South African Property Review November 2019

South African Property Review

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2016/08/25

November 2019

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REVIEW

The voice for the industry

Regional overview Nelson Mandela Bay

Human settlements

Three one-on-one perspectives Green building and the environment

GBCSA

Going beyond

Entrepreneur one-on-one

Giving life to planning

State of City Finances Cities and energy diversity November 2019

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Turn Over A New Leaf

from the CEO

The newly signed-off Property Practitioners Act: new broom sweeps clean or same old?

The Act, which was assented to 3 October 2019, revokes the 43-year-old Estate Agency Affairs Act of 1976 (Act No. 112 of 1976), and comes with a few “innovations”

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or one, the Estate Agency Affairs Board, which has long been derided as ineffective, is set to be replaced by the Property Practitioners Regulatory Authority, funded by the state, and property practitioners will be required to pay membership fees. The Act also puts in place improved monitoring mechanisms, including the requirement for inspectors to obtain warrants to enter premises.

In addition, the new authority will ensure that the Property Sector Transformation Code applies to all those property practitioners who are dealing with organs of state.

Finally, anyone in contravention of the Act will be required to repay any fees received from a property transaction. Furthermore, conveyancers may not pay any money to a property practitioner unless they receive a valid and current copy of the practitioner’s Fidelity Fund Certificate, which will help a great deal in rooting out illegal practitioners.

According to a statement by the Presidency, the property market in the country also stands to gain from the newly signed Act. But we are not without some reservations about aspects of it.

While the new authority will aid transformation and ensure that the

Property Sector Transformation Code applies to property practitioners who are dealing with organs of state, there is very little in the way of practical measures to do so in the Act itself, which makes no reference to assistance or incentives for the industry.

Adding to the uncertainty are the targeted levels of black economic empowerment in the industry, as the regulations on BEE in the industry have not yet been finalised. Whether this will further hinder transformation in the property sector or whether the Act will promote it is yet to be seen.

One of the initial concerns raised by SAPOA to the then-Act relates to the intention to regulate more stakeholders within the property industry as defined through the definition of a “property practitioner”, a term which is far too wide in the Act. Another “red flag” SAPOA highlighted centred around the listed property and unlisted property owners already being highly regulated.

If the property industry “stands to gain from the newly signed Act”, clarity on how the new Act will be enacted will only be evident once the regulations have been finalised.

Best regards, Neil Gopal, CEO SOUTH AFRICAN PROPERTY REVIEW

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contents

November 2019

PROPERTY SOUTH AFRICAN

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REVIEW

The voice for the industry

ON THE COVER GBCSA goes beyond by focusing on sustaining the “health” of the world and combating climate change.

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3 From the CEO 6 From the Editor’s desk 10 Legal update A snapshot of the Integrated Resource Plan 2019 16 Entrepreneur one-on-one It’s all about infrastructure 18 Reporting standards A case of the tail wagging the dog: how IFRS affects privately owned property developers 20 PE overview Limited growth 28 Human settlements Laying foundations 32 Affordable housing Greenville Garden City, Cape Town: a public/private partnership in BNG development 34 Angaza Afrika Shine Africa, shine!

37 New organisation A tenant’s voice 38 One-on-one “Zoe”: giving life to planning 40 Beyond zero Shaping cities of tomorrow 46 State of City Finances Cities and energy diversity 58 Howmuch.net Charting extreme poverty: population living on less than US$1,90 a day 59 Networking 62 Off the wall Augmented reality in our everyday life FOR EDITORIAL ENQUIRIES, email mark@mpdps.com Published by SAPOA, Paddock View, Hunt’s End Office Park, 36 Wierda Road West, Wierda Valley, Sandton PO Box 78544, Sandton 2146 t: +27 (0)11 883 0679 f: +27 (0)11 883 0684 Editor in Chief Neil Gopal Editorial Adviser Jane Padayachee Editor Mark Pettipher Copy Editor Ania Rokita Taylor Public Relations Officer Maud Nale Production Manager Dalene van Niekerk Designers Mark Pettipher, Fanie van Niekerk Sales Pieter Schoeman: pieter@mpdps.com Finance Susan du Toit Contributors Alexandra Felekis, Chris McMaster, David Steynberg, Edelman PR, Fox Street Communications, Maud Nale, Mumtaz Moola, Raul Amoros/howmuch.net, Tshepo Tshabalala Photography Mark Pettipher DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright South African Property Owners’ Association (SAPOA).

All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from SAPOA. The publishers are not responsible for any unsolicited material.

Designed, written and produced for SAPOA by MPDPS (PTY) Ltd e: mark@mpdps.com

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from the Editor’s desk

Penultimate 2019 edition November has come about all too quickly. Since the Convention in June, we have been constantly trying to catch our breath. It seem that we have at least three end-of-year dinners in November as well as a couple of networking events – and I hope we, as an industry, enjoy them to the fullest. After all, it’s what being part of SAPOA is about

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rue to our promise of more digital content, we have been able to enrich an number of our articles with thoughtleading videos. And because I was privileged to be able to attend the Green Building Council South Africa’s 12th Annual Convention, I’m honing in this event. I believe that every one of us, SAPOA member or not, needs to take the subject of global warming, along with sustainable living, very seriously.

The convention covered many topics – far too many to cover in a single edition of the magazine –and was well attended.

For me, there were three major highlights: Jason McLennan’s vibrant and honest presentation on radical architecture and his insight into living buildings was one of them – the presentation sent me looking for his TED appearance, so I could download his TED Talk and add the link to the GBCSA article.

I was – as were many of the delegates – appalled by the state of our oceans; so much so that I purchased Jo Ruxton’s documentary, A Plastic Ocean. This too is embedded in the article. We were only shown a snippet of it during her presentation, because the film is almost two hours long – but please, take the time to watch it.

The world leaders who attended the United Nations Climate Action Summit that took place in New York at the end of September were chastised by 16year-old Swedish climate activist Greta Thunberg. A number of the convention’s keynote speakers referred to her in their presentations – and, again, we should all take heed of her plea.

In this issue of Property Review, we look at affordable housing front, and have brought you three elements: 6

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1) An affordable housing development in Cape Town, Greenville Garden City in Fisantekraal, is one of Cape Town’s largest public-private partnership housing schemes. It will add about 17 000 housing opportunities to the local community. About 6 000 of those units will form part of government’s Breaking New Ground (BNG) fully subsidised programme, with the remainder comprising semisubsidised and fully bonded houses as well as rental units.

2) The National Housing Finance Corporation (NHFC) is a Schedule 3A Public Entity, supporting housing delivery through the provision of affordable housing finance. The organisation has been in operation since 1996 on a national level, providing access to funding for the low-to-middle-income group.

3) We all think of commercial property as the office buildings, the industrial parks and the retail centres that our members own or occupy. But if we look at what the government of the day is talking about – land and land use – perhaps we should also include

the agricultural sector in the mix. In this article we talk about a different kind of commercial initiative, one that ultimately leads to sustainable growth in a greater sense of the word. We speak to Angaza Afrika’s founder Dr Henry Sammy Wanyama and Dr Bulelwa Ntsendwana. Angaza Afrika’s core business is the incubation and support of community-based sustainable commercial agricultural cooperatives to establish, nurture and manage thriving and sustainable businesses in the agricultural sector. This ties into what the government is encouraging the private sector to do.

Our final round-up for 2019 is a look at what is happening in Port Elizabeth. According to Broll’s Regional Director Sonja de Necker, there is no real interest from the listed sector – but smaller private developers are keeping the micro-economy of the city alive. Ashraf Adam, CEO Mandela Bay Development Agency, is driving change and seeking private-public partnerships that will make municipal development possible.

On the legal front, the Property Practitioners Bill 2018 is intended to replace and repeal the Estate Agency Affairs Act of 112 of 1976, and to govern estate agents (among others). It was introduced to the National Assembly on 14 June 2018, and was passed on 4 December 2018. It has since been passed by the National Council of Provinces on 28 March 2019, and has been sent to the President for assent. We bring you an overview of what it entails.

I hope you enjoy this month’s read!

Mark Pettipher, Editor and Publisher

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legal update

A snapshot of the Integrated Resource Plan 2019 On 18 October 2019, the Minister of Mineral Resources and Energy Gwede Mantashe (the Minister), held a media briefing on the Integrated Resource Plan 2019 (IRP 2019), which was followed by the publication of the IRP 2019. The IRP 2019 supports a diverse energy mix and sets out nine policy interventions to ensure the security of South Africa's electricity supply.

We set out below a brief background to the plan, and the key takeaways

by Jason van der Poel, Alexandra Felekis of Webber Wentzel

Background

Alexandra Felekis

The Integrated Resource Plan is an electricity infrastructure development plan based on the least-cost electricity supply and demand balance, taking into account security of supply and the environment through the minimisation of negative emission and water use. It is important because it is South Africa’s plan for the procurement of generation capacity up to 2030. The last such plan was the Integrated Resource Plan 2010 (IRP 2010) promulgated in March 2011, and such plans are intended to be updated every two years.

Since the promulgation of IRP 2010, a total of 18 000MW of new generation capacity has been committed, comprising 9 564MW of coal power at Medupi and Kusile, 1 333MW of water pumped storage at Ingula, 6 422MW of renewable energy by independent power producers (IPPs), and 1 005MW of open cycle gas turbine peaking plants currently using diesel at Avon and Dedisa.

The diverse energy mix supported by the IRP 2019 is depicted in the table extracted from the IRP2019.

Salient points Coal

Jason van der Poel

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Coal will continue to play a significant role in electricity generation because the country has the resource in abundance.

The rate of decommissioning of Eskom’s existing 16 coal-fired power plants is set out in the above table. 1 500MW of new coal-fired power will be procured by 2030. New investments will be directed towards high efficiency, low emissions

(HELE) technologies, underground coal gasification and the development of carbon capture and storage. Eskom will need to comply with the minimum emissions standard over time. There must be a just transition towards less carbonemitting technologies, and workers and communities in affected areas must – as far as possible – not be left worse off.

Nuclear Nuclear power is seen as a clean source of energy that can contribute significantly to the reduction of emissions. Although the Minister mentioned a move towards small modular reactors, IRP 2019 provides only for the procurement of an additional 1 860MW of nuclear power to be commissioned by 2024, which represents the 20-year extension of the life of the Koeberg nuclear power plant in Cape Town specifically. Nuclear power will be procured at a pace, scale and cost affordable to South Africa, taking into account the rate of decommissioning of coal-fired power.

One of the nine policy positions listed in IRP 2019 is for the immediate commencement of a nuclear build programme. At the time of publication of this brief, the press has suggested that the Department of Mineral Resources and Energy will publish an erratum to IRP 2019 to clarify that the government will “commence preparations for a nuclear build programme to the extent of 2 500MW at a pace and scale that the country can afford because it is a noregret option in the long term.”

PROPERTY SOUTH AFRICAN

state of city finances

REVIEW

The voice for the industry

Each SAPOA member is a leading player and decision-maker in the commercial property arena, they use the South African Property Review as a way to gain important peer exposure and recognition.

With a South African property market value in excess of R5,7-trillion, SAPOA members control about 90% of South Africa’s private sector

commercial land and buildings stock, and manage the majority of property funds listed on the JSE. Open to all commercial property professionals, advertising in the online South African Property Review is an ideal way to reach these important decision-makers.

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websites and e-mail hot links ● Interactive advertising ● Call to action opportunities ● The stories behind the stories ● One-on-One interviews ● On Show showcasing properties ● Linkedin and Facebook following

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For advertising opportunities and rates contact t: +27 (0)21 856 1276 / e: pieter@mpdps.com For editorial enquiries contact e: mark@mpdps.com SOUTH AFRICAN PROPERTY REVIEW

According to Google an average time spent on a website blog is 4min.

South African Property Review’s average read time per month is 10min 27s, 2.5 times the average online retention rate.

legal update Renewable energy and battery storage 6 000MW of new solar PV capacity and 14 400MW of new wind power capacity will be commissioned by 2030 under IRP 2019. The current annual build limits on solar PV and wind have been retained pending a report on a just transition strategy. There will be no new concentrated solar power commissioned under IRP 2019 up to 2030 beyond the 300MW already committed to being commissioned in 2019.

Beyond conducive sun and wind, South Africa has some of the world’s largest high-grade resources in vanadium, platinum, palladium, nickel, manganese, rare earths, copper and cobalt, which are used in the global energy storage sector, and thus create an opportunity for new industry and localisation. Eskom is not precluded from developing renewable energy.

Eskom is also already working on utilityscale battery storage. 5 000MW of battery storage is to be commissioned by 2030.

Gas 1 000MW of new gas-to-power will be installed by 2023 and 2 000MW will be installed by 2027. The Minister recognised the flexibility that gas-to-power technologies can provide to complement intermittent renewable energy and meet demand during peaking hours.

As a starting point and to support the development of gas infrastructure, Eskom intends to convert all diesel-fired power plants (peakers) to gas. Also, as indicated during the Department of Mineral Resources and Energy’s budget vote, the department intends to establish the first LNG hub in the Coega IDZ in the Eastern Cape.

It appears unlikely that LNG-to-power technology will be procured in the form envisaged in the October 2016 Preliminary Information Memorandum and the Information Memorandum.

Hydro In support of regional integration and energy trading, South Africa has entered 12

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into a treaty for the development – and purchase – of 2 500MW of hydro-electric power from the Grand Inga project in the Democratic Republic of the Congo (DRC), with some of the power intended for transmission to South Africa across DRC, Zambia, Zimbabwe and Botswana, in part in pursuit of regional integration in SADC.

Distributed generation IRP 2019 provides for uncapped procurement of distributed generation up to and including 2022; thereafter, procurement would be capped at 500MW per year up to 2030. Distributed generation is defined in IRP 2019 as “small-scale technologies to produce electricity close to the end users of power”. IRP 2019 also suggests that distributed generation projects include projects between 1 and 10MW. This is an opportunity for smallscale generators, including those from biomass, biogas, landfill gas and cogeneration, but IRP 2019 appears to exclude mines and commercial and industrial entities seeking to develop generation capacity in excess of 10MW. IRP 2019 provides that embedded generation installations in excess of 10MW would require a “ministerial deviation in line with the Electricity Regulation Act”.

The developers of projects above 10MW are required to apply for and obtain an exemption from the Minister of Energy from the obligation to comply with IRP 2019 in terms of section 10(2)(g) of the Electricity Regulation Act, before an application for a generation licence can be considered by the National Energy Regulator of South Africa.

The question now becomes what will be required of these projects in order to for the Minister to grant the deviation, and the timing implications of this process.

Ministerial determinations IRP 2019 confirms that the existing Ministerial determinations in issue will be looked at and revised in line with the latest approved IRP. This will be done in concurrence with NERSA as required by law.

IRP 2019 sets out nine policy supply and demand side interventions in the short term to minimise the risk of load shedding (power black-outs) and/or extensive use of diesel peaking plants: 1. Immediate initiation of a mediumterm power purchase programme to create reserve capacity; 2. Immediate commencement of technical and regulatory work for the 20-year extension of the life of the Koeberg nuclear power plant; 3. Financial and legal support of Eskom to comply with minimum emissions standards; 4. Convening of a team to put together a just transition plan within a year in consultation with all social partners; 5. Retention of the current annual build limits on renewables (wind and PV) until the report on the just transition is released; 6. South Africa should not sterilise the development of its coal resources for purposes of power generation, but instead plan for energy and an environment that supports a just transition; 7. Support of the development of gas infrastructure by converting all diesel-fired power plants (peakers) to gas; 8. Immediate commencement of the nuclear build programme up to 2 500MW in case the Grand Inga project does not materialise and because it is a "no-regret option".

(We understand that the Department of Mineral Resources and Energy may publish an erratum to IRP 2019 so that this Policy Position reads that government will commence preparations for a nuclear build programme to the extent of 2 500MW at a pace and scale that the country can afford because it is a no-regret option in the long term; and 9. South Africa must support strategic power projects in neighbouring countries that enable the development of cross-border transmission infrastructure.

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GENERAL INFORMATION

Mafonti Morobi Education Officer T: +27 (0) 11 883 0679 F: +27 (0) 86 276 1865 E: eduofficer@sapoa.org.za W: www.sapoa.org.za

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Career Excel Academy

FMP

entrepreneur one-on-one

It’s all about infrastructure Onkabetse and his brother Niel exited their small dwelling, ready to go to school.

The brick house their mother was building in the garden was taking shape. It was exciting and rewarding to be building their own home – mainly because Onkabetse and Niel were involved in all aspects of the build: ordering concrete, erecting lanterns and ensuring the quantity of bricks was sufficient Interview by Mark Pettipher

Founding members and Directors of KGBW, Niel and Onkabetse Mosielele

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t’s in these experiences that a love for infrastructure was born in the Mosielele brothers: Niel went on to study architecture, while Onkabetse took a different route, studying accounting – a route that would see him live out his passion for entrepreneurship and get involved in construction-related businesses.

In 2013, both brothers had left their jobs; this is when they started their own infrastructure business, KGBW.

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“We started the business in 2013 out of a love for infrastructure,” says Onkabetse. “We love buildings, and that stems predominantly from where we grew up. We were raised by our single mother. But she was saving up every month, so that she could build a house right in the yard. We’ve touched that entire house with our hands, from the foundation up to the roof. Our mother made us sweat!

“We used to make sure that the contractors were doing their job properly. And our mother also put us to work: carrying concrete, sand, bricks. We were even involved with the painting.

We now have a home that we’ve built ourselves. She didn’t pay anyone to do the interior of that building – because it was our home, it had to be perfect. So our love for building stems from there.”

KGBW currently specialises in two types of infrastructure: agricultural and interior fitouts and design. What makes the company unique is that it is a design and build business.

“We are able to conceptualise, create the design, and do the build of interior infrastructure,” says Onkabetse, noting that the company, despite being so young, has already experienced a fair amount of success. “We self-funded this business, and today service the likes of Growthpoint Properties. To be one of the main service providers for Growthpoint’s tenant installation and office fitouts is quite a feat.”

In the meantime, the brothers have also discovered their second niche: agriculture infrastructure build.

