What are municipal rates and how do they affect affordability

For years, South African homeowners watched one number to understand affordability: the interest rate. When the repo rate moved, buyers rushed to act, sellers adjusted prices, and homeowners recalculated their monthly repayments. 

Property decisions largely revolved around what the bank would charge you to borrow money. But increasingly, that isn’t the number catching new homeowners off guard.

Now more than ever, municipal bills are surprising new homeowners. 

For many homeowners, their first statements after moving in are an eye-opening experience when they realize that water, electricity, and other service charges can add thousands of rands to their monthly housing costs. In some households, annual tariff increases now exceed the yearly increase on the bond installment.

Ahead of the National Budget Speech, this shift matters. Affordability is no longer determined just by the banks; it is being shaped by municipalities.

The big shift: affordability has changed

For decades, property affordability followed a simple formula: purchase price, deposit, and interest rate determined whether you could buy a home. If the bank approved the loan, the assumption was that you could afford the property.

That assumption is now outdated.

Today, the real cost of owning a home includes municipal property rates, electricity tariffs, water and sanitation charges, service fees, and in sectional title schemes, levies. In practical terms, households are discovering a gap between bank affordability and lived affordability.

This is partly because municipal costs in many areas have been rising faster than wages and, in some cases, faster than house prices. National Treasury’s Local Government Revenue and Expenditure Framework shows municipalities rely heavily on tariffs and property rates as primary revenue sources, and tariff increases are built into municipal budgets annually.

What municipal property rates actually are

The most important thing to keep in mind is that your property rates are not based on what you paid for your home, but on what the municipality believes your property is worth.

Rates are calculated using the municipality’s valuation roll. A municipal valuer estimates what your property is worth for taxation purposes, and a tariff is applied to that value. This means your rates bill can increase even if you have not renovated, refinanced, or sold the property.

The legal basis for this system is the Municipal Property Rates Act (2004), which requires municipalities to conduct periodic general valuations. When new valuation rolls are published, property owners may object if they believe the valuation is inaccurate.

Rates are only one part of the bill, though. The real affordability shock often comes from service charges.

The costs buyers don’t calculate

A municipal account typically includes refuse removal, sanitation, water, electricity, and, importantly, fixed network or availability charges. These fixed charges are paid even when consumption is low because they fund the infrastructure that connects a property to services.

This is why many first-time buyers underestimate their true monthly housing costs. They budget for the bond repayment and insurance, but after the transfer, they discover the municipal bills add a substantial additional monthly expense.

Municipal tariff books, published annually by cities such as Johannesburg and Cape Town, clearly show that availability and service charges form a significant portion of household bills.

Why these costs keep rising

Municipal tariffs increase primarily because municipalities must pay for service delivery. They purchase bulk electricity from Eskom and bulk water from water boards, while also maintaining ageing infrastructure.

The Auditor-General South Africa has repeatedly reported maintenance backlogs in municipal infrastructure, and National Treasury notes that municipalities rely heavily on property owners to fund services. When national finances are constrained, local tariffs often increase to cover operational costs.

Electricity procurement is a major driver. Eskom tariff adjustments approved by the National Energy Regulator of South Africa (NERSA) directly influence municipal electricity prices.

Put simply, the costs of maintaining the country’s infrastructure flow directly into municipal accounts, and ultimately into homeowners’ monthly bills.

How this affects buyers, sellers, and landlords

Banks still evaluate affordability based on income and debt repayments, but buyers who haven’t done their financial homework before buying experience something different once they move in. 

Two homes with the same purchase price can have very different monthly ownership costs depending on municipal tariffs. Buyers are increasingly asking estate agents for municipal statements before submitting offers and showing interest in properties with predictable utility costs, solar installations, or prepaid services.

This is creating a new dynamic in the property market - monthly running costs are starting to influence buying decisions almost as strongly as the purchase price.

Sellers are also affected. High municipal costs can shrink the buyer pool because fewer households qualify for the total cost of ownership, even if they qualify for the home loan. This is why sellers should consider including realistic monthly running costs in their marketing strategy to ensure they draw the attention of serious buyers.

This also partly explains the trend towards the continued popularity of sectional title homes, where monthly costs are generally more predictable than fluctuating municipal bills.

Rental markets feel the impact quickly. When municipal tariffs rise, landlords’ operating costs increase, and many attempt to recover those costs through rent increases. But tenants have affordability limits.

More and more tenants are turning toward smaller, energy-efficient units, particularly apartments. This again reflects a broader trend: tenants are not only renting space, they are also renting predictable monthly expenses.

 Why the Budget Speech matters

While the national budget does not directly change your bond repayment, it strongly influences the financial environment in which municipalities operate.

The budget determines:

• municipal funding allocations

• infrastructure grants

• electricity support mechanisms

• and the broader framework for local government finance through the Division of Revenue Bill

Because municipalities depend partly on national transfers, funding decisions can affect tariff increases and service delivery costs.

The takeaway is simple: the budget may not change your home loan installment, but it can change what you pay every month to live in your home.

Practical homeowner advice

Before buying a home, request a full municipal statement and not just the estimated rates figure. Check whether the property appears on the current valuation roll and consider whether you may need to object to the valuation. Compare the running costs between freehold and sectional title properties and plan for annual tariff increases as part of long-term affordability.

We also suggest that you start living on the budget of a homeowner with the new bond repayment amount, monthly expenses, and creating an emergency fund as soon as possible - even before you buy a home. This will allow you to further see whether or not you are financially ready to buy a new home and also allow you to adjust to the new financial commitments.

As the Budget Speech approaches, homeowners should pay attention not only to interest rates and taxes but also to what it may signal for municipal finances. Because in today’s property market, the monthly cost of living in a home matters as much as the price of buying it.