South African Property Review April 2018 by SAPOA

South African Property Review

PROPERTY SOUTH AFRICAN

April 2018

REVIEW

PROPERTY REVIEW - LogoTreatment.pdf

GDP REPORT:

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Finance

Cryptocurrencies in the commercial property space

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from the CEO

SAPOA concerned over rates increases at municipal level Rising municipal rates and taxes are a hot-button issue – one that not only negatively affects operating costs and gross rentals, but also makes demands on property management resources

APOA members contribute significantly to the rates base, and we believe it to be in the interest of both ourselves and municipalities across South Africa to partner on this matter. As a sector, commercial and industrial property wants to contribute in a positive way towards the efficient functioning of municipalities. This is in response to a statement made by Johannesburg Mayor Herman Mashaba, regarding the outcry from property owners about some of their properties facing increases of up to 1 000% in the city. To put some numbers around the issue, consider that total operating costs for commercial properties averaged R50,80/m² as at June 2017, of which 22% or R11,30/m² went to municipal rates and taxes. Seeing that municipal rates and taxes accounted for R2,20/m² in 2000, this means that it has effectively doubled in real terms over this period – a five-fold increase in nominal price terms. Rates and taxes have been the secondfastest-growing operating cost item for property owners and investors since 2007, with a compound annual growth rate of 9,7% (inflation plus 3,6%). Only electricity costs have risen at a higher pace. Over the last decade, rates and taxes have consistently increased at a faster rate than inflation, and have increasingly come under the microscope as landlords focus on preserving their net income in a challenging trading environment. Over the period 2005-2016, rates and taxes grew at an annualised rate of inflation plus 8,2%, equating to a compounded annual growth rate of 12,1% in nominal terms. Real increases in rates and taxes have been especially pronounced in the retail sector. Since 2007, retail property rates and taxes have grown by a compounding 12,7% per annum (inflation plus 6,4%). Given their above-inflation growth and higher growth relative to other operating

costs, rates and taxes have increased as a percentage of total operating costs over time. In 2005, rates and taxes worked out to 17,3% of total operating costs – by the end of 2016 this had escalated to 22,8%. In real (inflation-adjustment) terms, rates and taxes amounted to R2,1/m2 in 2000; by June 2017 this had increased to R4,1/m2 – almost doubling in real terms. For the year ending 2016, rates and taxes grew by 22% on a square-metre basis. SAPOA has, in the past, been vocal about challenging the legality of increased municipal rates charged to its members. Rising operating costs threaten the sustainability of net returns across the spectrum of commercial and industrial property investment. Since the sustainability of the property sector is a key focus for SAPOA, we have been vocal in challenging the basis and consistency of municipal rates charged to our members. The increases post-2007 have come in a much tougher macroeconomic environment, with economic growth currently significantly lower than in the preceding three or four years. Consequently, the tougher trading environment is making it increasingly challenging for landlords to deal with the additional tax burden.

Also of concern to SAPOA is not only the revaluation of properties but also the high rates tariffs in certain municipalities in relation to others. In such municipalities, the increased property valuations will result in the rates payable being higher than the neighbouring counterparts. Not only is this unsustainable, but property owners pass these increases on to tenants, which has a material impact on the health of businesses in the economy. On an overall level, rates and taxes equate to 7,5% of gross income and R11,3/m2. However, there are visible variances at a provincial level, arguably driven by different “cents in rand” rates levied by respective municipalities within the provinces, the timing of the respective general valuation rolls and the municipal valuation accuracy in relation to the actual valuation. SAPOA acknowledges that rates are necessary to fund municipal service delivery and outputs, but these must be levied correctly. Our Constitution and laws are clear that rates and taxes must be levied in a just and equitable way, and this should be done by accurately determining the value of properties. SAPOA is committed to ensuring that rates are being levied from a correct base, and that members are not being overcharged. We believe this is essential to further an enabling environment for business and the commercial property sector in South Africa, and to help ensure the sustainability of our economy. An ever-increasing rates environment kills investment and will have negative consequences on job creation. SAPOA has appointed its team of consultants, Rates Watch, to comment on the revaluation. Best regards, Neil Gopal, CEO SOUTH AFRICAN PROPERTY REVIEW

contents

April 2018

PROPERTY SOUTH AFRICAN

REVIEW

South African Property Review

PROPERTY SOUTH AFRICAN

April 2018

REVIEW

PROPERTY REVIEW - LogoTreatment.pdf

GDP REPORT:

2016/08/25

11:31 AM

ON THE COVER Looking at financial matters across Africa and a variety of reports outlining market trends in the commercial property sector.

