Notes from the Streets
Asset-Rich, Cash-Poor
…or a short take on the ongoing debates around Cape Town’s property taxes.
Displacements seem to carry far more political weight in South Africa’s post-Apartheid cities. When long-standing communities are pushed from their homes—whether by urban renewal, private development, or rising costs—the echoes of Apartheid-era forced removals are immediate and quite noisy, usually clubbing together numerous simmering woes into a cacophonic litany of sorts against the powers that be.
This is the context in which the current discourse surrounding Cape Town’s recent experimentation with property rates should be read. Local newspapers started running columns (for example) on how the City is extracting revenue from those who can’t afford it, rallying vocal citizen activists of a certain political leaning. Certain global media houses also picked up the story, linking it to another phenomenon that’s been attracting negative coverage for a while now, i.e., the evils of AirBnB (for example).
The grievance is clear. Municipal rates in Cape Town—levied as a percentage of assessed property value—have risen sharply as the city’s property market has been transformed by foreign capital, a short-term rental boom, and concentrated high-income in-migration. And this is pricing communities out of their generational houses.
One of the most visible sites of this ongoing conflict is the Bo-Kaap region, the historic Muslim quarter on the slopes of Signal Hill, where multi-generational residents find themselves owning assets valued at millions of Rands, while their household incomes—from pensions, lower-wage employment, or informal work—have lagged far behind. The tax bills that follow the (re-)valued properties are, for many, unpayable.
[Aside: This Bo-Kaap story is not new. It has been simmering since the 2010s (for example); and is being “rediscovered” within this current boil-up. Another side story is needed to talk about such short-term memory loss in both policy/state action and civil society led activism. For later.]
The civil society’s ask has been more or less as can be expected: get the city to cap or suppress property valuations so that tax bills are manageable. A quick and visible fix.
The City is trying to justify its actions, and trying to assuage the activists that they are responding by creating needs-based categories of households who get some form of rebates. Invariably, this promptly led to claims from the civil society that they are not identifying the affected households properly.
The ensuing blame game continues. As classic a case of chicken-and-egg as ever.
But let’s take a step back.
It helps to locate municipal property rates within the broader debate on taxing wealth (a very fashionable topic these days). Economists from the Piketty school have documented how, in most advanced and many developing economies, returns to capital have outpaced wage growth, concentrating wealth among asset-holders while squeezing those who depend on labour income. The standard prescription is to tax wealth directly, through net wealth levies, capital gains taxes, or inheritance duties. But these instruments face a fundamental enforcement problem: capital is mobile. It flows to favourable jurisdictions. Wealth can be restructured or offshored with relative ease.
Real estate is different. A property on the slopes of Signal Hill cannot be moved to Mauritius or Abu Dhabi. It has an address. It exists in a cadastral register. It is, in essence, simultaneously the most visible and the most enforceable form of private wealth.
Municipal property rates should therefore not merely be looked at as a local government revenue tool. There is a larger (dare one say) moral dimension. Properly designed, they are probably one of the most efficient and progressive mechanisms for returning some portion of asset appreciation to the public fiscus. Cape Town has been moving, somewhat belatedly, in this direction. London did so some time back. So has New York City, which recently established a levy on high-value secondary residences.
The direction, arguably, is right.
In my opinion, the problem in Cape Town is not the principle of the levy. It is a structural feature of how asset wealth and income have diverged in the city’s historic neighbourhoods. A household that purchased a home in Bo-Kaap in the 1980s for R80,000 may today hold an asset worth R4 million. In the article linked earlier, there are cases of households owning ocean-facing property worth R7 million. On paper, these households are wealthy.
The problem is that their cash flow has not kept pace with what that paper wealth implies, and the monthly rates bill—which must be paid in “liquid” rands—bears no relationship to what their income can sustain.
This is, essentially, a liquidity problem.
The household holds a highly illiquid asset, a home they live in, that cannot be partially sold. Add to that the sociocultural dimensions that civil society keep trying to remind everyone about, the costs associated with a sense of family history and community belonging.
