Ratepayers hoping for some relief in tariffs following the drop in property values by some 20 to 25 percent shouldn't hold their breath, as the City of Cape Town says "someone has to foot" the budget shortfall.

The city is to have a meeting at the end of the month to determine the rate tariffs increase. Last month news reports said the increase could be as much as 11.5 percent after a R100-million shortfall was created by changes to the national government's grants allocation during the budget speech.

The city's chief finance officer Mike Richardson explained that even though property values had decreased, rate tariffs "will not go down".

He said the change in property values did not change how much the city needed to collect in rates to deliver services.

A fresh property evaluation would be conducted next year. "While all values have come down, this has happened more so for some property owners than for others. Change in values will determine property owners' share in contribution. This could see some paying less, but someone has to pay. There's a meeting at the end of the month and the increase would be around inflation."

The chief executive of the Alliance Group Rael Levitt said house price deflation across the board was around 20 to 25 percent. The residential property market was now in the third quarter of a technical recession and the slide was now generalising into all parts of the market and had intensified since November. "Despite sunny optimism from many residential agencies, the reality of the housing market is that it is going through a startling downward correction."

The triggers included last year's interest hikes, banks being more cautious about granting home loans, a worldwide landslide in the housing sector and forced sellers putting properties onto the market - causing a knock-on effect on prices and an oversupply of residential property.

The Alliance Group Distressed Asset Index tracks mortgage stress, which it has defined as mortgage holders being in arrears for two months or less. These figures have sharply increased from 75 000 in the third quarter of last year to 130 000 in the last quarter of the year.

The rapid escalation of those in mortgage stress has picked up pace into this year, despite interest rate cuts, and they expected some very poor results in the first quarter of this year. More concerning, said Levitt, was severe mortgage stress where bondholders were over four months in arrears.

"According to the Distressed Asset Index, 80 percent of bondholders who are in severe mortgage stress will most likely have to sell or lose their homes either voluntarily or forcibly."

Approximately 1 200 houses a month are being sold forcibly through legal channels.

Property valuer Peter Meakin, who spoke out against inequity of valuations in 2006, said in the July 2006 valuation roll one half of the city had been undervalued by 33 percent while the other half was overvalued by the same margin, according to an audit by Professor David Solomon.

This meant that if the average value of a house in Cape Town was R800 000 at the valuation date then the average rates payment for such a house was now between R2 200 and R4 811 a year after rebates.

"An 11 percent increase in 2009/10 would mean that the under-valued houses would have to pay an average of R242 more while the others would pay R530 extra across the board. Houses in Bishops Lavis are subsidising some in Bishopscourt."

He added: "The Mad Hatter would not consider doing a new valuation in the middle of a slump, not just because the tariff will have to increase by 25 percent to keep the same revenues but because there will be even fewer comparable sales to use. In 2006 only 4 percent of houses were actually sold. They each had to inform the valuation of twenty five other, unsold, houses."