The value of your home only partly depends on is location, size and the quality of all its fittings and fixtures. It also depends crucially on the quality of the services provided by your local municipality. By how much they charge for services they deliver or fail to deliver and how much of a wealth tax they impose for your right to own. The better the services provided the more valuable will be your home. And the more you are charged the less the home will be worth to others for any services provided. Negative feedback effects on home values are painfully apparent to home-owners in most parts of the country. The real value of homes of all kinds and types are falling because of the growing in-balance between what is being extracted by municipal governments compared to what they deliver.
But not in Cape Town. Where service delivery is holding up well, as are home values. The difference between what you get for a home or apartment owned or rented in Cape Town and in the other major urban centres is strikingly wide. Despite the charges levied by the City that have been rising well ahead of inflation. In 2010 Rates collected by the city were R3.84b. By 2020 these had grown to R10.08b, that is at an average compound rate of growth of 8.8% p.a. Well ahead of inflation that averaged about 5% over the period. Evidence surely of more valuable real estate. Revenue from electricity water etc compounded from R8.7b to R19.8 at an average rate of 7.5% p.a. over this period. They took a knock from Covid, declining by R329m in 2020. Which begs a question – what is the present value of a predictable income stream of R10b growing at a real 3% p.a? Perhaps twenty times current revenues or possibly R200b. It is this potential value that secures any borrowing the City or any city might want to do to support its growth with well-designed and honestly executed capex.
The City of Cape Town does however have a spending problem. It has spent far too little on its infrastructure over many years now. Capex (PP&E) was R4.7b in 2010 and only R6b in 2020. Capex in Cape Town has been declining in real terms by about 2.5% per annum on average. Surely not nearly good enough to support and encourage a growing metropole and its property values.
The result is a very strong City balance sheet. The financial assets on the 2019 CTC balance sheet, cash, other financial assets less debts meant net financial reserves of a positive R10.1b. The equivalent amount on the 2015 balance sheet was a mere R2.3b. Debts have remained constant at about R6b since 2015 while cash reserves grew from R3.2 to R8.4b. It is a build-up in financial strength that should be hard to justify to property owners and residents. Perhaps it is the self-evident hopelessness of the potential competition to run the City that explains such parsimony. The reserves did come in useful in 2020. The City had budgeted to raise an extra 2.5b in debt in 2020. It did not have to do so. It drew down its cash reserves by R2.6b still leaving it a large cash pile of R5.8b.
The City is now realistically budgeting for a significant increase in its capex. It plans to increase its capex to over R11b in three years. To be funded in part by an extra R7b of debt that will cost the City a very manageable net financial charge of 573m in 2023-4. Cash reserves nevertheless are planned to increase to R9b by the end of the three-year planning horizon. I would suggest that the City urgently needs help with its capital expenditure problem. It should partner closely and usefully with the businesses that could help plan and undertake the spending programmes.
Voters at the next municipal elections should choose their mayors and councillors on local not national issues. Essentially by what they can be expected to do to protect, perhaps even enhance, the value of their highly vulnerable homes.