Property Rates Bill: hearings

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Cooperative Governance and Traditional Affairs

13 May 2003
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Meeting Summary

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Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
14 May 2003
PROPERTY RATES BILL: PUBLIC HEARINGS

Chairperson:
Mr Y I Carrim (ANC)

Documents handed out:

Rates Action Group Submission
International Union of Land Valuers Submission
Venn Diagnostics Submission
ESKOM Submission
Telkom Submission
Transnet Submission
Mr. Peter Meaken, Professional Valuer
South African Council of Property Valuers
School of Economic Science Submission (awaited)
South African Institute of Property Valuers (awaited)

SUMMARY

These proceedings were a continuation of the public hearings which had begun on the previous day, into the practicality and acceptability of the Property Rates Bill. A number of groups made submissions, in which a large majority expressed, for various reasons, their opposition to property rating by market value. The Rates Action Group (RAG) dismissed market value tax as "a nonsense". The submissions by the International Union of Land Valuers Taxation and the School of Economic Science were similar in sentiment, both submitting that a move from site value rating (SVR) to improved value rating (IVR) would have wide-ranging detrimental effects for all. Venn Diagnostics, which provides information on how to minimise costs associated with utilities, property rates and telecommunications, proposed a number of changes to the definitions and interpretations found in the Bill. ESKOM, Telkom and Transnet lobbied for exemptions from rates for infrastructure that were operated in the public interest.

In the afternoon, professional valuers made submissions. The Department of Local Government elaborated briefly in reply to the points of the valuers. A full response document will be prepared by the Department.

MINUTES
Rates Action Group Submission
Mr R. Bosomworth (Chairperson) presented the Rates Action Group's submission to the Committee. He strongly opposed the concept of a market value tax as being impracticable "nonsense", saying that it is unworkable for African uni-cities. He suggested that market value does not infer an ability to pay, as property has different incomes within and between categories. He said that property tax is guided on an international basis either by municipal benefit, or the ability to pay. In Cape Town, he added, neither scenario applied. Rather, property tax is "a meaningless thing".

Mr Bosomworth suggested the income approach, which he called the "ability to pay tax principle", as a better redistribution tax, and one which would raise more revenue. According to this approach, rental value of commercial property should be used as a guide for setting property tariffs.

International Union of Land Valuers Taxation
This submission was presented by Mr G. Dunkley (Past President and RSA Representative). He welcomed the Bill as one that "could become the keystone in bridging the gap between the extremes of poverty and wealth".

However, he opposed the imposition of rates on land improvements, as this encouraged slumlording and "leapfrog" development. Instead, he advised that collecting rates from land or site values only, would put a stop to that phenomenon.

He added that the present taxation system directly causes unemployment. Large amounts of land are put out of action due to land speculation and , and people are prevented from self-employment because of a lack of access to land. The average ratio between improved value and site value in Cape Town is 2,84:1. Therefore, on improved value rating, the slumlords and property speculators receive an average bonus of 2c to the Rand.

Site value (SVR) rating encourages investment, good town planning, employment, and improved transport systems as land becomes available, while discouraging land speculation, under-utilisation of land, slumlording, and bad living conditions. Mr Dunkley mentioned that in the United States, a move from total value rating to site value rating, resulted in an increase in building activity and increased employment.

Under the improved value rating system (IVR), the City of Cape Town had been unable to update their valuation roll for 20 years, whereas the city of Johannesburg had been able to update their valuation roll every 3 years under SVR, as data is easier to collect under that system.

Mr Dunkley was convinced that imposing IVR would cause the country to go into depression, and that chaos would eventually result.

On the taxation of schools and religious institutions, he stated that even if no funds were derived from those sources, they would still add value to the community.

Mr Dunkley was not keen on the income approach, informing the Committee that Centre Point in London stood empty for 9 years, paying no rates, under this system.

Differential rates or banding produces an error of between 50% and 100%, which would not occur under SVR.

School of Economic Science submission
Mr M. Jacques presented this submission. The School of Economic Science believes that it is possible to achieve equity and justice through economics. His submission was similar to the previous one by the International Union for Land Valuers Taxation.