Mpumalanga in focus

Finance

Crypto-currencies in the commercial property space

Image credit: https://techcrunch.com/2015/06/07/how-fintechcan-disrupt-africas-cash-based-economy/

2 SA REIT

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Africa report April 2018

Trends in the continent

1 BCX Head Office. Architects: SVA International 2 Management Team 3 Menlyn Learning Hub. Architects: Boogertman + Partners 4 West Hills Mall in Ghana. Architects: ARC Architects

1 4 6 9 11 16 18 20 23 26 28

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From the CEO From the Editor’s desk Legal Submission on the draft Carbon Tax Bill by the South African Property Owners Association Education Contributing to skills development in property management H2O Western Cape water crisis and the property market Legal update MASSMART COMPLAINT: Competition Tribunal once again dismisses complaint against exclusive lease agreements Finance Cryptocurrency in the commercial property environment SA REIT Positive growth and a renewed call for better education in the sector New banks Discover whether it’s Tyme to Post a Zero branch bank Africa Report 2018 Africa Report reveals optimistic outlook Market reports Positive implications for real estate, with business conﬁdence expected to return Investment Affordable housing: an under-resourced investment sector? Developing talent The best countries and cities attracting and developing talent How much Which countries attract more foreign investment? Mbombela’s commercial property market Success through coalition Social Off the wall Longest sea bridge built in China VAT VAT and your braai 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 Managing Editor Mark Pettipher Copy Editor Ania Rokita Public Relations Officer Maud Nale Production Manager Dalene van Niekerk Designer Eugene Jonck Sales Nkepile Setshedi: sales@sapoa.org.za Finance Susan du Toit Contributors Anne Schauffer, Barry Viljoen, CWE Africa Report 2018, Johan Coetzee, Maud Nale, Mumtaz Moola, Nicky Manson, Weforum.org Photography Val Adamson, Xavier Saer 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. Digitally printed by Designed, written and produced for SAPOA by MPDPS (PTY) Ltd e: mark@mpdps.com

e: philip@rsalitho.co.za

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from the Editor’s desk Long-term

Short-term

Investment grade

Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1

P-2 (Prime-2)

Baa2 Baa3 Ba1

Non-investment grade

P-1 (Prime-1)

P-3 (Prime-3)

Ba2 B1 B3

NP (Not-Prime)

Caa1 Caa2 Caa3 Ca C

Moody’s short-term rating definition Moody’s short-term ratings, unlike its long-term ratings, apply to an individual issuer’s capacity to repay all short-term obligations rather than to specific shortterm borrowing programmes. Once assigned to an issuer, a short-term rating is global in scope; it applies to all the issuer’s senior, unsecured obligations with an original maturity of less than one year, regardless of the currency or market in which the obligations are issued. An exception to the global nature of these ratings occurs if an issuer’s rating is supported by another entity through vehicles such as a letter of credit or guarantee.

Moody's employs the following designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: P-1

P-2

Credit ratings and research help investors analyse the credit risks associated with fixed-income securities. Such independent credit ratings and research also contribute to efficiencies in fixed-income markets and other obligations, such as insurance policies and derivative transactions, by providing credible and independent assessments of credit risk. As this edition focuses on finance and investment, it’s a good idea to understand what, for example, the Moody’s rating scale is

Moody’s long-term rating definition

Ba3 B2

Investment grading

Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations. Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.

P-3

Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.

Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories. SOUTH AFRICAN PROPERTY REVIEW

Moody’s long-term obligation ratings are opinions of the relative credit risk of fixed-income obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honoured as promised. Such ratings reflect both the likelihood of default and any financial loss suffered in the event of default. Aaa

Obligations rated Aaa are judged to be of the highest quality, with minimal risk.

Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.

Obligations rated A are considered upper-medium-grade and are subject to low credit risk.

Baa

Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess speculative characteristics.

Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.

Obligations rated B are considered speculative and are subject to high credit risk.

Caa

Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.

