Steep rates hikes for parts of Cape Town?

Cape Town’s surging property prices, coupled with a steeper cent-in-the-rand tariff, could send municipal rates bills soaring — with hikes of 30%-40% looming in wealthy suburbs.

The City of Cape Town will release its three-yearly general valuation roll on February 20, capturing the strong rise in property prices up to July 1 2025. The new valuations will set municipal rates bills for July 2026 to June 2029. Rates are calculated by multiplying a property’s municipal valuation by the cent-in-the-rand tariff, minus rebates where applicable.

Currently, residential properties in Cape Town are taxed at 0.007159 (about 0.72c in the rand), while commercial properties pay more than double that tariff at 1.68c. Homes worth up to R7m qualify for a R435,000 rebate, but commercial owners get none. That means that at the moment a R4m home attracts rates of about R2,139 a month, while a commercial property of the same value pays R5,600.

Industry players expect average value increases of 15%-20% over the three-year cycle, broadly in line with CPI plus a modest premium. But bills will be further inflated by annual tariff hikes, to be announced at the end of March with the city’s draft budget. Last year, tariffs rose about 8%. Another above-inflation increase seems likely.

JP Ricketts, sales manager for Seeff Blouberg, warns that even a “fair” 20% valuation increase could translate into a 30%-40% jump in monthly bills once tariff hikes are factored in.

There are also concerns about the city’s computer-assisted mass appraisal (CAMA) system, which uses statistical modelling rather than individual inspections to value properties. Real estate players fear the automated system could overvalue properties, compounding what is already expected to be an unprecedented rates increase, particularly for big-ticket property owners who shoulder much of the city’s cross-subsidisation of poorer areas.

Ricketts argues that the system cannot capture factors that depress real market values and investor sentiment, such as changes to traffic, crime levels, new developments, blocked views, oversupply on one street vs scarcity on another, and the like.

He notes that sales in the R5m-R20m bracket have been particularly buoyant in recent years, driven by semigration and international buyers. That has pushed price increases for “trophy” home sales above the market average, especially on the western seaboard and in the southern suburbs. The risk, he says, is that the CAMA may wrongly assign the same premium to standard family homes in these areas.

Ricketts says homeowners whose valuations breach R7m will also see outsized rate hikes as they will lose the R435,000 rebate.

Cape Town ratepayers are getting more bang for their buck in terms of infrastructure maintenance and service delivery than most of their counterparts in other big metros

Storm MacLennan, head of sales for Jawitz Properties in the southern suburbs, says valuation errors can cost thousands. A R3m home overvalued by R500,000, for example, adds nearly R300 a month — R3,580 a year — compounded over three years. He stresses that new valuations must reflect what properties would have sold for on July 1 2025, not today’s asking prices.

The good news is that objections have a high success rate. Jawitz data shows a 45% success rate in 2023, the last valuation cycle, with average valuation reductions conceded by the city of 20%-30%. That translated into monthly savings of R800-R1,050 for successful objectors. MacLennan urges owners to challenge inflated valuations with credible, sales-based evidence.

Ricketts and MacLennan agree that Cape Town ratepayers are getting more bang for their buck in terms of infrastructure maintenance and service delivery than most of their counterparts in other big metros. Still, rising property values don’t equate with homeowners’ ability to pay higher rates bills.

“It doesn’t reduce the financial pressure on homeowners whose incomes haven’t kept pace,” says MacLennan. Ricketts says pensioners on fixed incomes and people who bought many years ago in high-growth areas are hardest hit because they feel “priced out” of their homes by paper-wealth increases they cannot realise without selling.

Commercial property owners in Cape Town face similar challenges. Beyond higher rates, office, retail and industrial landlords must contend with new costs: a proposed city-wide cleaning tariff and amended sewerage and water tariffs from July 1, currently under legal challenge by the South African Property Owners Association.

While landlords can pass costs to tenants, Quintin Rossi, CEO of Spear Reit — the JSE’s only pure Western Cape-focused property stock — says increases must be fair and market-related, “otherwise landlords risk losing tenants”.

Rossi says commercial valuations have historically been fair, and Cape Town owners can see where their rates are spent. But he notes that population and business growth have driven huge demand for sewerage, electricity, water and road upgrades. The challenge, he says, is balancing the city’s revenue needs with avoiding disproportionately high rate hikes that could place an unsustainable burden on commercial landlords.

Cape Town ratepayers have a limited window — February 20 to April 30 — to view and object to new valuations.

City of Cape Town spokesperson Lyndon Khan, says in response to the FM: “We have not yet tabled our budget, so there is no basis in fact for the assertion that there will be steep increases. That is pure speculation.

“Cape Town’s property rates are already the lowest of all metros for residential, commercial and industrial categories. This is based on the cent-in-rand formula, which is set to lower even further with the publishing of this GV. This will help to mitigate property value increases arising from the latest valuation. ”

He says Capetonians get “unrivalled value” compared with other cities.

“This includes property assets that grow in value, the best basic services, South African-record infrastructure investments, and the lowest total monthly bills of South Africa’s metros, even when taking higher property values into account.”