“We’re heavily involved in construction of agricultural infrastructure,” says Onkabetse, adding that there are two elements to it. “We’ve basically diversified our business into a separate division that deals exclusively with building agriculture infrastructure. So we’ve been building hydroponic tunnels, pack houses, and infrastructure within the agricultural space. Our business is more niche in terms of the infrastructure build

entrepreneur one-on-one in commercial office space, and niche in terms of the outside, which is the agriculture build element.”

Despite being successful participants in Property Point, Growthpoint’s ongoing entrepreneur development initiative, the Mosielele brothers didn’t receive automatic approval. In fact, they were rejected twice before they were accepted into the programme.

“To get into Property Point, we had to first start to understand how the private sector works,” says Onkabetse. Prior to getting into the programme, KGBW had enjoyed a successful run in the public sector. “The public sector is not bad, but we definitely wanted to expand into the private sector.

“In a way, before we were chosen to take part in the Property Point initiative, we were already fortunate – we were already doing business, and we were already experiencing a degree of success.

But we were also ready to move forward; we had all the compliance documents and we had the necessary expertise to be shortlisted and to become one of Growthpoint’s service providers.

“As a result, this is something that we preach constantly: always be ready for an opportunity. Being ready means compliance, which, for a small business in South Africa, is a laborious exercise.

But it’s necessary to be prepared with your registration, your tax clearances and your insurance.

“We are always prepared for any new opportunity. I believe that’s something that sets us apart – when an opportunity comes our way, we are 100% ready to take it on.”

Being ready and organised is a quality the Mosielele brothers attribute to the teachings of their mother, Hilda. “She was very strict, and I think that is what set us up for the future,” says Onkabetse.

“The principles she taught us stand us in very good stead today – and they are also evident on all our sites. The sites are neat, and our procedures – how we go about doing things – are rooted in preparation and organisation.

“Because we work with Growthpoint, which requires efficiency and quick turnarounds, we also focus strongly on our turnaround times. Tenants don’t want to wait – they want to move in as soon as possible, and while we need to give them a high-quality building, we also need to be quick.”

KGBW employs about 40 people on fixed-term contracts. The brothers’ plan for the next five years revolves around building a turnkey solution in the interior office fit-out space.

“We want to cement KGBW as a turnkey design and build company,” says Onkabetse. “In the industry today, you have the construction arm and the design arm, the two working together on design builds. Our vision is to provide turnkey design and build services within the property development interior infrastructure space.

“Food security is a big issue in South Africa. With regard to agriculture, we want to do the design and build for small builder farms, assisting them with the infrastructure and assisting the government as far as possible.

“Five years from now, we want to be an employer of choice. We want to expand our revenues, and we want to make a difference where we can.”

Onkabetse knows how important drive and expertise are to success, but he reminds young entrants into the property space that being ready for opportunities remains key. “I have to say it again: compliance is the cornerstone of getting things done,” he says. “And in South Africa, I think it’s more important than anything else. Every time I bid on something, the volume of documentation required is mind-blowing. Obviously, you need the know-how and the expertise, but without compliance, those things have very little meaning.

“Also remember: financial discipline is paramount, as is a degree of foresight and planning in terms of what impact you’re going to make with the money you’re going to make.”

Onkabetse Mosielele

t: +27 (0)10 035 2353 e: info@kgbw.co.za w: kgbw.co.za

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reporting standards

A case of the tail wagging the dog: how IFRS affects privately owned property developers There are various schools of thought when it comes to the two accounting frameworks currently available to non-governmental South African entities for the presentation of their annual financial statements – the International Financial Reporting Standards (IFRS) and the International Financial Reporting Standards for Small and Medium-Sized Entities (IFRS for SME)

By Chris McMaster, CFO at Rabie Property Group

Chris McMaster, CFO at Rabie Property Group

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ome are of the opinion that the accounting framework requirements are too stringent and overbearing – especially from a disclosure point of view for the noncomplex owner-managed business18

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type operations – while others believe that even the most complex and onerous accounting framework is insufficient to ensure that catastrophes such as Steinhoff or Tongaat Hulett are avoided.

The more accounting irregularities come to the fore, the more the International Accounting Standards Board (IASB) develops and adapts the accounting standards in order to try and patch the holes in the standards that lead to creative interpretations and lacking disclosure. In addition, the Independent Regulatory Board for Auditors (IRBA) keeps tightening the screws on the independent auditors who are tasked with expressing opinions on the fair presentation of annual financial statements in relation to the aforementioned two standards.

Although these improvements to the accounting and auditing standards have great benefits in protecting the innocent investors investing in entities listed on the JSE or similar exchanges, this unfortunately leads to privately owned and managed businesses having to spend vast amounts of time and money on disclosure that adds no value to the end users thereof – mostly SARS, the banks, CIPC and a handful of shareholders.

It is in light of these facts that the IASB developed and approved the IFRS for SME accounting standard or framework, the intention of which was to make the differentiation between listed entities and non-listed ownermanaged businesses. The overriding difference is a streamlined disclosure requirement, which could easily reduce the length of the annual financial

reporting standards statements of a normal trading entry to a third, or at least half of that of a full IFRS set of annual financial statements.

In addition, there are some subtle differences in the accounting treatment between the two IFRS frameworks, of which the most significant deviations are that: ●● No straight-lining of lease assets and liabilities are accounted for if lease agreements escalate annually in line with expected general inflation or another systematic basis, which is better representative of the time pattern of the user’s benefit; ●● Goodwill is amortised over a period of 10 years in order to remove as many judgmental assets from the statement of financial position (previously referred to as the balance sheet) as possible; and ●● Borrowing costs are not allowed to be capitalised to the cost of qualifying assets (assets that include but are not limited to properties developed over a substantial period of time).

As much as this differentiation has brought great relief to “smaller” owner-managed businesses, it does not provide any relief for non-listed property developers.

Property developers incur a large amount of borrowing costs (development funding) over the construction period of a development.

Properties, especially large mixed-use developments, can take somewhere between 18 and 24 months to build and fit out for occupation. Property developers must therefore be able to capitalise the borrowing costs incurred to the cost of the property. This constitutes the entity’s inventories or work in progress, which in turn presents a fair reflection of the total costs incurred in the development of the property. This total cost should then be expensed as a cost of sale against the revenue generated from the sale of the property upon the transfer of risks and rewards thereof to the purchaser.

An example A property developer applies the IFRS for SME accounting framework.

It builds a property over 18 months.

As the development commences in the second-last month of the current financial year (year one), this development process continues over three financial years.

The developer incurs R100 of interest in year one, incurs R1 000 of interest in year two and incurs R300 of interest in year three. As the developer is not allowed to capitalise the borrowing costs, it incurs a net loss for year one of R100. After year two, the company has incurred cumulative losses of R1 100. It’s only in year three that the developer sells the property and completes its financial statements, which reflects the profit made on the property.

Furthermore, the profit reflected in year three will be overstated by the R1 100 loss incurred in the previous two financial years as some of the “cost of sales” was expensed in the prior years.

Because of the accounting standard applied, the company fails a liquidity and solvency test in years one and two, which could impact on dividend declarations (from other sources of income) and the granting of loans.

In addition, the entity also reflects accounting losses for the two years preceding the sale.

Relate the numbers to actual figures in practice which could easily reach interest of R10-million per project.

Consider then the impact on banks who provide development finance for these projects.

As a result of the substantial risk involved, banks could start feeling uncomfortable, especially when developers are involved with two to three developments simultaneously.

The cumulative effect of the perceived losses incurred during the development process impacts the developer’s financial statements severely, which may hinder future development funding opportunities.

The biggest challenge, however, is that it does not practically make sense to expense one single directly attributable component to the development process prior to the asset being disposed of, when one is entitled to capitalise all other directly attributable components of the property development.

An opinion might be that all property developers (listed and non-listed) should be subject to full IFRS in order to achieve fair presentation of their financial statements. But one specific industry should not be excluded from the reduced disclosure – especially as the full scope of IFRS disclosure adds very limited value to most privately owned development companies or their various joint ventures, which also require the full IFRS framework due to consolidation into the parent companies.

The simplification of the IFRS for SME accounting framework has caused an unintended consequence to property developers. However, the only way to resolve the challenge is to propose an amendment to the IFRS for SME standard to give entities the choice of applying the capitalisation of borrowing costs accounting treatment to its financial presentation, specifically if it represents a more accurate reflection of the underlying transactions and balances. After all, fair presentation is the ultimate goal of both the IFRS and IFRS for SME frameworks.

In essence, owner-managed property developers should be given the same equal opportunity to choose the accounting framework that is best suited to them. The default leads to non-beneficial and time-consuming disclosure, and cumbersome accounting considerations such as that of IFRS 9 (Financial Instruments), IFRS 15 (Revenue from Contracts with Customers) and IFRS 16 (Leases) required by the full IFRS, just because private property developers were mistakenly overlooked when the IASB developed and approved the nearly perfect IFRS for SME accounting framework.

SOUTH AFRICAN PROPERTY REVIEW

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PE overview

Limited growth The streets are cleaner, life appears to be going on as usual, everyone is aware of the water crisis but accepts the shortage as the norm… On the surface, it’s private developers and a micro-economy that are keeping PE afloat – or so it seems Compiled by Mark Pettipher

F

lying into Port Elizabeth International Airport early gave me a chance to get a feel of what was new in the city. My first appointment was only the following day, with Ashraf Adam of the Mandela Bay Development Agency (see pages 24-25).

With plenty time on my hands, I picked up a rental car and drove the short distance to downtown Port Elizabeth. My first impression was that the CBD was relatively litter-free – but what I did observe right outside the City Hall was water running down the street.

Part of the reason for my visit to Port Elizabeth was to find out the extent of the much-talked-about water crisis. I’d been told that the water levels in the dams were down to a combined total of approximately 38%.

I was told by a source (who requested not to be named) that the biggest issue was with the poor maintenance of the existing infrastructure, and the lack of response to call-outs from the municipality, which could leave water running for weeks on end. (In a similar vein, you can read the appeal from the Nelson Mandela Bay Business Chamber on page 26.)

Being from Cape Town, I'm wondering why the officials were not talking to their counterparts in the Cape Town Metro…

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SOUTH AFRICAN PROPERTY REVIEW

PE snapshot After completing my meeting with the MBDA, I headed off to SAPOA PE Secretariat Catherine Ossher, whose day job involves working as an agent for Broll. She introduced me to Sonja de Necker, Broll’s Divisional Director.

It was an enlightening conversation. We spoke about the Bay West development, which is almost stagnant, with the 200-hectare site suffering from what appears to be overpricing and a seeming lack of activity on the part of Rebosis and the Billion Group.

In March 2017, we reported on Port Elizabeth’s largest mixed-use (though mainly residential) Westbrook development – see more at bit.ly/2N71eIx. The Amdec Group estate is established on gently undulating slopes, and is described as nine beautiful residential security estates offering secure family living in affordable designer homes, top-class schooling and even the nation’s foremost retirement lifestyle brand.

I was told that Westbrook is almost complete, with only the frailcare centre and hospital still needing to be fully developed.

On the commercial scene, Ossher and De Necker pointed out two other developments.

PE overview

Baywest City: “The pulse of the Bay” Baywest City is the first of its kind for the Eastern Cape – a state-of-the-art mixed-use retail, business and lifestyle development in the western suburbs of Nelson Mandela Bay. Modelled on successful live-work-play developments such as Durban's Gateway and Cape Town’s Century City, Baywest City is conveniently situated adjacent to the N2 freeway.

This new urban node epitomises the modern lifestyle, and is fast becoming an exciting new gateway to the city of Port Elizabeth.

Extension and upgrade of Port Elizabeth’s Boardwalk precinct Property developers Flanagan & Gerard Group and Moolman Group have signed an agreement with Emfuleni Resorts to extend and upgrade Port Elizabeth’s Boardwalk precinct.

The redevelopment will more than double the retail space in the precinct when it opens in 2021, and is expected to cost R600-million.

The precinct currently comprises the 6 000m2 Boardwalk Casino, the 140-key five-star Boardwalk Hotel, conference facilities, 11 800m2 of existing retail, and a five-screen Nu Metro cinema complex.

The redevelopment will see this increase to 26 000m2, including new shops, restaurants, and a new Sun Park Square designed to host major events. Other new developments will include two supermarkets, one speciality food store, two pharmacies, and two or more major banks.

Work on the project is planned to commence in early 2020.

“We are delighted that the Boardwalk Mall development is back on track,” said Anthony Leeming, Chief Executive of Sun

The 320ha precinct, aptly referred to as “the pulse of the Bay”, is a multibillion-rand development by Billion Group.

Baywest Mall was the catalyst for the first phase of the development, which also saw a R250-million upgrade to the surrounding road infrastructure.

Connecting to the city’s existing freeway network, the precinct is no more than 20 minutes’ drive from anywhere in Port Elizabeth.

Around a quarter of the land will remain undeveloped, allowing for pockets of protected environmental urban parks between the spatial developments.

International. “When it is complete, the expanded mall will complement the Boardwalk’s other leisure offerings, and further serve the needs of the surrounding communities.

We see the new mall as an essential component of the broader Boardwalk precinct, which was identified and earmarked by the Nelson Mandela Bay Metro as an important growth node.

We are confident that it will accelerate the Metro’s economic growth, and result in job creation and increased returns for the province.”

“This is a scarce, strategic and exciting development opportunity in the present South African retail real estate market,” said Paul Gerard, MD of Flanagan & Gerard (pictured left). “We are thrilled to be working with visionary partners of the calibre of Emfuleni Resorts and Moolman Group to create the magnificent Boardwalk Mall. Niched within Port Elizabeth’s vibrant retail landscape, Boardwalk Mall will be the ultimate convenience shopping experience.”

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PE overview

The mall will cater to an under-served immediate trade area of upscale neighbourhoods, where there is good demand for quality convenience shopping. The Boardwalk Mall will offer a bespoke curation of brands, services and experiences, all handpicked for local shoppers.

Coega SEZ: SA’s liquefied natural gas hub Over at Coega, the biggest news is that after the announcement by the Minister of Energy in July 2019 of the zone being the preferred location for the liquefied natural gas (LNG)-to-power plant, the Coega Development Corporation (CDC) hosted a stakeholder networking session in partnership with South African Oil & Gas Alliance (SAOGA), Petro Marine and Dormac to position the Eastern Cape as the hub for gas resources in South Africa, especially LNG. In his keynote address at the session, the Honourable MEC for the Department of Economic Development, Environmental Affairs and Tourism (DEDEAT) Mlungisi Mvoko (pictured left) highlighted the importance of LNG in creating socio-economic growth in terms of jobs and SMME development “The Eastern Cape has the potential to create a thriving, inclusive and job-rich oil and gas sector,” he emphasised. “By catalysing a gas industry alone, South Africa could see an additional 50 000 economywide job opportunities over the next 25 years, which in turn would stimulate a GDP growth of at least one percent from the 10th year.”

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Among the delegates who attended the networking session were Alistair McMaster, Director of Sustainable Energy for DEDEAT; Managing Director of Dormac Marine & Engineering Chris Sparg; CDC Energy Sector Manager Sandisiwe Ncemane; as well as various representatives from SAOGA, including Director Niall Krame and the Board Chairman Mthozami Xiphu.

The key opportunities for gas in the Eastern Cape highlighted during the discussions include the opportunity for the industry to convert natural gas as a source of fuel and feedstock to ultimately unlock new industries in the industrialisation value chain.

The crucial value of the integration between the Port of Ngqura and the CDC in realising the imports of liquefied natural gas is a key driving stimulus in ensuring that the first step in unlocking a gas-driven economy has been met.

Coega, together with the Port Ngqura, embodies an optimal geographic location to support gas markets on both the east and west coast of South Africa. Furthermore, Coega offers a strong, integrated logistics corridor for the delivery of gas to the hinterland.

“Coega has a proven track record in delivering megaprojects,” said Ncemane. “For example, Dedisa Peaking Power Plant was built on time, on budget, and within the required quality parameters, demonstrating our eagerness to advance the readiness for South Africa’s first LNG imports with the assistance of relevant stakeholders.”

Coega has been undertaking extensive technical-readiness work for up to 4 500MW of gas-to-power. The Eastern Cape government has supported this programme with a detailed plan for a provincial gas economy, including a market analysis, logistics studies, third-party (small-scale) gas localisation for SMMEs and black industrialists, and natural gas research and decision support.

PE overview

“We are on the cusp of realising a thriving gas future for the Eastern Cape and South Africa,” concluded the MEC. “We can only unlock this potential through meaningful collaboration between all relevant public and private sector partners. We have to build the Eastern Cape we want.”

Port Elizabeth car terminal shows favourable growth despite volatile South African economy The Port Elizabeth Car Terminal is continuing to break records despite the tough, volatile economic environment in South Africa. August 2019 was a productive month as the car terminal handled one of the biggest loads by one vessel when Glovis Supreme loaded 4 500 units.

This was the first time that one vessel handled so many units. The previous record was held by the Glovis Sonic in

February this year, which handled 3 481 units. The increase in volumes is being attributed to increased demand from international markets. In a year-on-year comparison, 8 217 units were handled in August 2018 versus 12 043 in 2019 – an astronomical 31% increase.

“We are thrilled about the new record, which is attributed to teamwork and the upholding of high safety standards,” said Wandisa Vazi, container and auto Executive Manager for Transnet Port Terminals’ Cape Channel. “The sector recovery – both domestically and internationally – has brought the noted positive trend. The successful handling of the volumes was also made possible by the commitment of our teams at the car terminal.

“We are certainly pleased with the achievement, which would not have been possible without collaboration between Transnet Port Terminals and its customers.”

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PE overview

Taking

Nelson Mandela Bay forward

How do you ensure that a city’s CBD and its surrounding areas do not fall into ruin? And, conversely, once an area experiences urban renewal, how do you make sure you don’t force out current residents through gentrification?

