When Buying it is important to check the properties municipal valuation
Municipal valuations are often overlooked when buying a property. This is usually because they don’t represent the market value of the property. Because of this buyers and sellers do not think they have any relevance.
Municipal Valuations are indexed valuations:
Which means when they are recalculated, they use the existing value and adjust it based on current market fluctuations. For some reason they do not use last sold price of the property. This means that a property that has a low municipal valuation can continue to have one, even after it has been sold for an amount above its current municipal valuation.
For example:
Property X sold for R995 000 in 2018 with a municipal valuation of R430 000.00.
Property X now has a municipal valuation of R610 000.00. Comfortably below its 2018 selling price and current 2022 market value.
As you will know the municipal valuation is used to calculate your rates. In Gqeberha this is calculated as (Municipal Valuation – 15 000) x 0.011444/12 (months)
Because of this, most people pay no attention to their municipal valuation and only pay real attention to it when it goes up.
An example of how municipal valuations can vary:
I recently did a buyers report for a popular Gqeberha suburb. As a matter of course I included the current rate amount, for each property. The results surprised me.
The report provided an overview of 11 properties, which were within a few blocks of each other. All the properties were priced between R2 600 000 and R2 950 000 and in a similar condition. The rates ranged from R1595 to R3153 per month. The property with the lowest rates was on the market at R 2 695 000, whereas the least expensive property had the highest rates.
Choosing the right property with the right municipal valuation will save you money.
As mentioned earlier because municipal valuations are calculated using the existing municipal value and are currently not updated using the last sold price, there is a good chance if you buy a property with a low municipal valuation, it will continue to remain low in relation to the rest of the neighbourhood. So, if you bought the property priced R2 695 000 instead of the one priced R2 600 000 you would save R57 384, in rate payments, over the next 3 years. If the current trend holds true, this would be a saving of R382 560 over the 20 years of your bond. More than repaying the additional R95 000 in asking price.
So there you have it. While the municipal valuation may have no actual bearing on the value of a property, if you are struggling to choose between 2, it might make a good tie breaker.
If you would like a free valuation report, you can book an appointment online with me by clicking “here” or call me on 072130047!
