Property Report: Crunching the numbers on Eskom

It has been difficult to maintain a positive attitude while watching the train-wreck that is Eskom unfold in apocalyptic fashion before us.

As I write this article by the comforting white light of a rechargeable LED lamp, in unbearably humid conditions, I am reminded of the fact that the hot water we currently find ourselves in has not boiled overnight but rather has been gradually simmering over the past ten years and should not really have come as a surprise to South Africans.

The key indicators, not least of which the cumulative inflation rate of electricity as measured by the consumer price index (CPI), have increased by a massive 274.45%, according to a new report from FNB Commercial Property Finance property sector strategist John Loos.

Loos uses the first quarter of 2008 as the start of this measurement as it was around this period when the Eskom crisis first garnered our attention.

Over the same ten-year period, the increase in municipal rates and non-electricity utilities such as water, sewerage and refuse removal, was 147.16 percent, effectively more than doubling over the period.

Loos further explains that these cumulative inflation rates are well-above that of headline CPI, which infl ated by 79.55 percent in what has been a relatively moderate general infation environment.

What it means is that electricity prices have increased 3.5 times faster than inflation since 2008, with municipal rates and other utilities up nearly twice that of CPI. The decision by the National Energy Regulator of South Africa (NERSA) in March to allow a further above-inflation hike of 9.4 percent for 2019 does not appear too harsh in isolation, according to Loos, but the alarming trend of tariff hikes well in excess of CPI inflation over more than a decade has significantly altered property operating costs and thus property affordability.

While consumers are now experiencing the inconvenience and financial impact of load shedding, which in itself requires some creative thinking and backup power solutions, the overall increases in utility costs which are not slowing down it seems provides a strong incentive for households to lower electricity consumption or to cut broader operating costs on the home to compensate.

It is no wonder that throughout the country and on the North Coast, we are experiencing strong trends towards ‘downsizing’ and the construction of more energy efficient homes.

Not surprisingly, Loos makes the point that building statistics show an increasing portion of building activity being fl ats and townhouses, much of this assumed to be sectional title, as opposed to free-standing houses, the former being more land efficient and often more economical to maintain and run too.

Let’s hope that our government and Eskom can find a way to navigate the country out of the darkness, but while we wait anxiously, it is equally important that homeowners and property developers continue to do their part by reducing our reliance on the grid and on other municipal services.

The problem is not going to magically disappear and much like how we have dealt with our historic water shortages by taking responsibility and being more aware of our consumption, the same proactive and innovative stance must be a priority for all.

– Tim Johnson is the Principal and Director of Seeff North Coast.