Interview by Mark Pettipher words by David Steynberg

T

peace through urban upgrade; it’s his is what Ashraf Adam, CEO of the actually the other way around – urban Mandela Bay Development Agency upgrade through safety and peace. What (MBDA), plans on achieving at the do you need to negotiate with a local 14-year-old organisation whose mandate community so that the community is to look at urban renewal and economic actually allows infrastructure investment development in the Port Elizabeth CBD to happen? Because in the past it didn’t and surrounds, all the way up to the happen. The contractors would leave Uitenhage CBD. their sites because they were being Far from taking a hard approach to the intimidated or hi-jacked, or supplies mandate, Adams emphasises that the were being stolen. Safety issues were agency’s work – and its success – is a huge problem around Helenvale for determined by how well it forms our contractors.” partnerships in the communities in The MBDA has also improved the which it works as well as with established Ashraf Adam, CEO of the Mandela Bay Development Agency usability and financial health of the city’s and up-and-coming service providers. biggest asset: the Nelson Mandela Bay “The MBDA has a responsibility now to work in New Brighton, which is one of South Africa’s oldest Stadium. “We’ve reduced its costs from hundreds of millions townships,” he says, noting that the agency is taking a cultural of rand to tens of millions of rand, while expanding the use approach to providing road infrastructure. “We took a road, of the stadium at the same time,” says Adam, noting that this slowed down the traffic, built play areas for young children and has been achieved through better financial management, some commercial activity, and encouraged people to use the improving the organisational structure and management, and side of the road for social and economic activities. As a result, better contract management with service providers. “We’ve the councillors in the area want us to do more work. You can’t also increased non-bill events at the stadium to get more only take a physical approach to infrastructure – you have to people to use it for conferencing and for events such as cycling and other community-driven sports activities. look at the psycho-social and cultural elements too.”

“It’s a multi-purpose stadium, and we’re investing in that. My Another area where the MBDA has had to take a consultative approach with the local community is in Helenvale. “It’s a really vision for the stadium is that it becomes a venue that generates difficult area to work in; it’s like certain areas on the Cape Flats,” its own electricity, stores that electricity and provides that says Adam, adding that with the funding of the German KfW electricity back to the city with a bi-directional system. In the Development Bank, the agency is involved in two broad next financial year, we’re going to look at the renewal of that interventions. “One is psycho-social – dealing with youth at area because that objective hasn’t been met. The idea of risk, working with schools, working with vulnerable women building the stadium in that spot was to renew the area, but and children. The other is providing infrastructure, such as safe the process has stalled.”

By creating improvement districts in Port Elizabeth, the pedestrian routes, safe sidewalks and sporting facilities.

“The process has taken us a long time because it’s easier MBDA has successfully enabled businesses to bring security said than done. Because my argument is not for safety and and cleansing to the areas around their premises.

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PE overview

“In this way, you get better return on “Security and cleansing are the core Adam believes the your land – so that’s what we’re doing. It things you need to deal with right property development might take a bit longer, but at least when from the beginning,” he says. “We are we put it out for development proposals, redeveloping the Tramways Building, sector has an important we’ll likely get realistic proposals. which we currently occupy, as well as role to play in this Eastern “Linked to this is not trying to tell the the land around it. We’re rezoning some developer what to build but, instead, land up in the valley that is owned by Cape city, but that getting sharing your vision with the developer. the city so that we can encourage mixedThe developer knows the market better use development with the dominance the sector’s buy-in requires than we ever will, because we’re not in of housing. We’ve bought the St Peter’s a different approach to the market.”

Church property and have restored it.

While the political climate in the city We’re behind South Africa’s first public what has previously is uncertain, Adam has brought focus to bridge entirely built with composites been proposed the MBDA. in this valley, which comes through a “This agency was doing many things partnership with the Mandela Bay Composites Cluster. We are redeveloping the Bay World without knowing why they were being done,” he says. “We’ve aquarium and have started demolishing properties such as the provided logic, and we’ve said no to certain things. That’s really old Boet Erasmus Stadium and Telkom Park. We truly believe what my mission has been. We haven’t changed our mandate – we still look at things in a programmatic way; we figure out in partnerships.”

Adam believes the property development sector has an what impacts we want to make over five years and then work important role to play in this Eastern Cape city, but that getting backwards. So when it comes to everything we started doing the sector’s buy-in requires a different approach to what has in the previous financial year, we will only see the real results in three to five years’ time.” previously been proposed.

Adam believes that urban renewal should not be at the “The Telkom Park site was put out to tender twice,” he says, adding that the city battled to get property development expense of the lower- to middle-income population who live going in the area. “We investigated this, and we realised why in the city.

“This CBD is an amazing place,” he says. “It has beautiful old that was the case: the potential developers were expected to take over the land, demolish the stadium, then obtain the buildings and plenty of amenities. The High Court is here. various re-zonings on a site where such re-zonings would Everything is here!

“If we use another approach, we will ensure that middle- to definitely be a challenge. All of this was to happen at the lower-income people continue to live here. People like waiters developers’ cost.

“So I suggested we do the opposite: we would demolish the and Uber drivers bring life and energy to the place. That’s why stadium, because when it comes to the public municipal land we’re buying up properties and partnering with developers. in which we work, we’re likely to get the most flexible zoning. You can have mixed incomes. You can have urban renewal Now a potential developer knows they won’t have to spend without gentrification. We believe it’s possible. We might fail – but we’re sure as hell going to try our best.” years waiting for permissions; those holding costs are gone.

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PE overview

Use water sparingly, pleads Business Chamber The Nelson Mandela Bay Business Chamber has called on its more than 700 member companies to start using water sparingly as the city’s dams have reportedly reached alarmingly low levels

By Nomkhita Mona, CEO Nelson Mandela Bay Business Chamber

A

The City’s dire water situation s of 21 October 2019, Nelson demands that households and businesses Mandela Bay’s supply dams – Kouga, collectively take matters into their own Churchill, Mpofu, Loerie and Groendal – hands and aggressively monitor their have reached an average combined daily consumption. capacity of 36,23%. To make matters We cannot rely on any of the delayed worse, 10% of the current figure is municipal projects for potable water, unusable because of sediment build-up, since the Nooitgedacht water scheme leaving the Metro with little more than has ground to a halt for a variety of 27% of potable water. reasons. This is despite the city receiving What adds to these woes is the lack R233-million from the National Treasury of clear communication and decisive in April after the Eastern Cape was plan from the Nelson Mandela Bay declared a drought-stricken area. Part of Municipality on how the situation is this windfall was meant to be spent on being addressed to prevent the city’s Nomkhita Mona, CEO of the Nelson Mandela Bay Business Chamber water-saving efforts. dams from running into a trickle.

However, there have been no The month of June 2017 saw the lowest rainfall of the past 20 years, with only 2,5mm aggressive water-saving campaigns to sensitise the Bay about precipitation for the entire month. November 2015 was the last the seriousness of this situation. To add to this, the city has time our dams were filled to 100% capacity. In August 2019, battled years of ailing infrastructure that now sees the Metro only 2,2mm had fallen in the Metro, making for the lowest losing millions of litres of clean water annually.

We will continue to make this call and emphasise the rainfall since 1985 (4,7mm).

This puts the city on a slippery slope as the seriousness urgency of the matter until we have been appraised by the city of our water supply has a bearing not only on human life but on its turnaround strategy. also on the multitude of businesses across the Metro that rely on water for their operations. These are companies that play a strategic role in the area of job creation and in the city’s economic growth.

If there is no constant flow of water in the Metro, this would inevitably lead to a job bloodbath as companies would be forced to close shop and leave thousands of breadwinners without a source of income. For instance, the tourism industry would be hard-hit as visitors would shy away from visiting our shores if there is no constant supply of clean water.

This demands that innovation and pragmatism be placed at the forefront of equitable provision and conservation of water.

As the business community, we understand the impact Nelson Mandela Bay Business Chamber this has on our member companies, and for this reason, we are KPMG House, 200 Norvic Rd, Greenacres, Port Elizabeth 6057 taking a stand and playing our role as the business community t: +27 (0)41 373 1122 w: nmbbusinesschamber.co.za in exploring innovative ways of saving water.

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SOUTH AFRICAN PROPERTY REVIEW

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human settlements

Laying foundations The National Housing Finance Corporation SOC Ltd is a Schedule 3A Public Entity, supporting housing delivery through the provision of affordable housing finance.

The organisation has been in operation since 1996 on a national level, providing access to funding for the low-to-middle-income group Compiled by Mark Pettipher

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Samson Moraba, CEO of NHFC

As a means of sustaining its funding programmes, the NHFC searches for better ways to mobilise finance or affordable housing from sources outside of the state in partnership with the broadest range of organisations

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he National Housing Finance Corporation (NHFC) is one of several development finance institutions (DFIs) created by the South African government to sustainably address the socioeconomic challenges of the country.

The developmental financial focus of the NHFC is specifically about finding workable models for affordable housing finance for the low- and middle-income target market.

The NHFC defines its end-beneficiary target market as “any South African household with a monthly income that is between R1 500 and R20 000” – i.e. the low-to-middle-income households, also known as the “gap market”. This market sector is mostly able to contribute towards its housing costs, but finds it difficult to access bankfunded housing finance.

The NHFC was established in 1996, by the then National Department of Housing (NDoH), to offer housing finance, project facilitation and technical assistance to private and public entities ensuring availability of housing stock for the target market. As a means of sustaining its funding programmes, the NHFC searches for better ways to mobilise finance for affordable housing from sources outside of the state in partnership with the broadest range of organisations.

The NHFC, in the affordable housing finance market sector, adopts a role of financier, facilitator, advocator orchestrator and innovator, to ensure viable housing finance solutions, growth

of sustainable human settlements, and mobilisation of relevant partnerships through enhanced insights and knowledge gained.

Background There were three DFIs – the NHFC, the National Urban Reconstruction and Housing Agency, and the Rural Housing Loan Fund. Each reported to the Minister of Human Settlements.

In 2007/2008, the National Treasury at the request of Cabinet undertook a review of the mandates of the DFIs. The DFI review recommended that the three housing DFIs be amalgamated into a single institution in order to better and more efficiently serve the human settlements sector with increased sale and greater impact.

This review found that the existing expertise and capacity in the three DFIs was an important resource for the sector, and it needed to be preserved as separate entities. The DFIs, however, operated at too small a scale to impact significantly on the need in the sector – hence the need for amalgamation.

Furthermore, the Minister of Human Settlements also committed to the establishment of a “housing bank” to support the entire human settlements delivery value chain.

The proposed Human Settlements Development Bank aims to facilitate and address: ●● End-user finance for a range of housing circumstances; ●● Bridging and developer finance;

SALIENT FEATURES

human settlements

Funds disbursed:

R570

MILLION

R574

MILLION

LOANS APPROVED

Eco-friendly houses developed

Spatial transformation is high up on the national development agenda

94%

Forty-eight of 94 priority housing development areas (PHDAs) have been gazetted.

OF STAFF TRAINED

19 423 HOUSING OPPORTUNITIES CREATED

R446

MILLION

TOWARDS BEE ENTREPRENEURS, INCLUDING WOMEN AND YOUTH

R108,4 MILLION PROFIT FOR THE YEAR

●● Mobilising private sector partnerships; ●● Enhancing the leverage of human settlement grants; ●● Supporting transformation in the human settlements sector.

NHFC achieving its mandate “The NHFC aims to achieve its mandate through the facilitation and provision of wholesale financing for various housing tenures for households, depending on their affordability,” says Viwe Gqwetha, the NHFC’s Executive for Strategic Partnerships and Programme Management.

“The various housing tenures include rental housing, home ownership through mortgage loan finance, as well as incremental housing.

ACHIEVED COST TO INCOME RATIO OF

47,5%

& A CREDIT LOSS RATIO OF 2,6% (2,8% of 2018)

“In addition to these grants and subsidies, the NHFC provides long-term debt funding (of up to 20 years) for development of the social housing project.”

FINANCING DEVELOPMENT OF RENTAL STOCK There are two categories of rental developments financed: private rental and social housing rental stock.

Private rental

Development and adoption of SPLUMA-inspired inclusionary housing policies by metros is gaining momentum.

Developers can take advantage of PHDAs as collaboration through private-public partnerships is being explored.

There is commitment through international housing solutions with limited liability partners, comprising the following: ●● NHFC ●● Eskom Pension & Provident Fund ●● WDB Investment Holdings Proprietary Limited ●● International Finance Corporation ●● KFW Bankengruppe ●● Sonen Global Sustainable Real Assets ●● Lincoln Institute of Land Policy ●● PG Impact Investment ●● Citygroup Global Markets NHFC has committed R300-million in the form of equity to fund IHS, which raised R1,7-billion equity funding to further leverage debt funding.

This type of rental accommodation is provided by private landlords, who do not receive any subsidies or grants.

It caters for the affordable rental market, including inner city rental developments.

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human settlements The NHFC develops strategic alliances and partnerships with developers, investors and housing development funds, through investment in equities, mezzanine and junior debt capital structure of companies that operate within the affordable housing market.

The rationale for such an intervention is to leverage private sector funding into the affordable housing market.

Through effective utilisation of inputs, NHFC is able to make housing finance available to households earning below R15 000 per month.

Subsequent to year-end, this amount was increased to R22 000 per month.

NHFC secures funding from reserves, other institutions and government grants. Interest is the major income stream, but other areas are being developed.

With the growth in the NHFC’s equity investments, dividend income will, over time, become a significant source of income. Effective cost management and staff investment aids in the profits being utilised efficiently.

The NHFC provides long-term funding for the development/ refurbishment of inner city buildings into rental accommodation.

Social rental This is subsidised rental housing that is more affordable than private or commercial rentals and is provided by social housing institutions, which are not-for-profit companies. These institutions receive subsidies in the form of restructuring capital grants from the Social Housing Regulatory Authority (SHRA), subject to accreditation rules set out by the SHRA, as well as topup institutional subsidies from the provincial government.

HOME OWNERSHIP Home ownership is achieved through the indirect provision of mortgage bonds for buying an existing home or building one, through partnerships with banks and non-banking retail intermediaries.

Partnership with banks Through various co-financing and riskenhancement mechanisms, bank lending in this segment of the market is increased and sustained through leveraged funding provided by the NHFC.

Finance Linked Individual Subsidy Programme (FLISP) The NHFC administers and facilitates delivery of and access to the government housing subsidy, FLISP. The FLISP was developed to facilitate sustainable and affordable first-time

home ownership opportunities to South African citizens and permanent residents who earn between R3 501 and R15 000 per month.

FLISP subsidy is a grant that is provided to first-time homeowners by the government. The NHFC administers the FLISP programme on behalf of the provincial government. Applicants for the FLISP subsidy submit their applications through housing developers, mortgage originators and mortgage lenders.

Non-banking retail intermediaries The NHFC provides wholesale funding to non-banking retail intermediaries, that on-lend to households in the NHFC target market. Access to home loans is increased and delivered through a nationwide network of intermediaries.

INCREMENTAL HOUSING Funding is made available via approved or selected intermediaries to end-users with household income in the R3 500 to R15 000 per month range, and for loans between R1 000 to R20 000.

The end user may use these loans to: ●● Purchase building materials; ●● Buy land on which to build; ●● Service land; ●● Lay foundations; ●● Pay for building works; and ●● Top up subsidy amounts from government.

Limpopo

Gauteng

As a national entity, the NHFC’s mandate is to lend in all provinces. It achieves this national footprint through its intermediary and direct partners who have developed loan distribution channels in all provinces.

The NHFC’s reach in South Africa is dedicated to all South Africans, with its most concentrated area of operation being Gauteng, followed by KwaZulu-Natal and the Eastern Cape.

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Mpumalanga North West

KwaZulu-Natal Free State

Northern Cape

Eastern Cape Western Cape

end this amount was increased to R22 000 per month.

of income. Effective cost management and staff investment aides in the profits being utilised efficiently.

We secure funding from reserves, other institutions human settlements and government grants. Interest is the major income

NHFC RESOURCES HOW RESOURCES ARE USED TO SUPPORT THE BUSINESS MODEL

CAPITAL FINANCIAL CAPITAL Shareholder equity Dividends from investments Interest income, fees and capital repayments from loans provided Debt funding

HUMAN CAPITAL Our employees

SOCIAL CAPITAL Government Public and Private Sector partnerships Other funders and development partners Clients and project co-funders

INTELLECTUAL CAPITAL Industry specific knowledge and experience Knowledge gained from project development, credit granting and post monitoring investment

NATURAL CAPITAL Land under development /building space converted to housing m²

• • • •

Making new equity investments Disbursing new loans Operational expenditure Repaying borrowings

• • •

Appraising funding applications Monitoring and evaluation of portfolio Managing all other operational business areas

• • •

Advocacy in policy formulation Private sector leveraging Business development investing in projects

• • •

Managing risk in the business Strategies developed for project funding and Programme planning and execution

• • •

Built environment compliance standards NHBRC technical requirements Environmental Impact Assessment regulation

• • •

Disbursements and leveraged financing FLISP disbursement Project packaging support

• • • • • •

Adequate housing and improved living conditions Social housing units Private rental housing units Affordable housing units Jobs created Historically-disadvantaged property entrepreneurs supported

OUTPUTS AND OUTCOMES FINANCIAL CAPITAL

MANUFACTURED CAPITAL

The Isle of Houghton Old Trafford 3 11 Boundary Road, Houghton 2193 PO Box 31376, Braamfontein 2017 t: +27 (0)11 644 9800 f: +27 (0)11 484 6406 w: nhfc.co.za

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affordable housing

Greenville Garden City, Cape Town: a public/private partnership in BNG development As one of Cape Town’s largest public/private partnership housing schemes, Greenville Garden City in Fisantekraal – just 9km from Durbanville via the R302 – will add around 17 000 housing opportunities to the local community. About 6 000 units will form part of government’s Breaking New Ground (BNG) fully subsidised programme, with the remainder consisting of semi-subsidised and fully bonded houses as well as rental units Interview by Mark Pettipher words by David Steynberg

Sean Stuttaford

S

Greenville Garden City in Fisantekraal

ean Stuttaford, chairperson of the 100-year-old development company Garden Cities, says the idea of Greenville stemmed from Johannesburg’s successful Cosmo City model.

“We started thinking of Greenville 10 or so years ago,” he says, noting that it took Garden Cities seven years just to get approvals and break ground. “I was living and working in Johannesburg at the time, and I saw Cosmo City, which was driven by the Gauteng government with Basil Read as the main contractor. At the time, Garden Cities was not involved in BNG housing, but I had been looking at ways to enter the arena.

