of the rateable property on the other. It results in the municipality being able to levy rates against the value of a property only where the valuation had been done impartially and after the voice of the taxpayer has been heard.

Thus it is essential to note that what the court is saying is that rates can only be applied once impartial appraisals have been conducted and after the taxpayer has had the right to exercise his voice on the matter. This is why the Valuation Roll is published and the property owners are provided with an opportunity to see it and make objections before the rates are effected based on the valuations. The owners have a right to object (about which more shall be said in the next chapters), but the valuers have a duty to exercise impartiality and equitability. The court also states that:

Now it may be so, as the appellant argued, that s 48 of the Act does not specifically direct the municipal valuer to mention any apportionment of value between different categories of use, but all this would be rendered nugatory if, after the valuation roll has been prepared, the municipal council could, off its own bat, so to speak, determine into which of the different rateable categories the property is being used and then itself apportion market value. Indeed it would be absurd to interpret that section in such a way. To do so would result not only in a municipality being able to largely turn its back on the specialised expertise in valuation that the Act has so carefully bestowed upon municipal valuers, but municipal councillors, who are specifically disqualified from being municipal valuers by s 39 of the Act, would be the persons vested with the authority to apportion market value. This could never have been intended, and really merely has o be stated to be rejected.

As the court makes clear, a specialised expertise is expected of the valuer. Valuers who lack this specialised expertise should not be admitted or rewarded with contracts to become valuers. Yet Municipalities clearly have a reputation for going after the lowest bidders when it comes to awarding contracts for valuing properties, as Massel of Rates Watch has shown in his critique of the MPRA and its application in South Africa (discussed in detail elsewhere in this study). The fact is that specialised expertise is expected of valuers but is very often missing. The court concludes:

Not only would the interpretation now advanced by the appellant be absurd for the reasons mentioned, but one of the details that has to be recorded on the valuation roll under s 48 is the category determined in terms of section 8 in which the property falls.28 Section 8(r) of course provides for a category of properties used for multiple purposes subject to section 9 (my emphasis) and, under s 45(1) of the Act, the municipal valuer is required to carry out the valuation of rateable property in accordance with the provisions of the Act. This clearly makes s 9 applicable, at least in part, to the compilation of the valuation roll. The obvious intention is that where a property is used for multiple purposes, those categories of use in respect of which different rates are to be applied under s 9(2)(c) should be determined and recorded, as should the values apportioned to each such category. This is all to be done by the municipal valuer who is, after all, the person possessed with the necessary skill, expertise and experience to do so (which the municipal council lacks). Moreover, although s 48(2) does not specifically state that the market value apportioned between categories of use should be recorded in instances of multiple use properties, the provision in s 48(2)(g) that the valuation roll is to include any other prescribed particulars in addition to those specifically mentioned, reinforces my conclusion that the Act, properly interpreted, requires it to be done.

Again, it is clear what the court expects of valueres: the Municipal valuer is expected to be one who is, after all, the person possessed with the necessary skill, expertise and experience to give accurate valuations. Yet the sheer number of appeals lodged against Municipalities and the number of property valuations that are so far below the market value applied by publicly-traded companies valuers indicates that the Municipal valuers do not, in general, possess the necessary skill, expertise or experience demanded of them by the court and the MPRA. Thus, the court states:

The inevitable conclusion is that where a property is being used for multiple permitted purposes, it is necessary for the municipal valuer compiling the valuation roll to determine and record those uses and to apportion the market value of the property between them. In the present case, this was not done. The municipal valuer therefore incorrectly dismissed the second respondents objection to the valuation roll and the valuation appeal board correctly ordered that it should be amended.

The appeal must accordingly fail, and costs should follow that event.

As can be seen, the courts will rule against a Municipal valuer who does not perform appropriately or efficiently. One way to deter this is to hire efficient valuers; but another way, which is proposed by this study, is that the valuations obtained via publicly-traded companies be used instead. More shall be said on that in the next chapter.

To return, however, to the theme of valuations and their appeals, it may be noted that the Municipalities are plagued by problems in this area.

For instance, as Slabbert (2016) reports, Joburg is losing a great deal of money because of its valuations process and the appeals that are filed to have valuations reduced. Slabbert (2016) states:

The City of Johannesburg is losing huge amounts of money as a result of its failure to properly administer property rates, AdvocateAnthonie Viviers, chair of the citys 2008 Valuation Appeal Board states in an affidavit in support of an urgent High Court application.

On the other hand, ratepayers who have been slapped with inflated valuations are prejudiced by delays in finalising their appeals. Such delays are due to the messy state of Joburgs property rates administration, according to Viviers.

In short, the Municipality of Johannesburg is failing at a tremendous rate to manage its Valuation Roll, to apply rates, to obtain a stable revenue stream or to address the appeals of property owners. The situation is one that is adequately labeled a mess by Slabbert (2016) who goes on to note:

Ben Espach, director evaluations at Rates Watch told Moneyweb on Thursday that the rates bill of a shopping mall valued at R3.5 billion and Joburg has some of those amounts to more than R5 million per month. If the valuation is too high, the owner will oppose it. If it is too low, it can go unnoticed and the city will lose that money. If it is incorrectly valued at R2 billion, the city would lose R2 million per month.

He further points out that rates on commercial buildings are recovered from tenants. If the valuation is adjusted and rates recovered retrospectively, those tenants might have left, which leaves the owner with a problem. He says some valuations are blatantly wrong and it can take years to have it rectified.

The issue identified by Espach is clear: Valuations that are incorrectly performed lead to numerous problemsproblems for property owners, problems for tenants, and problems for the City itself as well as for the inhabitants of the community. If rates are not applied fairly, objections will be made and the loss will be significant to the City. At the same time, rates that are too high will cause the owners to pass the expense on to tenants, and they may feel unfairly penalized and be forced to leave their dwellings to find more affordable accommodations. It is a never ending cycle of problems that can only be righted once the proper valuation is affixed to a property. Slabbert states that this issue is a substantial problem for Johannesburg for numerous reasons. She explains by providing more details about a current application for appeal:

Viviers is the deponent in an application expected to serve before court on September 27 and aimed at getting access for the Valuation Appeal Board to its own offices and records after the city locked it out.

The city confirmed having received the application and said it has taken legal advice. Moneyweb has learnt that the city has given notice that it will oppose the application in which Mayor Herman Mashaba is one of seven respondents. Relief is however only sought against the city itself and group head of its property unit, Sihle More.

According to Viviers statement, the Valuation Appeal Board is a statutory body appointed in terms of the Local Government: Municipal Property Rates Act by the MEC for local government. It is responsible for hearing appeals by ratepayers or the city, as well as reviewing certain decisions of the municipal valuer.

In terms of the Act, the city has to provide the board with administrative support, including staff and pay for its costs, including the remuneration of board members. The board has to sit in the municipality whose valuation role it considers.

Viviers explains that the board was appointed to consider matters emanating from the 2008 valuation roll and supplementary rolls and amendments based on that roll.

He says there were 11 supplementary rolls, the last of which is especially problematic since it was published without a specific date and after the general valuation roll of 2012 had already been published. This, he says, led to 22 448 objections, 2 489 appeals and 9 652 automatic reviews, with the ity of Joburg submitting a further 13 406 objections, 4 680 reviews and 815 appeals. The condonation of late appeals further resulted in a flurry of new appeals to be heard, he states.

As Slabbert (2016) notes, over 20 000 objections have been filed in Johannesburg as a result of a faulty supplementary roll. This has led to serious delays in rates being applied and has thrown the veritable monkey wrench into the Citys ability to function as it should. Ineed, this is exactly what Slabbert (2016) says Viviers has stated:

According to Viviers the City of Johannesburgs administration has not been what it should have been. He says the municipal valuer in many cases failed to submit, as the Act requires, all relevant documentation for the board to consider when dealing with reviews. In many cases values were inflated and we had to consider such values without the required information in the interests of various objectors.

Often there was no input from objectors, as the city lost its objection forms and the board had to consider the valuations afresh by checking and verifying information from the land information system and the geographicinformation system.

Viviers mentions other problems, such as the lack of information upon which the valuation is based. It further seemed as if objectors were not properly notified of hearings or the outcomes of such hearings.

He says the board experienced grave difficulty in effectively getting their work done.

The city further failed to record many of the boards rulings in its systems, which means changes in billings were never made. The board is now verifying the capturing of its rulings and has so far found that the city captured 12% to 14% of its decisions incorrectly, Viviers states.

As an example, he states that a valuation of R941.46 million was attached to one of the stands that theFourways Mallis situated on. Such amendment has still not been captured by the City of Johannesburg and the municipality is actually losing hundreds of thousands, if not millions of rands in lost rates and taxes over the last six-year period.

That figure is worth mentioning again: just from this one single property, Slabbert (2016) shows that the Municipality of Johannesburg has been losing most likely millions of rands in lost rates and taxes over the last six years. That figure is astonishing, all the more so when one considers that this is but one single property and that there are more than likely very many other properties that are in the same condition. As this studys small survey of properties will show at the end of this chapter, the findings do indeed reveal that the Municipalities in South Africa are suffering quite considerably from having too low valuations affixed to properties. The situation is certainly untenable and should be fixed. Slabbert (2016) notes that the solution is not simple:

It is however this verification process that the City of Joburg questions. In response to questions from Moneyweb it said: This is something they ought to have done as an ongoing process. They have completed their appeals and reviews and now seek to verify that all their decisions have been implemented since 2008. The city is of the view that this should have occurred throughout their tenure.

Viviers describes how the relationship with More became more and more strained since last year as she started questioning every action and expense by the board. According to Viviers she became obstructive as she seemingly tried to pressurise the board to complete its task.

On August 15 the boards boardroom was locked on instruction by More and since then it had not been able to access the room or its records at all. More stated that the city was validating its budget and the board would only be allowed back once that had been completed.

As Slabbert (2016) shows, such drastic and radical action on the part of the City against its own valuation board indicates how conflicted at its core the Municipality has become. The appeals are bogging down the works and the board is unable to properly address the situation because it is locked out of its own offices by the City, which cannot get a hand on the situation. Slabbert (2016) describes the outrage accordingly:

Viviers says the city is obliged to pay for the boards functioning. It is inconceivable that after all these years of budgeting and paying for the board and the other boards that have been in existence, that there suddenly is no budget for the current board to perform its functions. It is the statutory obligation of the City of Johannesburg to pay for the functions of the board.

The city however says it did not budget for an extra verification process and does not have the funds allocated to continue paying the board members. This was communicated to the board last financial year and they were to have completed their work in the previous financial year that ended on June 30 2016. They failed do to this and therefore no money was made available this financial year. The city suggested four alternative ways the board would undertake the verification, these were rejected.

The city says it has not filed its opposing affidavit yet and has offered to give the board access to their office. This however is on the basis that the board understands that there are no funds to remunerate them henceforth.

The situation did not end there, however. Eventually the board was able to return to its offices after being unlawfully excluded from them and from the task it was mandated with performing. Slabbert (2016) reports again on this sordid affair, stating in a follow-up article a week later that:

The Johannesburg Valuation Appeal Board has succeeded with an urgent application in the South Gauteng High Court to regain access to its offices and data.

This follows after the City of Johannesburg locked the offices it provides for the operations of the board, in compliance with the Local Government: Municipal Property Rates Act and refused the board access since August 15 this year.

In other words, the board was refused access its work for more than a month by the Municipal government. In light of the arrest of a Municipal valuer in Johannesburg, as described in the preceding section, it should not be surprising that the City essentially was reduced to lock-down mode. However, a City must be able to function, as it has numerous priorities and obligations that are expected of it. It cannot simply keep workers from tending to the issues at hand, especially as so many lives depend upon these valuations. Thus, Slabbert (2016) notes that:

The board was appointed in terms of the Act to deal with appeals, based on the 2008 City Of Joburg general valuation roll and certain supplementary rolls and amendments based on that roll.

AdvocateAnthonie Viviers had described in an affidavit supporting the court application, the administrative mess with Joburgs property valuations and how that resulted in a delay in the boards work. He further stated that the board has an obligation to ensure its rulings are recorded in the citys systems and that the citys billings correctly reflect changes in property values.

Viviers stated that the board realised up to 14% of the rulings were incorrectly captured and has therefore started to verify all the captured data.

Such a significant number of rulings14%is especially incomprehensible, given the degree to which the mass valuation methods are supposedly meant to be effective for valuations. Clearly the reality is that the mass valuation method is low-cost and inefficient and that the majority of valuations should be done by professionals who are qualified and have the experience to do the job expected of them. The problems only escalate from there when they are not adequately addressed. As Slabbert (2016) notes, the City and the boad were at odds for some timethe board attempting to do its work and the City attempting to cover its tracks:

The city said this was unnecessary and should have been done earlier. It refused to provide further funds for the boards operations and said the board was earlier warned to wrap up its operations, as the budget would run out at the end of the previous financial year on June 30 2016.

Viviers pointed out that the boards term was earlier extended to October 30 2017 and the council had a legal obligation to fund its operations.

Judge Fritz van Oosten on Tuesday accepted the boards arguments and ordered the city to give the board access to its offices and data and refrain from any further interference in its operations.

It further slammed the city with a punitive cost order at an attorney-client scale and ordered group head of Joburgs property unit Sihle More who ordered the lock-out to pay a third of the cost on a party-to-party scale.

Viviers said he has instructed the secretariat to have the offices unlocked by 9:00 on Wednesday for the board to resume its work. If we are refused access again, we will take the appropriate step, he said.

Such an environment is clearly one that is not ordered to be most effective. The recent arrest of a Municipal valuer only adds to the drama of the situation and reveals the extent to which corruption, mismanagement, and poor valuation methods are being applied in Johannesburg alone. As for the other Municipalities, the findings at the end of this chapter should speak volumes. When the property valuations applied by the Municipalities are compared to the valuations applied by the publicly-traded companies to reflect actual market value, the discrepancy between the two is hugely significant. Not one of the five Municipalities measured in this study passes with anything resembling accuracy at all. More on that shall be said in due time.

To close out this section on discovery and to show how important the Valuation Roll updates are to the Municipalities, and how troublesome they can be for owners who wish to object, Slabbert (2017) reported the following in early 2017:

At least 21 municipalities, including five metropolitan councils, willpublish new property valuation rolls in the next month or two. Ignoring these could cost property owners dearly, says Ben Espach, director of valuations at property rates consultancy Rates Watch.

This means that such municipalities will attach new property values to all fixed properties within their borders and reconsider the categorisation of each property. This data will form the basis for calculating the property tax levied against property owners for the life of the valuation roll, which may be at least four or five years.

Unless owners object within the limited period allowed for objections to valuations that are higher than market value on the valuation date, they will be bound to pay inflated property tax bills until a new valuation roll is adopted four or five years later.

As an example Espach says property tax on a residential property valued at R1 million in the City of Tshwane would amount to R858.71 per month. If the same property was valued at R1.2 million, the owner would have to pay R1044.38 per month.

If the valuation roll is valid for four years, the owner would be paying almost R9 000 more over the period.

How important is it that property owners and Municipalities agree on valuations? It is important enough that millions of rands may be at stake. The Municipality is tasked with giving accurate appraisals, but owners also want to reduce their taxes so are likely to seek lower appraisals. That is taken into consideration in this study and the appropriate recommendations are made in the last chapter regarding the manner in which the applications process may be accentuated. But as Slabbert (2017) shows, what is at stake is quite significant:

The categorisation of the property on the valuation roll can also have a dramatic effect on the amount payable, Epach says. The owner of the same R1 million residential property in Tshwane who would have to pay R858.71 per month, would be confronted with a monthly property rates bill of R2801.67 if the property were categoried as business and R6025.00 if it were categorised as vacant.

Espach says the valuation rolls of 83 municipalities will lapse at the end of June. Under certain circumstances the rolls can be extended. Rates Watch has confirmed that at least 21 municipalities will adopt new rolls this year, including the City of Tshwane, Ekurhuleni, eThekwini, Mangaung and Nelson Mandela Bay Metro.

Such municipalities are required by law to inform each affected owner of the new valuation and property tax category that would apply to his or her property and to publicly advertise where the new valuation roll will be available for inspection.

Espach says postal notices often dont reach owners and he advises property owners to inspect the rolls on the municipal websites. While the Local Government Property Rates Act requires the rolls to be open for inspection for at least 30 days, some municipalities provide for longer periods of 60 or 90 days.

The new values take effect in the new financial year, starting on July 1.

Property tax season will be at its height in March and April this hear, Espach says. The valuation roll would stipulate the valuation date. That is important, since the valuation should reflect the market value of the property on that date probably June 2016, says Espach.

Valuations are never exact and property owners would be well advised as a general rule to submit objections where the valuations deviate by more than 10% on residential property and 5% on income generating property Espach says.

Rates Watch has since July 2013 submitted 1 374 such objections on behalf of clients, the majority of which in Ekurhuleni, Johannesburg, Tshwane and Cape Town. The aggregate result was a reduction in value on the affected properties of R4.7 billion and monthly savings on the rates bills of more than R10.6 million.

Espach says it is very important to submit the objection on the prescribed form within the allowed period, as late objections are not accepted.

The burden is on the objector to prove that the valuation is wrong and that is done by providing market data, including comparative sales in the area.

That piece of information is important to keep in mind as this study makes recommendations for Municipalities on what they should require of property owners in order for an objection to be heard. Those recommended requirements are discussed in the final chapter. Slabbert (2017) states:

The municipality or for that matter any third party, may also object if it considers the valuation to be too low in which case the owner has to be informed of such objection and be offered an opportunity to make a submission.

The objections are only considered at a later stage and owners are bound to the valuation as published in the meantime. That means that they have to pay property rates accordingly. If the objection is successful, the account will be adjusted and debited or credited retrospectively where necessary, Espach says.

He advises property owners who are notified of the outcome of their objections to check whether the necessary adjustments are made on their rates accounts and if so, whether it has been done correctly, he says. Mistakes often occur and are not necessarily in favour of the municipality, he says.

If property owners are notified that their objections were rejected, they can appeal within 30 days to an independent appeals panel. This is again done on a prescribed form and the appellant has to provide supporting market data during a hearing scheduled for this purpose.

Espach says the processcan take a considerable amount of time. The appeals to valuations in Johannesburgs 2013 valuation were only dealt with in 2016 and the credits are still outstanding, he says.