Obligations rated Ca are highly speculative and are likely in, or very near to, default, with some prospect of recovery in principal and interest.

Obligations rated C are the lowestrated class of bonds and are typically in default, with little prospect for recovery of principal and interest.

Note: Moody’s appends numerical modifiers 1, 2 and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the

modifier 3 indicates a ranking in the lower end of that generic rating category. Enjoy the read this month.

Bank financial strength rating definitions

Banks rated A possess superior intrinsic financial strength. Typically, they will be institutions with highly valuable and defensible business franchises, strong financial fundamentals and a very predictable, stable operating environment.

Banks rated B possess strong intrinsic financial strength. Typically, they will be institutions with valuable and defensible business franchises, good financial fundamentals and a predictable and stable operating environment.

Banks rated C possess adequate intrinsic financial strength. Typically, they will be institutions with more limited but still valuable business franchises. These banks will display either acceptable financial fundamentals within a predictable and stable operating environment, or good financial fundamentals within a less predictable and stable operating environment.

Banks rated D display modest intrinsic financial strength, potentially requiring some outside support at times. Such institutions may be limited by one or more of the following factors: a weak business franchise, financial fundamentals that are deficient in one or more respects, or an unpredictable and unstable operating environment.

Banks rated E display very modest intrinsic financial strength, with a high likelihood of periodic outside support or an eventual need for outside assistance. Such institutions may be limited by one or more of the following factors: a weak and limited business franchise, financial fundamentals that are materially deficient in one or more respects, or a highly unpredictable or unstable operating environment.

Mark Pettipher, Managing Editor

SOUTH AFRICAN PROPERTY REVIEW

legal

Submission on the draft Carbon Tax Bill by the South African Property Owners Association The property sector is facing significant challenges. Above-inflation increases in electricity prices as well as rates and taxes and the imposition of a carbon tax are all expected to contribute significantly to administrative cost pressures By Mumtaz Moola

t is understood that, for most property owners, the impact of the carbon tax is expected to be more of an indirect one. The impact of a carbon tax on the property industry is expected to be largely in the form of increasing electricity prices and an increased fuel price. As the national utility, Eskom will be liable to pay carbon tax on their direct emissions, and it is expected that this cost will be passed on to its consumers. In addition, the impact on property owners would depend on how the electricity costs are managed in lease agreements with tenants, in which the cost will be passed on to tenants. The increase in the fuel price, over which we have no control, will need to be taken into account by SAPOA members. In addition, it is expected that there will be a cost impact on other building materials – for example, the cement industry would be liable to pay carbon tax on direct emissions, and therefore it is expected that the cost would be passed on to consumers. The design structure of the carbon tax would not allow for the property industry to benefit from any tax-free allowances, and there is limited scope for reducing the impact of the carbon tax on the industry. The industry has been investing in sustainable technologies to reduce its electricity consumption – but in many instances this may not be fully under the control of property owners. In addition, investment in sustainable technologies is often without returns. Additional tax liabilities would make it even more challenging to improve on sustainable technologies in the property industry. SAPOA therefore wishes to raise its concerns regarding the timing of the imposition of a carbon tax. The impact on the industry could see significant cost increases in an industry with already high 6

SOUTH AFRICAN PROPERTY REVIEW

administrative costs. SAPOA’s overall recommendation to the National Treasury is to delay the implementation of the carbon tax until after 2020, so that all the mandatory reporting and carbon budget processes are finalised and implemented for a few years.

1 Persons subject to tax The explanatory memorandum states that, for Stationary Combustion Emissions, reporting thresholds will be determined by source categories as stipulated in the National Air Quality Act of 2004, which states that “Only entities with a thermal capacity of around 10MW will be subject to the tax in the first phase”. Property owners would need clarity on what the minimum threshold is for mandatory reporting of carbon emissions as well as the carbon tax. Property owners have numerous sites around South Africa – is the threshold for all sites cumulative or by site? In some cases property owners may have direct emissions, so a minimum threshold would need to be clarified. Therefore it is not clear what is meant by thermal capacity of around 10MW, and clarification on this matter is requested.