“Members of the board went to Johannesburg to have a look at Cosmo City. We engaged with Basil Read, and we learnt to understand the model.”

Not wanting to do all the bulk services too far upfront, Stuttaford explains that Garden Cities took a different approach at Greenville from the practice at Cosmo City.

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“We wanted to do a similar model to that of our other developments, where we undertake the bulk services in stages as we move along,” he said, adding that while they eventually parted company with Basil Read – on good terms – they gained a valuable understanding of how to engage with government, and the funding models that are available.

In the BNG model, the funding works out to R130 000 for a serviced erf, which includes the bulk and internal services. The top structures are between R130 000 and R135 000. This means that a 100% government subsidy of R260 0 00 is needed by the beneficiary in order to buy the house.

“With BNG housing, funding is first needed from Eskom in the form of a large substation,” says Stuttaford. “Then there’s funding from national government, the city and provincial government. All the government agencies have a certain

entrepreneur affordable one-on-one housing amount of funding for a specific aspect of the project. For example, bulk services are all funded by one of the branches of government, and we undertake the bulk services.

“Traditionally in a BNG environment, electricity infrastructure is above ground. However, we chose to go below ground. We needed to cover the cost of deviating from the standard ourselves. The rest of the bulk services were done to standard.

“Similarly, in the case of the top structure, we needed to deviate from the norm, because BNG houses usually come with only three plug points, and no hot water supply.

We’ve put in gas heating, and our ceilings are actually integrated as part of the roof – in line with our alternative building technology, whereby the IBR is bonded to insulation, and then the ceiling board is attached underneath that.”

When Garden Cities started the project, the government was pushing for alternative building technologies. This led the developer to the discovery of Benex blocks.

While standard concrete blocks don’t perform well in the Cape weather, and the climate doesn’t suit a singleskin exterior, Benex – an Australian lightweight block technology – meets much higher standards. It has the added advantage of utilising an adhesive rather than mortar for construction.

“Because they’re so light, you can make the blocks quite large, and you don’t need highly skilled bricklayers to install them,” says Stuttaford. “As a result, we are able to employ 90% local labour on the Greenville development, and have trained everybody on site to lay the blocks. In fact, we ended up creating the certification for laying the blocks because it had not previously existed in South Africa.

“The Benex blocks are 4/5 rated, and they are impervious to water. We’ve had two or three winters since we started the development, with no leaking and no damp problems.

It’s a brilliant technology.”

Discussing the challenges of the BNG model, he mentions some cases in which beneficiaries received a R260 000 house, then sold it illegally for as little as R60 000.

The former homeowners then pocketed the money and went back to live in informal settlements.

These cases aside, Stuttaford says Garden Cities is optimistic that Greenville will be seen as a great place to live, and that the general attitude will be about building a town people can be proud of – and one they will look after.

“There are facilities such as schools as well as youth and training centres,” he says, pointing out that the house is only one part of what makes an area aspirational.

“My hope is that when Greenville becomes a preferred place to live. Then any possible wealth erosion or loss through illegal trade will be reversed, and the properties will gain in value.”

LAST 34 HOUSES FOR 2019 HANDED OVER TO NEW OWNERS AT GREENVILLE GARDEN CITY, FISANTEKRAAL The handover of the last 34 houses for 2019 took place on schedule this week (October 24) at Greenville Garden City, Fisantekraal, bringing to 1 331, the total number of BNG (breaking new ground) homes occupied in the 767ha new town launched in 2016.

All the recipients of the houses are former backyard dwellers or occupants of informal housing in the area, and have never owned property before. To complete the second phase of the project, another 44 houses will be handed over to their owners next year.

Greenville is one of the 17 major Cape Town residential suburbs for which the 100-year-old non-profit company, Group CEO of Garden Cities John Matthews (left) and Thembi Sithole, project co-ordinator at Greenville Garden City with new homeowner David Sellidon and his wife, and Malusi Booi, Mayco member Human Settlements, on the right

Thembi Sithole and John Matthews with Nozibele Tyhalithi new homeowner at Greenville, and Malusi Booi

John Matthews (fourth from left) and Thembi Sithole (third from right) with some of the new homeowners at Greeville

New homeowners prepare to receive their keys SOUTH AFRICAN PROPERTY REVIEW

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angaza afrika

Shine Africa, shine!

We all think of commercial property as the office buildings, the industrial parks and the retail centres that our members own or occupy. But if we look at what the government of the day is talking about – land and land use – perhaps we should be including the agricultural sector in the mix. Here, Property Review talks about a different kind of commercial initiative – one that ultimately leads to sustainable growth in a greater sense of the word Compiled by Mark Pettipher

H

Dr Henry Sammy Wanyama, founder of Angaza Afrika, is an academic, researcher and development and environmental management practitioner. As a futurist and systems thinker, he is both realistic and pragmatic,

enry Sammy Wanyama and Bulelwa Ntsendwana are two of the people behind Angaza Afrika, a non-governmental organisation (NGO) and public benefit organisation (PBO) registered in South Africa and based in Rosebank, Johannesburg.

The preparatory work for Angaza Afrika – originally Wanyama’s brainchild – began in 2017, and the project launched in earnest in 2019. Wanyama is hugely passionate about it. Angaza Afrika’s core business revolves around the incubation and support of community-based commercial agriculture co-operatives, which will eventually lead to the establishment and management of thriving, sustainable businesses in the agricultural sector.

“Angaza” literally means “to shine light upon” or “to illuminate” in Kiswahili. In this case, the word refers to shining a light on Africa by setting up, developing and managing sustainable co-operative businesses across the entire value chain of agricultural production, from primary production to agri-processing.

“We need to change the narrative, the way people think about agriculture,” says Ntsendwana at the start of our conversation. “The mind-set needs to change. We are living in the age of data, new technology and modern farming methods, and our people in rural communities need to move away from thinking that working on a farm equates to ‘slave labour’.

“Angaza Afrika is working hard to get people to understand the benefits of cooperative agriculture. This system has been around for years, and South Africa has been highly successful as a global supplier of high-quality produce.”

Aims, vision and mission

Dr. Bulelwa Ntsendwana, Director of Angaza Afrika, is a serial innovator with a PhD in applied chemistry.

Her passion is effective utilisation of natural resources and minerals for social and economic growth.

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Angaza Afrika’s website clearly outlines the organisation’s long-term vision for the programme, which is to be implemented in three phases.

“Our vision is to stimulate impactful socio-economic activities in communities for social and economic transformation. We envision replicating this programme outside of South Africa once it’s entrenched in the country. The 30-year programme is implemented in three phases, each of which will last 10 years. Phase 1 is currently under way.

“Our mission is to incubate co-operatives by facilitating the setting up of community-based entities that can work together to generate economic value in communities through local activities and by using local resources. Such entities include co-operatives, CBOs, and youth and women groups.

“The aim of the programme is to form, register, manage and support 540 diverse co-operative businesses (in agriculture and related activities) in the commercial value chain. Through the co-operatives, we want to create at least 5 400 direct employment opportunities nationally over a period of five to 10 years, and continue to mentor them as they flourish and thrive.”

angaza afrika

The importance of partnerships Angaza Afrika works in partnership with Angaza Afrika (Pty) Ltd. The private company owns the land the NGO uses to support commercial agriculture cooperatives. Angaza Afrika (Pty) Ltd funds most activities implemented by the NGO, until the NGO is able to sustain itself.

The Sustainable Commercial Agriculture Co-operative Programme The Sustainable Commercial Agriculture Co-operative Programme is Angaza Afrika’s flagship activity. The national programme is currently being piloted at the following sites (mostly in Gauteng): ●● ●● ●● ●●

Magaliesberg:1 429ha for mixed farming (crop production and animals) The Vaal: Orange Farm/Sebokeng/Small farms Ekurhuleni: Vosloorus/Eden Park/Nigel Port Alfred, Eastern Cape: A two-year pilot in partnership with the University of Derby in the UK.

The programme will be rolled out to other provinces later in 2020.

The incubation period for a co-operative in the programme is at least 12 months, but can be up to five years, depending on the progress of the members. Overall, this 30-year programme is both robust and in-depth, and it is well buttressed by a team of knowledgeable, skilled individuals and corporate entities who are able to provide the much-needed support to cooperatives in the agricultural sector.

Most training courses offered in the programme are accredited at NQF Levels 2 to 5 across all fields relevant to co-operative agriculture-based businesses, including skills in agricultural production, crop production, business, agri-technologies, farm machinery operations, soil and water management, life skills, conservation farming, and organic agriculture. Apprenticeship is the preferred approach to – and method of – on-the-job training.

The Commercial Agriculture Co-operative Programme basics ●● A co-operative in the programme has between five and 20 members. Each co-operative implements an average of three different activities. ●● Between 10 and 20 co-operatives work collaboratively on a piece of land, usually of 100 hectares or more. This is known as the “production hub”. Some co-ops will work independently on smallholder units of between 15 and 30 hectares. ●● In the production hub, co-operatives share resources to minimise cost of production by optimising economies of scale. ●● Each production hub is managed by Angaza Afrika staff working as farm managers. ●● Members of each co-operative commit to the programme by agreeing to – and signing – a code of conduct. ●● Each co-operative commits to participating in the programme’s activities and abiding by its procedures for at least 12 months. ●● Each co-operative contributes a once-off fee of R110 000 for the entire incubation period to offset the cost of the various administrative, management and support functions provided by Angaza Afrika.

Programme objectives These include: ●● Creating at least 540 co-operative businesses across the agriculture value chain nationally; ●● Creating at least 5 400 direct employment opportunities through co-operatives in rural, urban and peri-urban areas in South Africa; ●● Enhancing the passion and developing the skills and knowledge of co-op members with regards to farming and agri-business activities; ●● Contributing to food security at household level in the country; and ●● Actively participating in environmental management and conservation through community-based climate-change adaptation and resilience activities in the agricultural sector.

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angaza afrika How to join the programme Membership is based on individuals’ business interests, passion for agriculture, interest in working with others as a team, and location (where they are based). ●● Members of co-operatives are recruited primarily on the basis of business interests and location. No education or academic qualifications are used as a criteria for membership, although they are considered in constituting individual co-operative leadership structures. ●● The members contribute towards the registration fee of R450, which can be deposited in one of the following accounts: A ngaza Afrika Business Account Standard Bank (Rosebank Mall branch) Account number 282 462 503 Reference Your co-operative name OR CIPC Transmission Account ABSA (Van Der Walt Street branch) Account number 40 55 68 10 17 Reference HE0051. ●● Once this is done, the registration process is finalised by Angaza Afrika. A certificate is handed over to the cooperative once it is issued by CIPC (within 21 to 35 days). ●● Once registered, members are inducted into the programme through an orientation activity and the signing of the programme’s code of conduct, which binds them to the programme for at least five years. ●● Some of the support provided to co-ops includes (but is not limited to): 1.

2.

3.

4.

5.

6.

Facilitation and training.

Assistance with access to funding through business plan development for each co-op.

Identifying relevant service providers to support individual co-operatives .

Assistance with access to markets and appropriate agricultural technology.

Opening bank accounts for each co-op.

Overall administration and management of co-op agriculture businesses.

For more information, contact Dr Sammy Wanyama at: e: thechairman@angazaafrika.com 36

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Potato and onion co-ops

Horticultural co-ops

Bakery co-ops

Protective clothing co-ops

Food-processing co-ops

Craft microbrewery co-ops

Angaza sustainable co-ops ecosystem

Beekeeping co-ops

Mushroom farming co-ops

Fish farming co-ops School nutrition co-ops

Goat meat and milk co-ops

Funding for the co-operatives Angaza Afrika’s primary funding is a mixed agricultural production business, where a number of activities are implemented and products produced. The activities include dairy (cows and goats) processing and beef production; horticulture (with a large range of organically produced vegetables); fishery; maize production (hybrid, not GMO); sugar beans production and canning; mushroom production; and poultry processing. Products include pasteurised fresh milk (cow and goat); butter/sour milk; cream; butter and cheese; eggs, vegetables and herbs; canned beans; fish (whole and filleted); organic manure; and beef.

Income from the services provided to co-operatives through the incubation programme as well as South African government sponsorship is used for job/ employment creation and skills development in the agriculture and small business sectors. Income is also generated through R&D activities.

Angaza Afrika is additionally supported through; ●● Sponsorship from individual philanthropists and corporate entities that support Angaza Afrika’s development initiatives via communities in South Africa ●● Government grants for co-operatives in the agricultural sector ●● Business loans, mostly from government financial institutions ●● Individual investors willing to invest in specific agricultural activities through co-operatives in the programme ●● Philanthropists and environmental conservationists working through communities to promote conservation farming and agriculture Individuals and/or corporates can also adopt a production hub or a number of coops within a hub, financing activities and coaching/mentoring members throughout their business development journey as a way of giving back to the community.

new organisation

A tenant’s voice

Occupiers of corporate real estate are coming to the realisation that their interests, as tenants, are best served when they have their own, unconflicted advocates. This represents an important shift in the property landscape – in South Africa and the rest of the continent, tenants have traditionally not had access to representatives who act solely on their behalf

R

eal estate is a major cost component for most companies, and the power balance is often skewed. In many cases, tenants do not have enough information to negotiate the best rental terms.

Cresa, the largest provider of occupierfocused commercial real estate in the world, has now launched in South Africa, and the company is bringing the focus back to tenants, according to Cresa South Africa’s Head of Corporate Real Estate Guy Voller. “Historically, the market has been one in which landlords hold the majority of the power – but in recent times, the pendulum has begun to swing the other way. With occupiers, in effect, running the current market – and real estate being the second-biggest corporate expense after payroll – corporate space users are increasingly looking to re-assess their real estate plans, and are considering enlisting the services of firms that specialise in tenant representation.”

An efficient property market enables a fast-growing economy President Cyril Ramaphosa described Africa as being “on the cusp of a new era” at the South Africa-Japan Business Forum in Yokohama, Japan in August.

“Taken as a whole, Africa is already the world’s eighth largest economy and is set to expand rapidly over the coming decades,” Ramaphosa said. The continent boasts the second-highest urbanisation rate after Asia. By 2030, 82 African cities will have populations of more than a million people – and five will have populations of more than 10-million.

Home to six of the world’s 15 fastestgrowing economies, Africa is widely considered to be the final frontier for industries across the board. Commercial real estate is no exception, and laying

Supplied by Edelman PR

FROM LEFT Adviser Murray Lovemore, Senior Adviser Che Gaier and Managing Director and Head of Corporate Real Estate Guy Voller

the foundation for an efficient and fair property market will form a key part of the continent’s growth story.

Specialised tenant-advisory firms versus traditional brokerage firms Specialised tenant advisory firms offer their clients an array of services, many of which are not priority focus areas for traditional brokerage firms because they are not as lucrative as transaction-based services. These ancillary services include the handling of transactions, strategic services and project management.

While many traditional brokerage firms claim to represent both landlords and tenants, the reality is that there are often conflicts of interest. Most traditional brokerage firms derive about threequarters of their revenue from owners and investors, and only a quarter from occupiers. This implies that they have an inherent bias towards landlords.

According to Jim Underhill, CEO of Cresa Global, they are responding to increased market demand for unbiased commercial occupier representation globally. “We are excited to have Guy Voller joining us as our market leader in Johannesburg,” Underhill says. “Our exclusive relationship with occupiers allows us to be totally independent,

advocating solely on behalf of our clients.

South Africa, the second-largest economy in Africa, is a strategically important market for corporations, and Guy’s team brings an outstanding CV and client relationships.

We will continue to build our platform around top professionals in the world.”

With a deep understanding of the real estate market, underpinned by market analysis and data-driven insights, Cresa helps occupiers and tenants to become more competitive.

“At Cresa, we’re focused entirely on occupier needs and providing integrated real estate solutions that meaningfully impact our clients’ entire businesses,” says Voller. “Our team members have decades of experience as tenant representatives between them. Our experience in this space allows us to demystify the markets for our clients and help them uncover ‘hidden plays’ that give them the edge they need.

“Whether we use our services to improve financial performance, reduce risk or integrate our clients’ technology needs, we are on a mission to empower tenants, allowing them to keep their focus on their business. With occupiercentric representation, we’re helping them navigate challenges and take advantage of opportunities.”

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one-on-one

“Zoe”:

giving life to planning Triumphant Zoe was launched by founder and CEO Tryfina Kgokong, whose diverse set of skills is the result of work she’s done on projects as varied as hospitals, five-star hotels, shopping malls, office blocks, residential space, airports, schools and restaurants in locations throughout Africa and the Middle East, including Johannesburg, Cape Town, Durban, Dubai, Abu Dhabi, Doha and Beirut Interview by Mark Pettipher

W

a career in education – he lectured in hen you meet Tryfina Kgokong, economics, mathematics and physical founder and Chief Executive science at the Sekhukhune College of Officer of Triumphant Zoe, for the first Education in Limpopo. time, you meet a person who is full of life, “I attended Jacob Marwale Primary determined to succeed and dedicated to School in Ga-Nchabeleng and Modipa driving her passions forward.

Agricultural High School in Strydkraal.

I first connected with her at the SAPOA Going to public schools was difficult; Annual Convention & Property Exhibition there were times when I’d have to study in June, then at SAPOA’s PDP course – under a tree, and I didn’t have access and again, perhaps unsurprisingly, at to libraries, sports facilities or any of the the Green Building Council South Africa other benefits that private education convention at the beginning of October. usually offers.

She is a SAPOA member and affiliated “But I have realised that my drive to to all the major property associations, succeed in life has been fuelled by my including the SA Council for the Quantity Tryfina Kgokong, founder and CEO of Triumphant Zoe humble beginnings and by the dream Surveying Profession, the Association of of a better life – not just for myself but South African Quantity Surveyors, RICS, SAIBPP, the WPN and the GBCSA, and tells me that she is for my family, as well as South Africa as a whole.

“In high school, I was determined to do well and qualify for about to complete her GBCSA practitioner certification. Her story is one of humble beginnings, of travelling extensively university, so I had no option but to study Higher Grade and working overseas, and of returning to South Africa to subjects. I had to basically teach myself through study guides because my teachers only taught the subjects in Standard “make a difference”.