He argued that SVR gives back to the community what the community has already created - a user tax, or "public rent". Municipal rates are part of the overall tax system, and the Bill is only a part of reforming the tax system. People are being completely overtaxed by the value-added tax (VAT) system. It is possible to get rid of VAT by imposing SVR. Mr Jacques continued that IVR would precipitate a huge exodus of business from the Gauteng area, as Johannesburg has no advantage for business other than SVR. He added that the city of Johannesburg was a "strange phenomenon", it being the major business centre in the country, in spite of the fact that it had nothing to offer. It is landlocked, is not situated on a lake or river, has no natural attractions, and no more precious minerals of note. Its sole reason for existence is the fact that it subscribes to the site value rating system. He ended his presentation with the adage, "if it ain't broke, don't fix it".

Venn Diagnostics submission
Ms H. Elwen presented this submission to the Committee. The submission proposed a number of amendments of definitions and interpretations to the Bill, providing reasons for each proposed amendment.

The Chairperson thanked Ms Elwen for a succinct and useful presentation.

At this point, he invited the members from the City of Cape Town to answer questions addressed to them.

Mr L. Rechontré (City of Cape Town) responded that the fundamental issue to consider was the relative contribution of property owners to the cost of civic services in the city.

It had been found that there were huge inequities in the taxation system, due to outdated valuation rolls. With the introduction of the new valuation roll, the annual bill for areas like Mitchell's Plain was considerably reduced, whereas Bishopscourt was increased by 32%. The total municipal bill for Mitchell's Plain was reduced by 30% of the total household income. The bills which are sent to the poorer areas are now more in line with household incomes.

In 1997, the decision was made to implement site value rating in the South Peninsula Municipality. However, in 1998, the decision was overturned, mainly because it had at that time become clear that there would be a move towards a unicity, and it did not make sense that six of the local authorities would be rated on site value, while others would be rated on another system. Also, future legislation would be based on improved value rating.

He believed that site value rating encouraged speculation and the holding of land. Site-only rating may cause shifts in site burden from low to high income value areas. Additionally, rates based on market value seem to be far more transparent to the community. It was reported that market value rating is easier to support and explain to the population, and easier to defend on appeal. It is also a taxation system which broadens the tax base. Rating on market value is more fair, since people with higher incomes are more likely to purchase properties with greater value. In addition, this kind of rating is entrenched within international law.

Mr M. Evans (Mallinicks Attorneys, representing the City of Cape Town) said the city was considering a uniform system across the country. Whether the direction chosen is on site or improved value rating, the desire was that all municipalities should move in the same direction. He added that the IVR did not seem to be supported by the municipalities which had employed it over the years. He had a sense that the drafters of the Bill had been concerned that the potential harsh effects of municipal rates had to be considered.

Mr McLachlan (ODA) put the following issues forward:
- He asked Mr Bosomworth why, if market value was perceived as problematic to RAG, did they not perceive a form of municipal rating on a renting level, to be problematic.
- Venn Diagnostics had raised the matter of definition for "public infrastructure". He suggested that perhaps the city was already in its second round of reviewing policy in GB2000.

The Chairperson assured all those present that all the submissions would be reviewed by the Committee, and that Ms Manche (Deputy Director-General) would be obliged to make a comprehensive response to all of them.

Speaking for the Department of Provincial and Local Government, Mr Dube stated that the Department itself had looked into the concept of rating at market value, and had not at all found it strange. They were, as a Department, committed to the concept.

Discussion
To facilitate discussion, the Chairperson instructed the Committee members to treat the submissions by the Union of Land Valuers Taxation and the School of Economic Science as one, when asking questions.

Mr B. Solo (ANC) asked Mr Bosomworth how he had arrived at the conclusion that a market value tax could not work in African uni-cities. He added that the Committee was not considering only the City of Cape Town, but a taxation system for the entire country, and Mr Bosomworth, in his estimation, was "swimming against the stream". He contended that 50% unemployment did not necessarily indicate lack of affordability.

A member asked what Mr Dunkley had meant by saying that if farmlands were taxed, this would cause farmers to move to smaller farms. Was this in favour of making the vacated land available to those poorer people who needed land?

Ms Lobe felt, since Mr Bosomworth's submission was mainly a list of complaints, it was of no assistance to the Committee. She asked for his suggestions as to what particular changes could be made in legislation through the Committee, to improve the situation.

