Short-Term Letting And Your Municipal Rates in Cape Town: What You Need to Know
Category Advice
When considering a change in use of your residential property from long-term to short-term letting, it's crucial to understand the impact this change could have on your rates obligations. The City of Cape Town's rate policy applies a 'business and commercial' rating tariff to properties used for short-term letting, which can more than double your rates bill.
Understanding Short-Term Letting
Short-term letting, colloquially known as 'Air BnB' rentals, involves leasing out your property for short periods, typically under 30 days. This has become increasingly popular in Cape Town, attracting tourists looking for affordable and flexible accommodation. These rentals generally rely on marketing through well-known platforms such as Air BnB or Booking.com, which is accessed by potential guests. The City of Cape Town is aware of these platforms and uses them to identify residential properties that are used as income-producing properties, ie. Short-term letting.
Impact on Rates
Policy Changes
The City of Cape Town's rates policy, which is amended annually, specifies that residential properties attract the 'residential tariff' (currently 0.006273). The 'business and commercial' rates tariff (0.014742) is applied to business properties, which is the category into which the City of Cape Town puts properties used for short-term letting.
Financial Impact
Switching to short-term letting can significantly increase your rates bill. The non-residential tariff is more than double the residential rate, leading to significant increase in property-related expenses. As a example, the monthly rates obligation for a property with a municipal value of R5 100 000 could go from R2 666 to R6 265 should the City of Cape Town be made aware of a change in your property's use. Read our previous article on how to calculate your rates amount.
Making an Informed Decision
Before switching to short-term letting, consider the following:
- Review the latest Rates Policy: Understand the rates structure to make an informed decision.
- Evaluate the Financial Impact: Calculate potential rates increases and compare income from both letting types.
- Consider the Requirements: Short-term letting involves additional administration, which should be factored into your decision.
Changing the use of your property can have significant implications, especially regarding rates. By understanding your local municipality's Rates Policy and considering the financial and administrative impact, you can make an informed choice that aligns with your property investment goals.
Author: Nina Vass