Sectional title units are individually valued. The valuation takes into consideration the value of the specific unit as well as its undivided portion of the communal property. Complexes with better communal amenities should therefore be given higher valuations, he says.

Important to note is also the length of time that appeals can take: in Johannesburg Municipality the length of time was an astonishing 3 years just to get through the appeals processes for the valuations made in 2013. Streamlining that process therefore is highly important and can be very impactful in the future of Municipal valuations. The recommendations for streamlining and enhancing the appeals process will be discussed in the next two chapters of this study.

4.23 On Valuer Competency


A study by Mooya (2015) focused on the competency levels of educated (university degree bearing) and uneducated (non-degree holding) valuers in South Africa. The studys purpose was to answer two interrelated questions, first, whether South African trained and educated valuers were competent and met industry standards, and, second, whether the South African valuation curriculum met international norms (Mooya, 2015, p. 245). Mooya (2015) notes that professional valuers in South Africa until recently did not require to have a university degree. The vast majority of professional valuers therefore, especially at senior levels, hold the national diploma as the highest academic qualification (p. 245). Yet, as Mooya states, there is evidence to suggest that many regard this state of affairs as unsatisfactory (p. 245)and considering the state of affairs of Municipal valuations, such regarding is not without good reason. However, what is it that makes a valuer competent in his field? Is it the so-called education he receives from the university? Or is it the actual experience he derives from the field? The question is worth considering and Mooyas (2015) study provides some answers.

The method that Mooya (2015) employed to obtain data for his study included the following steps: Empirical data for the study were obtained by way of a survey of valuers registered on the South African Council of the Property Valuers Profession (SACPVP) database and a case study of the University of Cape Towns valuation curriculum. The survey involved the mailing of an online questionnaire, using the Survey Monkey platform, to 2,062 individuals, representing the total population of valuers registered with the SACPVP, across all registration categories. A total of 324 individuals, or 15.7 per cent of the target population, responded to the survey (p. 245).

What Mooya (2015) found from his study was: Results from the study on the first question showed that it was professional status and length of experience, rather than academic qualifications, which correlated with competence. In addition, the results suggest that there are grounds for concern regarding proficiency in at least some of the valuation methods across the board. Further, the study revealed significant levels of dissatisfaction amongst employers with the general competence of valuers under their supervision. On the second question, the study concludes that the South African valuation curriculum did not meet international norms in terms of certain criteria (p. 245).

4.3 Real Estate Investment Trust Valuation Processes

4.31 Growthpoint

Understanding the valuation methods of the Publicly-Traded Companies is important to being able to see how they are professional, organized, and on task as compared to the inefficiency and drama surrounding Municipal valuations. The valuation methods of the Publicly-Traded Companies are described in their published annual reports. For instance, the financial statement of Growthpoint for 2016 disclosed the following valuation process:

Independent valuations are obtained on a rotational basis, ensuring that every property is valued at least once every three years by an external independent valuer. The directors value the remaining properties annually on an open-market basis. The calculations are prepared by considering the aggregate of the net annual rent receivable from the properties and, where relevant, associated costs, using the discounted cash flow method. This method takes projected cash flows and discounts them at a rate which is consistent with comparable market transactions. The discount rates reflect the risks inherent in the net cash flows and are constantly monitored by reference to comparable market transactions. Undeveloped land is valued in terms of the internationally accepted and preferred method of comparison.

Gains or losses on subsequent measurement or disposals of investment properties are recognised in profit or loss. Such gains or losses are excluded from the calculation of distributable earnings.

When properties comprise a portion that is held to earn rental or for capital appreciation, and another portion that is held for use in the production or supply of goods or services or for administrative purposes, then these portions are accounted for separately only if these portions could be sold separately.

If they cannot be sold separately, the entire property is accounted for as an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

Investment property held under an operating lease relates to long-term land leases and is recognised in the Groups statement of financial position at its fair value. This accounting treatment is consistently applied for all such long-term land leases.

One difference between the valuation process of the Publicly-Traded Company and the Municipality is evident right away: the Publicly-Traded Company determines property valuations more frequently than does the Municipality (at least once every three years for the Publicly-Traded Company versus at most once every four years for the municipality). Another important feature of the valuation process for the Publicly-Traded Company is linked with the property as a specific investment vehiclewhich means the Publicly-Traded Company has a direct interest in managing the property so that it has considerable value as an investment. To this end, the Publicly-Traded Company will observe the following:

Properties are initially recognised at cost on acquisition, including all costs directly attributable to the acquisition. Subsequent additions that will result in future economic benefits of which the cost can be measured reliably are capitalised. Investment property under construction is valued at fair value. Direct costs relating to major capital projects are capitalised until the properties are brought into commercial operation. Subsequent to initial recognition, investment properties are measured at their fair value. Fair value adjustments are recognised in profit or loss and transferred to a nondistributable reserve in the statement of changes in equity. Investment property is maintained, upgraded and refurbished where necessary in order to preserve or improve the capital value as far as it is possible to do so. Maintenance and repairs which neither materially add to the value of the properties nor prolong their useful lives are charged against profit or loss.

Like a municipality, the Publicly-Traded Company also has its own team of valuers. Growthpoint, for instance, describes itself thus:

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including level 3 fair values, and reports directly to the Financial Director.

The valution team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Groups Audit Committee.

This final note is remarkable as it indicates that the Publicly-Traded Company has its own auditing service, implying that the Group is far more coordinated and cohesive in its management and internal organization than the municipalities of South Africa. The municipalities of South Africa were described by external auditing firm Deloitte in the following terms: A particular concern in the South African context is the poor state of financial management in municipalities, culminating in perennial poor audit outcomes based on the audits performed by the Auditor-General. This gave rise to Governments ambitious Operation Clean Audit, targeting clean audits for all municipalities by 2014 (Deloitte, 2012, p. 1). In other words, the in-house efforts of the Publicly-Traded Company appear to be more efficient than the efforts of the municipal governments of South Africa. More shall be said on this point in the next chapter.

The firm also states that when measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

~ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

~ Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

~ Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) (p. 20).

The importance of unobservable inputs in the companys valuation metrics is high enough that it receives its own mention multiple times in the annual report. This shall be discussed in the next chapter.


4.32 Vukile

Other Publicly-Traded Companies have described their valuations process in similar terms. Vukile Property Fund requires that the directors value the entire portfolio every six months at fair market value. Approximately one half of the portfolio is valued every six months, on a rotational basis, by registered independent third-party valuers (p. 44). Vukile also uses external valuers to verify its internal valuations: The external valuations by Quadrant Properties (Pty) Ltd and Knight Frank (Pty) Ltd at 31 March 2016 of 52.2% of the total portfolio are in line with the directors valuations of the same properties (p. 44). In other words, the company checks its own valuations against those of others, an indication that it is focused on top-of-the-line assessments. According to Vikule (2016, fair market value is recognized as the open market value, which, in the opinion of the directors, is the fair market price at which the property would have been sold unconditionally on a willing buyer/willing seller basis for a cash consideration on the date of the valuation (p. 88).

Like Growthpoint, Vikule uses the 3 Level system to determine fair value: Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: unobservable inputs for the asset or liability (p. 109).

Vikule also uses a revaluation technique when assessing property: The revaluation of investment property requires judgement in the determination of future cash flows from leases and an appropriate reversionary capitalisation rate (p. 99). It is worth examining the description of the firms valuation methods for commercial:

The fair values of commercial buildings are estimated using an income approach which capitalises the estimated rental income stream, net of projected operating costs, using a discount rate derived from market yields. The estimated rental stream takes into account current occupancy levels, estimates of future vacancy levels, the terms of in-place leases and expectations of rentals from future leases over the remaining economic life of the buildings.

The most significant inputs are the estimated rental value, assumptions regarding vacancy levels, the discount rate and the reversionary capitalisation rate. The estimated fair value increases if the estimated rental increases, vacancy levels decline or if discount rates (market yields) and reversionary capitalisation rates decline. The overall valuations are sensitive to all four assumptions. Management considers the range of reasonable possible alternative assumptions is greatest for reversionary capitalisation rate rental values and vacancy levels and that there is also an inter-relationship between these inputs.

In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated demand (p. 114).

What can be seen is that Vikule, like Growthpoint, pays careful attention to all the data that could possibly be compiled and brought to the valuation. This careful attention to detail is something that is sorely lacking in the valuation methods of many of the Municipalities in SA. More shall be said on that in the following sections.


4.33 Emira

Another Publicly-Traded Company is Redefine, which is publicly traded on the JSE. It manages a diversified property asset platform with a value of R72.7 billion, comprising local and international property investments (Redefine, 2016, p. 1). Unlike Growthpoint, the company uses external valuers to obtain valuations of its properties; however, these are reviewed annually by an internal team comprised of professionals.

Emira Property Fund carries out bi-annual property valuations of its investment properties, which is still better than the Municipal valuation rate by half (Emira, 2016). To give a sense of its valuation policy, the firm states that as at the end of June 2016, one third of the property portfolio was valued externally, while two thirds were valued internally, and the Board approved the valuations (Emira, 2016, p. 45).

Emiras valuations process is based on both internal and external metrics, but an overview of the process includes the following details: The metrics and inputs we use for our valuations are currently more conservative, and take into account higher interest rates as well as higher exit cap rates, rental reversions and other market activities. We also anticipate the imminent and positive impact of rental escalations among selected properties within our portfolio. Overall, and at a rand value, our valuations remained relatively unchanged. While income has increased, costs related to higher interest rates have offset gains (Emira, 2016, p. 45). Clearly, the firm is well-educated about what factors go into conducting appropriate valuations and possesses the means to ensure that these are effectively applied. This is something that many Municipalities in SA struggle to accomplish year in and year out, especially as they try to balance shrinking budgets with pressing valuation needs. One of Emiras stated Responsibilities is: Providing a highlevel review of annual property valuations (p. 54). This shows that the company is auditing itself routinely every year to ensure that the best valuations are being provided to its investors.

Emira also provides detailed information to explain how it achieves valuations and what data goes into determining concepts like fair value:

After initial recognition, investment property is carried at fair value adjusted for the carrying values of fixtures and fittings, allowance for future rental escalations and unamortised upfront lease costs which are recognised as separate assets. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as at the financial position date by professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the financial statements. Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value.

Fair value measurement on property under development is only applied if the fair value is considered to be reliably measurable.

It may sometimes be difficult to determine reliably the fair value of the investment property under development. In order to evaluate whether the fair value of an investment property under development can be determined reliably, management considers the following factors, among others:

> The provisions of the development contract

> The stage of completion

> Whether the project/property is standard (typical for the market) or non-standard

> The level of reliability of cash inflows after completion

> The development risk specific to the property

> Past experience with similar developments

The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure other than those a rational market participant would take into account when determining the value of the property. Changes in fair values are recognised in the statement of comprehensive income. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

As can be seen, Emira takes great pains to define the term fair value because, as is shown in this study, how value is perceived is truly one of the most important parts to the concept of valuation. To achieve a fair and equitable valuation, valuers must be very conscientious about what they are doing and what data they are incorporating into their reports. In the service of transparency, which is a very ethic attribute for a company to have, Emira provides this information for investors so that they can see exactly how their properties are being valued. This is something that should attract the interest of the Municipalities of South Africa: here is a company that is using high quality valuers to achieve conscientious valuations based on transparent data and metrics that anyone can look at to see how the valuation was accomplished. Such a method is one that the Municipalities would love to be able to adoptbut because of their constraints, it is difficult for them to do so. Having access to valuations such as these published by the firm makes it simple for the problem to be solved.

Like the other Publicly-Traded Companies, Emira uses the three levels of valuation to arrive at fair value estimates for its properties. The method should be familiar by now, as it follows the same approach as the others: The company analyses financial instruments carried at fair value, by valuation method. The different levels are defined as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The fair value of financial instruments traded in active markets is based on quoted market prices at the date of the statement of financial position. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arms length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. The instrument included in level 1 comprises an investment in a property trust, listed on the Australian Stock Exchange (ASX), classified as trading security. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Specific valuation techniques used to value financial instruments include: Quoted market prices or dealer quotes for similar instruments. The fair value of interest-rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves (Emira, 2016, p. 100).

When it comes to commercial property valuations, Emira is equally focused on applying rigorous methods. As has been shown by Boshoff earlier in this study, valuing commercial properties can be one of the most difficult valuations to achieveand using AVMs is certainly not a method that a good valuer will want to rely upon. Emira explains its own commercial property valuation method thus: The fair value of commercial buildings is estimated using an income approach which discounts the estimated rental income stream, net of projected operating costs, as well as an exit value, using a discount rate derived from market yields. The estimated rental stream takes into account current occupancy levels, estimates of future vacancy levels, the terms of in-place leases and expectations of rentals from future leases over the remaining economic life of the buildings. The most significant inputs, all of which are unobservable, are the estimated rental value, assumptions regarding vacancy levels, the discount rate and the reversionary capitalisation rate. The estimated fair value increases if the estimated rentals increase, vacancy levels decline or if discount rates (market yields) and reversionary capitalisation rates decline. The overall valuations are sensitive to all four assumptions. Management considers the range of reasonable possible alternative assumptions to be greatest for reversionary capitalisation rates, rental values and vacancy levels and that there is also an interrelationsip between these inputs (Emira, 2016, p. 101). Unobservable inputs are very important for the companys valuation of commercial properties and include rental value, vacancy rate estimations, discount rate and reversionary cap. These types of considerations are what set authentic valuers apart from inauthentic ones. They are the core drivers of a successful companyand a Municipality, if it truly seeks to adopt a successful business-like approach to the process of valuing, which is the lifeblood of the Citys revenue stream, it must follow a similar suit.

The fact that Emira takes fair value so seriously shows the importance of valuations to the companyand the importance they should have for the Municipalities of South Africa. Emira (2016) states: Fair values are estimated twice a year by Emiras internal registered valuer, whereafter they are reviewed by the executive directors and approved by the Board of Directors (p. 101). In other words, fair values are not applied willy-nilly or haphazardly and indexed and compiled into a General Roll without any oversight. At Emira, the valuations are reviewed by executive directors and the fair value applied to properties is then approved by the Board. This is a tremendous amount of oversight. This level of due diligence can only be applauded and admiredand Municipalites should surely desire to emulate it.

Another important note that can be found from Emira is how it uses external valuers. In the following statement, Emira describes these valuers: note the emphasis it places on the valuers having knowledge of the locations and of the properties themselves. This is an important point that is raised by Massel again and again in his critique of the ineffectual ways in which Municipalities apply valuations. Here Emira is highlighting and supporting the very argument that Massel makes by underscoring the importance of having valuers who are familiar with the locale, the region and the property being appraised:

A third of the Groups investment properties were valued at 30 June 2016 by independent professionally qualified valuers who hold a recognised relevant professional qualification and have recent experience in the locations and segments of the investment properties valued. The remainder were valued by Emiras internal registered valuer. All valuations were reviewed by the executive directors and asset managers, before being recommended to the Board for approval. For all investment properties, their current use equates to the highest and best use (Emira, 2016, p. 101).

Again it is worth noting that Emira submits all valuations to the executive directors, to the asset managers and then finally to the Board of Directors for approval before the valuations are accepted. This is such a far cry from many of the Municipalities in South Africa are able to accomplish with their valuations. If only the Municipalities had a fraction of this type of oversight with regard to their valuations, the countries Cities would undoubtedly be much more prosperous and good will between owners and Municipality clerks would be far deeper and stronger. Municipalities would also have much more income to use to build up the infrastructure of their communities and address some of the pressing concerns that exist therein. And lest there is any question about how this firm values its investment properties, the company supplies this additional note to investors:

The valuation of investment properties was determined principally using discounted cash flow projections, based on estimates of future cash flows, supported by the terms of any existing lease contracts and by external evidence such as current market rentals for similar properties in the same location and condition, and using discount rates that reflect current market assessments, of the uncertainty in the amount and timing of the cash flows. The future rental rates were estimated depending on the actual location, type and quality of the properties and taking into account market data and projections at the valuation date, as well as the length of vacant periods following the expiry of existing lease agreements (Emira, 2016, p. 108).

What is even more impressive is that Emira welcomes stakeholder feedback and provides stakeholders with a direct line of communication via e-mail, which can be used to send any thoughts whatsoever regarding any of the transactions or valuations or investments that Emira has made. Such a degree of transparency and communication availability is truly impressive and is evidence of a company that cares about its stakeholders. A Municipality would do well to have such a high degree of transparency and communication in its own work.


4.34 Fortress

Fortress is another Publicly-Traded Company in SA that measures property values according to fair value. Fortress (2016) defines fair value as being based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowingly, prudently and without compulsion. In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation. Valuations reflect, when appropriate: the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant space, and the markets general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between the group and the lessee; and the remaining economic life of the property (p. 70). In other words, Fortress uses a very thorough, sound, rational and robust definition of fair value when valuing its properties.

Fortress determines fair value through the use of external independent professional valuers. Valuations are made annually vs. every four years for Municipalities. The valuers utilized by the firm have recognized professional qualifications and recent experience in the location and category of property being valued (p. 64), which is an important point for valuations, as is pointed out numerous times in this study.

The firm states that valuations are done on the open market value basis and the valuers use either the discounted cash flow method or the capitalization of net income method or a combination of the methods (p. 64). This is important to note because in terms of the Survey produced by this study, it can be seen that these methods are important methods used by valuers in SA, the Municipal valuers tend to use CAMA. The difference is that the approach is more robust if one is taking into consideration as much data as possibleand the valuers for Fortress are doing that. It is therefore worthwhile to consider the value that Publicly-Traded Company valuers and their valuations could bring to Municipalities Valuation Rolls just by their professionalism alone.


4.35 Attacq Limited

Attacq brings to its clients the same expertise and accountability in valuations as the other Publicly-Traded Companies described above. Like Empira, it too presents valuations to its Board of Directors before approving themso there is substantial oversight when valuations are conducted. Attacq Limited (2016) describes their process this way: There is significant judgment by the Board in determining the fair value of investment properties. The judgment applied is supported by independent valuations by experienced valuers. To ensure that the methods used in valuing properties are in line with industry standards, the Committee carefully considers the competence, qualifications, capabilities and objectivity of the indpendent valuers (p. 7). Attacq givens an example of one group of properties in particularthe Waterfall development: Special consideration was given to the valuation of all properties in the Waterfall development. The valuation in respect of Waterfalls development rights is based on an external valuation performed on a freehold basis by an independent valuer. The valuation is then reduced to take into account, inter alia, the contractual nature of the development rights and the estimated future rental obligations attached to the development rights (p. 7).