She asked both Mr Dunkley and Mr Jacques to clarify how improvement value rating would stifle progress.

Mr Goosen (ANC) inquired of Mr Bosomworth how he could foresee that the taxation system proposed in the Bill would cause people to lose their homes.

The Chairperson asked how market value was determined. He wanted to know, if market value rating was such a bad system, why valuers accept it as the norm. Furthermore, he asked why certain objectors tended to "hide behind the poor", in making their arguments. He inquired why they had the notion that this democratic government, and of which the ruling party had a history for defending the underprivileged, would impose legislation that would cause people to lose their homes. He asked Mr Bosomworth to elaborate on the examples of London and Sydney noted in his submission. He referred to Mr Bosomworth's "wild claim" that there had been no public discussions surrounding the Bill, stating that the Bill had been subject to consultation during its long time in drafting preparation. Even after its introduction to Parliament, there was an enormous willingness to engage in public discussion. In his submission, Mr Bosomworth had called for a judicial commission into the credibility of the Bill. Incredulously, the Chairperson made the point that a judicial commission had no mandate to decide on legislation.

The Chairperson asked to be informed, very simply, what exactly RAG was asking for. He also wanted to know how the proposed rental tax would be arrived at, and which countries employed this system.

Turning to Mr Dunkley and Mr Jacques, the Chair asked them to substantiate the claim that should the value rating in the Bill be changed to site only, most of Cape Town would pay less in municipal taxes. He made the point, since Mr Jacques had claimed that Johannesburg would be disadvantaged by an improved rating system, that that city had not come forward to strongly object to the idea. Neither had SALGA. He continued that the two gentlemen were not merely proposing a move to a different form of value rating, but a total restructuring completely. He assured those present that the Committee would not pass the Bill until all the provisions in it were defensible.

The Chairperson stated that the presenters were not obliged to respond verbally to all the questions that had been put forward. They were welcome to put their responses in writing.

In his response, Mr Bosomworth felt the need to emphasise that there was a huge conceptual gap. It had not been the intention of RAG to insult Parliament.

He stated that valuers like the market value concept, because of the business advantage it offered. They do not understand taxation, because that is not their interest. He emphasised that "everything has a perspective and a context". The concept of rental value is only one aspect of a total concept.

The Chairperson asked how rental value would be achieved, and which countries were employing the system.

Mr Bosomworth cited England as an employer of the rental system, saying that this process had evolved there over a number of years, to its present state today. He added that rental value is extensively used in the developing world, adding that every estate agent knows the rental value of a property. One can get an idea of rental value in an area by determining the cost at which properties in that particular area are being rented at.

The Chairperson asked Mr Bosomworth to provide the Committee with an outline of what was practically required for this system, within two weeks.

A Johannesburg Metropole official stated that the city used both IVR, and SVR. They were neither for nor against either system, and he concluded by saying that the Johannesburg Metropole is in support of the Bill.

Mr Rechontré stated that there were valid arguments for SVR, especially on land valuation. However, the same results could be achieved through market value rating. Although the Committee had heard arguments for the SVR category, the positive aspects of market value had not really been examined.

He said that when a uniform valuation system finally exists in the country, different methodologies would still be employed. Market value provides good structure, which is able to provide affordable municipality bills.

On the affordability of the Bill when compared to the average household income, Mr Rechontré noted:
In the city of Cape Town, thus far, people have been paying between 40% and 50% of their total household income on the total municipality Bill. Because of the provisions of the Bill, households will now be paying between 12% to 15% of their total household income on the municipality bill.

Mr Dube (Department of Provincial and Local Government) referred to the submission by Venn Diagnostics, in which they proposed certain amendments to the definition of "public service infrastructure", which includes such things as railways lines and airport runways. That did not mean that those structures themselves should be exempt from tax.

ESKOM Submission
Mr Fani Zulu (External Communication Manager) presented ESKOM's submission to the Committee. The submission proposed a number of amendments to and deletions from the Bill. As an example of the proposed amendments, Mr Fani stated that generating electricity requires a wide range of infrastructure, and to that effect, suggested that under "public service infrastructure" (c) include items such as ancillary related telecommunication infrastructure, water pipelines, dams, reservoirs, amongst others.

