Cape Town rate changes could hit short-term rental returns

• Proposed municipal rating changes could significantly increase operating costs for full-time short-term rental properties.
• Higher fixed costs may reduce net yields, especially for properties valued under R7 million.
• Owners who optimise pricing, management and strategy early can still protect long-term investment returns.

Short-Term rentals enter a new phase

Cape Town’s short-term rental and hospitality market has delivered strong returns for investors over the past decade, driven by tourism growth, digital nomad demand and lifestyle appeal.

However, potential municipal rating changes now under consideration could materially change the cost structure for many investors operating full-time short-term rental properties.

As the City reviews how these properties are classified for municipal rates purposes, investors need to understand how this could affect cash flow, yields and long-term portfolio strategy.

The potential impact on investors

Industry engagement suggests that properties used primarily for short-term letting, rather than as primary residences, could be reclassified from residential to commercial rating categories over the next year.

Commercial tariffs are significantly higher and could increase municipal costs by up to 135% or more, while properties below R7 million would also lose the residential rebate benefit.

This means:

• Higher fixed costs regardless of occupancy
• Reduced net rental margins, especially in off-peak season
• Increased pressure on underperforming properties

For many owners, modelling shows yield reductions between 0.5% and 1% annually, enough to materially impact portfolio performance over time.

3 Things property owners should do now

1. Model your exposure
Understand exactly how higher municipal rates may impact your property’s net yield and annual cash flow.

2. Know your real performance data
Track occupancy, achieved rates, seasonality and true net returns. Guesswork is no longer good enough when margins tighten.

3. Review your investment strategy
Consider whether to optimise short-term letting, switch to long-term rentals, reposition assets or redeploy capital.

Planning early gives owners choices instead of forcing reactive decisions later.

Industry insight

‍Nick Taylor, Managing Director of Nox Cape Town and board member of the South African Short-Term Rental Association (SASTRA), has been engaging with policy stakeholders.

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“This is less about regulation and more about protecting net yield. Owners who understand their performance data and optimise early will always be better positioned,” says Taylor.

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He adds that demand for Cape Town accommodation remains strong and supply pressures could ultimately support higher achievable rates for well-managed properties.

Why professional management matters now

As fixed costs rise, performance gaps between professionally managed properties and self-managed units become more visible.

Professional operators use real-time data, pricing optimisation, demand forecasting and operational efficiencies to protect occupancy and margins.

Owners relying only on instinct or outdated pricing strategies risk seeing returns deteriorate quickly under new cost conditions.

Looking Ahead

Final announcements from the City of Cape Town and the Department of Tourism are still pending, but the direction is clear: operating environments evolve, and investors who adapt early preserve value.

Demand for Cape Town remains strong, and well-positioned properties should continue to perform if owners adjust pricing, management and strategy proactively.

The real question is not whether change is coming, but whether investors are prepared to respond intelligently.

Call to action

‍Property owners should now review their property performance and explore optimisation strategies.

For professional guidance, owners can engage with Nox Cape Town for performance-driven property management or connect with SASTRA for industry support and insights.

Early action today protects tomorrow’s returns.

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