As for determining fair value, Attacq notes that the firms investment property comprise various categories of properties, the most significant being completed developments, developments under construction and development rights. The models used to determine the fair values for each of the categories differ due to the different nature of each of these categories. The Group uses independent valuers to determine the fair values for all of the properties held in these categories annually (p. 13). Several important takeaways may be found in that description: first, the firm produces annual valuations vs. the every-four-year valuations of the Municipalities; second, the firm judges fair value for each type of property differentlywhich is in line with what Boshoff has stated regarding differences between commercial and residential property value determinations; third, valuers are independently obtained, which is a common method for Publicly-Traded Companies and is similar to one employed by Municipalities.


4.36 Resilient

Resilient is another Publicly-Traded Company that follows in the same manner and methods as the others when it comes to determining valuations. The industry standard should be apparent by now with regard to how thorough and conforming the Publicly-Traded Companies are towards establishing effective and appropriate valuations. Resileint (2016) describes their process of valuation in essentially the same terms as the others:

After initial recognition, investment properties are measured at fair value. Fair values are determined annually by external independent professional valuers with appropriate and recognised professional qualifications and recent experience in the location and category of property being valued. Valuations are done on the open market value basis and the valuers use either the discounted cash flow method or the capitalisation of net income method or a combination of the methods (p. 52).

Again, valuers use the discounted cash flow method or the capitalization of net income methodboth of which are recognized by professional valuers as being important data retrieval approaches. Again, valuations are conducted annually as is seen in the companys further description of the process:

An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the groups investment property portfolio every year. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

Valuations reflect, when appropriate: the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant space, and the markets general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between the group and the lessee; and the remaining economic life of the property.

In short, the process is identical to that of the other Publicly-Traded Companies already described above. The industry standards are apparent and real and indicate that the valuations provided by Publicly-Traded Companies are strictly obtained, strictly overseen, strictly decided upon, and strictly upheld. There is nothing haphazardly done about these valuations and, unfortunately, the same cannot be said about Municipal valuations, as this study shows.


4.37 Other Publicly-Traded Companies

Delta, Hyprop Investments, and Texton Property Fund are other firms that manage property investments on the JSE. Their valuation methods are all similar to the ones described above and the point in mentioning these is simply to show that there are numerous options available to the public regarding obtaining market value valuations for properties that are investment grade. Were Municipalities to link their Valuation Rolls to these market values, published annually by these publicly-traded funds, the Municipalities could effectively address the severe drain on their resources that stems from the inability to adequately value the hundreds of thousands of properties they are tasked with valuing in extremely short times.


4.4 Massels Critique

The efficiency with which the Publicly-Traded Companies take up the valuation process compared to municipal efforts reveals a stark difference. The businesses are more focused, organized and perceptive; the local governments are riddled with socio-economic issues, political instability, confidence problems, and worse. The problem is such that Clive Massel of Rates Watch has asked if the MPRA or the local administrations are to blame for valuation issues year after year. This brings the reader to the attention of another vital source obtained through keyword searches: Massels critique of the MPRA and the South African Municipalities application of it to property valuations. Massel is describes himself as a professional valuer, Fellow of the South African Institute of Valuers and a municipal valuer of forty years who pioneered the first commer- cial mass appraisal system to cater for the Rating Ordinance No 11 of 1977 and has not lost a single valuation ap- peal case in terms of this ordinance. He was the first municipal valuer in South Africa to compile valuation rolls annually for the erstwhile municipalities of Boksburg and Benoni (Massel, 2011, p. 26).

Massels (2011) critique of the MPRA is telling as it reveals specific problems that his firm has encountered during its practice. Of the Act, Massel states, I am of the opinion that the Act itself is a well drafted piece of legislation and has in the broader sense achieved its objectives. There have been certain weaknesses in the Act, however, which have been addressed in the Local Government: Municipal Prop- erty Rates Amendment Bill No 34357 of Government Gazette dated 9 June 2011 (p. 18). What Massel objects to is the monitoring of the municipalities, which, as has already been noted, are difficult to assess performance-wise. According to the records of Massels team, the standard of municipal valuation, as well as implementation of the Act by certain municipalities including certain metros, is simply not up to scratch (p. 19).

Massel also identifies the time frame in which the Municipality conducts its valuations as severely limited: the time period for compiling an accurate and meaningful valuation roll is substantially compromised. In the vast number of tender documents, the time period allowed by the municipality to gather accurate data, the basic ingredient for accurate market related valuations in terms of sect 46 (1) of the MPRA, is far too short (p. 19). Massel points to one case specifically as evidence of this time constraint: An example is the current tender recently adverised by the Ekurhuleni Metropolitan Municipality (EMM), effectively allowing a period of one year at best, to compile a municipal valuation roll comprising over 600 000 properties (p. 19). However, even the director of valuations in Johannesburg (which has over 200 000 more properties to value than Ekurhuleni) has used this significant number of properties as an excuse for why mistakes occur (Oxford, 2013). Thus, this issue of having time (and by extension resources) is an important one. It is discussed in the next chapter as well.

To support his argument, Massel cites Mrs Thandi Zondo, of Municipal Finance Monitoring and Evalution, Gauteng Province, who issued the following comment regarding the time constraints the Municipality faces with respect to property valuations:

The timeframe chosen by EMM is for a District Municipality with less than 1 000 properties, not for a metropolitan municipality with voluminous properties. We have pointed out that the procurement process is not transparent and does not open for competitive bidding. Taking into consideration proposed new amendments, informed by public hearings conducted by the minister in all provinces, on the quality of the valuation roll to be assessed by the provinces, this will contribute to poor quality of the roll and not comply with our resolution taken by the province, South African Institute of Valuers and municipal valuers intending to improve the quality of the valuation rolls (p. 20).

Thus, Massels point is verifiable and based on the admission of the Municipality itself. Massels assessment of the underlying root of the problem is that valuers are ignorant of what the MPRA stipulates and take on valuation jobs granted by the Municipality without fully realizing what is expected of them. Massel states: The lack of understanding of what is required in order to compile a valuation roll to meet objective five of the preamble to the Act is the root of the problem. Unscrupulous valuers, who do not consider their professional work ethics, will take on these valu- ation rolls, knowing full well that it is nigh impossible to produce a valuation roll to acceptable standards – one that is fair, equal and consistent (p. 20).

The time constraints faced by valuers working for the Municipality inevitably leads to properties being either undervalued or overvaluedand this corresponds with the finding of this study regarding the comparison of Publicly-Traded Company valuations to Municipal valuations of one and the same properties: most are undervalued by the Municipality when compared to the Publicly-Traded Company valuationsthough some are overvalued when compared to the same Publicly-Traded Company valuations. In either case, there is very rarely (if at all) any similarity in the valuations.

Massel also argues that in addition, many properties are incorrectly categorised in accordance with the rates policy of the municipality and in certain cases large numbers of properties are omitted from the valuation roll (p. 20). Omissions from the Valuation Roll would help to explain why this researcher found it so difficult to locate properties on the Municipal Valuation Roll that were identified by the Publicly-Traded Copmanies in their publicationsthe Municipalities simply are not keeping effective records of propertieswhich, of course, raises the question of whether or not those properties are actually being taxed by the Municipality. As Massel states, a municipal valuation roll should be fair and equal, so that no single category or class of property is prejudiced. Properties of a similar class should be treated uniformly. In practice this does not happen (p. 20).

Massel continues in his evaluation of Municipalities valuation practices by focusing on the bidding process that awards jobs to valuers: Most municipalities will award the valuation tender to the lowest bidder and in the process they prejudice the standard and quality of the valuation roll, which ultimately affects the revenue base of the municipality. Tenders should be awarded to a municipal valuer who has substantial experience in the compilation of a municipal valuation roll, local knowledge and understanding of the intricacies of that particular municipality (p. 20). What must be noted here is Massels contention that tenders should be awarded to a municipal valuer who has substantial experience in the compilation of a municipal valuation roll, local knowledge and understanding of the intricacies of that particular municipality. REIT and other Publicly-Traded Company valuers themselves have substantial experience, have an understanding of the locale, and are recognize as credible authorities within the marketplace by thousands of investors worldwide. Indeed, the credibility of the REIT or other Publicly-Traded Company would quickly be extinguished were its team of valuers to lose the trust and confidence of the investment world. This point will be discussed more fully in the following chapter, but it requires highlighting here because it strikes at the heart of the issue that Municipalities face: a lack of core valuers that truly understand the market and/or have the expertise required for making fair and equitable assessments.

Again, Massel supports this argument with clear-cut examples from real-life situations that he and his firm have encountered. He provides the following as an illustration of how Municipalities will undercut themselves by awarding contracts to bidders who are simply not qualified to do the valuations required of them:

Each municipality has its own characteristics. Municipality X may have an airport or a harbour. Municipality Y may have specialised industries such as mining or other forms of high tech industry. Certain other municipalities may be more agriculturally based. In awarding a municipal valuation tender, the municipality must satisfy itself that the municipal valuer appointed will be able to undertake all types of property valuations within that municipality. Getting the right jockey to ride the horse, is critical in the pursuit of a fair and accurate valuation roll.

Again using Ekurhuleni as an example: This metro is one of South Africas largest municipalities and is in the heart of the economic sector of the country. It is a major contributor to the gross domestic product of our country and is characterised by substantial industry and mining activities. The ERPM mine falls within the Ekurhuleni municipality. The valuation of a mine of this nature is highly specialised.

The Ekurhuleni Metro awarded their 2009 valuation tender to a Durban-based company. Nearly two years after the publication of their valuation roll, the valuations of the ERPM mine have still not been resolved. Appeals were lodged by the mine, against their municipal valuation and the Appeal Board ruled that until correct data and information were provided to the board, the matter was to be postponed indefinitely.

Massel asks the obvious and important question that follows from this example of Municipal failure. The question pertains to how problematic valuations negatively impact other rate payers and even the Municipality itself. After all, the City must collect revenue from rate payersand if no revenue can be collected as a result of a lack of adequate information regarding the property in question, the Municipality is left in a holding pattern that hurts the community in the long run. Massel describes in the situation in these terms: What are the implications of this ruling to other rate payers as well as the municipality? The municipality is losing a substantial amount of revenue because of the fact that the entries on the roll relating to this mine appear to be incorrect. Ratepayers are therefore carrying an additional rates burden, simply because the municipality has to collect rates to balance its budget. Without a contribution from the mine, the deficit is in fact being fund- ed by all other ratepayers (p. 21). As Massel explains, such a probematic situation goes against the letter and the spirit of the MPRA: Section 3(a) of the MPRA states that a rates policy must treat persons liable for rates equitably. This provision of the Act cannot be adhered to, if a major category of valuation has been incorrectly entered in the municipal valuation roll (p. 21). Massel returns to the example of the mine valuation to make his point more effectively:

It appears that certain entries relating to this mine have been omitted from the valuation roll. The only way to correct this is to compile supplementary valuations. More than two years after the implementation of the valuation roll by the municipality, there has been no supplementary roll relating to these particular entries. Omissions in terms of Section 78(4) (a) of the MPRA cannot be backdated.

The loss of income to the metro in terms of these omitted valuations will be substantial. The apparent savings gained in awarding a tender based on lower price is meagre, in comparison to the rates revenue loss. Currently Ekurhuleni has suffered a rates loss of R128 million, arising from the objections, appeals and section 78 applications submitted by our team. This reflects only part of the loss sustained by this metro (p. 21).

Clearly, Massel sees a problem with the way valuations are handled by the Municipalityespecially as they pertain to revenue streams. A rate loss of R128 million is a considerable sum and, as Massel notes, it is only part of the loss sustained by this metro. See Chapter 5 for further discussion of rates loss as it pertains to Municipal valuations.


4.41 On Auditing

Massel notes that many municipalities award a municipal valuation roll tender without doing some form of audit control to establish whether the successful tenderer complies fully with the specifications set out in the tender document (p. 21). This is problematic because it undermines the Municipalitys ability to conform to the MPRA standards and guidelins. Massel explains: Certain tenders may be based on a points system relating to qualifications of the municipal valuer, the assistant municipal valuers and the administrative personnel. Several municipal valuation tenders have, however, been awarded without diligent verification of all submissions by the tenderer and awards have therefore been made erroneously. There have been cases where the representations made by the tenderer are incorrect, inaccurate or even fraudulent. The Special Investigation Unit is currently in the process of investigating officials of a Gauteng metro regarding their possible involvement in the valuation tender award (p. 21). If tenderers cannot be trusted to perform according to their mandate, the outcome for the Municipality is going to be less than desirable. For a country already reeling from corruption charges and instability, as noted by Deloitte, any exacerbation of the accountability issues faced by South African Municipalities could be disastrous for the countrys communities and populaces. Massel frames the precise nature of the problem by calling attention to a particular instance in one Municipality:

A specific condition of the 2009 Ekurhuleni tender [stated] that the municipal valuer had to be a professional valuer registered in terms of The Property Valuers Profession Act, 2000 (Act No. 47 of 2000). The municipal valuer appointed by the Ekurhuleni Metro was a professional associated valuer (with restrictions) and therefore did not meet the tender specifications of this particular metro. He should have been precluded from being appointed as the municipal valuer.

It was a requirement of the tender document to provide a list of all other valuers and personnel who would be involved in the compilation of the valuation roll and points were awarded according to the experience and knowledge of this professional team. In the case of the Ekurhuleni tender, three prominent professional valuers, two of whom were Fellows of The South African Institute of Valuers, were listed by one of the tenderers as forming an integral part of their team. This resulted in maximum points being scored under this section of the tender. In reality, not one of the three was ultimately engaged by the tenderer.

The danger facing a municipality in a situation of this nature is, if the tender award is audited by the Auditor General or the Special Investigation Unit, it will fail dismally. This could result in the tender being declared null and void.

Where would this leave the municipality? Moreover, what would the financial cost to the municipality be? The municipality would not be able to produce a valuation roll to be implemented by the effective date and would therefore not be able to raise revenue from rates and taxes until a new roll had been implemented.

The repercussions of failing to produce a Valuation Roll for the upcoming term or being able to raise revenue from rates and taxes until a new Roll was issued do not need to be discussed here, for they should be self-evident. Suffice to say that the issues raised by Massel indicate a need for auditing and self-evaluation that South African Municipalities at this time simply are not able to meet. This issue is discussed in the following chapter as well in A Failure to Effectively Audit.


4.42 On the Availability of Data

Data availability is an important issue for valuers: without access to the right data concerning the property in question, the valuer will have no frame of reference with which to effectively value the property. Massel discusses the issue:

In calling for tenders, municipalities must establish what available data can be provided to the municipal valuer and whether the records and data are suitable for municipal valuation purposes. Are the field sheets accurate and up to date? When they were last verified?

It is important to know in what format the information can be provided to the municipal valuer, especially relating to building plans, rezoning, township establishment, consolidations, subdivisions, etc. Aerial photographs need to be in a format which is compatible and useable by the municipal valuer and more importantly, the photographs should be taken as close to the date of valuation as possible.

At the recent hearings of the Johannesburg Appeal Board, it was apparent that the municipal valuers were using outdated data. My experience in general is that the level of integration between the various municipal departments is poor. To achieve a meaningful municipal valuation roll, municipalities must integrate the data held by the various departments and consolidate this data so that the municipal valuer has easy and quick access to this critical information.

Municipalities must establish the accuracy of the data supplied to the municipal valuer, who in turn must satisfy himself that the data is in fact relevant and useable. This highlights the critical issue of sufficient time to compile a valuation roll to acceptable norms and standards.

Massel points out that the sheer bureaucracy of government at the local scale is enough of an obstacle to prevent Municipalities from sensibly valuing properties: the various departments that have information on different properties do not effectively share their information, which means that valuers do not make valuations based on the best evidence that exists. See the section on Obtaining and Keeping Data for more discussion in the next chapter.


4.43 On the Valuation System Itself

The valuation system itself in Municipalities throughout South Africa has been found to need upgrading, as it is not properly or effectively linked in many cases to a billing system, which causes delays in rendering rates to owners. Massel states that a key factor in the compilation of any valuation roll is the valuation system used either by the municipality or the municipal valuer himself. In certain cases, municiplities have had great difficulty in getting the valuation system linked to the billing system. This has caused delays in rendering municipal rates accounts as well as reconciling the valuation roll to the municipal billing system (p. 22). The lesson that Massel identifies from the lack of adequate linkage is the following: It is essential that there is compatibility between the municipalitys billing system and the tenderers valuation system. Generally all municipalities work on tight deadlines. They are inevitably under pressure to have their rolls completed within the timeframes in terms of the MPRA and they can therefore ill afford to have further hiccups because the valuation system is not compatible with the municipal billing system (p. 22). If the Municipalities are working with inadequate valuation systems, there is less likelihood that they will be entirely focused on the job of valuating properties. Morale can easily be diminished in such environments and compilation efforts and maintenance of the Valuation Rolls can suffer as a result.


4.44 On a Lack of Resources and the Valuation as the Heart and Soul of Revenue Base

Massels description of the Municipalities attitude towards the Valuation Roll is very telling of the current problem:

My general impression is that few municipalities and their CFOs understand fully the importance of an accurate municipal valuation roll. Most municipalities fail to grasp the concept that the municipal valuation roll is the heart and soul of their revenue base and economic survival. Municipalities simply attempt to have a valuation roll compiled as cheaply as possible, without considering the full impact of its inaccuracy on their revenue base. Often the problem is solved by the municipalities applying abnormally high rates to the various categories of properties at the expense of non-residential properties.

What most municipalities fail to realise is that there is a limit to how long they can keep passing on these higher rates and taxes to property owners. They are slowly killing off the proverbial goose that lays the golden egg. The lack of human and financial resources made available by the municipalities is an important contributory factor to poor municipal performance.

Certain metros, such as Johannesburg and Ekurhuleni, are so seriously under-staffed that it is no wonder that they are fast approaching administrative collapse. Metros and municipalities are not providing adequate budgets for the acquisition of essential equipment and technology, resulting in an inability to keep pace with modern trends.