To quote the University of Stellenbosch Business School Grade. This part of my learning process prepared me for website, “After working in the UAE for five years, Tryfina university life and self-study.

“I found myself making a deal with God – that if I could returned home to Johannesburg to make a difference in her own country. She started her business, Triumphant Zoe, make it to the University of Cape Town (UCT), I would serve in early 2019, offering property development, quantity Him with my life. My first step on this journey was when I was surveying, project management and coaching services. In accepted to study BSc Construction at UCT in 2003. After 2018, she was nominated as a Rising Star by the Women in completing my undergraduate degree, I went on to obtain an honours degree in quantity surveying at UCT. Construction Awards.”

“I stepped into the construction industry in 2003 during Kgokong was born in Kenya in 1985 to a Kenyan mother and South African father, the second in a family of four girls. my vacation training. I was in my hometown of Ledig in “My family moved to South Africa in 1992,” she says. “I stayed Rustenburg for the first-year varsity break, and I knew I was with my uncle in Dube, Soweto, during my pre-primary required to find practical training as part of my studies. school years. My father, Festus Tati Kgokong, left behind a life I walked onto a site in Sun City, where Grinaker-LTA had an in politics (which had lead him into exile), and focused on ongoing project, and asked for work; I got it on the spot, and

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one-on-one

I started working immediately. This is one of my strengths: which makes it an intense, multi-cultural environment,” she I spot opportunities and move to action, which I believe says. “I learnt to work with people from different backgrounds, makes me a change catalyst. and from countries such as Germany, the UK, India, Sri Lanka, “When I graduated, I was lucky to be offered my first full- Turkey, Palestine, Greece, Malaysia, Philippines and Pakistan. time job with the international firm MLC Quantity Surveyors This required much personal development on my part, as well at its Cape Town office. I registered as a Professional Quantity as leadership and emotional intelligence. I’m glad the USB Surveyor with the SA Council for the Quantity Surveying MBA programme incorporated a large portion of leadership Profession (SACQSP) within three-and-a-half years in 2010 development, and I appreciated having taken emotional under the supervision and mentorship of Niel du Pisani and intelligence as an elective, because it enabled me to adapt to Mike Stricker (former Group CEO of MLC). At MLC, I had the the different work environment. opportunity to work on big projects “While I was in Dubai, I joined MLC “While working on the from initiation to final account stage; International at the company’s Dubai these included the Holiday Inn Express office, and was involved in projects such airport project in the UAE, hotel in Umhlanga, which I presented as the refurbishment of the Kempinski to SACQSP. Hotel at the Mall of the Emirates, the I used to leave my home “Losing my father in 2008 was a reality Address Boulevard in downtown Dubai in Dubai at 7am, drive for check of how precious and delicate life is. (near the Dubai Mall and the Burj Khalifa), I made a decision to live a purposeful Artists in Residency project in Qatar, more than an hour to the and fulfilling life by making the best use and a Waterfront City hotel in Beirut. project site in Abu Dhabi of my talents and abilities.

“My most ambitious project was the “In memory of my father, I decided Abu Dhabi International Airport, valued and work a 10-hour day” to enrol for an MBA in 2009 at the at AED10,8-billion (R43-billion), which University of Stellenbosch Business School (USB). I saw it as I took on in my capacity as a contract administrator with a way of continuing to live up to the legacy of education that Arabtec Holding. my father had instilled in me and my sisters. In fact, two of my “People might think that working in Dubai and Abu Dhabi sisters, Bertha and Rose, followed suit, completing their MBAs is like a holiday – but it was the hardest I’ve ever worked in my at GIBS. My other sister Diana completed a master’s degree life. While working on the airport project, I used to leave my in physiotherapy. home in Dubai at 7am, drive for more than an hour to the “When I completed my MBA in 2012, I was presented with project site in Abu Dhabi, work a 10-hour day, then drive back an opportunity to gain international experience in Dubai in to Dubai, at least five days a week alternating. I learnt to work the United Arab Emirates. It was like a dream: I received under tremendous pressure – and, as a woman in a malea random phone call from a recruiter who had found my dominated industry in a Muslim country, I learnt to be very CV online. This was one of the most valuable life lessons firm and stand my ground. I found my voice and spoke up I’ve learnt: that certain opportunities are bound to find when it was necessary. you when you’re not even looking for them. That’s why “Since then, I’ve applied my depth of knowledge in the it’s best to always be prepared – to be ready to grab any field of construction and property development in South opportunity with both hands the moment it knocks on your Africa, Botswana and Zambia. door. As Zig Ziglar says, ‘Success occurs when opportunity “In 2018, I was nominated as Rising Star by the Women in meets preparation‘…

Construction Awards. And earlier this year, I was invited to both “I also became a member of the international body of the UCT and Wits as a guest speaker, to deliver a speech at the Top Royal Institution of Chartered Surveyors in 2012.”

Achievers Award ceremonies for the Construction Economics As can be expected for any individual who leaves their and Management departments.” country to live and work in a foreign land, when she arrived in Dubai, Kgokong experienced somewhat of a culture shock. Contact Kgokong through her website triumphantzoe.com or “In Dubai, 90% of the population is made up of foreigners, call +27 (0)64 274 9886.

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beyond zero

Shaping cities of tomorrow The Green Building Council South Africa held its 12th annual Green Building Convention in Cape Town from 2 to 4 October at the Century City Conference Centre GBCSA CEO Dorah Modise Words and photographs by Mark Pettipher

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Outgoing GBCSA Chairman Nkosinathi Manzana

Patricia De Lille, Minister of Public Works and Infrastructure

PREPARE FOR CITIES OF TOMORROW

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SOUTH AFRICAN PROPERTY REVIEW

2-4 October 2019 CENTURY CITY CONFERENCE CENTRE, CAPE TOWN

nce again I was privileged to attend the Green Building Council South Africa’s (GBCSA) convention, which kicked off with an amazing satellite session on cities and sustainable development. The thought-leaders in this session also led breakaway groups on a number of critical city issues, including alternative transport, water and energy security, waste and human settlements.

GBCSA CEO Dorah Modise opened the formal proceedings, welcoming all delegates and thanking this year’s sponsors, who included Nedbank, Growthpoint, Belgotex and the Century City Conference Centre, along with GIZ, Standard Bank, Neolith, Rand Water, Mott MacDonald, Formfunc, Plantr, Resource Design, RICS, the Department of Environmental Affairs and the Department of Public Works and Infrastructure.

The opening plenary had us inspired

by Jason McLennan’s vibrant and honest presentation on radical architecture. We learnt about extraordinary living buildings around the world, including the Bullit Centre in Seattle. (Dr Robert Pena spoke of the building at last year’s convention.)

McLennan mentioned that he’d done a similar presentation as a TED Talk.

The Minister of Public Works and Infrastructure Patricia De Lille then spoke about the department’s commitment to transforming state-owned buildings. She announced a partnership with GBCSA and Agrément South Africa that will see the update of two green building rating tools to include government facilities.

Day 2 was filled with inspiring thought leadership and innovative ideas that took us beyond in shaping the cities of tomorrow.

Who is Agrément South Africa Agrément South Africa is tasked with conducting testing, performance and certification of construction industry products and methodologies to ensure quality and durability of such products on behalf of the Department of Public Works (DPW). It is also tasked with managing the South African eco-labelling system as government’s recognised system for building materials and products, which is incorporated in the DPW’s standard specifications for construction works. This environmental assessment will entail inspecting green building aspects, including indoor air quality, comfort, environmental issues, and material and energy resource conservation.

Agrément South Africa’s vision is to be a world-class technical assessment agency. Agrément South Africa’s mission is to promote government’s objectives of economic development, good governance and raising living standards and prosperity in South Africa.

Agrément South Africa’s quality management values are based on strict quality management principles. They are implemented through the commitment and participation of all staff, and include continuous consultation with clients. This approach provides an effective service and ensures a high standard of innovative construction products and systems assessments.

beyond zero

Jason McLennan talks about living buildings in a TED Talk

Jason McLennan is a sought-after designer, consultant and thought-leader in architecture and the green building industry. His work has made a strong impact on the shape and direction of green building around the world.

Recipient of the prestigious Buckminster Fuller Prize for socially responsible design, McLennan is the CEO of International Living Future Institute, a leading NGO that focuses on transformation towards a world that is socially just, culturally rich and ecologically restorative.

He is also the founder and creator of the Living Building Challenge, widely considered to be the most progressive and stringent green-building programme. Recently awarded the World Changer Award by Green Biz magazine, McLennan was voted by Yes! Magazine as one of the top 15 people helping to reshape the world. He is the author of five books on green building, including the Philosophy Of Sustainable is Jo Ruxton is actively and avidlyDesign, turningwhich the tide considered by many to be the authoritative text on plastic in the ocean. As the producer of the on building. filmgreen A Plastic Ocean and the co-founder and

A Plastic Ocean is a full-length documentary, which describes with brutal honesty the state of our oceans and the terrible consequences of what happens if we all ignore the Earth’s plight

In the day’s opening plenary session, we heard from Ernesto Infante Barbosa, adviser to the Governor of Mexico’s Central Bank, about greening in the financial system and the parallels between Mexico and South Africa.

Jo Ruxton from Plastic Oceans UK delivered an impactful and insightful message about the devastating effect of plastic on our oceans and her journey to bring awareness to the problem.

Nedbank’s Kerri Savin spoke about corporate purpose in action, highlighting the bank’s leadership in sustainable development. We heard that Nedbank’s strategic approach to climate change is informed by its long-term goals for 2030, describing a preferred and prosperous future for South Africa, in which human

needs are met within environmental limits as described by science.

The long-term goals provide a framework within which Nedbank has developed a comprehensive response to climate change: Nedbank’s business response forms an integral part of the Fair Share 2030 strategy and requires Nedbank to redirect a portion of its lending flows to accelerate decarbonisation of the economy at a rate that is commensurate with the national carbon budget, i.e. South Africa’s equitable share of the global commitment to avoid a 2°C average surface temperature rise. Essentially, the Fair Share 2030 strategy incorporates both mitigation and adaptation. It comprises (i) a carbon screen that will

CEO of the Plastic Oceans Foundation that was born out of the film’s research and discoveries, she is unwavering in her quest to save the oceans from the deluge of plastic that threatens sea life, quality of life, and eventually all life.

Passionate, persuasive and pioneering, Ruxton has a rich career history of using film and media as a platform for awareness, education and engagement on conservation issues. Starting as a marine conservation officer for the WWF in Hong Kong, and then a producer for BBC’s Natural History Unit (where she was a key team player of the celebrated series The Blue Planet), she has explored and filmed vast and unimaginable underwater worlds. But she has also witnessed first-hand the devastating effects of the ocean plastic crisis. Deeply challenged, she stepped out into uncharted waters to produce A Plastic Ocean, which has since been described by Ernesto Barbosaasis“one an economic expert Sir DavidInfante Attenborough of the most and authority onofsustainable important films our time”. development, and social, environmental economic policy. He is Today, Ruxton is a and marine ambassador deeply investedainworld-renowned transformation and a greener extraordinaire, speaker and, future, a wealth ofatknowledge experience always,with an adventurer heart. Herand mission is to in green and finance; sustainable educate engage audienceshousing, around education, the globe, public financethe andway criminal justice policy; and of to transform we view, use and dispose macro-economic plastic, and to helpmonitoring. introduce workable technology and policy solutions. As she sets out to crush He is currently the adviser to indestructible the Governor at society’s perception that this SOUTH AFRICAN PROPERTY REVIEW 41 Mexico’s where he is responsible substanceCentral can beBank, treated as “disposable”, for the waves greening thewide. country’s financial shedriving is making farofand

beyond zero

Kerri Savin, Senior Manager for Sustainability Strategy and Reporting at the Nedbank Group

serve to decarbonise Nedbank’s lending book in line with the carbon budget trajectory and (ii) an annual flow of lending towards the provision of modern energy services, clean water and sanitation.

Nedbank is committed to developing financing solutions that facilitate investment in clean energy efficiency projects. Its energy project finance team backs a host of renewable energy projects and will increase investment in this sector and other clean technologies.

The bank was involved in all three rounds of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), funding and supporting projects that have delivered 2 198MW, which translates into 54% of the total renewal energy capacity allocated by the Department of Energy so far. Nedbank has set up a carbon finance team, which is involved

in the origination of clean development mechanism projects under the framework of the Kyoto Protocol. In addition, Nedbank will aim to avoid supporting activities that result in deforestation, but will support sustainable transport and property development initiatives.

Day 3 started with a plenary session titled “Whose Role Is It?” There were three presentations. Marcene Mitchell, Global Head for Climate Strategy and Business Development at International Finance Corporation/World Bank Group, talked about IFC global financial machinery as a catalyst for sustainability, and demonstrated the IFC’s commitment in Vietnam, calling it “green, sustainable and smart”.

She told us that, as is the case with many places around the world, Vietnam is currently undergoing rapid urbanisation.

Lynette Ntuli, who was the MC for the convention, is the founding Director and CEO of Innate Investment Solutions, a professional services firm in the built environment that provides property and infrastructure development services; and enterprise asset management solutions. Ntuli has held senior leadership roles in the commercial, development and investment spheres of the property management and trade and investment sectors, and sits on the boards and working groups of various real estate organisations.

Over a 13-year period, Ntuli has gathered diverse experiences in asset and infrastructure planning, management and development. Her exposure to the built environment, and her articulation of this insight into high-impact social and economic solutions are an asset in providing holistic development solutions in sub-Saharan Africa.

She holds post-graduate property-specific qualifications from the University of Pretoria and the University of Cape Town GSB. Her experience extends to the use of the organisational capacity of the private and public sector to facilitate developments in the priority sectors of the economy with a focus on infrastructure development and planning, understanding government planning and Strategy Marcene Mitchell, Global Head for Climate development asset management and Businesspolicy, Development at IFC/Worldframeworks Bank Group, and substantial audit and compliance been has leadershipprocesses. experienceNtuli in thehas field of well profiled for her executive positions, among international finance, with demonstrated successthem being the firstnew woman in executing business in emerging markets in South Africa to become GM of a super-regional for energy-related investments. shopping centre (The Pavilion) and CEO of the Durban Business Enhancement Initiative.

The IFC/World Bank Group Climate Business Passionate about youth development and Department oversees the growth of an US$8leadership, Ntuli is a founding Director and Chair billion climate investment portfolio, including SOUTH AFRICAN PROPERTY REVIEW 42 of Ignitesa.com, a youth-oriented media investments in renewable power, digital industrial energy and programme platform that curates content efficiency, and sustainable urban infrastructure.

Danie Hoffman, Amelia Beattie, Peter Worthington and Nthabiseng Mehale

The programme of events included several “Deep Dive” sessions. Although I had an all purpose pass, I still had to register for the sessions that were of interest. In the session on “Investment Strategies: Green Building and Sustainability”, we got an overview of the performance of green buildings in the current economy, the cost of investing green, and innovations that are redefining property investment. We joined experts from the Absa Group, Liberty 2 Degrees, University of Pretoria and Benchmark REIT as they made the case for green building investment.

Economics overview: How Will Green Buildings Perform in the Current Economic Scenario? – Peter Worthington, senior economist at Absa The Cost of Investing Green – Danie Hoffman, Senior Lecturer and Programme Leader in Quantity Surveying at the University of Pretoria Actions Working Back from Net Zero: A Strategic Plan and Organisational Adoption – Amelia Beattie, Chief Executive of Liberty 2 Degrees Green Bonds to Finance Green REITs: The New Solution to Property Investment – Nthabiseng Mehale, Chief Executive Officer at Benchmark REIT

beyond zero

Luisa Bravo used extracts from her lecture on urban space

Its rising middle class is on the move: the number of people living in cities is projected to increase from 34,7-million last year to 65,7-million by 2050. That’s more than half of the population relocating to an urban area – all in need of a place to live, work and shop. The result? A demand for an extra 12-million square metres of floor space every year, which is spurring the growth of Vietnam’s building sector.

But more construction translates into greater demand for other things.

Building construction and maintenance account for one-third of electricity consumption in Vietnam, and this is reflected in the growing demand for power – a double-digit rise since 2000.

Power demand has grown at 13% per year since 2000, and is projected to grow at more than eight percent between now and 2030. The building sector also contributes to an annual 12% rise in the country’s annual greenhouse gas emissions, which is among the highest rates in the world.

IFC created Excellence in Design for Greater Efficiencies (EDGE) – a building resource efficiency certification program – especially for emerging markets such as Vietnam. IFC introduced EDGE to Vietnam in 2015, with support from the government of Switzerland’s State Secretariat for Economic Affairs (SECO) and the Hungarian Export-Import Bank, to help the building sector meet the

needs of the country’s fast-urbanising population. The programme guarantees savings of at least 20% in energy and water consumption, as well as energy savings in building materials, leading to reductions in greenhouse gas emissions.

In just five years, EDGE has been used across nearly 1,4-million square metres of floor space in Vietnam, accounting for more than 50% of the country’s total green building market. EDGE-certified buildings in Vietnam have benefited 50 000 residents, who have saved nearly US$1,4-million in utility costs. These buildings have also cut the use of 12 000 megawatt hours per year and reduced greenhouse gas emissions by close to 10 000 tons annually.

Luisa Bravo, Founding Member and President of City Space Architecture in Italy, presented “Who Owns the City?”, using elements of her lecture series.

Professor David Viner, Global Practice Leader in Climate Resilience at Mott MacDonald presented his findings, entitled “Investing Confidence Amid a Changing Climate”. He said that climate change is not a new phenomenon, and that awareness of the effects of greenhouse gases have been known since the 1860s. He pointed to John Tyndall (c. 1822-1893), an Irish physicist and public intellectual, who was best known for his work on the absorption of heat by gases such as water vapour and carbon dioxide in the atmosphere.

Luisa Bravo is the go-to guru on public space.

As an international educator and speaker, a social entrepreneur and a public space activist, her cross-disciplinary approach to understanding the complexities of the contemporary city has given her a wellrounded understanding of the public space.

Her research is internationally acclaimed, and she is sought-after as a dynamic and relevant authority on the matter.