Telkom Submission
The Telkom submission was presented by both Ms C. Gabriel (Executive: e-Society Initiatives) and Mr T. Makhakhe (Executive: Telecoms Policy and Licensing Development). Ms Gabriel stated that Telkom, as a significant property owner in South Africa, was in support of the aims and objectives of the Bill. However, she noted a few areas of concern. She pointed out that the company was the main fixed lines server in the country. Dams, reservoirs, and so forth, should readily be excluded, in order to help provide services. They welcomed the fact that commercial buildings would be separated from core infrastructure. She asked the Committee to ensure that the definition for "public service infrastructure" was in line with other relevant Acts.

Mr Makhakhe stated that Telkom supported the fact that ESKOM included such items as grids into the definition of "public service infrastructure". In his Power Point presentation on Telkom's perspective on the Bill, on the subject of differentiated rates and exemptions, Telkom proposed the introduction of a special discount rate mechanism for rating property used exclusively for the rendition of telecommunication in the national public interest.

It was noted that the Bill does not prescribe valuations methods to be applied, leaving much to the discretion of each municipality. Telkom submitted that in order to counter inequitable application, the Bill should prescribe methods applicable to each category of property or class of improvement.

With regard to appeals brought to the Appeals Board, Telkom felt that no appeal brought in good faith should be subject to an order for costs. They recommended that this provision in section 63(a) be removed from the Bill.

Transnet Submission
Transnet's submission was presented by Mr Sipho Mashinini (Chief Executive Officer, Propnet). He stated that Transnet was in support of the submissions by both ESKOM and Telkom. The submission recommended the revising of the term "public service infrastrucure".

The Chairperson stated that local government funds must be sufficient to meet constitutional objectives. He advised the various presenters that they needed to consider not only their own concerns, but also those of the local authorities. He enquired if they, as huge entities, were claiming that their needs and concerns transcended the needs of municipalities and local authorities.

Discussion
Mr A. Lyle (ANC) asked for what reason ESKOM was proposing the deletion of "across municipal boundaries" (point 2 in their submission).

Mr Goosen stated that those institutions and parastatals requesting concessions on their infrastructure would have nothing left to be rated. He wanted to know how municipalities would, in that event, survive, especially in the light of the knowledge that these parastatals had all claimed to be in support of the Bill. Everyone has to contribute towards local government. He asked if their claimed support for the Bill was genuine, or designed to create a certain effect.

The Chairperson agreed that most presenters were claiming to be in support of the Bill, but only inasfar as it did not affect their own terrain. He reminded them that they also had a public responsibility to help establish strong municipalities.

Mr P. Meakin (Meakin & Co.) stated that public infrastructure would not be rated if the infrastructure was, indeed, public. However, when such infrastructure was privatised, there was no reason why it should be exempted from paying rates.

Ms Makotoko said there needed to be clarity on what was considered basic municipal services. She suggested that these were structures which communities benefit from, without the owners of the particular infrastructure making a profit by providing the service.

Mr McLachlan had the following questions:
- Under the current provincial ordinances, how are parastatal properties being valued?
- Is the Metro railway system included in the definition of the national railway system?
- In their commercial undertakings, these parastatals are property holders. Would those property holdings be included in "public service infrastructure"?

The Chairperson asked what the norm was in a Social Democratic Party state such as Sweden.

Mr Zulu informed the Committee that ESKOM was not proposing a carte blanche exclusion from paying rates, but only where it pertains to the generation of electricity.

Ms Gabriel stated that Telkom was "very happy" to pay their rates, adding that the company pays tens of millions in rates. One of the key factors driving their argument was the fact their charges are governed by the regulatory regime of ICASA, one of the main indicators of network costs. Telkom was happy to pay the costs of building operations that are not network-related, the reason being that if they did not, costs to the consumer would increase considerably.

Mr Mashinini stated that Transnet was very sensitive to the needs of the municipality in terms of rates. He added that certain areas in the country would not survive if it were not for the rates being paid by Transnet. However, it was the transportation of goods that Transnet was concerned with. The company is 100% Government-owned. He asked the Committee to distinguish between the owners and the management of property. Transnet did not foresee properties being privatised, although the operations thereof might possibly be privatised. There are areas in Cape Town, like the V & A Waterfront, where Transnet does not own land, but pays taxes. The company was not attempting to avoid paying rates and taxes. The record would show that they are, indeed, paying these bills. However, it was about the definition of "public service infrastructure" that they were concerned.