Even when municipalities are aware of the inaccuracy of their municipal valuations, they seldom introduce control measures to rectify their concerns. I know of very few municipalities who have objected to incorrect entries found in the municipal valuation roll. Municipalities have a duty to their rate payers to establish that the valuation roll submitted by the municipal valuer is not only accurate but fair and equal to all categories of properties comprising the valuation roll. Certain municipalities/metros are also known to undervalue properties in order to avoid objections and appeals. This the easy way out.

Massels depiction of Municipalities taking the easy way out by purposefully undervaluing properties says a lot about the condition of valuers working for the Cities in South Africa. To avoid the hassle off litigation they are willing to undermine the Municipalitys revenue stream, which Massel identifies as the heart and soul of the Municipality, as it allows vital streams of income to generate support for programs that help to refurbish and develop the community.

Massel continues: If the entire valuation roll has been undervalued this is partially acceptable. This does not, however, comply with the definition of market value as set out in sect 46 (1) of the MPRA. Generally valuation rolls are partly correctly valued, partly undervalued and partly overvalued. Municipalities should strive towards municipal valuations that are within 90% of the market value as at the date of valuation (p. 23). What Massel suggests is that Valuation Rolls are not consistent. The market value should be used across the board and properties should be evaluated so as to get as near that market value as possible. Since REITs and other Publicly-Traded Companies already provide the market value, as determined by their valuers, and clearly appreciated by investors, the Municipalities would solve a lot of their problems by utilizing the values of the Publicly-Traded Copmanies for their Valuation Rolls. This idea is reinforced again and again by the findings of this study and discussed in detail in the next chapter. But essentially the point should be clear by now: Municipalities cannot do the job satisfactorily on their owntherefore, why not turn to assistance from the REITs and other Publicly-Traded Companies who can?

Massel himself asserts that there should be better standards applied by the Municipality valuers and cites his own experience during the appeals process as evidence of this fact:

The results achieved by my team at the Ekurhuleni and Johannesburg appeal hearings would indicate that there is growing concern regarding the standard of municipal valuations.

In a batch of 1 304 appeals adjudicated by the Ekurhuleni Appeal Board, 85.4% of these matters were changed by the board, with a staggering 80.4% relating to valuation decreases. At the Johannesburg Appeal Board sittings, a 92% success rate was achieved. To date we have reduced valuations in Ekurhuleni in excess of R1.5 billion. This becomes even more disturbing when one considers the relatively small number of objections and appeals that we deal with, in relation to the valuation roll consisting of over 600 000 entries.

One of the main reasons for the decline in valuation standards over the past seven years is the fact that many of our countrys most senior and experienced municipal valuers have left the mass valuation arena. The reason for this is because most of the municipal valuers employed in-house by various municipalities were side-lined, which resulted in them leaving the employ of the municipality to join the private sector or look for other opportunities.

Valuers who specialised in municipal valuations on a tender or contract system have lost their appointments largely because of price. This has resulted in the country suffering a huge brain drain of extremely competent and highly experienced municipal valuers, and having them replaced by valuers with little experience in municipal valuations.

Comparisons between current and former Ekurhuleni valuation rolls show a significant difference in standards. Former valuation rolls compiled by the Ekurhuleni Metro in terms of the repealed Rating Ordinance no.11 of 1977, were far more accurate in regard to market value and showed a high level of consistency and uniformity. This was largely achieved by the establishment of a Valuers Forum which was made up of all the municipal valuers contracted to compile the various valuation rolls on behalf of the municipality. This Forum imposed its own level of monitoring to the benefit not only of the municipality, but the ratepayers within that municipality as well. Current lack of monitoring of valuation rolls has led to inconsistent valuations, which in a high percentage of cases are nowhere near market value.

What Massel identifies as a possible solutiona Valuers Forum (used previously by the Municipalities decades ago)corresponds closely with the idea proposed in this study, precisely because of the level of monitoring involved. Of course, this study proposes using the valuations of the Publicly-Traded Companies in place of a Valuers Forum, but only because these companies themselves are trusted monitors of their own valuers. The Municipalities today are in such disarray that for them to oversee a Forum asof old would be simply to add another layer of stress to their already stressed internal systems. The solution is not more burden on the Municipalities, but lessand to that end, the Publicly-Traded Companies would provide a substantial aid.

With that said, Massel makes an important point when he brings up the subject of physical inspections. He notes that these are not consistently being done by Municipal valuers because the MPRA says they are optional. Thus, even professional valuers will routinely forego them when they make their assessments. This presents individuals making an appeal with an opportunity to have their valuation overturned, if a physical inspection will show that the property has been valued incorrectly. Therefore, while using REITs and other Publicly-Traded Companies may offer a solution to some of the problems that Municipal valuers face, it will not solve all the problemsunless, of course, the REIT and other Publicly-Traded Companies valuers are performing the physical inspections. Whether these firms are performing a physical inspection or conducting a desktop inspection will likely depend on the company and its valuers. The importance of physical inspections is particularly vital for the appeals processand more shall be said on that in the next chapters discussion in the section On the Necessity of Physical Inspections in Case of Appeal. For now, it is useful to examine one example of what is needed for a property owner to make an appeal. The following are guidelines for the Municipality of Johannesburg:

Step 1: Complete the objection form;

Accompanying Evidence: Evidence that supports the objection must be attached to the objection form. For example, if you think the value is too high, you must attach details of similar properties in the area that have recently been sold as near to the date of valuation as possible. Unacceptable evidence includes general assumptions and a municipalitys lack of service, or inability to render certain service;

Step 2: Submit The Objection Form.

You may only object to the value (too high or too low), omissions or property information and not object to rates and taxes;

Step 3: Review The Objection

Objection form will be sent to the Municipal Valuer to decide if the objection should be confirmed, revoked or amended. More than a 10% variance (up or down) will automatically be referred to the Valuation Appeal Board for review;

Step 4: Appeal Against Municipal Valuers Decision

If you disagree with the Municipal Valuers Decision, when the decision relating to the Objection has been communicated, then you may lodge an appeal to the Valuation Appeal Board.

This process makes it very easy for property owners to take advantage of short-comings in the Municipalitys valuation process. More shall be said of this appeals process and how it might be amended in the final chapter.


4.45 On the Municipalities That are Most Efficient

While many Municipalities suffer from the symptoms described above, not all Cities are the same. Massel describes a few that have managed to conduct their valuations with the fairness and equitability expected of them:

Not all municipalities warrant this criticism. Cape Town Municipality is a shining example of how a valuation roll can be compiled. Its objectives will be further enhanced by the creation of a bi-annual valuation roll and ultimately annual compilations.

Other municipalities such as Tshwane and eThekwini (Durban) have gone out of their way to correct mistakes in their valuation rolls, including the expeditious handling of Section 78 applications. The Emalahleni municipality (Witbank) appointed an independent monitor to assist in the drafting of its tender document, adjudication of the valuers, monitoring of the roll for compliancy, as well as the audit of valuations. The monitor cross-checked the entire valuation process, including a thorough audit on all submissions made by the bidder.

Once appointed, the bidder was required to provide samples of all types of valuations carried out by him. In addition the monitor requested random valuation samples for testing, conformity and accuracy. The monitor further ensured that the bidder met with all the tender specifications including the backup requirement, as specified in the tender document. Meetings were held between the bidder and the monitor on a regular basis and the municipal valuer was constantly under the eagle eye of the monitor. The municipality was engaged at all times with this monitoring process. This resulted in a trouble-free valuation roll, with relatively few objections and appeals.

Other municipalities which have made use of an external monitor include Mookgophong (Naboomspruit), West Rand District Municipality and Nokeng Tsa Teamane (Cullinan). I know of only one municipality that is compiling its valuation rolls on an annual basis and that is the municipality of Emfuleni. It is to be congratulated on its endeavours. The highly competent and experienced municipal valuer of Emfuleni, a member of the erstwhile Ekurhuleni Valuers Forum, is familiar with the benefits of annual valuation compilations.

As Massel states, having an annual Valuation Roll compiled is a great indication of competence and shows that the Municipality is highly ordered. This follows in the footsteps of what this study has proposed by turning to Publicly-Traded Companies for property valuationsnamely, that because these real estate investment trusts are so organized and dependent upon updated valuations, they will typically conduct appraisals just as frequently as the most competent Municipality in South Africa. Thus, turning to them for valuations would allow all Municipalities to become equally as competent very quickly.

Massel summarizes the condition of the majority of the Municipal valuers with these words:

The South African mass valuation industry is in crisis. We are witnessing the virtual administrative collapse of certain municipalities as well as a few metros. Because of administrative incompetence valuation roll cycles are being extended instead of shortened. Yet ironically, we have all the technical and human skills to compare with the best in the world. The mass valuation industry must take a hard look at its current performance. Mass valuation skills and training need to be upgraded significantly (p. 26).

As he notes, if Valuation Roll cycles are being extended instead of shortened, the Municipalities are moving in the wrong direction. Moreover, it would go against international standards and mean that faulty valuations would be on the Roll for longer than they are now, which would mean that Municipal balance sheets would suffer for an even greater period of time. Rates Watch (2014) explains thus:

South Africa needs to keep pace with worldwide trends.

It is necessary therefore to take steps to reduce the validity period of valuation rolls. This is particularly relevant to all metropolitan municipalities as well as the larger municipalities.

The extension of valuation rolls is not in accordance with internationally recognised mass valuation standards.

In the case where municipalities have had sub standard valuation rolls prepared, these incorrect entries will endure for the full duration of the valuation roll. This means that properties that have been grossly incorrectly valued or under-valued will in fact enjoy a discount on the rates payable compared to a property that has been correctly valued.

This is in direct conflict with the basic principle of the rates policy as well as the Constitution.

A mechanism needs to be created whereby there is a distinction between the size of the municipality relative to the period of the valuation roll. I.e. the larger the municipality the shorter the validity period of the roll.

Extending the lives of aluation rolls will have an impact on equity and fairness, especially in the metropolitan municipalities and bigger municipalities. The extension may suit smaller municipalities with a large number of rural and communal properties (Rates Watch, 2014).

Turning to expert help for valuations, such as those provided by REITs and other Publicly-Traded Companies, would be a quick, timely, expedient, efficient, and useful solution to the problems that the Municipalities face and would greatly enable them to enhance their balance sheets and boost their revenue streams, literally overnight. An examination of the comparison between Municipal valuations and Publicly-Traded Company valuations is enough to show that this is true.

This question of efficiency can be viewed in another light as well, as the audit of Cape Town Municipalitys usage of its mass valuation system and the CAMAs effect on the Municipalitys efficiency in compiling its Valuation Roll shows. The audit asserts that Cape Town is achieving greater efficiency through its use of the mass valuation system primarily because it is saving time and compiling the Roll and processing and responding to objections more quickly. However, as the findings in the next section will show, the Municipality is still undervaluing properties substantially when they their values are compared to the Market Value of properties obtained by Publicly-Traded Companies. The audit of Cape Town exposes the problem with Municipalities in general: they are looking for answers in the wrong places, attempting to cut corners for times sake and judging it as efficiency in the process. KPMG (2015) states clearly with regard to Cape Towns endeavours after evaluating its CAMA system Aumentum:

At the Departmental level, using Aumentum has resulted in increased efficiency, transparency, and impact. One of the major efficiency gains experienced by the Department is time savings. Mass valuations are undertaken more quickly because of the workflow feature, and SQL and SPSS integration with Aumentum (D1). The workflow tool allows Department staff to track the age of the properties in the queue and identify the length of time the property has been in the workflow and the assigned staff member. SPSS and SQL are easier to use and, as a result, the quality of data used for valuations has improved. The Department is able to address historical backlogs and resolve outstanding issues, while simultaneously valuing properties entering the workflow on a day-to-day basis to prevent future backlogs. The Department also utilizes Pictometry as a data collection tool. The Department is now proactive in its data collection efforts and this has lessened the reliance on other departments (D7). For example, the Department is no longer relying on building plan submissions from the Planning Department to identify properties that have had improvements or new buildings. Aumentum has enabled the Department staff to be less reliant on consultants to generate a valuation roll. The workflow feature enables segregation of duties, transparency, and isolation of responsibility, and reduces the overall risk in the valuation process. The Department has generated clear role and responsibility statements for staff with clear delineation of duties. Project time lines for valuations are in place, understood and effectively implemented by the Departments staff. The Department is able to resolve valuation objections more quickly (D2). Previously, objections would typically take three months but with the current electronic process, objections can potentially be resolved in a number of days. Objections that relate to correcting the name of the owner or an address are resolved immediately (p. 11). It may be noted that while the Cape Town Municipality is identified as using a number of streamlined methods to obtain accurate valuations, the method prescribed in this study is not mentioned (much less considered)and the primary means used by the Municipality is the reliance upon the CAMA system operated by Cape Town. Using a Pictometry data collection tool may sound good and effective on paper but if the individuals using that tool are at the same time pressed for time and under pressure to rush through the valuation process in the first place, it remains to be seen how much credibility can be applied to the data obtained by anyone in such a position. Having the tools is one thing: using them efficiently is another. However, in the case of this particular Municipality, it may be seen that even having a tool such as Aumentum is no guarantee of efficiency or accuracy in valuing properties, as the next section clearly shows.

KPMG (2015) also finds that all the properties on the General Valuation Roll are added at market value as of the date of valuation (p. 1) but KPMGs finding is clearly challenged by this studys finding, which shows that Cape Towns valuations are nowhere near the market values of properties as stated by publicly-traded companies in their annual reports. With that said, of the five Municipalities studied, Cape Towns valuations are the closestbut they are still, on average, more than 55% under the actual market values published by publicly-traded companies themselves. If this is a sign of efficiency, the word best be redefined for future dictionaries.

It is worth noting that this same KPMG recently has come under fire for its role in connection with the Guptas, who were described previously in this study as being at the heart of one of Johannesburgs valuation scandals. The case against KPMG only goes to show the level to which problems in the valuing and auditing services is currently being seen. As Brock (2017) reports:

Global auditor KPMG cleared out its South African leadership on Friday after damning findings from an internal investigation into work done for businessmen friends of President Jacob Zuma.

KPMGs investigation into its work for the Guptas, accused by a public watchdog of improperly influencing government contracts, did not identify any evidence of illegal behaviour or corruption. But it did find that work done for Gupta family firms fell considerably short of KPMGs standards, the auditor said in a statement.

It became the third global firm to be damaged by work carried out for the Indian-born brothers, after public relations agency Bell Pottinger whose British business collapsed this week and consultancy McKinsey.

This has been a painful period and the firm has fallen short of the standards we set for ourselves, and that the public rightly expects from us, KPMGs new South African CEO Nhlamu Dlomu said.

I want to apologise to the public, our people and clients for the failings that have been identified by the investigation.

KPMG said it would donate the R40 million ($3 million) it earned in fees from Gupta-controlled firms to charity and refund 23 million rand it earned compiling a controversial report for the South African tax service.

South African chief executive Trevor Hoole, chairman Ahmed Jaffer, chief operating officer Steven Louw and five senior partners all resigned.

This recent scandal of KPMG casts all of its previous auditing in a shadow, just as evidence provided by a witness in a court of law would be suspect were it shown that the good character of the witness was in doubt. It is pertinent to this study to indicate some of the tensions involved with this company in order to better understand why the auditing of Cape Towns Municipal Valuations process may not be as favorable as the firm itself has attempted to show. Brock (2017) describes more of KPMGs recent troubles:

KPMG is also seeking to take disciplinary action to dismiss Jacques Wessels, the lead partner on audits of Gupta-linked firms, it said. Wessels did not answer a call to his mobile phone seeking comment.

Mmusi Maimane, the leader of the opposition Democratic Alliance, called for a criminal probe.

While I wecome these resignations, anyone who is involved in state capture must be criminally prosecuted, said Maimane, using a term denoting illicit outside influence on government decision-making.

KPMG must be subject to a full investigation both locally and internationally, he told Reuters.

The audit firm is still under investigation by South Africas IRBA, the auditors regulatory body. Its lightest sanction is a caution or reprimand; the heaviest would be removal from the auditors register, which would have a devastating impact on KPMGs African business.

The fact that KPMG is currently under investigation and could be stricken from the auditors register indicates how lightly one may wish to take its auditing opinions. This type of problem, unfortunately is not unique in South Africa: scandals have rocked the country repeatedly. Even the Guptas continue to return as individuals caught in the crossfire of these struggles. Brock (2017) states:

The three Gupta brothers, Atul, Ajay and Rajesh, came to South Africa in the early 1990s and built a commercial empire stretching from computers to mining and media.

The family has employed Zumas son Duduzane as a director of one of its subsidiaries. The brothers have rejected the public watchdogs accusations of corruptly influencing Zuma.

The turmoil at KPMG follows the placing into administration of the British arm of Bell Pottinger on Tuesday, after clients deserted it because of a backlash over a racially charged political campaign it ran for the Guptas.

Global consultancy McKinsey is also being investigated by South Africas parliament over whether it knowingly let funds from state power utility Eskom be diverted to a Gupta company as a way of securing a $78 million contract to advise Eskom.

McKinsey is carrying out its own investigation, but has denied wrongdoing.

The Gupta scandals have piled pressure on Zuma and opened a deep divide in the ruling African National Congress, the party that has ruled since Nelson Mandela swept to power at the end of apartheid in 1994. It is due to elect a new party leader in December.

David Lewis, chief executive of Corruption Watch, an NGO that has been at the forefront of efforts to expose alleged wrongdoing by the Guptas and those around them, said he doubted that KPMG had really turned over a new leaf.

From this report one can see that the situation in South Africa is rife with accusations, allegations, socio-political turmoil and issues regarding corruptioneven to the very top levels of the government. While this may only indirectly seem to touch upon the issue of valuations, the fact that KPMG delivered such a positive report of Cape Towns Municipal Valuations method indicates the nature of who is doing the auditing of the Citys most important stream of revenue.


4.5 Structured Survey

For this study, a survey was given to professional valuers based on the following questions below.

The questions were designed to discern:

1) The extent to which valuers were affiliated with professional bodies

2) Valuation status (municipal, private sector, financial)

3) The type of categories of valuations undertaken by the valuer

4) The number of years the valuer had been practicing

5) The extent to which market value of the property is important to private sector and property owners

6) The extent to which market value is important to Municipalities for their Valuation Roll

7) The types of clients that require their valuers to have professional indemnity insurance

8) The type of valuation method determined by the valuer to be most effective in the private sector

9) The most effective type of valuation method for determing market value in the public sector (exclusive of Municipalities)

10) The most effective type of valuation method for determing market value in Municipalities (for the Valuation Roll)





A second survey was conducted to evaluate the importance of market value when determining property valuations.