2 Uncertainty about the carbon price for Phase 1 and going forward The tax rate for Phase 1 has not been clearly defined. In addition, there is no mention of the previously proposed 10% (nominal) annual increase up to Phase 1 in the Carbon Tax Bill. The explanatory memorandum stipulates that the “actual rate will be confirmed by the Minister of Finance through the annual budgetary process”, which implies that there will be an annual increase in the rate. Therefore there is no clear carbon price going forward, which makes it extremely difficult for investment planning.

3 Revenue “neutrality” of the carbon tax There is no explanation as to how the revenue from the carbon tax will be allocated during Phase 1. The explanatory memorandum states that all revenue will be recycled by: ● Reducing the current electricity levy; ● Providing a credit rebate for renewable energy premium; ● A tax incentive for energy savings; ● Increased allocations for basic electricity or alternative energy; ● Funding for public transport; and ● Some initiative to move freight transport from road to rail transport. We recommend that clear commitments are made in the bill for ensuring the tax revenue is neutral.

4 Tax-deductible character of the tax It is not clear whether the carbon tax will be deductible in terms of the Income Tax Act. This has an important implication for determining the actual after-tax impact of the carbon tax.

5 Complexity of the carbon tax As a general comment on behalf of the organisation, the carbon tax design is extremely complicated. The carbon tax calculations are very complicated, with numerous tax-free allowances affecting sectors differently. In addition, the inter-relationship between the mandatory reporting and carbon budgeting processes of the Department of Environmental Affairs is not clear at this stage. It is therefore the SAPOA’s position that the imposition of the carbon tax is premature, and that it should only be considered for implementation after 2020.

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education & training

Contributing to skills development in property management SAPOA and Wits University honour the Property Management class of 2017 By Maud Nale Photographs by Xavier Saer

FROM LEFT Short courses Director Dr Timothy Hutton, Executive Programmes in Real Estate Coordinator Professor Samuel Azasu, SAPOA CEO Neil Gopal, SAPOA President Peter Levett and Engineering and Built Environment Dean Professor Ian Jandrell

he certification ceremony for the 2017 edition of the one-year SAPOA Property Management course took place on 22 February in Johannesburg. The course is the result of a joint effort and ongoing partnership between SAPOA and the University of the Witwatersrand. The recipients were a mixture of staff from the Department of Public Works (DPW) and member companies. SAPOA President Peter Levett stressed the importance of transformation and education as the key strategic pillars for SAPOA. “One of the key value forces of SAPOA is to contribute to the advancement of our members’ interests in commercial property,” he said. “As a professional association, our education efforts at SAPOA are aimed at increasing knowledge and skills for the property industry among employees and the industry, ensuring that the content of our programmes, workshops and other educational interventions is aligned with industry needs to ultimately raise the employability and overall competency

FROM LEFT Peter Levett, Dr Timothy Hutton,Best Performing Student Mnqopisho Mfono (DPW), Neil Gopal, Professor Ian Jandrell

FROM LEFT Peter Levett, Dr Timothy Hutton, 2nd Best Performing Student David Watson, Neil Gopal, Professor Ian Jandrell

SOUTH AFRICAN PROPERTY REVIEW

education & training

FROM LEFT Peter Levett, Dr Timothy Hutton, 3rd Best Performing Student Bayanda Dyani, Neil Gopal, Professor Ian Jandrell

FROM LEFT Professor Samuel Azasu, Neil Gopal, Fredah Maseko and Nomvula Magagula (DPW) and Peter Levett

The Property Management class of 2017

SOUTH AFRICAN PROPERTY REVIEW

of the practitioners and professionals in the industry, thus transforming the industry as a whole.” About the relationship with the DPW, he said, “SAPOA is very committed to our partnership with the DPW in training 400 of their staff over a two-year period.” Professor Samuel Azasu of the Wits School of Construction and Economics Management thanked SAPOA and the training team for all their hard work and collaborative effort, and explained to delegates exactly how the courses had been enhanced. “We have broadened the Property Management course to include modules such as Corporate Real Estate Management and Facilities Management, to reflect the diverse and integrated nature of the property business and the kind of interfaces that exist between property managers, facilities managers and corporate real estate managers,” he said. “Our hope is that a combination of all these courses is providing added value, and allowing you to innovate and come up with new solutions to address the problems you may encounter at the workplace. “Our working relationship with SAPOA has continued to grow from strength to strength and we look forward to all the collaborative work we will still do through this year.”

