Changes in Cape Town’s property tariffs are expected to cause eye-watering increases and may result in some homeowners not being able to afford their properties.
The City of Cape Town plans to hike average property rates by almost 8% from July. In addition, it will base existing fixed charges for connections to water, electricity and sanitation on property values, while introducing a new city-wide cleaning tariff, also based on property value.
An independent analysis by a financial analyst shows that many households face a tariff increase of more than 20% – and some closer to 30%. In rand terms, owners of homes valued at around R4 million could pay almost R11 200 more a year.
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The analyst noted that unless a household was “totally off-grid” with 100% borehole-supplied water and fully self-generating solar, they “must pay the fixed charges as their fair share of maintaining the infrastructure in the City”.
“Until now, this charge was the same for all households, reflecting the fact that connecting a house to the water pipe outside or the electrical pole outside is the same regardless of whether the house is a mansion or a cottage, or whether it is in Hout Bay or Grassy Park,” they said.
“This is all about to change now with the City charging higher fixed charges for more valuable properties. These charges are significant, in some cases 4-5 times higher per month than in the current fiscal year.
“Because Cape Town prices have doubled over 10 years, if you bought a house for R2 million in 2015, it’s likely worth R4 million today. Unfortunately, your income probably hasn’t doubled since then.”
Cape Town property prices have been increasing well above the rest of the country. In the year to November 2024, for example, Statistics SA data shows that Cape Town residential property prices rose by 7.4%, while Johannesburg prices rose by only 1.8%.
The new tariff hikes will put households in a residential market that is significantly rising in value under immense pressure, says property economist and University of Cape Town professor, Francois Viruly.
Viruly said even if the City of Cape Town did not meaningfully increase property rates, it would still benefit from the increase in home prices, as property rates are calculated on these valuations. The City therefore needs to be careful in how it implements rates.
“This increase in value may have a positive impact on the assets held by households – but you run the risk that households don’t have the cashflow to pay the rates that are associated with this rise in value. In Observatory, for instance, people are suddenly seeing the value of their houses rise, but they can’t afford the rates associated with that rise in value,” he added.
Viruly said it was important to also take into account the cost of financing.
Steep rate hikes in recent years continue to bite: Monthly home loan repayments on a R2 million mortgage at the prime rate are still R5 000 more than five years ago.
The average home loan amount in the Western Cape is around 34% higher than in Gauteng, says Nondumiso Ncapai, managing executive at Absa Home Loans.
“This is because (about) 80% of bonds in Gauteng are for less than R2 million, whereas (about) 57% of bonds in the Western Cape are for less than R2 million, indicating a much higher percentage of higher valued properties in the Western Cape.”
Worryingly, Viruly points out, close to 70% of Cape Town residents have household incomes below R22 000. This suggests, he said, that they would not be able to afford a property above R1 million.
Cape Town residents’ associations have objected to the City’s move to link fixed costs (including connection costs of water, electricity and sanitation, as well as a cleaning tariff) to property value.
“There is no logic to using property values as a basis and such charges bear no relation to the level of services provided. The proposed fee basis will result in unreasonable increased costs in an already difficult financial environment. Furthermore, no provision is made for pensioners, childless couples and single occupants,” said Graeme Hill, chairperson of the Constantia Hills Residents’ Association.
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Many residents, especially pensioners on fixed incomes, would face an unfair and disproportionate burden, said Tokai Residents’ Association chairperson Don Kourie.
In defence of the tariff hikes, the City said Cape Town property rates remained cheaper than in Johannesburg, for example. But the homes in Cape Town cost a lot more than Johannesburg and they didn’t adjust for this phenomenon in their comparisons, the financial analyst pointsed out.
“It must be noted that the City bases increases on the imperative of delivering sustainable services and infrastructure. All rates and tariff income is used to pay for service delivery,” said City councillor Siseko Mbandezi, mayoral committee member for finance.
Funding infrastructure
The money raised by the tariff hikes would help fund a R37.5 billion infrastructure budget over three years. Cape Town would invest 63% more than Joburg’s R24.3 billion over this period, Mandezi noted.
“In this regard, Cape Town ensures reliable basic services in contrast to the general decline and constant water, electricity and traffic signalling outages in other cities.”
While Efficient Group chief economist Dawie Roodt says Cape Town is much better run than other metros around SA, he believes this still does not justify an increase, saying it would have a huge impact on middle class income earners.
Roodt said even the base property rate increase of nearly 8% was “unacceptable”. He believes residents should not accept anything above 4.5% – the South African Reserve Bank’s inflation target.
“They are going to pay much more than anyone else anywhere else, not just in monthly mortgages, but rates as properties are very much more expensive and the incomes in Cape Town are lower,” he said.
Roodt believes the new tariffs may even slow down the rate of semigration to Cape Town from other parts of the country where municipal infrastructure was failing. Young families wanting to buy a property in Cape Town for the first time would come under enormous pressure thanks to these significant tariff increases.
“We are seeing some signs that people are not moving that fast to Cape Town anymore because properties are so expensive. I know people who had wanted to move down to Cape Town but can’t because it is just too expensive.”