The questions asked in this survey were designed to elicit the following information:

1) The nature of the participants employment as a valuer (employee or consultant of a bank or property finance company)

2) The types of real estate finance offered by the company

3) The extent to which market value of a property is considered to be important when a loan on the property is in question

4) Whether independent external valuers are utilized when determining an independent market value for loan purposes

5) Whether professional indemnity insurance is required of independent external valuers when they are engaged by the company

6) Why it is important that a property valuer have professional indemnity insurance when engaged by the financial institution





In the following chapter, the results of the survey are discussed in detail.


4.6 Interviews

Interviews were conducted with two professional valuers for this study, one of whom has had over 25 years standing as a professional valuer and who is also a member of both professional bodies. Two key responses that emerged from the interviews were the following:


On valuer commented on the backlog in appeals hampering Johannesburg Municipality: A recent press release in Jhb Council highlights a backlog in Appeals and Objections dating to 2008 which includes Appeals and Objections by the Council against the values obtained by its own Mass Valuation company.

Another stated: I am aware of Dr. Douw Boshoff at UP who has tested the accuracy of some Valuation Rolls undertaken on a mass appraisal approach and he uncovered that, in some instances, only 12% of the roll could be fully explained, in other words accurate, whilst the remaining 88% was somewhat questionable. My view of why this is accepted by Municipalities is because all they require is to balance the Roll to their required rates income Budget.

These two rather astonishing remarks reveal a great deal about the state of Municipal Valuations and the very serious issues Municipalities are having as they struggle to deal with their mandate.


The following transcript of communications exhibits the researchers questions for the interviewees (ITEM 1) and their responses in full (ITEM 2 and ITEM 3).




Thanks for our earlier chat and responding to my email. Herewith please find my thoughts / questions to be raised to which Id greatly appreciate your comments, insight and suggestions, whether good or bad.


1. What in your opinion are the benefits relating to the Mass Valuation Methods applied by Municipalities when updating Municipal Valuation Rolls?


2. What in your opinion are the disadvantages associated with the Mass Valuation Methods applied by Municipalities when updating Municipal Valuation Rolls?


3. To your knowledge do Municipalities require valuers to have professional indemnity insurance for when municipal valuation rolls are undertaken? If not, what are the reasons? Would the benefits outweigh the cost of professional indemnity insurance?


As discussed when discussing the subject matter I wished to ensure that anyone I approach for an interview/input, anonymity will be preserved, i.e. you or your colleagues would not be identified in the report, either by name or by title as you would be referred to only as professional valuers duly registered and operating in South Africa with in excess of 10 years experience OR with known industry experience and expertise (you ar an expert in my opinion).


The purpose of contacting yourself / industry professionals known to you relating to the study is that it will be helpful to get other opinions on the subject to compare/contrast with the thesis of the study being conducted. I wish to examine your/professional valuer opinions and include them in the study.


I am open to any other general suggestions and/or comments you may have on the subject matter which I could use under general comments to assist the overall research topic.






I have given the research document required to a colleague of mine who has more than 25 years experience in the field. You will receive this shortly.


In the meantime here are my comments and these are based on opinion given the exposure and research we have undertaken to consider Mass Valuations as a service.


The benefits to Mass Valuations appear to be based on averages applied across the board to determine a valuation for a particular area. This methodology is heavily reliant on inputs and values are able to be determined in a relatively short period of time if considered against prescribed valuation methodologies. Updating of Municipal Valuation Rolls are usually determined against a tight timeframe and given the magnitude of the tasks, regressionary models are common to expedite and to determine values as accurately as possible against the inputs from which they are determined.


The perceived disadvantages associated with Mass Valuation Methods are that true market values very seldom equate to municipal values. In fact Municipal Values are often less than true market values. This has a direct bearing on the perceived under recovery of revenue income to the Local authority. A recent press release in Jhb Council highlights a backlog in Appeals and Objections dating to 2008 which includes Appeals and Objections by the Council against the values obtained by its own Mass Valuation company.


In line with the Mass Valuation methodologies, a process allowing for Appeals and Objections against Municipal Values which appear higher than market values. The process in itself is tedious and timeous and often at a cost which would seem unnecessary if true market values were determined accurately, following guidelines prescribed by the SA Council of Valuers Profession, at the outset. One must , however, consider that the cost of Valuations is a huge contributory factor in deciding on Mass Valuation Methodologies vs Market Related Valuations.


To my knowledge, Professional Indemnity Insurance is not required to undertake municipal valuation rolls. In my opinion, PI insurers would be hesitant to insure the risks of the processes which require inputs often from unqualified personnel (runners) at low costs. The inputs are often of an average nature for the areas and then applied to the particular properties using models. These inputs would not necessarily reduce risks in the event of potential claims. In my opinion, PI insurance could be called for, if true market values are required and are governed by processes prescribed by SACPV. This would have a bearing on the cost of the total exercise. In saying this, it is common practise for Valuers operating in this space to be insured for PI and at their own cost.


Hope this helps.




My colleague has sent me your mail and asked me to comment per your questions below, in order for you to have two independent views to your questions.


At the outset, and which you may already know, the Mass Appraisal approach to Valuations works on the basis of averages in terms of modelling and to a significant, ignores specifics to a property because the inputs do not necessarily allow for it. The reason for this is because of the timeframe constraints associated with this type of work. Similarly, if this exercise were to be afforded the time it duly deserves for the compilation of an accurate model, one would have to rely on the inputs of the property owner for the property specifics and because the property owner is desirous of as low a value as possible, there is every probability that the inputs provided would be fairly inaccurate. I am aware of Dr. Douw Boshoff at UP who has tested the accuracy of some Valuation Rolls undertaken on a mass appraisal approach and he uncovered that, in some instances, only 12% of the roll could be fully explained, in other words accurate, whilst the remaining 88% was somewhat questionable. My view of why this is accepted by Municipalities is because all they require is to balance the Roll to their required rates income Budget.


Given the above and in response to your questions below, my views are as follows:


1. The benefits to the Municipality of applying Mass Valuation Methods is Cost and time. They are done in a quicker turn-around time and the costs associated with it is very low in many cases R 100 per valuation.


2. The disadvantages are that the Roll will be largely inaccurate. It is our experience in the delivery of our work, that to the 90% percentile our Market Value determined is in excess of the Municipal Value. In many cases the variance is quite large to the extent of between 20% and 40%.


3. I dont believe that the Municipalities place much reliance on the PI of the contracting enterprise because the Mass Appraisal Approach to valuations does not meet the minimum industry standards or even that of the International Valuation Standards. This is an historical issue and relates back to the old rating ordinances which were replaced by the Municipal Property Rates Act.


These are my views based on our experiences.


I trust this will assist you further.



A discussion of these interviews may be found in the next chapter.


The following section provide details on comparisons between Municipal Valuations of properties in South African and actual market values (as determined by valuers employed by Publicly-Traded Companies).



4.7 Comparing the Valuation Roll to the Publicly-Traded Companies Valuations (Market Value)


The figures below were obtained by searching the Valuation Rolls of five Municipalities for properties listed in the publicly reported annual disclosures of Publicly-Traded Companies in South Africa. In some cases, it was difficult to obtain information on the listed properties because the Valuation Rolls did not show any information for that property.




1. EThekweni Durban







Property Description















Bluff Shopping Centre, 318 Tara Road, Bluff, Durban


REM of Erf 1714 Wentworth

R 171 000 000






City View, 10 Matthews Meyiwa Road, Greyville, Durban, 4001


Erf 1357 Durban

R 269 000 000






Granada Square, 16 Chartwell Drive, Umhlanga Rocks, Durban


Erf 468 Umhlanga Rocks

R 83 300 000






La Lucia Mall, 90 William Campbell Dr, LaLucia, Durban, 4051


Erf 2742 La Lucia

R 840 000 000






OK Empangeni, cnr. Biyela and Commercial Streets, Empangeni, Durban


Erf 3217

R 87 000 000





Park Boulevard, 11 Brownsdrift Road, Riverside, Durban


Erf 159 Umgeni Park

R 42 190 000






Phoenix Plaza, 19 Parthenon St, Starwood, Phoenix, 4068 Durban


Ptn 67 of Erf 15382

R 280 000 000






Springfield Retail Centre, 2 Ilala Avenue, Springfield Park, Durban


Erf 501 Springfield

R 152 000 000






Stanger Mall, 55 King Shaka St, Stanger, Durban, 4450


Erf 3159 Stanger

R 14 060 000






Umgeni Business Park, 1 Kosi Place, Springfield Park, Durban


Erf 459 Springfield

R 24 990 000






Watercrest Mall, 141 Inanda Rd, Waterfall, Durban, 3652


Ptn 771 of Erf 980 of Upper end of Lang Fo

R 544 000 000






Westville Mall, 35 Buckingham Terrace, Westville, Durban, 3630


REM of Erf 2977 Westville X3

R 163 000 000




















1 Montgomery, 1 Montgomery Drive, Mount Edcombe, Durban


REM of Ptn 7 of Erf 143 Mount Edgecombe

R 85 250 000






100 on Armstrong, 100 Armstrong Ave, Forest Park, La Lucia Ridge, Durban


Erf 2773 La Lucia

R 34 210 000






2 Frosterley Park, 2 Frosterley Crescent, La Lucia Ridge, Umhlanga Rocks, Durban


Erf 2834 La Lucia

R 31 050 000






295 Florida Road, Berea, Durban


REM of Erf 785 Durban

R 20 020 000






3 The Terrace, 3 The Boulevard, Westville, Durban


Erf 3721 Westville X35

R 30 820 000






4 Pencarrow, Pencarrow Crescent, Umhlanga Ridge, Durban


Ptn 10 Erf 16740

R 27 220 000





9 Frosterley Crescent, La Lucia, Durban

Ptn 84 Erf 16740 office park no. 16740

R 25 510 000






ABSA Frosterley, 1 Frosterley Cres, Umhlanga, 4319 Durban


Ptn 84 Erf 16740

R 25 510 000






BCX – Durban 1, Cranbrook Park, 1 Cranbrook Crescent, Durban, 4051 La Lucia Ridge


Ptn 95 Erf 16740

R 53 150 000






BCX – Durban 2, Cranbrook Park, 1 Cranbrook Crescent, Durban, 4051 La Lucia Ridge


Ptn 95 Erf 16740

R 53 150 000






BCX – Durban 3, Cranbrook Park, 1 Cranbrook Crescent, Durban, 4051 La Lucia Ridge


Ptn 95 Erf 16740

R 53 150 000






Convention House, 125 Florence Nzama Street, Durban


REM of Erf 11619

R 39 300 000






Deloitte, Pencarrow Park, No. 2 Pencarrow Crescent, La Lucia Ridge, Durban, 4000


Erf 2832 La Lucia

R 66 950 000






East Coast Radio House, 314/7 Umhlanga Rocks Drive, Umhlanga Rocks, Durban


Erf 2477 Umhlanga Rocks

R 67 330 000






Gateview, 3 Sugar Close, Umhlanga, Durban


Ptn 758 of the farm lot 31 No.1560

R 29 710 000






Lincoln on the Lake, 2 High Street, Umhlanga Ridge, Durban


Ptn 13 Erf 2513

R 172 120 000






Mayfair on the Lake, 5 Park Ln, Umhlanga Ridge, Durban, 4319


Ptn 11 Erf 2513 Umhlanga Rocks

Unable to locate on details






MTN Mount Edgecombe, Flanders drive; 4302 Mount Edgecombe, Durban


Unable to locate

Unable to locate on details






Pharos House, Westville Rd, Westville, Durban, 4001 (Westville Junction) – 2012 rate roll only


Ptn 6 of erf 1686 Westville

R 54 300 000





Ridgeview, 1 Nokwe Avenue, Umhlanga Ridge, Durban

Erf 3153 Vacant Land under development

R 7 410 000






Standard Bank Umhlanga, 1 Millenium Boulevard, Umhlanga Ridge, Durban


Ptn 16 Erf 2692 Umhlanga Rocks

R 36 330 000






Strathmore Park, 305 Musgrave Road, Musgrave, Durban


REM of Erf 12526

R 35 590 000







The Boulevard, 19 Park Lane, Umhlanga, Durban


Ptn 10 Erf 2534 Umhlanga Rocks

R 25 740 000








Umgeni Business Park, 1 Kosi Place, Springfield Park, Durban


No data available / Possibly Municipal owned?





















10 Richard Carte Road, Mobeni, Durban

Ptn 118 of erf 790 Dunns Grant

R 35 000 000









116 Teakwood Road, Umbilo, Durban


Erf 1583 Wentworth

R 16 250 000







20 Rustic Close, Westmead, Durban

Ptn 101 Erf 3474 Durban North

R 72 000 000






Fosa Park, 570 Inanda Road, Durban

Section 1 of SS Fosa Park (2 other prop)

R 16 000 000






Greenfields, 1451 Chris Hani Road, Redhill, Durban

REM of Ptn 1 of Erf 3256 Durban North

R 39 960 000







Greenfileds, 1451 Chris Hani Road, Redhill, Durban

REM of Ptn 1 of Erf 3256 Durban North

R 39 960 000








Runway Park, 1474 South Coast Rd, Mobeni, Durban, 4052


Erf 730 Mobeni

R 51 000 000






















Protea Hotel Edward, 149 O R Tambo Parade, South Beach, Durban, 4001


REM of Ptn 1 Erf 11268

R 75 000 000















Total Municipal Value: R 3 989 530 000

Total Market Value: R 6 583 300 000


There is approximately a 65% difference between the total Municipal Value of the properties listed above and the total Market Value as represented by publicly-traded companies annual reports. The Municipality of eThekweni Durban is losing approximately 65% of its revenue by undervaluing properties according to these figures. The increase in value from the Municipal valuations to the Market valuations supplied by publicly traded companies in their annual reports is over 65%. This means that were the Municipality of eThekweni Durban to use the Market Value valuations supplied by publicly traded companies in their annual reports, the City would increase its revenue stream and balance sheet by at least 65%.



2. Cape Town







Property Description




City Of Cape Town



Bayside Mall, W Coast Rd & Blaauwberg Road, Table View, Cape Town, 7439


Erf 21460 Milnerton






Blouberg Plaza, Cnr Dendron & Blouberg Road, Blouberg

property does not exist on valuation roll

Does not exist on valuation roll






Blue Route Mall, 16 Tokai Rd, Dreyersdal, Cape Town, 7945


Erf 9877 Constancia

R 1 040 000 000






De Waterkant Centre, Napier Street, Greenpoint, Cape Town


Erf 4551 Capetown

R 78 429 103






Gardens Centre, 22 Mill Street, Oranjezicht, Cape Town, 8001

Erf 2905

Sectionalised no new values






Golden Acre, 9 Adderley St, Foreshore, Cape Town, 8001


Erf 107746

R 497 000 000






Grand Parade Centre, Adderley Street,Cape Town


Erf 4645 Capetown

R 210 000 000






Gugulethu Square, Ny1, Cnr Ny 7 Road Gugulethu, Cape Town


Erf 4486 Gugulethu

R 344 000 000






Howard Centre, Forest Dr & Howard Dr, Pinelands, Cape Town, 7405


Erf 3533 Pinelands

R 265 000 000






Kenilworth Centre, 01 Doncaster Rd, Claremont, Cape Town, 7708


Erf 54756 Claremont

R 569 000 000






Longbeach Mall, Cnr &, Sunnydale Rd, Sun Valley, Cape Town, 7975

Noordshoek, Cape Town


Erf 3641 Noordhoek

R 465 000 000






Middestad Mall, Church St, Bellville, Cape Town, 7530


Erf 26365 Bellville

R 181 000 000






MontClare Place, Main Road, Claremont, Cape Town


Erf 58221 Claremont

Cannot find






N1 City Mall, Louwjie Rothman Street, Goodwood, Cape Town, 7460


Erf 32491

R 1 080 000 000






Parklands Health Care, 11 Village Walk, Cnr Link & Park Roads, Table View, Cape Town


Erf 32909 Milnerton

R 34 790 000






Picbel Parcade, 58 Strand Street, CBD, Cape Town


Erf 4237

R 200 000 000






Sportsmans Warehouse, Tyger Valley Shopping centre, 1 Bill Bezuidenhout Ave, Bellville, Cape Town, 7530


Erf 21750 Bellville

R 34 700 000






The Constantia Village, Constantia Main Rd & Spaanschemat River Roads, Deurdrif, Cape Town, 7806