As founder and President of City Space Architecture, an NGO aimed at promoting public space, architecture and culture, and partner of the UN-Habitat’s Global Public Space Programme, Bravo has drawn together key players for projects, conferences, workshops and exhibitions around public spaces. Through this collaborative platform, she launched The Journal Of Public Space, the first international, multi-disciplinary, academic journal exclusively championing the topic of public spaces.

Bravo’s influence has reached far and wide, with Dr Viner is a global strategist, herDavid lecture “Stand Up for adviser, Public Space” included researcher and an internationally acclaimed in the 2017 UN-Habitat Global Urban Lectures expert climate change.

With more than 27 series, on a prevalent online outreach initiative. years experience in climate change, resilience AsofChief Architectural Engineer of her company and sustainability the than globe,15heyears has brought Bravo Design, andaround with more of together keyininfluencers in science, social science, experience urban design, Bravo has as much policy research, and insightdevelopment, to give into the future ofbusiness urban planning government to create change on an intellectual levelreal as she doesfor onboth a practical planet people.she is not only a “thinker” but level. Inand essence, a “doer” – both the expert and the experienced.

His expertise, born from Sheoutstanding is a future-focused individual and“onan ace the-ground” andknowledge. ground-breaking at imparting experience her hard-won research, sets him a true thoughtIf we could sumapart up herasup in one word, it would leader and an undeniable force for be “transformer”, as she renovatesgood. the intellectual, He cultural is the convening lead architecture author for theof the public social, and physical International Panel on Climate space, and passionately pursuesChange real (IPCC) 6th Assessment Report and author for the change for organisations andlead individuals alike.

IPCC Special Report on Climate Change and Land. He was part of the IPCC when it was jointly awarded the 2007 Nobel Peace Prize with Al Gore “for their efforts to build up and disseminate knowledge about man-made climate change, and to lay the foundations for the measures that are needed to Meet GBCSA’s new Chairperson counteract suchofchange”. currently has holds the Ilse Swanepoel RedefineHeProperties more position of Principal Adviserinonthe Climate Change than 12 years of experience utilities space at the Mott MacDonald Group, Visiting specialist.

Professor and is an environmental sustainability at theholds University of East Anglia and Global She a Bachelor of Information Sciences (BIS) Practice Leader Climate Honours degree and fromInternational the University of Pretoria, Resilience Strategist at the and World Leading and leads the development implementation Infrastructure Consultancy. sustainability strategy. of Redefine’s environmental During his 17 years as Senior Research SOUTHand AFRICAN PROPERTY REVIEW 43 Scientist Climate Director at the Swanepoel’s key areasChange of expertise include Climatic Research Unit of UEA,energy, he contributed the deployment of renewable energy

beyond zero The first report on climate change was published in 1861.

Viner then alluded to the United Nations Intergovernmental Panel on Climate Change (IPCC), which has carried out extensive research, and told us that the research findings conclude that many countries considered that a level of global warming close to 2°C would not be safe. At that time, there was only limited knowledge about the implications of a level of 1.5°C of warming for climate-related risks, and in terms of the scale of mitigation ambition and its feasibility. Parties to the Paris Agreement therefore invited the IPCC to assess the impacts of global warming of 1.5°C above pre-industrial levels, and the related emissions pathways that would achieve this enhanced global ambition.

The report confirms that climate change is already affecting people, ecosystems and livelihoods all around the world. It shows that limiting warming to 1.5°C is possible within the laws of chemistry and physics, but that it would require unprecedented transitions in all aspects of society. It finds that there are clear benefits to keeping warming to 1.5°C rather than 2°C or higher. Every bit of warming matters. And it shows that limiting warming to 1.5°C can go hand in hand with achieving other global goals such as the Sustainable Development Agenda. Every year matters – and every choice matters.

Most of the speakers mentioned teenage Swedish climate activist Greta Thunberg and her address at the United Nations Climate Action Summit in New York, where she chastised world leaders on 23 September 2019 for failing younger

generations by not taking sufficient steps to stop climate change.

“You have stolen my childhood and my dreams with your empty words,” Thunberg said at the United Nations Climate Action Summit in New York.

“You’re failing us, but young people are starting to understand your betrayal. The eyes of all future generations are upon

you. And if you choose to fail us, I say we will never forgive you.”

Thunberg travelled to the US by sailboat so she could appear at the summit. She and other youth activists led international climate strikes in an attempt to garner awareness ahead of the UN’s meeting with political and business leaders.

GBCSA Awards HIGHEST RATED BUILDING Winner: Hotel Verde, Cape Town (Verde Hotels) André Harms, Ecolution Consulting Runner-up: Collingwood Building, Black River Park, Cape Town (Redefine Properties) Sally Misplon, Misplon Green Building Consulting BEST QUALITY SUBMISSION Winner: Lakeside Offices, Pretoria (Growthpoint Properties) Louwna Joubert, Aurecon Runner-up: Clearwater Office Park, Building 3, Johannesburg (Redefine Properties) Sally Misplon, Misplon Green Building Consulting ESTABLISHED GREEN STAR Winner: Jutta Berns-Mumbi, Ecocentric Runner-up: André Harms, Ecolution Consulting RISING GREEN STAR Winner: Claire Holton, Ecocentric Runner-up: Sesona Myosana, WSP

Swedish climate activist Greta Thunberg 44

SOUTH AFRICAN PROPERTY REVIEW

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state of city finances

Cities and energy diversity Electricity is a major energy source for cities, fuelling economies, generating revenues for service delivery, and contributing to pro-poor financial redistribution We extend our thanks to the South African Cities Network for the following extracts. Click on the cover image above to download the entire report. SACN. 2018. State of City Finances Report 2018. Johannesburg: SACN ISBN: 978-0-6399215-2-5. © 2018 by the South African Cities Network.

The State of South African Cities Report is made available under a Creative Commons Attribution – Non-Commercial – Share-Alike 4.0 International Licence. To view a copy of this licence, visit creativecommons.org/licenses/by-nc-sa/4.0.

T

herefore, cities must respond – and be enabled to respond – to disruptions in the energy sector. The global megatrends – the uptake in renewable energy and changes in customer demand – are being felt locally. Electricity sales are decreasing as customers implement energy efficiency measures, switch fuels and install rooftop solar photovoltaic (PV) systems, driven by the increased cost of conventional electricity from coal and nuclear, and the decreasing costs of renewable energy. Compared to energy efficiency and fuel switching, installing rooftop PV systems within the residential sector has an impact disproportionate to the actual electricity unit sales lost. This is because of both Eskom’s and the municipal tariff structures, which bundle grid charges, levies and taxes within the unit charges.

Municipalities use surpluses from electricity sales to cross-subsidise low-income residential customers. This means that the municipality’s ability to service the poor is compromised when high-income residential customers become more energy efficient and install solar PV. Cities have the executive authority to reticulate (move) electricity in their areas of jurisdiction, but their role in supplying electricity, either through large-scale generation projects or rooftop PV, and trading electricity through their grids is less clear, and 46

SOUTH AFRICAN PROPERTY REVIEW

Key messages Electricity is both a major energy source and a central component of big-city finances. Therefore, the increase in uptake of renewable energy and changes in consumer demand for electricity affect not only city finances but also a city’s ability to cross-subsidise low-income residential customers.

Cities need a new business model to stay relevant in the face of fast-changing customer demands for energy, and should be taking on a more dynamic role within the national electricity sector.

Cities need to decrease losses from theft and expenditure on bulk purchases (buy from independent power producers), generate revenue through electricity trading and grid/time-of-use charges, and exploit alternative energy sources.

regulations sometimes actively hamper city involvement or innovation.

Cities need a new business model in order to stay relevant in the face of fast-changing customer demands for energy service. The model should be built on a transparent cost of supply, and take into account revenue losses, energy service infrastructure costs, current tariff structures and cross-subsidies, new technologies and business opportunities, escalating Eskom tariffs and service delivery to the poor.

After presenting an overview of energy consumption in cities, the chapter explains the role of cities in providing electricity, and the importance of electricity revenue for city finances. The focus then turns to disruptions in the electricity sector and their effect on cities, and offers some recommendations for cities on

responding to these disruptions while remaining sustainable in the future.

Energy consumption in cities As Figure 66 shows, electricity accounts for between 20% and 50% of energy consumption in cities, with transportrelated fuels such as petrol (27%) and diesel (20%) making up the bulk of the remainder.

In South African metros, the transport sector currently consumes half of all energy, mainly in the form of diesel and petrol (Figure 67). In the future, energy consumption in cities may become more heavily skewed towards the use of electricity, as electric vehicles become more widespread and replace diesel and petrol vehicles. France and the UK have announced a ban on petrol and diesel vehicle sales by 2040, while China, the world’s largest car market, is considering a similar ban.

state of city finances FIGURE 66: 66: Energy Energy consumption cities (2011) Figure consumtion by bysource sourceininSouth SouthAfrican African cities (2011) JHB

Electricity

CPT

Coal Petrol

ETH

Diesel

TSH

Paraffin

EKU

LPG

NMB

Heavy furnace oil

MAN

Jet fuel Aviation gasoline

BCM

Marine

MSU 0%

20%

40%

60%

80%

100%

The role of cities in electricity provision

Sources: SEA (2011); SEA (2015) Note: All data is for 2011/12, aside from Msunduzi, which is for 2007. Fuels used for electricity generation are not captured, otherwise there would be double-counting (electricity is already counted). Therefore, the coal use recorded here represents coal used directly, e.g. coal use in industrial boilers or in residential coal stoves.

FIGURE 67: Energy consumption by sector in South African metros

Figure JHB 67: Energy consumtion by sector in South African metros CPT Residential

ETH

Commercial Industrial

TSH

Transport

EKU

Government NMB

Agriculture

MAN BCM 0%

20%

40%

60%

80%

100%

Source: SEA (2015)

As Figure 68 shows, the eight metros and Msunduzi account for about a third (31%) of the country’s total electricity consumption (SEA, 2011, 2015, 2016a).

Figure 68: Proportion of electricity consumed by South African cities (2011)

In 2016, coal-fired power stations generated 82% of the country’s electricity, with nuclear and imported large hydropower responsible for most of the remainder, and renewables for roughly 3% (DoE, 2016). The only Cabinet-approved and published Integrated Resource Plan (IRP) sets a target of nine percent of electricity to be generated using renewable sources by 2030. The IRP has been reviewed and updated following public consultations, and was published in 2018.

Municipalities play a key role in the reticulation (moving) of electricity. The Constitution gives them “executive authority and right to administer” electricity and gas reticulation. Eskom is responsible for electricity transmission (moving electricity from power plants to substations), while Eskom, 10 private entities and about 180 licensed municipalities are responsible for distribution (moving electricity from substations to customers) (NERSA, 2017). Municipalities distribute to more than half (54%) of all electricity customers (DoE, 2017).

According to the Municipal Systems Act (No. 32 of 2000), municipalities are authorities for providing services such as water and electricity. This means that cities can develop service-related policies, by-laws and tariffs, and can decide how to supply the services. The Act (Sections 73 and 78) mandates municipalities to deliver services that are financially prudent and environmentally benign. It also requires them first to assess the cost (including the impact on the environment and human health), job-creation potential and current trends in sustainable service provision.

As a result, many cities have produced strategies or action plans aimed at promoting (or increasing the proportion of ) energy sourced from renewables, because renewable power is less environmentally damaging, provides more jobs per dollar invested (UNIDO SOUTH AFRICAN PROPERTY REVIEW

47

state of city finances and GGGI, 2015) and, in many cases, is cheaper than conventional coal and nuclear power.

However, regulatory challenges and uncertainties beset the municipal role in supplying, as opposed to distributing, electricity. Following Cabinet’s singlebuyer decision in 2007, which allows only Eskom to buy from independent power producers (IPPs), municipalities wanting to purchase electricity directly from IPPs have to request a determination from the Minister of Energy in terms of Section 34(1)(a) of the Electricity Regulation Act (No. 4 of 2006). Cape Town is challenging this decision in court, arguing that it is unconstitutional and invalid.

In addition, for many years, the national regulations, standards and policies surrounding small-scale embedded generation (SSEG), which includes rooftop PV, were unclear. In September 2011, the first draft consultation paper on standard conditions for SSEG was released and stated that electricitygenerating systems smaller than 100kW did not need a generating licence from NERSA, so long as they were for “own use”. The Department of Energy’s (DoE’s) renewable energy independent power producer procurement programme (REIPPPP) covered systems larger than 1MW. This left a grey area for systems between 100kW and 1MW, which are the sort of systems that large customers (e.g. malls) might install.

This regulatory uncertainty hampered the rollout of rooftop PV by cities. In 2013, NERSA approved Cape Town’s pilot SSEG tariff but, for the next three years, turned down SSEG tariff applications from other cities because the SSEG standards were not finalised. Meanwhile, private rooftop PV installation carried on at pace, regardless of national or city requirements. In 2016, despite the standards not being finalised, NERSA began approving SSEG applications again. The final SSEG standards were meant to be ready in August 2015, but then NERSA advised that the standards would only be finalised once the DoE 48

SOUTH AFRICAN PROPERTY REVIEW

released the new licencing regulations.

In November 2017, the DoE finally published the Licensing Exemption and Registration Notice, which supersedes NERSA’s draft regulatory rules. The 100kW to 1MW gap was addressed: systems of 1MW and smaller do not need a generation licence but need to register with NERSA, and systems will only be registered so long as the cap on SSEG, as allocated in the IRP, has not been reached. The IRP makes no mention of a cap (Montmasson-Clair et al., 2017).

The regulations on wheeling, i.e. on the transport of privately generated electricity across municipal grids, are inconsistent and unfair towards cities.

In 2012, NERSA released draft regulatory rules on network (grid) charges for energy transported by third parties, in which medium-voltage generators are exempt from grid charges (the fee charged by cities for the use of their grid). This means that the city does not receive any income from a private generator using its grid. However, if the grid is down, the city has to pay the private generator for any lost sales.

Similarly, in 2006, NERSA granted a licence to POWERX (previously Amatole Power) to trade electricity, meaning that POWERX could buy from IPPs and on-sell to willing customers, using the city’s grid. This is contrary to Cabinet’s single-buyer decision in 2007 that allows only Eskom to buy electricity directly from IPPs – municipalities are currently not allowed to purchase power directly from IPPs. What is still unclear is whether or not a city may trade electricity across its grid.

The Municipal Systems Act says that municipalities may only “finance the affairs of the municipality by (i) charging fees for services; and (ii) imposing surcharges on fees, rates on property and, to the extent authorised by national legislation, other taxes, levies and duties” (this excludes trade of electricity).

However, the Electricity Regulation Act states that a municipality “has executive authority over and the right to reticulate

electricity within its area of jurisdiction in terms of the Municipal Structures Act” and defines “reticulation” as meaning the “trading or distribution of electricity and includes services associated therewith” (SALGA, 2014).

The role of electricity revenue in city finance Electricity sales contribute an average 26,8% of municipal revenue (MontmassonClair et al., 2017). The surplus from these sales, which is calculated by subtracting the electricity-supply costs (buying electricity from Eskom, maintaining the municipal grid and administering sales) from the electricity costs charged to consumers, is the third-largest contributor to city budgets after property rates and national government grants (Eberhard, 2015c; National Treasury, 2016).

Electricity revenue is crucial in the channelling of funds to address energy poverty and carry out progressive service delivery. The free basic electricity (FBE) policy (DME, 2003) provides for the funding of FBE from two sources: (i) the local government equitable share grant from national government, and (ii) municipal electricity surcharges – or surpluses – on certain commercial, industrial and high-use residential customers. Municipal surcharges are used to cross-subsidise FBE, as well as other services that generally run at a loss, such as water supply and waste removal (PDG, [forthcoming]).

Electricity surcharges, therefore, act as a redistributive tax. The DoE’s Integrated National Electrification Programme (INEP) funds any actual electricity infrastructure.

Electricity tariff structures can either help or hinder service delivery to the poor. Progressive cross-subsidisation is assisted through electricity tariff structures that have low connection fees, no fixed charges (i.e. a set daily charge for the use of the grid, regardless of whether electricity is being consumed) and inclining block tariffs (the cost per unit of electricity increases, as the customer uses more) (SEA, 2014).

state of city finances Energy sector disruptions

Figure 69: Electricity sales in cities vs. national economy (2006/07-2014/15)

The global megatrends – the uptake of renewable energy and changes in customer demand (BP, 2017) – are being felt locally. Since 1997, the economy has shifted away from industrial (highenergy users) to commercial businesses (lower-energy users) and, as a result, the amount of electricity used per economic unit of value produced has decreased (Eberhard, 2015a). Nevertheless, electricity consumption and economic growth continued to grow in step, possibly because of an increase in electricity use in the non-economic residential sector.

This assumption of correlated growth was used for energy planning. However, since 2007 the pattern has changed, and energy consumption has decoupled from economic growth: between 2007/ 2008 and 2014/2015, the economy grew but electricity sales volumes declined both nationally and in individual cities (Figure 69).

The decrease in electricity consumption in cities can be linked directly or indirectly to the trebling of Eskom electricity prices between 2009/2010 and 2017/2018 (Montmasson-Clair et al.

2017) and the price elasticity of demand (i.e. how customers respond to price increases). Increased electricity prices pushed customers to reduce their grid electricity use and costs through energy efficiency, theft or by switching to alternative energy sources: alternative fuels in the case of the industrial sector

and rooftop PV in the case of the residential and commercial sectors.

An analysis of electricity sales by customer type in two metros, eThekwini and Cape Town, found that electricity use per customer is decreasing, with the greatest decreases coming from highuse industrial customers in eThekwini and residential customers in both metros (Figure 70).

Heavy-use industrial customers in eThekwini decreased their electricity consumption by switching from electric-arc furnaces (using electricity) to blast furnaces (using coal) because of the increasing price of electricity, while residential customers changed their behaviour and/or installed energyefficient technologies.

The prevalence of electricity theft increased with electricity prices. Higher electricity prices resulted in increased non-technical losses, i.e. electricity

losses through theft, non-payment or incorrect billing. As each municipality sets their own tariffs, the electricity price for a certain type of customer varies across municipalities and differs from tariffs in Eskom-supplied areas.

Of the metros, Johannesburg had the highest increase in tariffs and in losses, which includes losses from theft (Eberhard, 2015a).