H2O

Western Cape water crisis and the property market Lightstone Investigates the real estate market in the Western Cape in the last ﬁve years

eports of the devastating drought in the Western Cape have been dominating all media channels. The continued threat of Day Zero has had a direct effect on the tourism industry, wildlife and agriculture. According to a recent statement by the Minister of Economic Opportunities, close to 30 000 jobs in the province could be lost. If the situation is having such an adverse impact on these sectors, is it also affecting the property market? The short answer to this question is no. Lightstone provides accurate data on property. It has compared property values over the past five years, and the findings are encouraging. When the year-on-year average inflation value of January is compared from 2013 to 2018, the growth is positive. “When looking at growth of each year, 2016 is by far the worst,” says Hayley Ivins Downes, Head of Real Estate at Lightstone. “That year, the rand was at its worst, performing at almost R17 to the US dollar.” According to Lightstone, the tumultuous economic and political environment during this time is accountable for more losses in the real estate market than that of the looming Day Zero. Although some property specialists have correctly reported a decline in the growth rate of sales in the Western Cape, this cannot be attributed to the drought alone. This occurrence is seen across the country, and according to Ivins Downes can again be directly affiliated to the uncertainty of the country’s political future. One of the most interesting findings in the analysis of purchases and inflation in the province is the number of foreign investments in property, with an increase in January of almost four percent from the previous year.

“Overall, the analyses can be viewed as very positive and encouraging,” says Ivins Downes. “Real estate is the most popular investment, and can provide a direct link to your CPI data. Citizens and foreign investors aren’t

being deterred by the challenges that the water crisis brings. It can therefore be deduced that they are embracing the changes and are not afraid to comply with the restrictions and the alternative living standards.”

Sales growth in the Western Cape for January only (year-on-year) R2 500 000 R2 000 000 R1 500 000 R1 000 000 R500 000 R0 2013

2014 Estate

2015

2016

Freehold

2017

2018

Sectional title

Graph displays year-on-year growth in real estate categories for the Western Cape over the period 2013 to 2018.

Total property sales in the Western Cape (January only) 2500 2000 1500 1000 500 0 2013

2014 Estate

2015

2016

Freehold

2017

2018

Sectional title

Graph illustrates the total property sales from 2013 to 2018. SOUTH AFRICAN PROPERTY REVIEW

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2018/03/16 1:54 PM

legal update

MASSMART COMPLAINT:

Competition Tribunal once again dismisses complaint against exclusive lease agreements The Competition Tribunal (“Tribunal”) recently dismissed a complaint laid by Massmart against retailers for allegedly entering into exclusive lease agreements impacting on Massmart’s Game stores in shopping malls By Mumtaz Moola Contribution by Johan Coetzee of Fasken

he complaint was laid against Pick n Pay, Spar and Shoprite Checkers (“retailers”). SAPOA was cited as fourth respondent as Massmart alleged that SAPOA members have an interest in the matter and the relief sought. However, SAPOA briefed attorneys Fasken to keep a watching brief, and did not take part in the proceedings that commenced in 2015. In its complaint, Massmart, a retailer of fresh groceries, alleged that the retailers had exclusive leases with the landlords of shopping malls nationwide. It alleged that these leases constituted a restrictive vertical practice prohibited in terms of Section 5(1) of the Competition Act, as these leases exclude Massmart’s Game stores from competing in the relevant market. The complaint commenced during October 2014, when Massmart brought the complaint to the Competition Commission (“Commission”) against the retailers. The Commission non-referred the complaint in May 2015, stating as reason for its decision that it decided that a market inquiry in the retail sector would be commenced. In June 2015, Massmart brought a referral itself to the Tribunal. During the Tribunal hearing, the retailers raised a number of exceptions against this first referral, and Massmart was granted an opportunity to amend its first referral. Massmart then proceeded with an amended referral, which was again the subject of a number of exceptions. This second exception hearing was heard during September 2017, when the Tribunal upheld the retailers’ exceptions and dismissed Massmart’s complaint. 16

SOUTH AFRICAN PROPERTY REVIEW

The basis for the Tribunal’s decision given in February this year was essentially that Massmart failed to make out a cause of action in terms of Section 5(1), which deals with vertical prohibited practices, and lacked supplying sufficient material facts to substantiate its claim.