Erf 12501 Constancia

R 806 000 000













11 Adderley Street, CBD, Cape Town


Erf 4645 Capetown City

R 210 000 000






200 Main Street, Claremont


Erf 56170 Claremont

R 62 000 000






ADT House, 5 Louwtjie Rothman St, N1 City, Cape Town


Erf 33115 Goodwood

R 54 800 000






Belmont Office Park, 14 Belmont Road, Rondebosch, Cape Town


Erf 45677 CPT

Could not find






Belvedere Office Park, 1 Bella Rosa St, Rosenpark, Cape Town, 7550 Belville


Erf 31321 Rosen Park

R 63 000 000






Black River Office Park, 2 Fir St, Oservatory, Cape Town


Erf 163099 Observatory

R 360 000 000





Boundary Terraces, 1 Mariendahl Lane, Newlands, Cape Town


Erf 169023 Capetown

R 133 000 000






Centennial Place, Boulevard, Century City Dr, Milnerton, Cape Town


Erf 5025 and 5026 M Gardens

R 134 000 000






Chiappini House, 26 Chiapini Street, Cape Town


Erf 583 Valued with 571

R 12 500 000






ENS House, 2 Lower Loop Street, Foreshore, Cape Town


Erf 12 Roggebaai

R 230 245 000






Harbour Place, 7 Martin Hammerschlag Way, Cape Town


Erf 268 Roggebaaai

R 46 000 000






Longkloof Studios, 4 Darters Rd, Gardens, Cape Town, 8001


Erf 94443 Capetown

R 13 200 000






Newlands Terraces, 8 Boundary Road, Newlands, Cape Town

Erf 159023 CPT

R 133 000 000






Paramount Place, 105 main Road, Claremont, Cape Town


Erf 171785 CPT

R 113 000 000







The District, Woodstock


Erf 172660 CPT

R 215 000 000







The Estuaries, Century City, Montague Gardens, Cape Town


Erven 6486 to 6491 M Gardens

R 211 900 000









The Oval (Newlands), Oakdale Rd Newlands, Cape Town


Erf 152959 en 152960 CPT

R 123 000 000









The Pinnacle, 2 Burg Street, Cape Town


Erf 9465

R 110 000 000








The Terraces, 34 Bree St, Cape Town City Centre, Cape Town, 8001


Erf 140297 CPT

R 210 000 000









The View, 43 Old Oak Road, Belville, Cape Town


Sectional title residential complex

Could not find














N1 City Hospital, Louwtjie Rothman St, N1 City, Cape Town, 7460 Goodwood


Erf 39242 Goodwood

R 298 000 000
















10 Hoist Street, Montague Gardens, Cape Town


Erf 6208 Montagu8e Gardnes

R 42 500 000








131 Bofors, Epping, Cape Town


Erf 32549 Capetown

R 22 678 069








14 Cochrane Avenue, Epping, Cape Town


Erf 32469 CPT Epping

R 21 353 705








3A Bofors Circile, Epping, Cape Town


Erf 107462 Epping

R 78 105 000








57 Mobile Road, Airport Industria, Cape Town


166164 cpt

R 11 980 000







Altemator, Montague Gardens, Cape Town

There is 20 different props in altenator


No value given as this is more

than one prop and we do not

have details of the specific










Assegaai Place, 7 Assagaai Road, Kraaifontein Industria, Cape Town


Erf 6224 Kraaifontein

R 2 090 000









Central Park, 112 Epping Avenue, Elsies River, Cape Town


Erf 19342 Goodwood

R 116 235 000









Freeway Park, Cnr Berkley And Upper Camp Roads, Ndabeni, Maitland


Sectional title 50 units

Sectiuonal title 50 units









Greenfield Industrial Park, Mobile Rd, Airport Industrial, Cape Town


Erf 177093 CPT

R 48 000 000









Indepedent Square, ERF1412 New Ottery Rd, Ottery, Cape Town, 7808


Farm 1412 ptn 7

No data available








Maitland Industrial Park, 703 Voortrekker Road, Maitland, Cape Town

Erven 113663, 22738, 25169 and 24924

Cape Town

R 93 000 000







Moorsom, Epping, Cape Town

There is 20 different props in altenator


No value given as this is more

than one prop and annual report does not have details of the specific one









Protea Coin, 4 Vonkel, Kuils River, Cape Town


Erf 733 Rustdal

R 8 090 000








Tygerberg Business Park, 6 Koets St, Parow Industrial, Cape Town, 7493


Erf 22945 Parow

R 33 052 685
















Inn On The Square, 10 Greenmarket Square, Cape Town Central, Cape Town, 8000


Erf 117068 CPT

R 165 000 000










The Westin, Cape Town Intenational Convention Centre, Cape Town City Centre, Cape Town, 8000

Cape Town


Erf 263 Roggebaai

R 1 100 000 000


















Total Municipal Value: R 11 329 682 000

Total Market Value: R 17 555 500 000


There is approximately a 55% difference between the total Municipal Value of the properties listed above and the total Market Value as represented by publicly-traded companies annual reports. The Municipality of Cape Town is losing approximately 55% of its revenue by undervaluing properties according to these figures. The increase in value from the Municipal valuations to the Market valuations supplied by publicly traded companies in their annual reports is over 50%. This means that were the Municipality of Cape Town to use the Market Value valuations supplied by publicly traded companies in their annual reports, the City would increase its revenue stream and balance sheet by more than 50%.




3. City of Johannesburg








Property Description




City of Johannesburg



14th Avenue Hyper, Cnr William Nicol Dr North & Constantia Dr Roodepoort


Erf 770 Constantia Kloof ext 6

R 179 600 000






Boskruin Shopping Centre, Cnr President Fouche And Hawken Avenues, Bromhof, Jhb


Erf 1100 Bromhof ext

R 79 100 000










Dobsonville Shopping Centre, Mmesi Park, Elias Motsoaledi Rd, Mmesi Park, Johannesburg, 1863 Soweto

Erf 75 Mmesi Park

R 153 400 000











Fourways Crossing, William Nicol Highway, Ext 56 Fourways, Sandton, 2196


Erf 1181/5 Lonehill

R 650 000 000









Grayston Shopping Centre, Cnr Grayston Drive, 2196 Strathavon, Sandton


Erf 211 Strathavon

R 2 720 000









Key West Shopping Centre, Paardekraal Dr & Paardekraal Drive, Krugersdorp


Erf 1 Key West

R 140 000 000










Killarney Mall, 60 Riviera Rd, Killarney, Johannesburg, 2193


Erf 669 Killarney

R 683 400 000









Kramerville Corner, Kramerville, Sandton


Erf 267 Eastgate, Kramerville

R 84 500 000








Makro Selby, Main Reef Rd & Hanover Street, Crown Mines, Johannesburg, 2001


Erf 567 Selby

R 62 700 000










Midrand Motor City, 1081 Main Road, Midrand- Main Reef Road


Can not identify

Cannot identify








Morning Glen, Kelvin Dr & Bowling Avenue, Morningside Manor, Johannesburg, 2052


Erf 488 & 791

Cannot identify










Nelson Mandela Square, Cnr Rivonia Road and Central Sandton, 5th St, Sandown, Sandton, 2031


Erf 575/7 Sandown

R 70 400 000










Northgate Shopping Centre, Northumberland Ave, North Riding, Gauteng, 2162


Erf 21 Northgate

R 1 240 000 000









Randburg Square, Randburg CBD, Sentrum Rd & Oak Road, Randburg, Johannesburg, 2194 Randburg


Erf 1689

R 417 200 000












Randridge Mall, Cnr. John Vorster & Kayburne Ave, Randpark Ridge, Randburg, 2169


Erf 1828/1 Randparkrif

R 40 000 000









Sandton City, Sandton, Johannesburg


Erf 247 Sandhurst

R 5 380 000 000








The Colony Centre, 345 Jan Smuts Avenue, Craighall Park, Jhb


Erf 103 & 104/1 Craighall Park

R 50 600 000









The Grove Shopping Centre, Lynnwood Rd & Simon Vermooten Rd, Equestria, Pretoria, 0184


Erf 1389 Equestria

R 265 000 000










Village Square, 72 Main Reef Rd, Randfontein, Johannesburg, 1759 Cnr Porges & 8th street


Erf 849 Randfontein

R 5 680 000









Woodmead Retail Park, 1 Waterval Cres S, Woodmead, Sandton, 2191


Erf 1038 Woodmead

R 605 500 000










Woodmead Value Mart, Waterfall Cross Rd, Woodmead, Johannesburg, 2191


Erf 533-536

R 102 100 000
















1 Kikuyu Rd, Sunninghill


Erf 933 Sunninghill

R 61 400 000







100 Grayston Drive, Sandton


Erf 4/18

R 1 125 000 000







100 West Street, Sandton


ERF 143/2

R 24 000 000






103 Central Street, Houghton

Erf 1889 Houghton Estate

R 26 500 000







12 Baker Street, Rosebank, Sandton


Erf 199 Rosebank

R 44 500 000








138 West Street, Sandown


Erf 814 Sandown

R 80 720 000







14 New Street , Jhb


Can not identify

Cannot identify






15 Georgian Crescent, Sandton


Can not identify

Cannot identify






151 5th Street, Sandton


Can not identify

Cannot identify






16 Jan Smuts Avenue, Parktown, Johannesburg


Erf 959/5 Parktown

R 8 200 000








160 Jan Smuts Avenue, Rosebank


Erf 237 Rosebank

R 119 300 000








19 Impala Road, Chiselhurston, Sandton/17 Impala Road


Erf 15 Chisel-hurston

R 28 300 000








2 Sturdee Avenue, Rosebank, Johannesburg/8 Sturdee Avenue


Erf 196

R 21 800 000









21 Fricker Road, Illovo, Sandton


Erf 44 Illovo

R 28 100 000







22 Impala Road, Chiselhurston, Sandton


Erf 33 Chisel-hurston

R 10 200 000








25 Rudd Road, Illovo, Sandton


Erf 130

R 38 700 000







257 Oxford Road, Illovo, Sandton


Erf 480

R 32 700 000








29 Impala Road, Chiselhurston, Sandton


Erf 20/1

R 11 300 000








3021 William Nicol Drive, Bryanston/3019 William Nicol Drive, Bryanston


Erf 65 Bryanston

R 45 200 000








34 & 36 Fricker Road, Illovo, Sandton


Erf 69

R 51 900 000








35 and 37 Wierda Road West, Wierda Valley, Sandton


Erf 1/5 & 1/9 Wierda Valley

R 34 000 000








35 Impala Road, Chiselhurston, Sandton/33 Impala Road


Erf 22

R 20 800 000








36 Wierda Road West, Wierda Valley, Sandton


Erf 2

R 28 300 000








4 Fricker Road, Illovo, Sandton


Erf 507/2 or 507/1 Illovo








4 Kikuyu Road, Sunninghill, Sandton


Erf 1535/1

No data found








44 on Grand Central, Cnr K101 and Grand Central Boulevard Midrand


Erf 44

R 980 000










50 Wierda Road, Wierda Valley, Sandton


Erf 5/1

R 21 200 000








61 Central, Houghton/57 Central street


Erf 2487

R 25 400 000








70 Grayston Road, Sandton/12 Sandown Valley Crescent


Erf 79/1

R 44 400 000









Advocates Chambers, Sandown Village, 81 Maude Street, Sandton (Corner of Gwen Lane & Maude Street)



R 209 500 000










Boundary Place, 18 Rivonia Rd, Sandhurst, Johannesburg, 2146, Illovo, Sandton/14 Rivonia Road Illovo


Erf 465/3

R 48 600 000










Country Club Estate, 21 Woodlands Dr, Woodlands, Sandton, 2080 Woodmead/17 Woodlands Drive


Erf 877

R 298 500 000












Engen House, 10/19 St Andrews Rd, Parktown, Johannesburg, 2196 /11A Girton Road





Erf 912




R 36 800 000












Epsom Downs Office Park, 13 Sloane Street, Bryanston, Sandton


Erf 4/2

R 101 500 000









Equity House, 18 Bompas Road, Dunkeld West, Jhb 2196/1 Fifth Lane Edenburg


Erf 19/2

R 1 900 000









Eton Office Park, Harrison Ave, Bryanston, Sandton, 2191


Erf 1336 Douglasdale

R 2 550 000








Fredman Towers, Fredman Dr, Sandton, Johannesburg, 2196


Erf 3/11

R 232 200 000









Freestone Park, 131 Patricia Rd, Sandown, Sandton, 2031 Kramerville


Erf 603

R 40 000 000









Grayston Place, 68 Grayston Drive, Sandton/7 Sandown Valley Crescent


Erf 79 Sandown

R 50 700 000








Grosvenor Corner, 195 Jan Smuts Ave, Rosebank, Johannesburg, 2193 Parktown North, Johannesburg


Erf 231

R 78 100 000










Homestead Place, cnr 12th Avenue and Rivonia Road, Rivonia, Sandton


Can not identify

cannot identify









Knightsbridge Manor, 33 Sloane Street, Bryanston/1 Sloane Street, Bryanston


Erf 4976

R 54 300 000









Lincoln Wood Office Park, 6 & 8 Woodlands Drive, Woodmead, Jhb


Erf 803

R 74 800 000









Pinewood Office Park, 33 Riley Rd, Morningside, Sandton, 2057 Woodmead


Erf 879/3

No data found










Riviera Road Office Park, 6-10 Riviera Rd, Killarney, Johannesburg, 2193


Erf 689

R 27 000









Sandton Close 2, cnr 5th Avenue and Norwich Close, Sandton


Erf 82/2

Unable to find








Sanofi House, 2 Bond St, Grand Central, Midrand, 1685


Erf 44

R 980 000








Sturdee House, 9 Sturdee Avenue, Rosebank, Jhb


Erf 131/0

R 15 000 000








The Annex, 15 Alice Lane, Sandton


Erf 241/0

R 363 000 000








The Place, Sandhurst, Sandton


Erf 259

R 446 000 000








The Towers, 2146 5th St, Sandton, Johannesburg, 2146


Can not identify










The Woodlands, 20 Woodlands Dr, Woodlands, Johannesburg, 2191 Woodmead, Sandton


Erf 1

R 522 000 000









Thebe House, 166 Jan Smuts Ave, Rosebank, Johannesburg, 2195


Erf 160

R 28 200 000









Tsebo House, 7 Arnold Rd, Rosebank, Johannesburg, 2193/3 Arnold Road


Erf 216

Cannot identify









Turnberry Office Park, 48 Grosvenor Road, Bryanston


Erf 5509

R 18 600 000















111 Mimetes Road, Denver, Jhb


Erf 772/4

R 42 600 000








20 Indianapolis Crescent, Kyalami Business Park, Kyalami, Midrand


Erf 172/1










754 16th Road, Randjiespark, Midrand


Erf 101/1

No data found








82 Lechwe Street, Sage Corporate Park, Randjiespark, Midrand


Can not identify









918 Morkels Close, Halfway House, Midrand


Erf 514

R 7 100 000








Admiral House, 151 Lechwe Street, Corporate Park South, Randjiespark Ext 7, Midrand


Erf 208/2

No data found









Cambridge Park, 22 Witkoppen Road, Paulshof


Erf 991

R 23 000 000








Celtis Business Park, Martingale Street, Stormill, West Rand, Gauteng. Roodepoort


Erf 357

R 12 700 000









Commercial City, Tungsten Road, Strijdompark, Gauteng, Randburg


Can not identify










Corporate Park, 82 Lechwe Street, Sage Corporate Park, Randjiespark, Ext 70, Midrand


Can not identify










M1 Place, 10 Eastern Service Rd, Sandton, Johannesburg, 2090 Eastgate, Sandton


Erf 250

R 49 400 000









Midline Business Park, Cnr Richards Drive and Le Roux Roads, Midrand


Erf 48/10

R 14 600 000









Rivonia Crossing 1, 160 Witkoppen Road Sunninghill EXT 60. Sandton


Erf 988/Erf 1033

No data found








Rivonia Crossing 2, 3 Achter Road, Paulshof, Sunninghill, Sandton

Erf 1100

R 221 000 000















Crowne Plaza, Johannesburg ‘The Rosebank’, 0A Tyrwhitt Ave, Rosebank, Johannesburg, 2196


Erf 190 Rosebank

R 294 500 000










Holiday Inn Sandton, 123 Rivonia Rd, Sandown, Sandton, 2148


Erf 11/3

R 228 800 000









Radisson Blu Gautrain, Rivonia Road, Sandton, Johannesburg, 2196


Erf 13/1

R 17 400 000














120 End Street, Doornfontein


Erf 629

R 168 300 000







Total Municipal Value: R 15 908 300 000

Total Market Value: R 34 547 950 000


There is approximately a 117% difference between the total Municipal Value of the properties listed above and the total Market Value as represented by publicly-traded companies annual reports. The Municipality of Johannesburg is losing approximately 117% of its revenue by undervaluing properties according to these figures. The increase in value from the Municipal valuations to the Market valuations supplied by publicly traded companies in their annual reports is over 100%. This means that were the Municipality of Johannesburg to use the Market Value valuations supplied by publicly traded companies in their annual reports, the City would increase its revenue stream and balance sheet by more than 100%.



4. Tshwane








Property Description




Tshwane Municipality











100 Francis Baard Street, Hatfield


Erf 496

R 800 000








267 West Ave, Centurion, Pretoria


Erf 147

R 56 000 000








271 Veale Street, Brooklyn, Pretoria


Erf 423

R 28 200 000








68 Oak Road, Centurion, Pretoria


Erf 9/1

R 11 000 000








Brookfield Office Park, 261 Middle Street, Nieuw Muckleneuk, Pretoria East, Brooklyn


Erf 582/3, 584,582/1,582,583/2,764/2,764











Brooklyn Forum, 337 Veal Street, New Muckleneuk, Pretoria


Erf 401, 402 & 402/2 & 438

R 740 000 000







Brooklyn Gardens, 300 Middel Street, Pretoria


Erf 369

No data found








36 Park Avenue North, Rooihuiskraal, Centurion, Pretoria


Erf 2791

R 2 900 000









57 Sarel Baard Crescent, Centurion


Erf 2840/Erf385
















Centre Walk, 267 Helen Joseph St, Pretoria Central, Pretoria, 0001 Tshwane


Erf 3115

R 22 000 000









Corporate Park 66, Cnr Von Willich Ave & Lenchen Street, Centurion, Pretoria


Erf 381/66

No data found






Elardus Park Shopping Centre, Cnr Barnard Street & Delmas Road, Elardus Park, Tshwane East, Pretoria


Erf 6

No data found






Gateway, 1319 Pretoria Street, Hatfield, Pretoria


Erf 675

R 14 000 000








Menlyn Piazza, cnr Lois and Glen manor Avenue, Menlyn, Pretoria


Erf 6 & erf 57

R 45 000 000









Menlyn Square Office Park, 116 Lois Avenue, Menlyn, Pretoria


Erf 445, 765, 67 & 374/449

R 470 000








Menlyn Woods Office Park, 291 Sprite Avenue, Faerie Glen, Pretoria


Erf 3 & 3/1 & 4

10300000 & 17532000 & 2200








One Highveld, 5 Bellingham Street, Centurion, Pretoria


Erf 2119

R 11 000 000









Podium At Menlyn, 43 Ingersol Road, Lynnwood Glen, Pretoria


Erf 66 & 92

R 1 250 000









Quagga Centre, Cnr Nelson Mandela & Quagga Street, Pretoria, Pretoria West, 0002


Erf 3340

R 56 000 000








Rigel Office Park, 446 Rigel Avenue, Erasmusrand, Pretoria


Erf 291/1

R 17 000 000









Standard Plaza, 440 Hilda Street, Hatfield, Pretoria


Erf 167/1

R 12 000 000








Summit Place, 221 Garstfontein Rd, De Beers, Pretoria, 0181 Menlyn


Erf 47

R 40 000 000









The Gables, 320 Duncan Street, Hatfield, Pretoria


Erf 681/2









The Tramshed, 288 Van Der Walt Street, Pretoria


Erf 3374

R 21 000 000








Tuinhof, 265 West Avenue, Centurion, Pretoria


Erf 181

R 48 000 000








Wonderpark Shopping Centre, Cnr Old Brits Road and Heinrich Ave, Karenpark, Pretoria

Erf 399 & 398

No data found













Shopping Centres

Brooklyn Mall, Brooklyn

Erf 400, 438, 178, 358, 401, 415, 406

740000000, 19000000,930000







Castle Walk, Erasmuskloof


Erf 273 & 272

No data found






Centurion Mall, Centurion


Erf 83

R 900 000 000






Design Square, Brooklyn

Erf 400, 438, 178, 358, 401, 415, 406

740000000, 19000000,930000






Elardus Park Shopping Centre, Ellardus Park


Erf 6

No data found








Forest Hill City, Monavoni


Erf 1123

No data found






Garsfontein Shopping Centre


Erf 4157

R 3 500 000






Gezina Galleries, Gezina


Erf 737

R 49 000 000







Hatfield Plaza, Hatfield


Erf 669

R 160 000 000







Irene Village Mall, Irene


Erf 4305

R 457 000 000







Kolonnade Shopping Centre, Montana


Erf 1763

R 450 000 000







Montana Crossing, Montana


Erf 1061 & 1062









Quagga Centre, Pretoria West


Erf 3340

R 56 000 000







Wonderpark Shopping Centre, Karenpark


Erf 399 & 398

No data found








Woodlands Boulevard, Pretoria East


Erf 1589, 1588, & 1591

R 170 000 000






Zambezi Junction

Erf 2793

R 675 000






Total Municipal Value: R 4 569 120 000

Total Market Value: R 17 646 600 000


There is approximately a 286% difference between the total Municipal Value of the properties listed above and the total Market Value as represented by publicly-traded companies annual reports. The Municipality of Tshwane is losing approximately 286% of its revenue by undervaluing properties according to these figures. The increase in value from the Municipal valuations to the Market valuations supplied by publicly traded companies in their annual reports is over 280%. This means that were the Municipality of Tshwane to use the Market Value valuations supplied by publicly traded companies in their annual reports, the City would increase its revenue stream and balance sheet by more than 280%.