While the price of electricity from Eskom rose, the price of electricity from renewables decreased rapidly. Electricity generated by large-scale wind and solar plants now costs less than electricity from conventional power plants such as coal (CSIR, 2017). Similarly, the cost of rooftop solar PV has fallen to such an extent that it is competing with rising electricity retail prices (the price of electricity after surcharges are added

by Eskom and/or the municipality).

Rooftop PV has a very high return on

Figure 70: eThekwini and Cape Town electricity sales by customer type (2007/08-2014/15)

SOUTH AFRICAN PROPERTY REVIEW

49

state of city finances investment in the commercial sector (malls, offices, etc) because it generates electricity exactly when needed – air conditioning and refrigeration systems run harder during the middle of the day, when it’s sunny. By 2016, an estimated 280MW of rooftop PV had been installed (PQRS, 2016), which is approximately three times the power generated by the 96MW Jasper Solar Energy Project, South Africa’s largest commercial solar power plant. By 2022, it is estimated that 3GW of rooftop PV will be installed, or the equivalent of 10% of all electricity that is distributed by municipalities (SAPVIA, 2017).

The decrease in electricity sales is a structural, long-term trend, driven by the increasing cost of conventional electricity from coal and nuclear and the decreasing costs of renewables (Eberhard, 2015b). These trends were described at the 2017 Association of Municipal Electricity Utilities conference as the “four Ds”: decarbonisation (using renewables), decentralisation (many smaller rooftop PV systems rather than a few large centralised power plants), digitisation (digital requirements of a “smart grid” to handle rooftop PV feedin) and democratisation (people being able to choose alternative electricity supply options).

Figure 71: Decrease in real tarrifs of renewables in DoE's REIPPPP

(spring, summer and autumn) and during the middle of the day and at night, while higher rates are charged from June to August (winter) and during peak times, generally 6am to 10am and 5pm to 8pm (Eskom, 2017).

The peak tariffs are high because Eskom must run expensive peak power plants to meet the demand that spikes at the same time and is higher in winter due to additional heating demands. The residential sector is the main driver behind peak electricity demand. As Figure 72 illustrates, the commercial and industrial sectors tend to use electricity during the middle of the day, while the residential sector consumes most during peak periods (morning and evening).

Most residential households are on a flat tariff: they pay a set price per unit, whatever the time of day or month. This means that during peak times in winter, cities sell at a loss to residential customers, as Eskom’s tariffs for the city are higher than city residential tariffs. These losses are covered through the surplus cities make on sales during off-peak times, when city residential tariffs are higher than Eskom’s tariffs. In contrast, large commercial and industrial customers are more likely to be on a time-of-use (ToU) tariff, with a lower off-peak rate and a higher peak rate, incentivising them to use less electricity during peak times when the city is buying electricity from Eskom at the highest rate (Figure 73).

Figure 72: Example of demand profiles for a comercial and a residential customer in Tshwane

The implications of these disruptions for cities The responses of customers to increased electricity prices include fuel switching, theft, efficiency and rooftop solar PV installation, which all have a negative impact on city electricity revenue.

However, the installation of rooftop PV by residents has an impact that is disproportionate to the actual unit sales lost because of both Eskom’s and municipal tariff structures.

Eskom sells electricity to large, urban municipalities at the “Megaflex” tariff, which has different per-unit rates depending on the time of day, the day of the week and the season. Lower rates are charged from September until May 50

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Figure 73: Eskom Megaflex tariff compared to City of Tshwane tariffs for residential, commercial and industrial customers

state of city finances The impact of rooftop PV on city revenue is disproportionate to the actual loss of sales because residential customers with rooftop PV generate electricity (and so reduce their consumption of city-supplied electricity) at times when the city stands to make a surplus (in the middle of the day). And during peak times, especially the evenings, customers generate little to no solar energy and so draw electricity from the municipal grid, when the city is providing electricity at a loss during winter. Compounding the problem is that residential customers generally use most electricity during peak times, especially evenings – cities have found that electricity sales have decreased substantially, but peak electricity demand has remained relatively static (Eberhard, 2015c; PDG, [forthcoming]).

This means that cities bear the cost of providing a lot of expensive electricity during peak times, while supplying a dwindling amount of electricity during the high-profit-margin periods.

The surplus from residential electricity sales comes from a small pool of highuse customers – a quarter of households account for half of total residential electricity use. This surplus is used to cross-subsidise the operational costs of customers who are serviced at a net cost to the system, who represent about 40% of all households (Eberhard, 2015c) – national government subsidises electricity unit costs through the equitable share grant. An inclining block tariff is meant to act as a progressive tax, as residential high users are charged more per unit than low users, but it is in fact a tax from which the wealthy can abscond. This tariff acts as an incentive for higher-income residential customers to install PV and other energysaving technologies. In addition, cities respond to reduced electricity sales by raising tariffs to higher-income residential customers (Figure 74) in an effort to maintain revenue, as the maintenance cost of the city’s grid remains fixed. This has further incentivised higher-income residential customers to turn to energy

Figure 74: Residential electricity cost by usage group (2006/07-2013/14)

efficiency and solar PV, creating a loop that may end in the absolute worst-case scenario for a city. This is when highincome customers decide to defect from the grid altogether, resulting in the city losing their electricity revenue forever.

Some customers have already approached City Power (Johannesburg) asking to be removed from the grid altogether.

In addition to decreasing electricity revenue, the municipality’s ability to service the poor is compounded by the increasing costs of service provision and stagnating national fiscal transfers

aimed at subsidising free basic services to the poor. “National government has been quite clear that municipalities should not expect real increases in allocations and transfers over the medium term” (PDG, [forthcoming]). The severity of the combined impact of decreasing electricity sales revenue and stagnant national subsidies varies, as cities have different electricity tariffs (some cities emphasise rates, others tariffs, in their revenue collection) and make different decisions on how to spend their local government equitable share.

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state of city finances City responses to the disruptions The Energy White Paper of 1998 recognised that South Africa’s electricity system inherited in 1994 required transformation, identifying the following as necessary for the success of the electricity supply industry: “giving customers the right to choose their electricity supplier; introducing competition into the industry, especially the generation sector; permitting open, non-discriminatory access to the transmission system; and encouraging private sector participation”.

For cities to stay relevant in the face of fast-changing customer demands, a new business model is needed.

Although no-one knows the exact form of the sector in the future, what is certain is that the sector needs some flexibility to be able to respond to decentralisation. This could include greater participation of the private sector and a greater role for cities.

To respond to the financial impacts of changes in the sector, cities need to understand the true cost of electricity supply. Electricity tariffs cover four costs: customer service and vending costs, gridmaintenance costs, demand costs (based on the maximum amount of power a customer or group of customers may draw at any one time) and energy costs (cost per unit of energy used). A cost-ofsupply study would assist in setting appropriate, sustainable and costreflective tariffs. Based on a cost-of-supply study, a city can follow a three-pronged approach to maintaining revenue: ●● Improve internal efficiency by decreasing losses (from theft) and expenditure on bulk purchases (electricity supply), and making use of battery storage. ●● Offer grid services to generate revenue through electricity trading (wheeling), grid charges and timeof-use charges. ●● Expand into the sale of alternative energy services, while servicing the poor in a financially sustainable manner, through electric vehicle 52

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tariffs, solar water heater (SWH) and rooftop PV rollout support programmes, as well as energy service packages.

IMPROVE INTERNAL EFFICIENCY: CHASING THE MARGINS Cities can improve their margins by becoming more efficient, through reducing their losses (from theft), decreasing expenditure on bulk purchases (electricity supply) and storing electricity in batteries to avoid punitive charges for exceeding agreed draw-down limits.

Decrease losses Cities are recognising the importance of maintaining the electricity surplus by decreasing current losses rather than increasing revenue. In 2017/2018, technical and non-technical (theft) losses amounted to R9,2-billion (SARPA, 2017). The industry benchmark for losses is 14 to 18% (City Power, 2015), but some cities are much higher. For instance, in 2015 City Power estimated that 20% of Johannesburg’s power requirements were lost to theft (and total losses, including technical losses, stood at over 30%) and identified that, realistically, losses could potentially be reduced by 0,5TWh or four percent (ibid).

Interestingly, while the highest number of customers who steal are residential (90% of all theft cases), the greatest volume of stolen electricity (80%) is by a very few commercial and industrial customers (SARPA, 2017).

Nelson Mandela Bay and EDF, a French electricity utility, undertook a joint feasibility study to improve the city’s electricity distribution. In 2015/2016, electricity losses cost the city R500million to R600-million, or the equivalent of about two years of capital budget.

Every additional percentage increase in non-technical losses equated to R25million lost. About 20% of the electricity bought from Eskom was not paid for by city customers (NMB & EDF, 2017). Actions identified to deal with losses included:

●● Employ more fraud-detection staff – in Eskom, one revenue protection staff member can recover R10million per year (SARPA, 2017). ●● Assess the business case to connect currently illegal connections. ●● Improve meter design (a split system, with half outside the house, for easier access by the engineer). ●● Run communication and awareness campaigns on the dangers and consequences of illegal connections. ●● Reinforce management through key performance indicators based on the scale of theft avoided, rather than case numbers. ●● Increase connection fees, especially for large customers, which would act as a penalty when they need to be reconnected after being disconnected following theft detection. ●● Move from credit to prepayment meters (7% of the city’s customers were still on credit meters). ●● Reallocate meter readers to the fraud detection department.

Decrease expenditure on bulk purchases Cities can decrease expenditure on bulk electricity by generating their own electricity, buying from IPPs that have lower tariffs than Eskom, and implementing utility-scale storage so that electricity can be bought when tariffs are cheaper (e.g. midday), stored and then used during peak times.

Sourcing energy from renewables would have broad economic, social and environmental impacts, including risk mitigation, job creation and meeting city climate change mitigation targets.

A “local IRP” electricity optimisation study for Cape Town found that if 55% of electricity were generated by renewables, i.e. wind and solar, the city could save R297-million a year by 2022/ 2023, (CSIR, 2017).

For generating electricity, cities have various power plant ownership or contract options. A city could develop and own a plant, but this requires finance

state of city finances and, generally, only larger cities have the capacity to undertake such projects. The motivation for this type of project to be city-owned is usually based on additional benefits, such as sludge management (in the case of biogas-to-energy projects) and emissions reduction, rather than electricity generation alone. eThekwini’s 6,5MW Bisasar landfill-gas-to-electricity plant has substantially reduced the municipality’s waste emissions. The project was funded by the municipality, the DoE and the Prototype Carbon Fund (SEA, 2017b), and the city owns the plant, which is operated and maintained by a private contractor.

Another option is a public-private partnership (PPP), where the private partner builds the power station and sells the electricity, with the profit shared between the city and the partner. The plant is considered cityowned, and so the city would not need a Section 34 determination in order to buy from an IPP. However, a PPP requires complex contracting, and the legality of such a contract is still under question by National Treasury, given the restrictions of the Municipal Finance Management Act (MFMA) and the Municipal Systems Act that set out procurement processes.

Some cities are also exploring a build, own, operate and transfer model.

The MFMA requirements also need to be taken into consideration if cities buy directly from IPPs through a power purchase agreement (PPA), in the case of larger-scale generators, or SSEG tariffs, in the case of rooftop PV generators.

This means cities cannot buy electricity that is more expensive than Eskom Megaflex rates and, to buy directly from IPPs, require a Section 34 determination by the Minister of Energy. Ekurhuleni is pursuing a plan to partner with and buy from multiple IPPs and sent out tenders for the supply of electricity that included no constraints on the type of power, as long as the tariffs are below Eskom’s Megaflex and the emissions are lower than those from conventional coal-fired electricity. Responses to the tenders

include 5MW of landfill gas (one plant), 139MW waste-to-energy (six plants), 288MW solar PV (32 plants) and 195MW natural gas (seven plants) (Wilson, 2017).

The municipality has received an inprinciple approval from the Minister of Energy that a Section 34 determination will be given, as long as Ekurhuleni bundles all applications into one. It remains to be seen whether the determination will be granted, given that South Africa has had four different energy ministers since early 2017.

Implement battery storage Utility-scale storage can help cities reduce costs by enabling them to avoid the punitive charges incurred when increasing or exceeding their notified maximum demand – the maximum power they are allowed to draw from Eskom at any one time. The City of Cape Town recently commissioned a model to support battery storage decisionmaking – currently battery costs are too high to be viable, but are dropping.

Battery storage provides a relatively mobile and modular infrastructure investment, which can be shifted physically as demand changes. This could lower the capital costs of grid expansion and offer some possibility of tariff shaving through shifting load from peak to off-peak times.

GRID SERVICES There are opportunities to augment or create new streams of revenue via wheeling (electricity transport) charges and the on-selling of electricity received from rooftop PV generators at a higher tariff than paid to the generator. This is already happening in some cities.

Electricity trading (wheeling) Cities that provide a platform for investors and generators to trade energy through their grid infrastructure will boost foreign and local direct investment, and jobs in the local green economy. Achieving this will require addressing several issues.

Some negotiation with Eskom may be required in cases where, for example, a generator feeds electricity into the city’s grid, and then has to go through a portion of Eskom’s grid in order to reach a customer. Another issue is that customers based within the city’s distribution area may switch from buying their electricity from the city to buying from private generators who are wheeling across the city’s grid. This is because municipal-supplied customers generally pay more for electricity than Eskom-supplied customers. Eskom sells electricity to cities at a higher price than to its industrial customers – cities then add a mark-up. In essence, private generators would be in direct competition with the city for electricity customers.

Two cities – Tshwane and Nelson Mandela Bay – have wheeling agreements. Tshwane has a single agreement with one customer: Bio2Watt, a biogas waste-to-energy company.

Nelson Mandela Bay has a framework agreement that allows up to 10% of electricity demand to be met through traded renewables, 80% of which must be developed locally.

Grid charges The fee for the use of the municipal electricity grid is often bundled within a unit charge, especially in the case of residential electricity tariffs. This means that customers who are using less electricity (because of energy efficiency measures or rooftop PV installation) are also contributing less towards grid maintenance, while still using the grid.

Customers who install rooftop PV can pay a fixed charge that covers grid maintenance and availability costs (in other words, the cost of having the grid available as “back-up” for when the sun doesn’t shine), while a feed-in tariff, which pays a customer for the power they export when they generate more than they use, can encourage a customer to remain grid-linked.

Examples of such tariffs are in Table 51.

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state of city finances A pragmatic balance is needed between the often conflicting goals of a cost-reflective tariff and a low-carbon/ decentralised transition. A low feed-in tariff and high fixed charge will increase a customer’s payback on their rooftop PV, and may encourage defection from the grid if the payback term becomes too long. As a comparison, an off-grid battery storage rooftop PV system has a payback of 18 years (SEA, 2017a). A fixed charge on customers who do not have rooftop PV will also encourage grid defection if they have the means to install rooftop PV, since they are already paying a fixed charge, while a fixed charge on low-income customers would be regressive, as it reverses the effect of electricity subsidisation. Lowincome customers should remain on a low, flat-rate tariff.

Spreading the cost of maintaining the grid across higher-income groups is important in order to maintain this service for the benefit of all.

Municipalities may decide to include the charge for using the grid (or a portion thereof ) in the rates bill of higher-income customers. This will ensure that the public service of the grid is still paid for in a redistributive manner and avoid having to load a grid charge onto an electricity bill, which is confusing to customers, especially those on prepaid meters.

A city should not dissuade potential rooftop PV customers from feeding into their grid. A study commissioned

by Tshwane found that blocking the reverse-feed of electricity from residential customers (who are the most likely to export power) would cut off a substantial potential revenue stream, and that the highest revenue loss would be from illegal connections, which may occur if the application process to install rooftop PV is too onerous (SEA, 2017a).

Cities should implement a user-friendly rooftop PV registration process with tariffs that protect city revenue yet enable a reasonable return on investment for the customer. If not, 54

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Table 51: SSEG tariffs implemented by cities

they run the risk of illegal installations that cannot be policed effectively. Cape Town has produced guidelines on safe and legal installation, and in May 2017, the South African PV Industry Association (SAPVIA) launched the PV GreenCard system, which provides a database of accredited installers and all installations, and a resource repository of existing standards.

Time-of-use tariffs Time-of-use (ToU) tariffs may encourage residents to use electricity outside of expensive peak times. It could increase the city’s revenue surplus and decrease a customer’s electricity consumption, and in some cases decrease the customer’s bill. For example, even if a customer uses little electricity, the customer’s bill would be lower and the city’s sales margin higher if the electricity use is mostly in off-peak times. This is because in off-peak times, the city charges less for electricity but has a greater sales margin, whereas during peak times, the city may charge more but receives smaller sales margins.

Before implementing ToU tariffs, NERSA requires cities to undertake a cost-of-supply study for customers that the city wishes to place on ToU tariffs (Eberhard, 2015c). ToU tariffs are widely used for commercial and industrial customers but not residential customers, because of the cost of metering infrastructure. Therefore, ToU should be targeted at higher-income households, as the costs may be punitive for lowincome households, which often have long travel times to/from work, forcing them to buy electricity during peak times.

ENERGY SERVICES Instead of focusing only on selling units of electricity, cities can offer a basket of potential alternative energy services, while at the same time increasing their online presence, to remain relevant to customers. Cities also need to consider how to service the poor in a financially sustainable manner. Some innovative energy service examples have been suggested below.

Electric vehicle tariff Cities recognise that electric vehicles (EVs) are potentially a huge new revenue opportunity. Money spent on conventional fuels (diesel and petrol) generally flows out of the local economy and even out of the country (most oil is imported). Therefore, EVs would not only increase local electricity sales revenue but could also bolster a local green economy based on renewable energy generation. The battery storage potential of a fleet of parked and charging electric vehicles could be used to balance grid demand in future. Currently, this potential is limited because at least one of the two electric cars (Hyundai i30 and Nissan Leaf ) currently available in South Africa does not have the ability to feed electricity into the grid.

Cape Town is investigating appropriate tariffs for EV owners and owners of EV charging stations, as well as the option of using EV batteries to increase grid load flexibility (i.e. the ability of the city to respond to changes in customer electricity demand). This will be fed into an EV framework aimed at promoting EVs over conventional vehicles. Such a framework will take into consideration

state of city finances the roles of private and public sectors within the current regulatory context.

