The City of Cape Town is proposing new by-laws to ensure short-term rental properties operating as commercial businesses pay the correct municipal rates, in a move that could significantly increase costs for thousands of property owners.
Under the proposed Short-Term Letting By-law, properties primarily used for short-term accommodation would be required to pay commercial rates rather than residential rates, bringing them in line with hotels and guesthouses.
The City estimates Cape Town has more than 25 000 Airbnb listings across various platforms, making it one of the largest short-term rental markets globally – comparable to cities like New York and Amsterdam.
Compliance, not new taxation
The City emphasised the by-law represents improved compliance with existing policy rather than new taxation. “All premises primarily used for commercial accommodation businesses (including short-term letting) are required to pay commercial property rates under the City’s existing Rates Policy,” the municipality said in a statement.
Mayor Geordin Hill-Lewis has described the policy as addressing unfairness in the current system, stating that short-term rentals operate as decentralised hotels and should pay equivalent taxes. “We are correcting the imbalance in taxes,” he said, emphasising that operators should not receive residential rate benefits while running commercial enterprises.
The proposed changes would not affect primary residences that occasionally offer short-term letting, with residential rates continuing to apply to these properties.
Grant Smee, CEO of ONLY Realty Property Group, supported the move. “I think it’s just about compliance, really, and it is a correct step from the city,” Smee said in an interview with Cape Talk.
Significant cost implications
Property experts estimate the reclassification could increase municipal rates by approximately 135% for affected properties – more than doubling current payments for many owners.
“That’s going to have an impact; their nightly rates will increase,” Smee warned, suggesting costs would likely be passed on to visitors.
Nathan Scott from Primenest Realty described the policy as “a line in the sand”, noting that Cape Town was signalling “the era of treating full-time short-term rentals as residential properties is coming to an end”.
“If you operate like a hotel, the City wants you taxed like one. Whether this fixes housing pressure or reshapes the Airbnb market in unexpected ways – we’ll only know once it’s live, said Scott
Housing pressure concerns
The City’s motivation extends beyond tax compliance to addressing housing availability. Cape Town’s tight rental market has seen properties increasingly moved from long-term residential use into the more lucrative short-term market.
The hope is that higher commercial rates will encourage some owners to return properties to long-term rental pools, reducing pressure on locals seeking accommodation.
However, tourism bodies have expressed concern about potential negative impacts on the sector, arguing that short-term rentals support jobs, attract foreign spending, and maintain Cape Town’s competitiveness as a destination.
Market dynamics
Smee noted the substantial growth in purpose-built short-term rental accommodation. “A lot of developers have seen the opportunity to provide these studio flats, which, for normal living, isn’t ideal, but for the short-term market, it works.”
He estimated the city currently hosts about 30 000 short-term rental units across all platforms, representing a significant portion of the property market.
Smee emphasised that market forces would ultimately regulate supply. “If demand is no longer sustainable at a certain level, you will see properties re-entering the long-term market or going up for sale.”
Implementation timeline
The proposed by-law will undergo public participation before implementation, with full details including timelines to be announced following council processes.
The City has encouraged short-term rental operators not to wait for new measures but to approach the municipality now to ensure correct rate payments.
Smee stressed the importance of regulatory clarity for investors. “Making sure they get the regulations and by-laws passed as quickly as possible to provide investors with a view on their properties is probably the best advice.”
The City maintains its support for Cape Town’s tourism economy whilst arguing that all businesses should operate on equal terms regarding municipal rates compliance.
ALSO READ: Cape Town ratepayers brace for more hikes as new property valuations roll out
