Short-Term Rentals Under the Spotlight: What New Regulations Mean for Property Rates
A recent article published by IOS (Independent on Saturday) examined the implications of a Draft Code of Good Practice for South Africa’s short-term rental (STR) market. If adopted, the Code will standardise regulations and require short-term rentals to comply with rules similar to those applicable to hotels and guesthouses. (Source: IOL)
This article focuses on the property rates implications for properties used for short-term rentals, typically operated through platforms such as Airbnb.
The Core Legal Problem
The MPRA defines residential property as one “in respect of which the primary use is for residential purposes” – but immediately qualifies this by requiring the definition to be read without derogating from section 9, which governs multipurpose use.
This is not a minor technical detail. Where a property is used partly for residential purposes and partly as a commercial accommodation business, it should properly be assessed as a multipurpose property, with the Municipal Valuer apportioning value between the different uses. Treating a full-time Airbnb operation as purely residential misapplies the MPRA.
The hospitality industry has long complained about this anomaly. Brett Tungay, National Chairperson of FEDHASA, put it bluntly: “Hotels must pay commercial rates and taxes. We have to carry public liability insurance and comply with health and safety regulations. Short-term rentals pay residential rates, no taxes, no commercial compliance.” (Source: IOL)
Cape Town’s Policy Framework Points the Way
The City of Cape Town’s Rates Policy 2025/26 already grapples with this tension.
The Policy defines “Commercial Accommodation” as a property used for providing accommodation that is not being used as a primary place of residence, or where more than 40% of a primary place of residence is used or available to provide accommodation to temporary visitors at a fee. This expressly includes guest houses, self-catering establishments, bed and breakfast operations, and residential apartments forming part of a hotel rental pool.
This definition draws a clear line: once a property crosses the 40% threshold, or ceases to be a primary residence, it falls outside the residential category and into commercial accommodation. The consequence is significant: commercial properties attract a rates ratio of 1:2.41 relative to the residential base rate, while residential properties benefit from a R620,000 reduction on the rateable value and pay at the base ratio of 1:1.
The Policy also defines “Residential Property” as one used predominantly (60% or more) for residential purposes. This 60% test mirrors the section 9 multipurpose framework and reinforces that properties straddling residential and commercial use cannot simply claim the lower residential rate across the board.
The Practical Challenge
Cape Town is already moving towards enforcement. The City has indicated that it will introduce a by-law requiring short-term rental platforms to provide listing data. It has proposed that properties available for short-term letting for more than 60% of the year — and listed as the entire property — will be reclassified to commercial tariffs, potentially increasing rates by around 135%. (Source: EWN)
With roughly 70% of residential units in Cape Town’s CBD either hotel-managed or listed on Airbnb, the scale of the issue is clear. (Source: Property Professional)
The question facing municipalities is how to operationalise the distinction between an owner supplementing their income by occasionally renting out a room and an investor running what is, in substance, a hospitality business.
What Municipalities Must Do
The Cape Town rates policy model provides a useful template. Other municipalities will need to:
- Define “commercial accommodation” clearly, including the threshold at which residential use tips into commercial use;
- Apply the MPRA’s multipurpose framework (section 9) rigorously, requiring Municipal Valuers to apportion value where a property is genuinely dual-use;
- Establish mechanisms — whether through platform data-sharing by-laws or self-declaration processes — to identify properties that have effectively ceased to be primary residences;
- Communicate clearly that the residential rebate and value reduction do not apply to properties classified as commercial accommodation.
Opponents of tighter regulation argue that many hosts are not wealthy investors. A 2025 survey found that 80% of hosts are female, 52% are non-white, and 70% are not employed full-time. (Source: IOL)
Municipalities will need to craft their policies with care, distinguishing between genuine small-scale supplementary letting and full commercial operations. The Cape Town policy’s 40% / 60% residential-use threshold offers one practical approach to drawing that line.
The regulatory direction is clear. The question is no longer whether short-term rentals used as commercial businesses will be rated as such, but when — and how precisely – municipalities will implement the framework that the MPRA already provides.