5. Ekurhuleni








Property Description














Alberton City, Corner Voortrekker and Du Plessis Road, Alberton, 1449.


Erf 1071

R 513 000 000











Alberton Crossing, Cnr Voortrekker & Ring Rd, Alberton


Erf 732/2

R 5 000 000









Atlas Rd Banking Centre, Cnr Atlas Road & Dunswart Road, Anderbolt, East Rand, Boksburg


Erf 974

No value listed on SAPTG










East Point, Cnr Rietfontein & North Rand Roads, Jansen Park, Boksburg


Erf 177

R 557 400 000









East Rand Mall, Bentel Avenue, Boksburg North, 1462 done


Can not identify

No value listed on SAPTG







East Rand Value Mall, Rietfontein Road, Hughes, Boksburg


Erf 287

R 140 700 000








Festival Mall, Kelvin St & CR Swart Drive, Kempton Park


Erf 33/422

No value listed on SAPTG








Lakeside Mall, Tom Jones St, Benoni, 1501 done


Can not identify

No value listed on SAPTG








Linksfield Road, 110 Linksfield Drive, Linksfield, Edenvale


Erf 1227

R 5 800 000










Meadowdale Value Centre, Herman Rd, Meadowdale, Germiston, 1614


Erf 202

R 77 800 000









Nedbank Plaza, 175 Steve Biko Rd, Arcadia, Pretoria, 0083


Can not identify

No value listed on SAPTG






Norkem Mall, 104 Mooirivier Dr, Norkem Park, Kempton Park, 1618


Erf 2239/1

R 88 600 000







Palm Springs Mall, R155 and Falcon Road, Orange Farm. Springs


Erf 2066/11, 13, 8, 3 & 16 portions

No value listed on SAPTG









RTT ACSA Park, Cnr Jones & Springbok Road, Bartletts, 1459,Jet Park, Boksburg


Erf 64/69

No value listed on SAPTG









Sunward Park, Kingfisher Ave, Boksburg, Johannesburg, 1459



R 100 000 000









The Avenues Mall, 7th St, Springs New, Springs, 1560


Erf 125/85

No value listed on SAPTG















Ricoh, 11B Riley Road, Ext 328 Bedfordview


Erf 1578

R 4 370 000








49 Lake Avenue, Benoni


Erf 1527














112 Yaldwyn Street, Jet Park

Erf 32, 33, 34








20 Anvil Road, Isando, Kempton Park


Erf 571

R 20 000 000








23 Herman Road, Meadowdale, Germiston


Erf 189

R 1 040 000








37 Yaldwyn Road, Jet Park


Erf 230

R 56 500 000







5 Yaldwyn Road, Jet Park


Erf 609

R 3 140 000







Aeroport, 34-36 Director Road, Aeroport, Spartan, Kempton Park


Erf 602/225

R 6 100 000









Aeroport, 96 Loper Road, Spartan, Kempton Park


Erf 602/234

R 11 500 000








Aeroport, 98 Loper Road, Spartan, Kempton Park


Erf 602/235

R 5 000 000








Afship, 20 Skietlood Street, Isando, Kempton Park


Erf 535

R 4 160 000








Anchor Industrial Park, 1 Springbok Rd, Kempton Park, 1627 Jet Park, Boksburg


Erf 32, 32 & 34









Growthpoint Industrial Estate, Bell St, Meadowdale, Germiston, 1614


Erf 25

R 7 800 000









Industrial Village Rustivia, 6 Rover Street, Elandsfontein, Germiston


Erf 130

R 7 100 000









Route 24, Herman Road,Meadowdale, Germiston


Erf 192

R 20 100 000







Total Municipal Value: R 1 710 210 000

Total Market Value: R 9 412 500 000


There is approximately a 450% difference between the total Municipal Value of the properties listed above and the total Market Value as represented by publicly-traded companies annual reports. The Municipality of Ekurhuleni is losing approximately 450% of its revenue by undervaluing properties according to these figures. The increase in value from the Municipal valuations to the Market valuations supplied by publicly traded companies in their annual reports is over 450%. A significant reason for this tremendous increase is the fact that many properties do not have valuations that are retrievable from the Valuation Roll using the standard search methods. There is some question, therefore, as to whether these values exist at all. Nonetheless, judging by the figures represented above, it is apparent that were the Municipality of Ekurhuleni to use the Market Value valuations supplied by publicly traded companies in their annual reports, the City would increase its revenue stream and balance sheet by at least 450%.



4.71 Key Highlights from the Comparison

The total value of the properties above as valued according to the Municipal Valuation Rolls is: R 37 506 842 000.

The total value of the properties above as valued according to the publicly-traded companies Market Value valuations is: R 85 745 850 000.

This is a difference of: R 48 239 008 000.

The statistics show that Market Values as published by publicly-traded companies in their annual reports are approximately 128% greater than the values applied to the same properties by the Municipalities in their Valuation Rolls in South Africa.

This means that Municipalities could be more than doubling their revenue stream and balance sheets by simply adopting the valuations of the publicly-traded companies. Doing so would also save the Municipalities a substantial amount of money in hiring valuers, as these same properties would not need to be valued.

It may be stated that in most, but not all, instances municipal values were lower, some by over 100% than the published values as per Publicly Traded Company Annual Reports.

In some instances the Municipal Valuations were HIGHER than the Market Values in the Publicly-Traded Companies Annual Reports. This was very rare; however, it did exist. Hence, there are instances where Municipal Valuations were higher and could / should be reduced accordingly.


4.8 Important Issues to Address

Answering the objections of owners to valuations is an important aspect of the valuation methodology that should be modified.

Understanding how Publicly-Traded Companies property valuations (market value) should be linked to Valuation Rolls by Municipalities is imperative. The discussion in the next chapter will address these two primary issues.


5 Discussion

5.1 Introduction

Since, by the REITs and other Publicly-Traded Companies own valuations, their properties are substantially worth more than the Municipality assesses them, it is clear that the publicly traded companies and property owners have been benefitting from lower rates and taxes for years and years, to the detriment of the Municipalities and service delivery. In some cases, the Municipal Valuation is far lower the market value assigned the properties by the Publicly-Traded Companies. Often the market value is 2x higher than the Municipal valuation. In some instances it is more than 5x higher. In some extreme instances, the market value is 75x higher or even more. This unprecedented level of under-valuing is clearly rampant and destructive to the Municipal balance sheet and revenue stream. Because of the poor condition in which tenders are awarded contracts to value properties, and the short amount of time in which they are permitted to conduct valuations, it is understandable that there should be some under-valuations. But as the comparisons show in the previous chapter, there is no comparison: the Municipalities are severely undercutting thmselves time and time again to the detriment of their communities.

One comment made by a participant in the interview process was that in fact Municipal Values are often less than true market values. This has a direct bearing on the perceived under recovery of revenue income to the Local authority. This is very important to note because it supports the viewpoint of this thesis, which is that Municipal Valuations do not accurately reflect real market value. And as the data supplied by the table comparing Municipal Valuations of properties to actual market valuations of properties shows, there is in most cases a wide discrepancy. Municipalities could greatly benefit from using the market value valuations of the Publicly-Traded Companies in place of their own, and they could save a great deal of time and money by incorporating these valuations into their Valuation Role instead of going through the process of tendering and hiring tenders who are very often unqualified to perform the valuations in the first place.

5.2 Survey Data


The survey data revealed that professional non-Municipal valuers rely mainly upon the methods utilized by the industry to obtain market values of properties that are typical of the vast majority of professionals in the field, as the evidence of the Publicly-Traded Companies valuation methods supports. The Municipal valuers method of using mass valuations, however, indicates that there is a lack of professional standards being incorporated into the Municipal valuations process. When analyzed in conjunction with the critiques of other professionals in the field, the evidence points to only one conclusion: the Municipalities are not conducting valuations at the level of professional standards in the field, in spite of MPRA guidelines. Part of the problem, of course, is that the Municipalities simply do not have the time or resources to devote to a high-level of standards valuation process.

Other important take-aways from the survey data included the following:

1) The extent to which valuers were affiliated with professional bodies:

a. Of the 26 respondents all but 2 were registered with either the South African Insititute of Valuers or the South African Council for the Property Valuers Profession or the Royal Institution of Chartered Surveyers.

b. This indicates that the majority of property valuers are inclined towards affiliating with professional bodies

2) Valuation status (municipal, private sector, financial)

a. Of the 26 respondents, 3 worked for a financial institution, 6 were permanently employed by a municipality and 17 worked in the private sector as an independent valuer

b. This shows that the majority of valuers who participated in this study work outside the Municipalities. Considering the somewhat chaotic nature of the Municipality organization in the country, this should not be surprising and may be indicative of a desire of professional valuers to work in environments that are more controlled, professional, accountable, and dedicated to exercising effective and adequate techniques and methods.

3) The type of categories of valuations undertaken by the valuer

a. The most common type of category of property valued by the respondents was commercialas all but one participant recognized valuing this type of property. The second most common was residential types, followed by vacant land and industrial (with 20 of 26 respondents asserting that they valued these categories). Retail was next with 73% of respondents saying they valued this type of property (typically shopping malls). Public sector properties were next, followed by hospitality and farms and farmland and finally hospitals.

b. These responses showed that there is a great deal of range in types of property that valuers will come into contact with throughout their work. A valuer who is unaware of the nuances or specificities of each category will likely be deficient in determing an applicable valuation. The results of this question alone show the extent to which valuers need to have accurate awareness of a variety of property types in order to conduct an efficient valuation.

4) The number of years the valuer had been practicing

a. Most of the participants in this study had been valuing properties professionally for 7 years or more.

b. Only 6 of the respondetns had fewer than 7 years practice.

c. Thus, the opinions and information provided by the participants may be taken as credible and reflective of the voice of seasoned veterans in the field.

5) The extent to which market value of the property is important to private sector and property owners

a. All but two participants recognized market value as being very important when conducting valuations for the private sector and/or property owners.

b. This signifies that market valueas indicated by the valuation process descriptions provided by the Publicly-Traded Companies in the preceding chapterare extremely critical to owners and investors and that a propertys valuation should reflect its real market value. For Municipalities, this finding should be considered very carefully as it gets to the central point of property valuation: it is being done for a reasonand that reason is for stakeholders to know what the worth of the property is in real market terms.

6) The extent to which market value is important to Municipalities for their Valuation Roll

a. The responses to this question are particularly interesting, as it shows that only 38.46% of respondents believed market value to be important to Municipalities for their Valuation Rolls. This is an astonishingly low figure because for everyone elsei.e., property owners, valuers in the private sector, etc.market value is the most important thing. Why participants should feel as though Municipalities do not care as much about market value is a clear reflection on the level of accountability and responsibility that Municipal valuers have shown the towards the industry.

b. Considering that more than a quarter of the participants felt that market value was not very important to Municipalities, something should be done to address this issue. It exposes a certain neglect towards the obtainment fair and equitable valuations that the MPRA has mandated Municipalities with providing to the public. It is a particularly telling statistic.

7) The types of clients that require their valuers to have professional indemnity insurance

a. It was shown that nearly 90% of the participants agreed that financial institutions and lenders required valuers to have indemnity insurance, followed by publicly traded companies. But less than a third of respondents noted that Municipalities require it. Why should this be? Do municipalities have little interest in protecting their own valuations and valuers from attack? This finding is difficult to interpret and suggests a certain carelessness among Municipalities with regard to how their valuations are both handled and perceived.

8) The type of valuation method determined by the valuer to be most effective in the private sector

a. Not one of the respondents identified the mass valuation system (used by Municipalities) as being the most effective method of valuation in the private sector.

b. This is a particularly important finding because it shows exactly what professional valuers think of the most common method of valuation used by Municipalitiesit is not one that is admired or viewed as being effective by professionals in the field. This should be viewed as a literal rebuke to Municipalities for entrusting their valuations to a system that has so little regard and respect in the field. Why then do the Municipalities continue to use it? Do they not know how truly inefficient it is viewed as being? Do they lack the funds to conduct better valuations? Do tey simply not know the standards expect of valuers in the private sector? The answer could be all of the above.

9) The most effective type of valuation method for determining market value in the public sector (exclusive of Municipalities)

a. Again, this question revealed how few valuers recognize the mass valuation system as being effective in the public sector. These responses support the evidence of the previous question. It is the response to the next query that is most important, however.

10) The most effective type of valuation method for determining market value in Municipalities (for the Valuation Roll)

a. 22 of 26 participants identified the mass valuation system as being most effective for the development of Valuation Rolls in Municipalities.

b. Why should this be? If the system is not viewed as being effective in the private sector, why is it viewed as being effective for Municipal valuations? Is it because so little accuracy is actually expected of Municipal valuations at this point in time that for what the Cities are attempting to do the mass valuation system is the best (because it is the cheapest and quickest)? Such a cynical outlook should not recognized in the professional valuer field and it is a shame to find evidence of it here, if this interpretation is indeed correct.

The second survey data also revealed some interesting findings that require discussion. The survey questions sought to examine the following points. Accompanying those points are comments from the researcher.

1) The nature of the participants employment as a valuer (employee or consultant of a bank or property finance company)

a. Of the 16 respondents, all 16 identified as working as a professional consultant or for a loan institution. The level of expertise of these participants on how lending institutions view valuations may be considered especially on topic and of use.

2) The types of real estate finance offered by the company

a. Again, it can be seen with these responses that there is wide variety in the types of properties that are being valued by professionals for banks and lenders.

b. The many different categories, it should be remembered, each have their own special characteristics and require expertise from knowledgeable valuers who know what to look for.

3) The extent to which market value of a property is considered to be important when a loan on the property is in question

a. All but one of the participants stated that market value is crucial to a bank when it is determining what type of loan to offer on the property.

b. This finding is very important because it shows that even financial institutions, mortgage lenders and loan institutions desire to know the market value of properties. Yet to Municipalities, who also base income streams on property valuations, the market value is apparently unimportant. Why is this so? It shows a remarkable novice-level of professionalism by the Municipalities with regard to how properties are valued by the rest of the field.

4) Whether independent external valuers are utilized when determining an independent market value for loan purposes

a. All 16 of the participants asserted that independent external valuers are used when determining an independent market value. If this is true for the banks, why should it not be true for Municipalities? They could easily rely upon the valuations provided by the valuers of publicly traded companies for their Valuation Rolls and save the City a lot of money in doing so.

5) Whether professional indemnity insurance is required of independent external valuers when they are engaged by the company

a. Likewise, this response shows that all participants agree: professional indemnity insurance is vital for banks when using independent valuers because it protects them in case a valuation is off.

b. Municipalities should adopt similar strategic efforts if they want to be more professional and effective in the future.

6) Why it is important that a property valuer have professional indemnity insurance when engaged by the financial institution

a. The answer to this question shows that all agree: indemnity insurance protects the institution employing the valuer. Municipalities would do well to consider this professional standard.


5.21 The Interview Data


The interview data revealed that professional valuers see Municipalities as struggling significantly to address issues that impact them with regard to valuations. Substantial backlogs that effectively go back a decade or more in some Municipalities with respect to appeals and objections is a major sign that the Cities have lost control of the valuation process and are in deep need of assistance. A third party would definitely help to fix this situation. The recommendations provided in this study would also help, as they address the primary needs of the Municipalitiesnamely, the needs to amend their appeals processes and the need to provide better valuations to their Valuation Rolls.

Another important point mentioned in the interviews was that the Valuation Rolls are themselves so poorly compiled and the valuations so inefficiently reflective of real market values that it really is no wonder there is such a considerable backlog of appeals. The professional opinions of the interviewees who participated in this study was that something surely must be done to address the major fundamental issues plaguing Municipalities today. Much of those issues stems from the superficial concept of the function of the valuer that Municipalities seem to have. To better understand what functions a valuer should perform, a discussion of that topic will now be undertaken in the following section.