The Tribunal held: “Thus on a conventional approach, Massmart’s referral fails in two respects raised in the exceptions. The requirement to plead a clear market definition has not been met in respect of the alternative candidate market. In respect of the two primary markets, the locally defined mall market and the national market for the retail of fresh produce in malls, no allegations as to why these constitute the boundaries of the relevant market have been adequately made out. Finally, as far as a cause of action is concerned, in none of the three markets has the requirement of the extent of foreclosure been pleaded and hence, based on SAA, the inference of an anticompetitive effect.” An interesting part of the Tribunal’s conclusion was its view that a case under Section 4(1), which deals with horizontal prohibited practices, might have been better-suited to the macroscopic approach to the facts that Massmart had adopted in the referral. The Tribunal considered finally whether Massmart should be given another opportunity to amend its referral. Due to the fact that the Tribunal had given Massmart a second opportunity to amend

An interesting part of the Tribunal’s conclusion was its view that a case under Section 4(1), which deals with horizontal prohibited practices, might have been better-suited to the macroscopic approach to the facts that Massmart had adopted in the referral its referral and the long time delays in this regard, the Tribunal held that there is little point in prolonging the matter further, and the referral was dismissed. Johan Coetzee of Fasken states that, at this point, it is not known whether Massmart will proceed with its complaint or would appeal the finding. Any further steps by Massmart may, however, be overtaken by the conclusion of the Retail Market Inquiry later this year. One of the aspects being investigated by the Retail Market Inquiry is the anticompetitive effects and acceptability of the use of exclusive lease agreements in the retail sector. Based on the submissions made by stakeholders to the Retail Inquiry, it is unlikely that exclusive lease agreements will be either prohibited or allowed to be retained subject to conditions or some other form of restriction. It is therefore still not the end of the road for the use of exclusive lease agreements in the retail sector.

ENZA-Engineered Innovation At Graskop Gorge It’s a first of its kind in Africa and the second in the world. The only other lift like this is in China… ENZA Construction (Pty) Ltd has once again proved its versatility in the construction industry. In March 2017, ENZA Construction was awarded the construction of the 1192m³ Graskop Gorge Tourism Attraction Centre with shops and restaurants as well as the glass elevator which offers a 180-degree view of the gorge, waterfall, trees, birds and sky. Whilst some would find this daunting, ENZA welcomed the significant challenge. This, a first for engineering in South Africa required that 111m³ or 277 tons of concrete be dropped to the bottom of the gorge for the lift base. The 51m viewing lift on Mpumalanga’s Panorama Route, one kilometre out of Graskop on the R533 towards Hazyview, allows visitors an opportunity to explore a wonderland of unspoilt beauty, with elevated walkways and suspension bridges while exploring the forest and learning more about the surroundings. The tourism node opened at the end of 2017 and once 100% complete in April 2018, this R25 Million project will boast a ticket office, informal traders’ area, 3 curio shops and a 200-seater restaurant with an external cliff veranda and breath-taking view.

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Overcoming obstacles 16 flights of stairs, a cliff edge and slopes presented safety and logistical concerns. The team excavated the 324m³ base of the cliff by hand with only picks and shovels. The team encountered boulders too large to be removed by hand, and required permission to blast. However, environmental factors and the risk of falling debris from the cliffs edge, forced the team to use low-velocity explosives. Structural steel was a challenge too, but they managed to source a self-erecting mobile tower crane to speed up and complete the structural steel installation. Coming together ENZA needed to ensure that the concrete mix venturing down the 60m drop wouldn’t segregate. A simple yet effective pipe system and a special mix design assisted in maintaining the consistency of the concrete at all times. In the end, the team of 180 completed the project Lost-time injury free, with over 116 000 hours. ENZA, through their innovative and out of the box thinking, found a way to beat the odds, something that characterises the ENZA mindset. It has been both a priviledge and honour to have been apart of this project.

