Budget 2026: the detrimental effects of increased taxes on the property value chain

The persistent and excessive increases in property taxes add upward pressure on the inflation rate, resulting in adverse consequences for the broader property value chain. 

This leads to a reduced investment in the property sector in the country, says Neil Gopal, CEO at the South African Property Owners’ Association (SAPOA). 

He says these consequences filter through to the end consumer, raising inflation as a result.

SAPOA, a member-driven, not-for-profit company operating in the commercial and industrial real estate sector, strongly urges Finance Minister Enoch Godongwana to take action.

SAPOA calls for the allocation of sufficient resources to local government to curb persistent, above-inflation property tax hikes. Additionally, it insists that measures must be implemented to ensure that local government responsibly manages both the allocated funds and any other income it receives, preventing waste.

“For many years, the National Treasury has published guidelines to municipalities regarding their annual budgets. It is a standard feature of these guidelines that municipalities are advised that increases in municipal tariffs and property taxes should not be more than the CPI inflation rate, and that any increases that are higher, should be properly motivated.

"In practice, however, no municipality, to SAPOA’S knowledge, adheres to these guidelines. SAPOA has seen evidence where these above-inflation increases are not questioned by National Treasury during its review of municipal budgets,” Gopal says. 

Godongwana will deliver the 2026 Budget on Wednesday, February 25.

Sufficient funds for local government 

SAPOA, representing South Africa's commercial property industry and some of the country's largest ratepayers, urges Minister Godongwana to address specific issues in the National Budget.

It calls for the allocation of sufficient funds to Local Government to reduce the necessity for excessive property rate increases, the introduction of appropriate monitoring and compliance measures for municipal budgets, and a specific mention in his budget speech of the impact these excessive price increases have.

A rise in municipal costs will invariably hit the end consumer 

The continued rise in municipal costs over the past decade and more, which has consistently outpaced inflation, has had a significantly detrimental effect on the costs of occupancy faced by tenants in commercial properties, and on the operational viability of these commercial buildings, to the detriment of the property owners, Gopal says.

“When the costs rise for both landlords and tenants, these costs are invariably passed on to the end consumer.” 

As a result of its concerns regarding the consistently above-inflation increases in municipal costs, SAPOA commissioned Oxford Economics during 2023 to study the socio-economic impact of property rates in South Africa. 

The purpose of the report was to perform an investigation in terms of section 16 of the Local Government: Municipal Property Rates Act, 6 of 2004 (“the MPRA”) and to ascertain whether the continuous increases in property taxes are affecting national economic policies, economic activities across borders, or the national mobility of goods, services, capital or labour, to present evidence to the COGTA Minister as required by section 16 (3) of the MPRA.

Impact of above-inflation municipal costs increases 

The report’s main findings include, inter alia, the following:

• Real investment in non-residential buildings has been declining since 2018.
• From 2010 to 2021, the cost of water and property rates rose by 140.00%, almost double the rise in the general price level.
• Persistent and excessive increases in property taxes add upward pressure on general prices, and such cost increases hold adverse consequences for the property sector and the broader value chain, i.e. suppliers and consumers. In this regard, CPI inflation serves as an appropriate benchmark to gauge whether property taxes have increased excessively.
• Between 2010 and 2021, municipal property rate income rose by 174.00%, nearly 2.5 times the increase in inflation over that period. During the same time, municipal expenditure rose by 165.00%, which is significantly higher than the rise in national government spending at 128.00%. Accordingly, property rate increases are excessive, and have increased substantially, with rate payers being faced with cost increases that are well above the general inflation rate.
• If municipal property rate increases continue on their current trajectory, it will lead to real GDP losses, and the number of jobs supported in these municipalities will also decline.

The report further indicates that these excessive property rates adversely affect households, as the higher occupancy costs faced by retailers are often passed on to the consumer. The increases also increase job losses and negatively impact national economic policy.

Call for absolute policy certainty and highly functional local governance

However, for commercial real estate to act as a sustainable engine for national economic growth and urban regeneration, the sector requires absolute policy certainty and highly functional local governance, says Joanne Solomon, CEO, SA REIT Association. 

SA REITs, as an investment class, both locally and internationally calls for: 

• Fiscal discipline and debt stabilisation: We expect the Minister to deliver a credible framework proving that national debt has peaked. Improved tax revenue collections through administrative efficiencies must be utilised to consolidate sovereign debt and avoid any shock increases to Corporate Income Tax (CIT) or VAT. This approach will allow the Reserve Bank the macroeconomic room it needs to continue the interest rate cutting cycle, which directly relieves pressure on the broader economy.
• Next-generation renewable energy incentives: With the highly successful Section 12BA accelerated depreciation incentive having expired in early 2025 and Phase Two of the Carbon Tax set to aggressively escalate operating costs, a noteworthy policy vacuum exists. We urge the implementation of a permanent tax incentive framework that extends beyond basic solar PV to include accelerated write-offs for Battery Energy Storage Systems (BESS) and clear tax treatment for EV charging infrastructure.
• Finalisation of unlisted REIT legislation: We look forward to the formalisation of the Draft Notice under Section 25BB of the Income Tax Act. If finalised with the real estate investment trust (REIT) sector’s practical recommendations regarding revenue definitions, this legislation will allow vast pools of institutional capital to invest significantly in tax-efficient real estate vehicles. This will unlock billions for development without equity market volatility. 

Catalysing stakeholder confidence

The association says to put the real estate investment trust (REIT) sector and its stakeholders in greater stead, Minister Godongwana must state unequivocally that national economic recovery cannot happen without local government discipline.

“He must assure investors that the National Treasury will enforce strict financial guardrails on failing municipalities and redirect conditional grants specifically to repair the bulk water, sanitation and electricity networks that our commercial hubs rely upon.” 

Furthermore, the Minister must explicitly recognise the real estate investment trust (REIT) sector as a vital, highly capitalised partner in South Africa’s energy transition.

By announcing that the government will match the private sector’s massive investments in green infrastructure with modernised, long-term tax incentives, he will send a definitive signal to global capital markets that South Africa is open for sustainable, long-term business.

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