At this point, the Chairperson pointed out that Government departments were also paying rates and taxes.

On Telkom's suggestions to prescribe evaluation methods, Mr Dube said it was inappropriate to prescribe to professions how they should go about completing their jobs. On the issue of costs related to appeals, he stated that should the municipality be found to be in the right, then it had the right to recover costs incurred.

Afternoon session:
South African Council of Property Valuers/ South African Institute of Property Valuers
Mr. Isaac Lehobye, South African Council of Property Valuers, presented jointly with representatives from the South African Institute of Property Valuers. Mr. Lehobye noted that the submission was based upon prior discussions between the Council and the Department of Local Government. It focused entirely upon areas in which they disagreed and the submission has a clause-by-clause analysis of the Bill with their suggestions. The aim of their submission was also to make the Property Rates Bill more user-friendly for the Valuing Profession. Following their submission, Lehobye presented their recommendations for Clauses 1, 10 (1)(b), (2), 15 (2) (h), 29 (1)(a), 36 (1) (a), 39 (1), 48 (2) (a), 51(b), and 71 (3) of the Bill.

Mr. Ben Espach, Professional Valuer, South African Institute of Professional Valuers, noted their recommendations for Clauses 8, 9, 15 of the Bill. Clause 15 of the Bill should be expanded and re-visited regarding two issues: why farmland must the rated lower than other properties and what should be included in the determination of the Market Value of farmland. For example, timber is not normally valued, whereas with a sugar farm, the crops are valued. He then passed it on to Mr. Frics to expand.

Mr Martin Frics, Valuer, representing both the South African Institute of Professional Valuers and International Valuation Standard Committee, remarked on the situation in the Cape regarding agricultural land demonstrating two options: a differential approach or non-differential approach with rebates. He expressed the opinion that agricultural land should not be rated the same, and that the issue was whether to deal with rebates, or differentiate. He suggested that it might be more desirable to deal with these details by way of regulations.

Mr. Espach continued the presentation, reading the recommendations from the submission for Clauses 38 (a) (b), 39 2(b), 41, 42 (b), 44 (a) (b), 57, 62, and 69.

The Co-chair noted that the submission was difficult to follow.

Meakin & Co
Mr. Peter Meaken, Professional Valuer, Meakin & Co, presented a brief summary of the parts of his submission regarding Improvement Rating and Rental Rating. In summary, he submitted that the Improved Rating form of valuation, which is based on market value of assets, makes the access to land more difficult and leads to and estimated 100,000 job losses per year. He suggested that the process of determining the capital value and transforming it into a capital charge is very subjective, arbitrary and expensive. He claimed that this system is 10 -20% inaccurate. He noted that Barrens, the American Company, who brought this system to Cape Town, was mainly interested in selling computer systems and tended to supply the city with the systems they recommended. He suggested that the Market Valuation of assets is a "hot tax" which was responsible for the "proletariatization" of South Africa, as people who could not afford to pay it were forced to work in the mines and plantations. He claimed that this system "reeks havoc" and was unsure why in spite of these problems there was an insistence on keeping the tax.

He continued that the Rental rating system is determined by the market valuation of rents paid for unimproved property for a 5-6 year period. He noted that this system is not as difficult to determine and is a concept that is in practice as two of the biggest buildings in Cape Town pay Rent Ratings to the City.

He then introduced the Meratx© system, which he designed. It determines the rental rates of properties by taking an average of the rents paid on all properties in a like area of the same situation and size. The amount determined by the program is charged as a flat rate, regardless of the size or occupancy of the lot under the assumption that properties in a like area all receive equal municipal services.

Discussion

Mr. Solo, noted his opinion that valuation should be based upon improvements. He provided the example of houses 'on top of a mountain' in which it would be more difficult for the municipalities to provide and maintain the services needed.

Mr. Roger Godsmark, Forestry South Africa, posed three questions to the Professional Valuers Association:
- what was the status of the agreements between the Council and the Department
- although municipalities agreed not to start charging "newly rated" properties until the proclamation of this Bill, this is not happening, so was it time to reconsider these recommendations in light of this.
- the difficulties with determining what would be included in 'public service infrastructure', which would be exempt from rating under this Bill, in the wake of the privatisation of services.