EVs and SSEG are considered in parallel, as both will have a disrupting impact on revenue and both require customers to register in order to be placed on specific tariffs. If customers do not register and decide to charge EVs during peak times, the city stands to lose considerable revenue. An easy EV tariff registration process, alongside tariff incentives, would encourage customers to charge EVs during off-peak times. The city’s role is seen as potentially offering public land for lease for charging stations, while the private sector is expected to take up the rollout of charging infrastructure.

Internationally, national policy is a key driver of EV take-up. The top 20 EV cities are in countries that have national efficient transport policies promoting EVs (ICCT, 2017) – for example, China’s fuel consumption standards and New Energy Vehicle credit system, the EU’s CO2 emission standards and Japan’s fuel economy standards. Leading cities also have multiple actions and policies in place.

Table 52 illustrates international examples of initiatives that encourage EVs.

Solar water heater rollout support programmes Cape Town’s solar water heater (SWH) accreditation programme allows residential customers to access an online list of SWH installers accredited by the city. Accredited installers meet various criteria, such as compliance with relevant standards and ability to offer financing options and five-year warranties.

Johannesburg undertook a lowpressure SWH rollout programme using funds generated from a 1c/kWh levy on electricity sales to high-use customers, installing 80 000 SWHs from 2011 to 2014.

The DoE’s energy efficiency and demand side management grant funding was used initially, but it came with a high administrative burden and the funding source was not secure: cities have to reapply every year to access the fund and are not always successful. An issue

Table 52: International examples of electric vehicle initiatives by cities

experienced with this rollout model, and all others in the country, is continued system maintenance. No matter the installer or implementer – Eskom, national government, local government or a private entity – maintenance issues usually sit with the local municipality. This has prompted some cities, including Cape Town and Johannesburg, to consider taking ownership of these systems, with the potential of renting out the service of hot water to households in exchange for continued maintenance and upkeep.

This can be seen as a form of “electricity” service provision.

Rooftop PV rollout support programmes Cape Town was the first city to implement rooftop PV tariffs. The process created a raft of support documents for customers/ other cities wanting to roll out a similar programme. These documents include information on the connection application process; equipment standards; contract templates; guidelines for contractors; and guidelines to consumers on how to choose a system and service provider, and how to install a system legally. eThekwini has an online, interactive solar map to help residential customers calculate potential costs and savings of rooftop PV installations – the customers can draw the size of their system on their roof. The site also lists installers. Nelson Mandela Bay is discussing with the private sector the potential of entering

into public-private partnerships, where the city supports companies offering rooftop PV installation and lease agreements on commercial customers’ roofs. With a lease agreement, a customer leases the PV system instead of paying for the cost of the system. The city would facilitate the process of linking seller to client, and get a cut from the installer.

Energy service packages Johannesburg is investigating alternative energy service options for informal areas that have limited access to grid electricity.

Options include gas appliances, efficient lighting and solar PV to supplement grid electricity. Lessons learnt include: circuits should be split into essential (e.g. lighting) and non-essential (e.g. heating) loads to manage loads, plots should be regularised to protect the energy infrastructure investment, and communication with the community is critical. Acknowledging that households will resort to theft or dangerous alternative fuels if electricity is unaffordable, the proposal is to offer households 350kWh (a higher amount than received through FBE) at a flat rate of R150 per month.

Johannesburg is also looking at ways of encouraging mid-income households to remain on the grid, through offering alternative energy packages consisting of a combination of solar PV, gas and conventional grid electricity. Middleincome households account for 21% of SOUTH AFRICAN PROPERTY REVIEW

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state of city finances all households and 50% of city electricity revenue. These customers use electricity mostly for heating water (47%) and cooking (14%), activities that largely occur during peak times, when margins on sales are low (in summer) or negative (in winter). The solar PV is used for heating water, with spare electricity generated available for other household uses, and gas stoves used for cooking.

Grid electricity is used for remaining appliances, such as fridges and TVs. The solar PV and gas stove could be offered as part of a repayment package. For a household using 1 000kWh per month, the package (including energy and repayment costs) would cost less than using only grid electricity, i.e. R1 045 per month compared to R1 290. The package option also improves sales margins to the city, because less electricity is used during the evening peaks (Magemba et al., 2017).

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The future Cities are best placed to respond to local demand and load variability, and know the best places to connect to their grid, based on demand and infrastructure.

Cities can ramp generation up or down and send out price signals dependent on local demand at the time. Demand mechanisms are also best implemented at the local level. Constitutionally, cities are the site of service delivery and redistribution, while electricity services provision is a crucial element in the ongoing sustainability of cities.

Keeping these factors in mind, cities should be taking on a more dynamic role within the national electricity sector, by engaging in local long-term optimisation studies, and demanding a role in national planning processes, as they have local knowledge on loadbalancing within their areas. Local and national government should engage on

planning, to ensure that the financial and load-balancing implications for the whole supply system are met, rather than focus on a case-by-case basis for each IPP. Internally, cities need to get their houses in order by ensuring transparent pricing, reducing losses and having effective pro-poor support. Dynamic business activities will require a culture of innovation, investing in research and development, and changes to the skills base, particularly in an increasingly data-driven era.

Smarter, more efficient cities The concept of a “smart city” is evolving, but one definition is a city that performs well in “a forward-looking way in economy, people, governance, mobility, environment and living” by engaging in activities that make it more efficient, sustainable, equitable and liveable.

state of city finances A smart city strives to make itself “smarter” by using information and communications technology and the internet of things to integrate city management, and digital technologies to effectively engage with citizens.

Local government can use “smart” technology to reinforce its capacity to meet the demands of citizens and the challenges of urbanisation. Created in 2014, the Uraía Platform is a collaboration between the Global Fund for Cities Development and the Local Government and Decentralisation Unit of UN-Habitat that encourages the use of “smart” technologies by local governments.

The Nicosia Guidelines, published by Uraía, contain recommendations on using smart technologies to improve municipal finances.

Smart technologies can assist cities in the developed and developing worlds in a number of ways:

●● By reducing the cost of government operations and contributing to increased municipal revenue. ●● By improving transparency, accountability, citizen participation. ●● By improving revenue collection. ●● By creating efficiencies in the management of public services and infrastructure.

Further, smart technologies can enable cities to move all transactions onto one centralised online platform and fully automate back offices, which improves efficiency and cuts costs, and helps local governments keep up with the rapidly evolving needs and expectations of residents. Other recommendations include that local governments should build digital platforms by providing onestop city services to enable transactional services with all city departments. This would require automating individual

processes, digitisation, data sharing and integration and interoperability between services, which have typically been separated in silos.

The case study of Valencia in Spain illustrates some of the possibilities of smart city initiatives. In 2014, a sevenyear action plan for digitalising all processes and records in Valencia culminated with the launch of the Comprehensive Electronic Management Platform (PIAE – Plataforma Integrada de Administración Electrónica) and the Electronic Office. The benefits of this online system included increased transparency and efficiency for the municipality, and simplified admin processes for citizens. Most importantly, it resulted in huge savings for the municipality: after just one-year, operational costs had reduced by €170-million, and the expectation is to save up to €10-million per year.

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howmuch.net

Charting Extreme Poverty:

Population Living on Less than $1.90 a Day Poverty presses at the core of humanity. We often judge the best of us by the least of us. Most of us already know that much of the world’s population lives in extreme poverty. But just how prevalent is this issue? Using data from 2018, we created an easy-to-read visualization to chart the total number of people living in extreme poverty in countries around the world. https://howmuch.net/articles/charting-extreme-poverty-around-world

●● The U.S. poverty rate has fallen for the fourth consecutive year. ●● The U.S. metric for measuring poverty is considered misleading as it undercounts people suffering from economic deprivation. ●● International poverty rates are already high and may be worsened by the trade war. ●● In the United States, people of color are disproportionately affected by poverty compared to white people.

For our visualization, we pulled 2018 population data from The World Bank as well as data from the Bill & Melinda Gates Foundation’s 2019 Goalkeepers report.

This is an annual report that focuses on the progress achieved toward the Sustainable Development Goals (SDGs), 17 ambitious goals the member states of the United Nations committed to reaching by 2030.

To obtain the figures used in the visualization, we multiplied the population of each country by the extreme poverty 58

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Countries With The Highest Extreme Poverty Rates 1. Somalia: 99.2% 2. Central African Republic: 80.92% 3. Burundi: 77.72% 4. North Korea: 70.58% 5. Madagascar: 69.77% 6. Democratic Republic of Congo: 68.84% 7. Malawi: 67.56% 8. Yemen: 64.51% 9. Sierra Leone: 0.55% 10. Guinea-Bissau: 53.88% rate. We then visualized this data using circles for each country. The bigger the circle, the higher the number of people living in extreme poverty. For figures smaller than 1,000 the country is represented with a “<1,000” label.

By analyzing this data, we can see how many people across the globe are living under the international poverty line ($1.90/day). While several countries have an estimated extreme poverty rate

of 0%, poverty is a much larger issue in other countries, such as Somalia, in which the majority of the population lives in extreme poverty.

The United States also has a considerably low extreme poverty rate at 0.97%. However, though the U.S. poverty rate is declining, many suggest that these numbers are misleading and don’t represent the true number of people living in poverty in the country.

Much of the world’s population is living in extreme poverty; however, you might not have realized how serious this issue actually is. By taking a look at our visualization, we can see how much of the world is living in poverty and get a better understanding of how this issue may or may not be improving.

Should the U.S. update its metric for measuring poverty? Why is extreme poverty distributed the way that it is? Let us know what you think in the comments.

networking

An insight into the hospitality sector

UCT’s Urban Real Estate Research Unit hosted a Quoin Online-sponsored networking seminar on the hospitality sector in conjunction with SAPOA on 10 October, where presenters Xander Nijnens (JLL) and Wayne Troughton (HTI Consulting) gave their respective views on the industry Words and photographs by Mark Pettipher

P

rofessor François Viruly welcomed the attendees to the last of the year’s quarterly seminars, and introduced the two speakers – Xander Nijnens and Wayne Troughton.

Nijnens is the Executive Vice President of JLL’s Hotels and Hospitality Group in subSaharan Africa and leads various projects in the region. His focus is on delivering strategic advisory, investment sales, financing and asset management services to local, regional and global clients across the region. He has more than 11 years of experience in hotel advisory, investment and operations in more than 20 countries in Africa and the Indian Ocean region. He is a graduate of Hotel School The Hague, and has further education in real estate, company law and finance.

Troughton is Chief Executive Officer at HTI Consulting. He has a three-year Hotel Management Certificate from the University of Johannesburg and an MBA from Cass Business School in London; his work experience spans 36 countries, and focuses on feasibility, bank due diligence, operator selection, finance raising and asset management.

Troughton also has nine years of middle-management operational

experience in some of the leading five-star hotels and resorts in South Africa and the UK, as well as more than 16 years of specialist hospitality management consulting experience with HTI Consulting.

Nijnens’s presentation covered global performance trends, a transaction update, trends in hotel investment (in particular in Africa) as well as investment in hotels in South Africa.

Troughton described HTI as a consultancy that has worked in 43 countries and completed more than 450 assignments, and that currently has 125 clients worldwide.

His presentation unpacked key hospitality nodes in South Africa and gave overviews on southern African as well as East and West African trends.

Once the presentations wrapped up, the attendees had an opportunity to network over a glass of wine and delicious canapés.

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Networking

SA Women in Property Awards winners announced

Women’s Property Network has announced the winners of the 2019 SA Women in Property Awards. The awards celebrate the accomplishments of the national finalists and winners, and their impact in the commercial property sector Media release issued by Fox Street Communications on behalf of Women’s Property Network

T

he SA Women in Property Awards (SAWIPA) is a platform that recognises outstanding leadership, commitment and success in individuals and organisations that have stepped up and shaped women’s role within the private and public spheres of commercial property in South Africa.

The property sector is evolving rapidly thanks to technology and the need for sustainability – and female property professionals are leading the way by transforming the industry daily.

“While the property sector remains one that is predominantly occupied by men, it is exciting to see how female property professionals are continuing to make their mark and influence the industry in a myriad positive ways,” says Nonhlanhla Mayisela, National Chair of Women’s Property Network (WPN) and CEO of Izandla Property.

A celebration of excellence Property industry stakeholders, including the awards finalists, attended the SAWIPA 2019 ceremony and gala dinner held at Summer Place in Hyde Park, Johannesburg on 9 October 2019. This year, the SAWIPA categories included four individual awards – Young Achiever, Entrepreneur of the Year, Professional of the Year (Private Sector) and Professional of the Year (Public Sector).

The panel of judges – who conducted interviews with each of the finalists – included Nomzamo Radebe (CEO of Excellerate JHI), Dr Sedise Moseneke (Executive Director of Vukile Property Fund), Khanyisile Nene (Senior Manager: Infrastructure & Development at Airports Company South Africa (ACSA)) and Sandi Mbutuma (Group Managing Director at SVA International). The judging process was expertly facilitated by Mayisela.

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PROFESSIONAL OF THE YEAR – PUBLIC SECTOR: Lerato Peu – Executive Director, Economic Development Merafong City Local Municipality.

The calibre of finalists was incredibly high and the judges had a difficult task when choosing one winner per category.

“This year’s winners are a testament to the standard of work being done by female property professionals,” Mayisela said. “While the awards shine a spotlight on individual achievements, they also provide an opportunity to recognise and reflect on the visible progress achieved in advancing women in the industry.”

Strength through collaboration For the fifth consecutive year, ACSA was the principal sponsor of SAWIPA, and the support has been vital in helping WPN shape a meaningful, high-quality national event that acknowledges female property professionals who are helping to take the industry forward.

“ACSA congratulates all the nominees and celebrates the winners of SAWIPA 2019 – their efforts and courage are inspirational,” said Nene. “As ACSA, we will continue to drive the implementation of transformation and inclusion in all industries that keep our business successful to ensure that we make an

economically meaningful and impactful contribution. We also implore all women in influential positions not to forget the women who admire and acknowledge you. Together we are stronger.”

WPN is also pleased to have the supporting sponsorship of First National Bank (FNB) and the Colosseum Hotel.

“It is fulfilling to see more women doing valuable and innovative work across the entire property industry value chain,” says Nicole Christopulo, spokesperson for FNB Business: Women in Business. “South Africa needs more initiatives of this level that support and encourage women across all sectors of business to continue playing a meaningful role as vital catalysts for economic growth and development. As FNB, we are excited to partner with WPN to enable growth, make a difference and support a growing industry of women in the country.”

It is clear that women are leading the way and shaping the industry in our country – and WPN is excited about the potential to come.

networking

KwaZulu-Natal Brokers Breakfast A total of 72 delegates attended the recent KwaZulu-Natal Broker Breakfast Forum and networking morning on 19 September 2019, hosted by the SAPOA Regional Broker Sub-Committee and held at the state-of-the-art Nu Metro Cinema at Cornubia Mall in Mount Edgecombe

FROM LEFT Clive Rudman, Tony Whitefield, Di Frank and Iain Burns

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ain Burns of Investec delivered a brief sponsor message, which was followed by a presentation by Clive Rudman of RWA Architects on the topic “Cornubia, A Precinct in Evolution – What Does the Future Look Like?” The presentation was followed by a Q&A session.

We would like to extend our thanks to Cornubia and, notably, Investec for their generous financial contribution towards making this event possible.

FROM LEFT Caressa Perumal, Dhanesh Reddy and Lorentha Govenden

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off the wall

Augmented reality in our everyday life Wikipedia describes augmented reality (AR) as an interactive experience of a realworld environment, where the objects that reside in the real world are enhanced by computer-generated perceptual information, sometimes across multiple sensory modalities, including visual, auditory, haptic, somatosensory and olfactory Compiled by Tshepo Tshabalala

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he face of advertising and our user experiences are changing, which is most apparent in what we are exposed to in our daily life. AR brings customer experiences to us where we least expect them, and in real terms we are beginning to accept these experiences as normal.

We bring you three experiences: 1. Pepsi Max surprises commuters with an “unbelievable” AR experience at a bus shelter on New Oxford Street in Camden, London.

2. For the launch of BBC Earth in Norway, AR was used to get attention. Three bus shelters in Oslo was transformed into a window where animals suddenly appeared.

3. Retail shopping will change more in the next 10 years than it has in the past 1 000 years. We bring you five pieces of technology that will change the way you shop.

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Augmented Reality Explained https://www.realitytechnologies.com/augmented-reality/ The origin of the word augmented is augment, which means to add or enhance something. In the case of Augmented Reality (also called AR), graphics, sounds, and touch feedback are added into our natural world to create an enhanced user experience.

Augmented Reality vs Virtual Reality Unlike virtual reality, which requires you to inhabit an entirely virtual environment, augmented reality uses your existing natural environment and simply overlays virtual information on top of it. As both virtual and real worlds harmoniously coexist, users of augmented reality experience a new and improved natural world where virtual information is used as a tool to provide assistance in everyday activities.

Applications of augmented reality can be as simple as a text-notification or as complicated as an instruction on how to perform a life-threatening surgical procedure. They can highlight certain features, enhance understandings, and provide accessible and timely data. Cell phones apps and business applications by companies using augmented reality are a few of the many applications driving augmented reality application development.

The key point is that the information provided is highly topical and relevant to what you want you are doing.

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INNOVATIVE AND APPROPRIATE SERVICES 4 1

2 1 Menlyn Learning Hub. Architects: Boogertman + Partners 2 West Hills Mall. Architects: ARC Architects 3 & 4 Studios @ Burnett. Architects: Boogertman + Partners

While adequately and timeously providing traditional quantity surveying services and utilising the best that technology can provide, DelQS identified certain services as being vital to the bottom line of property developers and investors To this end it has researched the needs of its clients and has developed expertise and systems

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In-house developed financial viability analysis, including detailed estimates of construction cost, acclaimed to be precise and logical in presentation

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In-house developed cost control system that proactively tracks past and potential future construction cost decisions and provides a precise audit trail

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Ensuring that final settlements with contractors are based on the conditions of contract leaving, with recommendations, any other settlement decisions to the client

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Expertise and a track record of dealing with projects elsewhere in Africa and beyond

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Expertise in almost all building development categories

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