5.22 On the Function of the Valuer


As the Lutendo presentation showed, the valuer has six component parts to his functionality. The key to these components is that they have a precise knowledge of the area in which the property is located, that they be familiar with the property type, and that they see the property. These keys are identified as crucial to the valuers employed by the REITs and other Publicly-Traded Companies as well. The difference, of course, is that the Municipal valuers lack some of the key components identified in the Lutendo presentation while the valuers of the Publicly-Traded Companies do not. There is, therefore, much more professionalism associated with the valuers of Publicly-Traded Companies than there is with many of the Municipal valuers. Why then do the Municipalities continue to undercut themselves by relying upon the valuations of unqualified appraisers? Why then do they continue to allow their Valuation Rolls to be so haphazardly assembled when they can simply turn to the publicly available records of the REITs and other Publicly-Traded Companies, whose valuations reflect actual market value?

Another key take-away from the findings is that Municipalities are unprepared to address public appeals. This was made evident both in the interview process and in the discovery process, through examining the critique of Massel and other articles provided by professional researchers and valuers.

As the public has been advised by professional and accredited valuations firms to approach valuation disputes following a clearly defined and outlined strategy, Municipalities should be aware of this strategy and how to reply to it. This means that Municipalities should be engaged in developing and strengthening their own procedural responses to valuation disputes in order to ensure that they are not exposed to weakness in terms of how disputes are handled.

The findings of this study indicate that Municipalities require updated and amended procedural policies with respect to how valuation disputes are addressed.

Another one of th important findings of this study was Massels critique of South African Municipalites.


5.3 On Massels Critique

The critique of Massel (2011) of the municipalities in South Africa regarding valuation practices corresponds with the assessment made by Deloitte and by this study in its preceding sections: businesses appear to be far more organized and efficient than the municipalities. As Massel states, something is wrong with the standard of municipal valuations. In addition, there is poor administration by the majority of the municipalities implementing the Act (p. 19). This opinion is not that of Massel alone but also of those who make appeals as well as of that of the auditing firm Deloitte, which found massive problems at the local level of administration with regards to accounting, governance, services and virtually every other sector of administration. The interviews conducted for this study also support these claims, as do the municipalities themselvesfor instance, with the case of the Gupta property in the Johannesburg municipality. Clearly there is evidence of a problematic system that could stand to be rejuvenated.


5.4 Poor Organization

Massel identifies the main problem as one of ignorance and poor planning: in a section of his critique entitled Inadequate planning and understanding of the valuation process, Massel asserts that in general, there appears to be a lack of proper planning by most municipalities in preparing the tender documents and determining the requirements and specifications applicable to the individual needs of the municipality. There also appears to be a total lack of understanding by the municipalities of what is required to compile a valuation roll specific to their individual needs (p. 19). This assertion is particularly important to consider for when it comes to reforming the valuation methods of the municipality. Municipal valuers require structure, knowledge and a clear plan on how to proceed going forwardnot just to appease Rates Watch but rather to conform to the duties entrusted them by the MPRA.

By utilizing valuations approach that incorporates the valuations provided by the business firms which take such issue with the methods of the Municipality, the Municipality could appease both the firms and the critics of local administrators while also revitalizing its own revenue stream and enhancing its own balance sheet. Since the valuations of properties listed by Publicly-Traded Companies in their own annual reports are substantially higher than the valuations given by the Municipalityand since the REITs and other Publicly-Traded Companies are much more efficient and organized in their approach to the valuations processit stands to reason that the Municipalities utilize the market value valuations given by the Publicly-Traded Companies in their annual reports when the Municipalities compile their own Valuation Rolls. This would take pressure off their own shoulders and give them an excellent third party source for information regarding the actual or real value of properties as discerned by investors in the marketplace.


5.5 Too Little Time

This approach of having the Municipality valuer used the Publicly-Traded Company valuations of properties as published in their own annual reports makes sense not only from a professional point of view but also from a practical point of view. As Massel shows, the time period for compiling an accurate and meaningful valuation roll is substantially compromised. In the vast number of tender documents, the time period allowed by the municipality to gather accurate data, the basic ingredient for accurate market related valuations in terms of sect 46 (1) of the MPRA, is far too short (p. 19). Thus, if the Municipality is handicapped by time constraints, it clearly stands to reason that it utilize the valuation decisions of more experienced, more professional, and more organized firmslike the REITsto develop and strengthen their own Valuation Rolls. This would solve the problem of having no time to do efficient valuations, as Massel sees it. It would also cut down on the number of disputes stemming from property owners who take issue with the valuations of the governmentespecially if the disputes come from investors like those attached to Publicly-Traded Companies. The government could simply show that the valuations they compiled into their Roll were taken from the firms own publication of valuations in their public annual reports. And since the valuations of the REITs and other Publicly-Traded Companies are significantly higher than those typically given by the Municipality, the revenue stream of the Municipality would be increased, money for services would be more available as a result, and the community would benefit from the Citys enhanced balance sheet. It would be an ideal win-win situation for all.

The fact that Municipal valuers are under time constraints to deliver a property valuation for the Valuation Roll while Publicly-Traded Companies valuers are afforded more organizational support in their endeavors should serve as another reason for Municipalities to accept the valuations of properties as published annually by the REITs and other Publicly-Traded Companies in their financial statements.

As an audit of the mass evaluation system usage of the Municipality of Cape Town shows, there is a great deal of trust and reliance upon the CAMA system employed by the Municipalityyet valuations are still well under Market Values according to this studys findings. Too much reliance upon mass valuation systems creates an artificial sense of efficiency that is clearly undeserved for the Municipalities, especially as they focus on time-saving efforts instead of on obtaining more accurate and robust valuations from qualified valuers.

5.6 The Need for Substantial Experience

As is seen in the findings of the previous chapter, Massel of Rates Watch, has called for Municipal valuers to have the requisite substantial experience needed to make fair and equitable valuations, as is mandated of them by the MPRA. Were the valuations of the Municipalities fair and equitable, Massel contends that there would be far fewer appeals and litigation in South Africa regarding property valuations. The way to make valuations fairer and more equitable, according to Masseel, is for Municipalities to cease awarding valuer jobs to the lowest bidder. The lowest bidder is commonly the least qualified, and when the least qualified valuers are given the job of valuing properties for the Municipality, the valuations will not reflect real market value or demonstrate the fairness and equitability required of them by the MPRA. The underlying issue, here, is that the valuers used by the Municipal governments are simply not on par with what is expected of them.

To solve that issue, the Municipality could award jobs to higher and more qualified biddersbut this presents its own difficulty: Cities are already on tight budgets and there simply is not enough money to spend on this type of valuer.

The solution, however, does not require that to be the case. The solution is already thereprinted in black and whitepublished annually by Publicly-Traded Companies in their financial statements. The REITs, for instance, have valuers working in-house, who are experienced and who are qualified to value properties with fairness and equitability. Municipalities in South Africa could save a great deal of money by referring to these publications for property valuationsand in doing so, in the great majority of cases, the Municipalities would also be adding revenue to their revenue streams because the valuations given by the Publicly-Traded Companies are almost always much higher than those given by the discount valuers awarded jobs by the Municipalities.


5.7 The Problem of Rates Loss

Faulty property valuations inevitably lead to rates loss forthe Municipalities. This is evident from the findings described in the previous chapter. Massel has stated it perfectly in his assessment of the situation with the words: Municipalities need to understand their own types of properties. The appointment of municipal valuers not fully conversant with the specific needs of the municipality can result in economic catastrophe. It is highly unwise to award a municipal valuation tender based mainly on lowest price (p. 21)yet this is precisely what Municipalities are doing, and the effect is that they are undercutting themselves and their ability to provide services to their communities in the long run.

Not only do Municipalities suffer when properties are undervalued, but they also suffer when property owners appeal a valuation and tie up the Municipality in litigation proceedings. With regard to the former, Municipalities collect revenue from rates payers based on the valuation applied to that propertybut if the property is severely undervalued by an inexperienced or unqualified valuer, the City will collect far less revenue from the property owner that it would were the correct or appropriate valuation applied. With regard to the latter, Massel has shown that Municipalities are losing hundreds of millions of Rand in litigation as a result of poor valuations. In the following chapter, this study provides a practical procedural policy that Municipalities could adopt in order to strengthen its own position against litigationbut the point of Massel should also be considered, as it stresses the problem of relying upon inexperienced valuers to conduct the business of valuation on behalf of the Municipality: the City is setting itself up for failure. A safer course of action from the outset would be to simply rely upon the valuations of professional valuers who have the experience; these valuers are already employed by the Publicly-Traded Companies operating in South Africa: their valuations are published in the annual reports of these trusts. Municipalities would not need to pay anything to obtain them. They would not have to even fret over finding the lowest bidder, as Massel describes, because the best valuations that these properties could possibly obtain are already being applied by the best possible valuers available in the businessthe investment community valuers.

Therefore, to stop the bleeding of rates loss that results from poor valuations in the first place, Municipalities could easily apply the solution proposed in this study: turn to the valuations provided by the Publicly-Traded Companies in the region, save money on hiring out the jobs to unqualified, low bidders, and increase revenue streams based on the almost always higher valuations provided by the Publicly-Traded Companies valuers. The solution would be fast, easy, effective, and financially beneficial to South Africa.


5.8 A Failure to Effectively Audit

By failing to effectively audit its tenderers, Municipalities again undermine their own credibility, their own ability to perform in accordance with the MPRA mandate, and their own financial goals. Should Municipalities come under the investigation of the Auditor General of SA, the effects on their revenue stream could be ruinousparticularly if the City has awarded contracts to individuals who do not legally comply with the terms required by the MPRA. Valuations would have to be performed again, and the strain that Municipalities are already under with regard to valuing so many properties in so little time would be doubled or even tripled. Failing to provide the requisite oversight needed to effectively manage the valuations process so that it complies with the guidelines of the MPRA could result in a failure to deliver a Valuation Rollwhich means a failure to obtain revenue from rates and taxes.

Because REITs are professional firms that have their own in-house auditing teams, oversight is not an issue for them and their valuers. They are routinely aware of being in conformity with the standards required of them. By using them for their own Valuation Rolls, Municipalities could bypass the conditions that could potentially lead to disastrous outcomes for the City.

The only question that might pertain to this particular situation is the extent to which the professional valuers of the REITs and other Publicly-Traded Companies conform to the guidelines and standards of the MPRA. This could easily be established by a brief investigationbut because of time constraints for this specific study the information is not currently available. Municipalities, however, could assess the status of REIT valuers themselves to ascertain whether or not they are in conformity with MPRA regulations. If they are, then that should satisfy any issues the Auditor General might have regarding usage of their valuations for the Municipal Valuation Roll. If they are not, the MPRA regulations could be amended to allow for the professional valuations applied by REIT and other Publicly-Traded Companies valuers to be included in the Municipal Valuation Rolls based on the credible reputation given them by the international investment community and the respect they have earned from colleagues and peers in the valuation business.


5.9 Obtaining and Keeping Data

If the Municipal valuers are unable to effectively compile, share and retrieve important data from the various departments with the City government, there is a problem that must be solved. Valuers should have access to whatever data pertains to a particular property, but the nature of modern bureaucratic governances is that there are various layers of government that do not communicate effectively with one another. Much is compartmentalized and so when a property owner sends in information to one department, another department may have virtually no knowledge that such data even exists, even if it is important to the owner and to the relevance and worth of the property in question.

The valuer will not know where to look or even have time to sift through the records of the various departments without an adequately maintained electronic database that itself pools and compiles data about particular subjects from the totality of departments with the government. However, as has been seen, Municipalities in South Africa are in sore need of organization so such a database is highly unlikely to be in existence.

How then is the valuer supposed to submit proper valuations to the Valuation Roll? The problem is essential to the question of this study, which is: Might there not be a better way for valuations by the Municipality to be obtained? Relying upon the CAMA does not solve the problem, because, as Massel showed in the previous chapter, this method contributes but in one way to the overall valuation process and cannot be relied upon to offer the best and most accurate data for a complete valuation.

Yet the answer can be provided if one turns to the Publicly-Traded Company valuations. The REIT valuers, for instance, pool and compile data on properties, storing all information in-house so that valuers have complete access to everything they need to know. Their records are maintained in an orderly process and their internal auditors oversee that maintenance is kept up from year to year. For Municipal valuers in South Africa, the records of the Publicly-Traded Companies can be a significant help because they provide the valuers with what they lack: sound and organized data pools. Upon these pools of data, the Publicly-Traded Companies valuers provide valuations of the investment properties of their portfolios. By simply allowing the Municipal valuers to use these companies valuations, the entire internal struggle of finding and sharing data within the departments of the Municipality is solved and the problems of not having or using the correct data are dispensed with.


5.10 On the Necessity of Physical Inspections in Case of Appeal

When appals are made to get a valuation lowered, property owners may use the fact that the valuer did not physically inspect the property and has no knowledge of the land or region to get the court to overturn the valuation and enter a much lower one. This is problematic for the Municipality and there is no easy solution, saving the implementation of the suggested policy that this study makes regarding reforming the appeals process and the requirements that appellants must fulfill in order to have their appeal heard. Otherwise, the situation may easily be taken advantage of by the property owner, as Massel indicates:

At one of the Ekurhuleni Appeal Board sessions, an out-of-town professional valuer and Fellow of the South African Institute of Valuers suffered the indignity of having the board not only up- hold the appellants appeal but decreasing the value to less than what was originally appealed against by the appellant.

A fundamental reason for this was the valuers dependence on state-of-the-art techniques used by him. Under cross-examination, however, he was unable to put up an adequate argument, simply because he had no local knowledge, did not verify his data and was unfamiliar with the comparable sales presented by the representative of the appellant. There is no doubt that the latest techniques enhance the standard of valuation, provided that the information is correctly interpreted, correlated and verified.

Thus, knowing that Municipalities are not required by the MPRA to make physical valuations, property owners may show to a court that the valuer had not collected all the details needed to make a proper valuation if it can be proven that the valuer did not do a physical inspection (even though it is not required, it reflects poorly on the valuer when he knows little of the existing structure and has no report on its current state). Because Municipality valuers are so busy and pressed for time, it is unlikely that this situation can be remediedunless the proposed method of reforming and enhancing the appeals process in this study were adopted. That reform would put the onus on the property owner to prove that the valuation given by the valuer is unwarranted, and the property owner would be required to do more than give his own report of the physical condition of the property. More will be said on this in the next chapter on Recommendations.


6 Recommendations

Fischer (2009) states that all discernible aspects must be understood in relation to one another and to the whole. So, with a new insight or with a modification of an earlier understanding, the researcher goes back to see how this development shifts understanding of other aspects and the overall understanding (p. 588). In the spirit of this assertion, the researcher returns to the main ideas of this study and makes the following recommendations for Municipalities regarding the development of a better Valuations Strategy:

First, the Publicly-Traded Companiess are more organized, professional and efficient than the municipalities when it comes to performing valuations, and the municipalities, according to the CEO of Rates Watch, don’t have enough time to efficiently value properties–so why not use the valuations of the REITs, for instance? If one recognizes the professionalism and expertise of the REITs (as investors obviously do), Municipalities may reap the benefits of their hard work by referencing the trusts own valuations when the Municipalities go to compile their own.

Second, by basing their valuations of properties on how the publicly-traded company values its own portfolio of properties, the Municipality can quickly reduce the scale of properties it must value on its own. Since one of the limitations the municipalities have, according to stakeholders, is that there is insufficient time for them to value so many properties in such a short span, using the valuations published by Publicly-Traded Companies would greatly diminish the number of properties the municipalities would have to assess.

Third, this could allow the Cities to focus on valuing those properties that have not been included in any publicly-traded real estate investment trusts portfolio.

Fourth, it would significantly ease the burden of the Municipalities and also allow them to generate greater tax revenue, as the valuations typically applied by Publicly Traded Companies have been shown to be substantially higher than those of Municipalities for the very same properties. Again, this approach would be a win-win for the Municipalities, and it would also be a win for property owners who frequently take issue with the efficiency of Municipal valuations: those same property owners could hardly argue with the valuations since they are applied by professional valuers of the Publicly-Traded Companies.

However, even if property owners sought to appeal Municipal valuations all the same, the recommended procedure for addressing appeals would allow Municipalities to protect themselves from being taken advantage of by an appellant in the appeals process. To strengthen its own position, the Municipality should adopt the following policy with regards to the appeals process:

Any ratepayer whose property is listed on the Municipal Valuation Roll, and where such ratepayer is seeking a reduction in the Municipal Property Value, such ratepayer shall submit the following supporting documentation together with the application for reduction in property value:

Letter from ratepayers/property owners bank/mortgage lender who has underwritten mortgage loan or similar security over the property, confirming that, as the mortgage holder and funder of the property which is their security for the loan, they agree with the ratepayers request for a reduction in the property value/security held by them;

A copy of the ratepayers/property owners latest audited financial statements submitted to their bank and signed by the company directors wherein the value of the property in question is listed.


The following charts express the recommendations of this studys methods in a visual manner.
















6.1 Addressing the Limitations of this Study

Future research should be conducted to evaluate how the method proposed in this study will impact the business/property owning community. The business/property owning community is a vital source of revenue for Municipalities, and if a valuation method is adopted that is perceived by this community to be too encroaching or hard on their budgets, these communities might object by pulling out and seeking to settle in other Municipalities that are more tax-friendly. The result of such an outcome would be that the Municipality, upon implementing the proposed valuation method prescribed herein, would actually lose revenue as a result of its tax base dwindling. To better understand what the outcome of this studys proposed valuation method would be on the property owning community, a study should be conducted that will measure the professional investment/business communitys attitude or thoughts on it. This study could be qualitative or quantitative with either questionnaire or survey methods employed.

A larger sample size could also reflect more accurately the opinions and attitudes of professional valuers in the field. This studys sample size of 26 participants for the first survey, 16 for the second survey and 2 for the interviews is helpful in gaining a first step towards a better understanding of the issues involved herein. A larger sample, however, could significantly add more light to the subject.

Another inquiry that might be beneficial is to explore more in-depth the methodology of Publicly-Traded Companies to see if their conception of mrket value is aligned with common fair value concepts or if it is more aligned with investment value concepts. As the guidelines of the MPRA and the actual practice of the Municipalities show, there can often be a world of difference between what is on paper and what is practiced in reality. Since REITs are designed to be investment vehicles it may be that valuers for these firms engage in appraising properties through an investment value lens even though on paper they describe their approach as being oriented towards applying a market value method to properties. This is why it is important to recognize that this study does not just advocate for the using of REIT valuations only but rather all publicly traded companies that have real estate ownership and publish market values for this property in their annual reports (as is custom).



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