[Aside: it might be worth exploring whether these sociocultural costs are higher in neighbourhoods that keep appearing in public discourse, compared to other neighbourhoods. Is the pricing out phenomenon so localised?]
But there is a liquid financial obligation that scales with its market value. This liquid obligation is linked to income, which in turn is linked to prevalent economic conditions, which is not doing too well.
So this is not a flaw in the concept of wealth taxation. At best, it could be argued that it is yet another example of an intent vs. application mismatch.
I personally feel that the first order problem in Cape Town is the bundling of wealth-linked rates with consumption-linked service charges (e.g., water, sanitation, refuse collection) in a single municipal bill.
The moral and economic logic of these two components is, I feel, entirely different. A rate on property value is, conceptually, a charge on appreciation partly created by public investment in public infrastructures.
A service charge is a payment for consumption of services built on public infrastructures. Combining them in a single escalating bill makes the whole package feel punitive, and gives opponents the political ammunition to reject the legitimate wealth component alongside the consumption one.
But what is the direction being proferred by the civil society at large? Suppressing property valuations, or imposing blanket rate freezes.
This might feel like protection for the vulnerable, but in practice, it is a subsidy that scales with property value. The owner of a R15 million Clifton apartment benefits more, in absolute terms, from a valuation cap than the owner of a R1.2 million Bo-Kaap home.
On this side of the discourse, I personally defer to the City’s argument. Subsidies/rate freezes will, in all probability, cut a massive revenue source for the municipality. And such sustainable revenue streams are needed. Consider the local context where 168/257 municipalities were in financial distress as of 2022/23, triggering bailout packages from the central government. In the global context, the general discourse is the need for cities to find ways to fund themselves. In both these contexts, is it not great that a city finds some sustainable revenue streams to continue investing back into the city?
The problem, of course, is to better target where such money is spent. Public investments into more disadvantages areas (e.g, the Khayelitshas, the Mitchells Plains, the Delfts), where infrastructure backlogs are highest and the Apartheid-legacy most visible, are critical and should be prioritised. But better targetting of public investment is a global, and continuing, problem—a tangent that has no easy solution.
…coming back to rate freezes. In all likelihood, such a policy will starve the municipality of a steady source of revenue. And there is evidence from cities in North America that support this: rate freezes/subsidies remove the fiscal signal that discourages land hoarding and speculative vacancy. In effect, they would do nothing to distinguish the multi-generational resident from the overseas investor who bought a flat in 2022 and listed it on AirBnB.
A valuation cap is a blunt instrument deployed to solve a targeted problem. Its collateral damage, in my opinion, is substantial, and much of it falls on the communities that the policy claims to protect.
So what can be the solution?
First and foremost, unbundle the property tax and consumption charges, like how it is done in most Asian (and many European) cities. This would immediately signal to the population what they are paying for. Following this, separately go into solutions that target wealth, along with the liquidity problem, and consumption of services/infrastructures.
On the consumption side, I personally do believe in a market-pricing mechanism. People should pay for what they use. And people should realise the costs associated with providing them with the services/infrastructures they use. If there are subsidies on prices, they should be well-defined. For example, subsidies on public transportations make perfect sense. But subsidies on water and electricity in a context where there is severe scarcity is tone-deaf. The current progressive pricing model works. (On this, have people forgotten the day zero scare already? Or loadshedding? Public memory, anyone?)
[Aside: Unbundling, in the South African context, is probably a lot more challenging politically as well. There is a tendency to build super-agencies here, a Mordor-esque one-firm-to-do-them-all type behaviour. As well as an over-realiance on the State. Coming from India, I find this trait particularly disturbing, to put it mildly. But being realistic, maybe “unbundling” can even be in the manner in which the city sends invoices—separate them, one for tax, one for consumption.]
Following the unbundling, one could borrow from the well-established American model of the property tax “circuit breaker”. In essence, this would be a tax deferral mechanism. Qualifying long-term owner-occupants would defer a portion of their municipal rates obligation. The deferred amount would be registered as a lien against the property title. It would then be recovered, with modest interest, when the property is eventually sold or transferred. In doing this, the resident is not displaced. The municipality maintains its revenue claim. The asset appreciation and tax obligations thereof are realised at the moment when liquidity is available.
