UPDATE: A curious undervaluation

Why would Johannesburg’s  city council settle for an undervaluation of the property at 100 Grayston Drive?

Over a period of five years, and after notching up 30 bus trips, countless nights in Johannesburg backpacker hostels and many evening strolls through the City of Gold’s upmarket suburbs, Howick-based rates crusader Rob McLaren is trying to have nearly the entire richest square mile in Africa, and its neighbours, revalued.

Without the assistance of a cell phone or an internet connection, he has uncovered what appears to be the deliberate, routine under-valuation of high-value buildings, resulting in the owners’ paying significantly less than they should in municipal rates.

Shortly after Johannesburg’s General Valuation Roll for 2018 was released for public comment in 2017 McLaren objected to the valuations of 67 high-end commercial buildings, among them was 100 Grayston Drive, Sandton, then owned by Growthpoint Properties Limited. The occupant was and still is Investec Bank Ltd.

Investec building on 100 Grayston Drive

The valuations company contracted by the city valued the Grayston Drive building at R1.17 billion, up from R608 million of the previous general valuation. McLaren objected, stating that the true value was closer to R2.2bn.

Growthpoint – unbeknown to McLaren –  was in the midst of selling the building back to Investec. In 2003 Investec had sold the building, along with Merchant Place Parkade, to Growthpoint for R975m.

In March 2018 Business Day reported on the property’s sale back to Investec for R2.2bn, although a deeds search shows that Investec Bank Limited purchased the property for R2,515,050,000 on 16 February 2018.

However despite that sale, earlier this year the city dismissed McLaren’s objection to the latest rates valuation of just R1.17bn. He has since taken the dismissal on appeal.

The reason for the consistently low valuations of major buildings can be found in the city’s bid document supplied to all bidders for the contract to run the city’s valuation process of nearly one million properties. The document, titled “Proposal No. A683: Request for Proposals for the Compilation of the General Valuation Roll 2018” makes it clear that over-valuations would negatively affect the profits of the successful bidder.

The document states that if the valuation appeals board reduces a value by 30% or more, the bidder – in this case, Evaluations Enhanced Property Appraisals (Pty) Ltd (recently acquired by EOH Holdings) – would be held liable for the rates refund the city would be obliged to pay as a result. Much safer therefore to under-value high-end properties.

Noseweek previously reported that Evaluations was awarded the tender in October 2016 under dubious circumstances. Evaluations had miraculously reduced their bid from R167m to R99.9m for the same scope of work. Competitors noted at the time their price had dropped so much that they were unlikely to turn a profit. The bidder in second place bid R144m.

“It is in Evaluations’ financial interest to under-value large corporates. Major corporates, unlike the middle classes, will appeal, armed with a team of lawyers and their own valuers. On almost every high-value commercial property in Johannesburg that I have objected on, I am the only person to do have done so – which is a clear sign that they are happy to be undervalued and therefore paying less in rates than they should,” McLaren told Noseweek.  

Among the buildings he has assessed to be under-valued are those belonging to Rebosis; the Estate Agency Affairs Board; Hobart Grove Shopping Centre; Sasol Place; The Zone@Rosebank; the JSE and several belonging to Standard Bank. 

The city received a total of 50,595 objections during the inspection and objection period.

For more about McLaren’s campaign, see noses202; 203; 208; 211; 212 222; 225; 227 & 231.

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