The Chairperson emphasised that the prior meetings between the Council and the Department had no status in Parliament. He expressed his frustrations on behalf of the Committee regarding the technical nature of the presentations. He noted that the onus is on the "technocrats" to make sure that the Committee understands their submissions and that Parliament would not be passing anything that they did not understand completely.

He noted that although the prior agreements between the executive and the Council will be respected and may be helpful, everything needed to be understood by Parliament. He then emphasised that it is not a Property Valuers Bill, but rather a Rates Bill, which must be understood by 280 municipalities, the councillors, the officials and more importantly the people who will be paying the rates, many for the first time. He advised the group that the hearings are still in their early stages, therefore organisations should ensure that further communications are more comprehensible.

Mr. Dunkley asked Mr. Meakin how his program accounts for the discrepancies between properties in an area. For example, houses in the same area that are facing the water which have substantially higher rents, so the banding system that he suggested would be inequitable.

Mr. R. Bosomworth commented on the difficulties of inspections in non-homogeneous areas and valuers making valuations without seeing the property. He asked if it is necessary to inspect non-homogenous properties or not. He made further comments on the critical nature of the valuation role.

The Chairs requested Mr. Bosomworth to be clearer in formulating his questions and to avoid substantiating and commentary. Parliament is not obliged to allow ordinary member of civil society to pose questions and that he should be mindful of the latitude that had been given to him.

Rev. Goosen stated that it is impossible for the committee to take into account all of the recommendations put forward by the Council, as the Valuers are not the only parties that will be responsible for implementing this Bill and whose opinions are important. He was more interested in their overall opinion of the Bill, inquiring as to how they thought the Bill would take them forward, and what in the Bill needed consideration.

Mr. Nico MacClachlan (ODA) commented on the interplay between capacity and methodology, noting the importance of legislating on methodology. He asked, with respect to agricultural properties, which of the practices mentioned in their opinion seemed to work the best. Secondly, what was the state of property records for newly rated areas including both communal and agricultural lands?

Mr. Dunkley, directed a question to Peter Ehoff (Municipality of Johannesburg), asking if they had any problems with site-value rating.

The Co-chair asked several questions regarding the specific recommendations of the Council/Institute. Their submission's reference is to the Mineral Act and he asked why a more current Act was not used. He requested an explanation for the difference between improved value and the value of improvement. Regarding section 15 (2)(h), he suggested that it was unfair not to give the benefit of the 15000 R exemption to the mixed-site residents. Regarding section 29 (1)(a), he asked for clarity about the implications of this section and the reason for the recommendations. He also wanted to know why, with respect to section 51 (b), they insisted that half of the members of the appeal boards should be Valuers. He posed further inquiries about the reason for the insistence that the Valuers must sign the valuation form under section 71 and asked for clarity on Section 15 (b) and 44. He concluded by noting that he was completely lost on the sections regarding sectional titles.

Mr. Lyle disagreed with the Council's recommendation of forgoing the clause requiring ad hoc Valuers in conflicts of interest. The Chair seconded Mr. Lyle's comment and inquired about the difference between the Council and the Institute. He asked where the "chaos" would be if Parliament did not agree with their proposals and commented that melodrama was not useful to the process.

The Chair then asked why farmland was excluded for rating in some areas and to substantiate on how to evaluate agricultural land. They must be mindful of Section 229 of the Constitution regarding agricultural land. Was their opinion that agricultural land should be valued and what challenges do they foresee with doing this.

He stated that it is not necessary for the presenters to answer all of the questions posed, rather that they should draw out the main themes and that they would be called back when the playing fields are levelled and the Committee members better understand the proceedings. He gave each of the presenters ten minutes for a response.

Mr Lehobye, in response, noted that the questions posed made it clear to the Council that they understood the terms used in their presentation. He appreciated their concerns and promised more clarity in further communications. He agreed with the Chairperson that any prior agreements made between the Council and Department of Local Government, were not determinative with Parliament. He noted that although he acknowledged Rev. Goosen's concerns that the Bill was not for Valuers, but that Municipalities were using the Valuers to really do the job. They must be able to implement the Act in order to get the revenues for the Municipalities.