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finance

Cryptocurrency in the commercial property environment Property Review continues its series looking into cryptocurrency and blockchain. Michael Stannard, Managing Director of Paper Plane Advisory, tells us about his background and how blockchain and cryptocurrencies can work in the commercial property space By Mark Pettipher

Michael Stannard, Managing Director of Paper Plane Advisory

efore joining Paper Plane, Michael Stannard studied finance at the University of Cape Town. Graduating with honours, he obtained a Bachelor of Business Science, Management Studies and Finance. Stannard joined forces with his longtime university friend Stuart van der Veen, who had just founded Paper Plane Advisory. Paper Plane Ventures followed shortly afterwards. “My niche expertise is in blockchain and cryptocurrencies,” says Stannard. “Our advisory division has worked extensively with clients to formulate their strategies around disruptive technology. We realise that it is extremely difficult for business leaders to keep up with the breakneck speed of technological advancement. We have spent a great deal of time building up a network of scientists, tech entrepreneurs, thought leaders

SOUTH AFRICAN PROPERTY REVIEW

and established business professionals in order to advise our clients on the state of technology and how it can benefit their businesses. “We specialise in the following exponential technologies: blockchain, cryptocurrency, big data, machine learning, artificial intelligence, chat bots, 3D printing, robotics, biotechnology, nanotechnology, cyber-security, drones as well as software development.” “Paper Plane Ventures, on the other hand is a high-growth fund allowing our investors to take advantage of rapidly growing tech companies in Africa, Asia, the US and Europe,” says Stannard. “Through the constant pursuit of growing our ecosystem, we have built a network of entrepreneurs, start-ups, accelerators, incubators and incumbents, which gives us a unique insight into the latest developments in disruptive innovations and investment opportunities. Our network of investors provides capital, industry expertise and international reach for earlystage businesses sourcing investment through us. “Translating technology into the commercial property space is only really limited by the extent of one’s imagination. Take virtual reality as an example: you can now quite literally fly through your development, choose textures and tones, and see how furniture will look in place – all before a developer has broken ground. “The use of blockchain as a platform for registration is an ideal application of the platform where assets can be listed that can be used in the development

of property search engines. There are a number of people already working on data and submission solutions with municipalities, such as the Deeds Registry. “The advantage of blockchain usage in property transactions is the increased efficiency, speed and transparency, as well as security, that it offers. Using cryptocurrencies ultimately allows transactions to attract lower fee structures. It is not, however, going to change the way taxes are applied. It would be foolish to think that it is a way to avoid taxes. “While it is not illegal to use cryptocurrency to pay for things, it is still early days in the regulatory processes, and there are standards that are being set. There are trends with all technologies. If you were to follow the bitcoin pattern, you will see there is a similar Gartner Hype cycle to that of the dotcom era of 1999. You will see literally a carbon copy: an early interest, a peak where we all develop a FOMO (fear of missing out) as was evident in December, a dip, and a rise again in February. “As cryptocurrencies head towards being used globally, you’ll notice that they will become more stable. Volatility will even out and you’ll find that investment firms will develop hedge funds, further stabilising the coin. “Emerging markets in the developing countries of Africa can benefit greatly from the use of cryptocurrencies. As long as there is a reliable, stable internet service, paying for goods and services will be more efficient and secure. It will be less reliant on the usual US dollar

ﬁnance exchange rate fluctuations, and it will certainly be far more accessible. “Banks and financial institutions as well as some of the bigger commercial property players in the space are already investing in human capital, employing specialists as ‘leaders of innovation’. It’s the way of the future. Companies such as ProsperiProp (https://prosperiprop.com/index.html) and CryptoNumus (https://cryptonumus.io) are using private blockchains as investment platforms for financial institutions and the international real estate market.” To find out more about how Paper Plane Ventures can help your business, you can contact Michael Stannard via Paper Plane Ventures’ website https://www.paperplane.ventures.

Gartner Hype The hype cycle is a graphic representation of the life-cycle stages a technology goes through, from conception to maturity and widespread adoption.

The hype cycle is a branded tool created by Gartner, an information technology research and consultancy company. However, the hype cycle’s stages are often used as reference points in marketing and technology reporting. Businesses can use the hype cycle to guide technology decisions in accordance with their level of comfort with risk. Each stage of the cycle is associated with its own risks and opportunities.

The hype cycle identifies five overlapping stages in a technology’s life cycle: 1. Technology Trigger In this stage,

a technology is conceptualised. There may be prototypes, but there are often no functional products or market studies. The potential spurs media interest and sometimes proof-of-concept demonstrations. 2. Peak of Inflated Expectations The technology is implemented, especially by early adopters.

