The City of Cape Town has unveiled its budget for the 2025/26 fiscal year, but their squeeze on the middle class through property rates and utility levies has created pushback.

With a steep rise in tariffs for the middle class, and subsidies for the poor, as well as extensive informal settlement upgrades and formalisation, the City is setting up market incentives which attract the least-productive, and chase away skilled workers.

Johannesburg has already seen a trend reversal, and even the Eastern Cape is starting to see positive middle- and upper-class semigration trends.

‍

Budget fuss

Total expenditure is set to rise from 76.6 billion rand in 2024/25 to 84.1 billion rand, an increase of nearly 10%. To finance this expansion, the City attempted (under the previous budget cycle) to push for electrical rates above the national standards set by NERSA. With that attampt blocked, they have tried to redistribute these price hikes across other rates and utilities instead of cutting costs.

Historically, the city’s Electricity Department has transferred 10% of its revenue to subsidise the Rates Department, a practice long criticised as opaque and inefficient. This cross-subsidy has now been eliminated. The move is advertised as enabling a modest 2% increase in the electricity consumption tariff for 2025/26, while significantly reducing the unregulated portion of the tariff that had previously exceeded guidelines set by the National Energy Regulator of South Africa (NERSA).

The City has been suing NERSA for the right to charge over the rates prescribed by the national regulator, but while they await the outcomes of their appeal, the elimination of the cross-subsidy remains an effort to align more closely with regulatory norms.

But Sandra Dickson, a longtime critic and activist in the City, has taken issue with the inaccuracy of the City’s tariff calculator which they advertise as a transparent means for finding out what residents owe the metro:

“Dear Mr Mayor,
You talk about the 2% increase on Electricity tariffs. However, no evidence of it is found using the COCT Calculator.
Even Lifeline Customers are slapped with a 9.88% tariff increase. See COCT supplied Table below.
For the REGULATED tariff for the Home User tariff a sneaky 6.5% increase crept in.
WE SEE YOU - 2%???”

Moreover, this is compounded by a sharp rise in the Home User Charge for electricity, which jumps from 245.03 rand to 339.89 rand—a 38.7% increase.

The Rates Department, now deprived of its electricity subsidy, faced a substantial shortfall. To compensate, the property rates factor for residential properties will increase by 7.96%, a figure notably above the consumer price index (CPI). This adjustment places additional pressure on homeowners, particularly those with properties valued above 1.5 million rand, a threshold that recurs across the budget’s new measures.

Water and sanitation tariffs are being hiked. The so-called “Pipe Levy” has been replaced with a fixed water charge linked to property value, resulting in steep increases for higher-value homes. Similarly, a new fixed sewerage charge, also tied to property value, has been introduced. The city contends that a concurrent reduction in the sewerage tariff offsets this cost, but for properties valued at approximately 2.8 million rand with monthly water consumption of 9 kilolitres, sewerage costs will rise by 34.8%.

Perhaps most contentious is the introduction of a “City Wide Cleaning Tariff,” a charge scaled by property value and intended to fund street cleaning, litter collection, waste facilities, and subsidies for indigent households. For a property valued between R2.5 million and R2.75 million, this translates to R210.24 rand monthly, while high-end properties could face charges as steep as R12 000.

The city describes this as “equitable, affordable, and fair,” though critics, including the South African Property Owners Association (SAPOA), argue it constitutes an unauthorised tax, lacking legal grounding without approval from the Minister of Finance. SAPOA has flagged the 7.96% rates increase as unsustainable and inconsistent with National Treasury guidelines, while questioning the legality of linking water and sanitation charges to property value rather than usage, as prescribed by legislation.

The cleaning tariff, in particular, has been singled out as “especially problematic,” with SAPOA seeking urgent discussions with city officials to excise these provisions from the final budget.

‍

Flipping the magnet

The effect of these changes is that it dramatically disincentivises high-skill semigration, while attracting large amounts of indigent and dependent migrants by facilitating land invasions with an expanded housing budget for informal settlement upgrades.

Cape Town has been known for its traffic congestion, and rising living costs, driven by an influx of residents from Johannesburg and other collapsing metros. Property prices have surged 25% over the past five years, according to Lightstone data. This contrasts with Johannesburg, where prices have risen by a more restrained 12%.

But experts note a nascent reverse migration among professionals and investors seeking value. The city’s new budget, with its reliance on fixed charges disproportionately affecting higher-value properties, may accelerate this trend, testing the resilience of its ratepayer base.

Cobus Odendaal, chief executive of Lew Geffen Sotheby’s International Realty in Johannesburg and Randburg, reports growing inquiries from individuals returning from Cape Town, particularly for properties at the upper end of the market. Lightstone’s 2024 data underscores this shift, with suburbs like Bryanston, Morningside, and Steyn City featuring prominently in high-value sales bands.

The escalating cost of living and infrastructure are a big part of the picture, with recent migrants to the Cape seeking property in outlying towns like Paarl.

For those who fled Johannesburg’s catastrophic collapse to reject the costs of living in Cape Town is a major red flag. Property in Johannesburg remains comparatively affordable, and the size of the economy in Johannesburg remains a draw. It still contributes nearly 16% to South Africa’s GDP and over 40% to its business services output.

Odendaal attributes the trend to a recalibration of expectations. The end of remote work, once a lifeline for Cape Town’s lifestyle migrants, is also losing its shine. Cape Town’s property market is now regarded as overheated.

By betting on a continuation of existing trends, there is also the possibility that the City may be setting itself up for failure if and when trends reverse. Infrastructure projects and loan commitments, including R3bn from Germany and R2.8 bn from the World Bank, both totaling nearly double that in full repayment value, are stretched over a number of years.

The semigration trend is not a fluke - it really is better in the Cape for a variety of reasons. But reliance on tourism, foreign investors, and remote workers is a castle built on sand. Unless the City can cut costs, or drive up local manufacturing and middle class wages, they risk losing the trajectory required to sustain their increasing profligacy.

If the tide turns while their liabilities are still overhead, it will turn hard.

‍