He responded to Mr. Solo, and clarified that all the cost concerned with "a building on a mountain" is not the responsibility of the municipalities, rather the individual who chose to build there. He stressed that they are concerned with improvements, because the value of a property must increase with quality, the view etc.

He clarified that they used the Mineral Rights Act solely for the definition and it was not commented on in any other way in their submission. He specified that the difference between the Council and the Institute was that the former was a statutory body while the later was a voluntary organisation. In response to Chairperson Carrim question regarding the chaos, Mr. Lehobye responded that if the Bill was taken in its present form, it would be chaotic to implement especially with respect to Clauses 69 and 29.

Mr. Lehobye stressed that the Department would not be responsible for the implementation of this Bill, whereas the Valuers will be, therefore they must be very clear and convince Ms Manche of their concerns. He went on to describe the process of valuation, trying to ensure Parliament that it would be difficult for a Valuers to falsify results in a conflict of interests.

Mr. Frics added that both the Council and the Institute agree with the principles of the Bill. He noted that since South Africa mainly contains single residential property, the owners, particularly at the lower end of the economic scale,are not able to understand the principles of site-value, whereas market value is more comprehensible. He expressed his opinion that market value should be used.

The Co-chair asked Mr. Frics' opinion on Mr. Meakin's proposed rental ratings approach.

Mr. Frics stated that the site-value approach was used in the Transvaal, but they had to deal with substantial rebates as a result of the differential between residential and commercial property, which will be necessary for Improved Rating. He stated that the problem with rental ratings is that it is hard to comprehend and assess by the average owner.

The Chairperson asked what percentage of democracies use rental value ratings.

Mr. Frics responded that in Britain they used across the board banding for residential properties and Rental Rating is used for commercial property. He noted that the banding was useful for areas where the range of values is low. In Cape Town the range is higher, so he noted that this type would not be appropriate.

The Chairperson inquired if there was any place in the world where rental value is applied to residences.

Mr. Frics responded that he had no personal knowledge of any place. He added that it was Parliament's job to determine what to include in the definition of public service infrastructure. He noted the concern that capacity to implement the Bill in certain locations will be a problem. He promised a response to all of the questions in written form. In conclusion, he expressed the need for gender equality and higher education standards in the Valuer Profession.

The Chairperson posed a question to be answered later as to why should Valuers be members of the Valuation Board. Did this not cause problems between colleagues when there are objections before the Board?

Mr. Frics repeated that there would be a written response to all the inquiries and that the primary point that he wished to make was that the principles and the ordinance of the Bill were positive and they endorsed it.

In his response, Mr. Meakin pointed out that rental rates were being used in Hong Kong.

The Chair asked about the equity of the general application of a flat rate between non-homogenous properties as was proposed by Mr. Meakin.

Mr. Meakin responded that there was a conceptual jump in his system that the people in like areas will benefit from municipal services the same amount and can therefore be charged the same amount.

The Chair noted that the system Mr. Meakin proposed suffered from the same arbitrariness and subjectivity that he claimed existed in the other systems. He tempered this by stating that each system also has objective considerations, therefore the subjectivity is limited.

Mr. Meakin requested that the Committee ignore the aspects of subjectivity and focus on the benefits of the rental rating system. Namely, that it is cost effective, understandable and helps in the creation of jobs.

Mr. Lyle inquired about the extent to which rental value can be manipulated by residents, and who determines the rental value of a property.

The Co-chair directed this inquiry to the Department.

Ms. Jackie Manche, Department, decided not to respond to the specific areas in which they disagreed with the Institute. The Bill was before Parliament and as such was out of the Department's hand. With respect to the agreements made between the Council and the Department, she stated that it was useful as it helped clarify interpretations of the clauses, but that it was not useful to address why they agreed or disagreed. During those discussions, they had found that there are vested interests in the profession of Valuers. For example, a computerised system could result in a decrease of jobs for the Valuers.

She submitted that the Department chose improved value rating because most of the lots are residential and Site Value rating is harder to conceptualise whereas Improved Value rating is simpler, allowing people to understand. She stressed the importance of using a willing buyer and a willing seller system. In closing, she stated that their aims were to make it easier for the Municipal Governments and increase their tax base.

The meeting was adjourned.

 

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