Eligibility would need to be defined tightly. Length of continuous residence (say, 20-30 years or more). Owner-occupier status. Not second homes or investment properties. A household income threshold. Exclusion of those who hold short-term rental registrations. Such a mechanism would specifically protect the asset-rich, cash-poor long-term resident, while denying the same relief to the speculative investor.
This is not a theoretical proposal, there is established precedence. Roughly thirty American states operate some version of a property tax deferral scheme; Massachusetts has had one since 1977. The evidence from these programmes is that they are fiscally self-sustaining over reasonable time horizons. The lien is recovered in full when the property eventually sells, and that well-targeted eligibility criteria successfully distinguish the vulnerable long-term resident from the investor.
No denying that there needs to be finetuning to fit the needs of the local context here, but the models and the evidence exist. How does one go about implementing it?
In the end, there’s no denying the legacy of Apartheid-era spatial planning. The concentration of amenities, infrastructures, and environmental quality in a narrow corridor of the city (the Atlantic Seaboard, the City Bowl, the Southern Suburbs), while the Cape Flats carries the accumulated deprivation of decades, is not an accident. It needs to be righted.
But at the same time, one cannot be in denial of the benefits one has gained from the ongoing model of economic development that seems to be working for Cape Town (at the moment). Property prices have increased at above inflation rates, thus actually improving the wealth of households, arguably much more than other cities in South Africa. The city also has public infrastructures that work and are maintained quite well, when compared to other South African (and global South) cities. There is a virtuous cycle to be cognisant of here. There’s no denying that there are a number of frustrations to account for; the asset-rich/cash-poor duality is real, but it’s not as if people have not gained. People have become wealthy, even if only on paper.
Unfortunately all this is seems to be happening in a disconnected bubble. The larger South African economic outlook is not doing too great, if one is being honest. And the Cape Town bubble is strongly connected to floating foreign capital. And floating foreign capital is temperamental (if one learns from recent outflows from London real estate, for example), for all one knows, a more fashionable (dollar-affordable) city might pop up soon and all the money starts moving there. So is it not better to realise the gains from the boom while it exists?
This connects to another issue here, in my opinion: Cape Town is not being able to leverage the current foreign cash towards long-term gains. Are the floating populations staying back beyond the 3-4 months that the on-arrival visa (with low-cost extension) allows them to? Are the techie remote workers setting up a permanent office with local employees?
My personal pessimistic/cynical self gives the current boom, at best, another decade. What happens at the end of it? Once the more fashionable parts of the city reach the prices of the European city which has better infrastructures (and is able to support new businesses better), where would the well-heeled prefer to be?
From a household perspective, maybe there needs to be some personal initiative to get in on the real estate market? Realise the wealth that has been generated on paper?
This is a very long shot, but maybe there’s also the case for entrepreneurship to be made here, learn from the Delhis, the Dubais, and the Dohas, as it were. Set up partnerships with the floating dollar-rich remote workers to work around regulatory frictions, employ locals. Realise broader economic gains from the current foreign cash flows.
But for all this there are broader economic/regulatory frictions that need to be tackled. Lots of researchers are talking about how difficult it is for a small firm to grow in South Africa, how much control existing firms hold. So all this talk of leveraging current cash flows is not an easy ask. And quite frankly, possibly requiring a time horizon that extends far beyond the horizon by when the foreign money will leave.
Update, 2 May 2026: As expected, the civil society landed up in court against the City of Cape Town’s property rates model, and the court ruled against the City. While I personally found the tone of the judgement particularly harsh, given my views on the need to think about property tax as a wealth tax, it does pick on the problem of bundling consumption charges with property rates that I wrote about in the main post above. Being a casual follower of legal processes, I am sure this is going to go further up the judicial ladder through the appeals route—-just hope that it results in refining the instrument rather than returning to the status quo. People need to realise that they have become wealthy, and that there is a moral dimension to paying taxes on that wealth. Anyhoo.