There is a lot of publicity about both successful and unsuccessful implementations of the tech. 3. Trough of Disillusionment Flaws and failures lead to some disappointment in the technology. Some producers are unsuccessful or drop their products. Continued investment in other producers is contingent upon addressing problems successfully. 4. Slope of Enlightenment The technology’s potential for further applications becomes more broadly understood, and an increasing number of companies implements or tests it in various environments. Some producers create further generations of products. 5. Plateau of Productivity The technology becomes widely implemented; its place in the market and its applications are well-understood. Standards arise for evaluating technology providers.

When private-public partnership works! Meet the entrepreneurs who benefit. The Department of Small Business Development (DSBD) and Property Point have joined forces to take 16 small to medium-sized, black-owned businesses through a life-changing enterprise development programme. This programme will provide bespoke business interventions and facilitate access to markets in order to catalyse business growth and sustainability. Meet Mandla Ndlovu, Director of G and Sons Construction which specialises in building maintenance, plumbing, painting and paving. ‘’I was inspired by my mother’’ says Mandla, ‘’I had always had a desire to grow and create family wealth, and so when I saw a gap in the market, I knew that I needed to take it and do better.’’ The company was established in 2003 when Mandla decided to tap into his own savings to follow his dreams. He admits that financing the business and accessing markets was a serious challenge in the beginning but he focused on making sure that he was registered and compliant and that he created relationships with the relevant people in the industry, this helped his business to gain the momentum it needed. G and Sons Construction has come a long way from where it started with only two staff members. Today, the organisation employs a total of eight staff members and has secured lucrative contracts with companies such as Growthpoint Properties and The University Of Johannesburg. ‘’Our goal is to reach a turnover of R10million this year, and long-term, we hope to expand into other provinces and even start our own property portfolio’’ Mandla says that the Property Point programme has provided him with exposure to other great organisations which he now does business with, as well as an opportunity to meet corporate clients and gain invaluable business knowledge. Property Point is a Growthpoint Properties initiative which provides entrepreneurs with the skills and personal development support they need to develop their businesses into fully independent companies. For more information on G and Sons Construction, contact Mandla on admin@gmprojectscc.co.za.

SOUTH AFRICAN PROPERTY REVIEW

SA REIT

Positive growth and a renewed call for better education in the sector More than 350 delegates and speakers attended the SA REIT 2018 conference, which took place at the Sandton convention centre in mid-March. Property Review ’s editor Mark Pettipher attended, and gives us this report back

ark Stevens, Chairman of the SA REIT Association’s Marketing Committee and Chief Executive Officer of Fortress REIT Ltd, opened the convention by saying that the environment the industry faces is one of change and disruption. He also noted that South Africa appears to be moving towards a better sentiment, and that the property industry is cautiously optimistic. The SA REIT Association continues to drive best practice, and is working with the National Treasury, SARS and the JSE to develop legislation that will help transform the property industry through economic upliftment and education. As the Master of Ceremonies, Lerato Mbele, presenter of the Africa Business Report on BBC World News, introduced delegates to the line-up of speakers and panel members. The speakers included: ●● Dr Jabu Mabuza, Chairman of Eskom, and Chairman of Business Leadership South Africa ●● Marc Wainer, founder of Redefine Properties, author, and host of The Mentorship Challenge talk show ●● Jaap Tonckens, Chief Financial Officer at Unibail-Rodamco (Europe) ●● Photy Tzellios, Supply Chain Director at Shoprite Checkers ●● Dr Sedise Moseneke, Chairman of the SA REIT Property Sector Charter Committee, Executive Director of Vukile Property Fund ●● Portia Tau-Sekati, Chief Executive Officer of the Property Sector Charter Council ●● Mark Randall, Head of Data Solutions Information Services at the JSE ●● Bram Goossens, Chief Financial Officer at Equites Property Fund ●● Gareth Allison, Executive Director and Head of Sub-Saharan Africa at MSCI ●● Dr Graeme Codrington, futurist and author. The panel members included:

SOUTH AFRICAN PROPERTY REVIEW

Keynote speaker Dr Jabu Mabuza, Chairman of Eskom addresses delegates.

●● Izak Petersen, Chairman of the SA REIT Association and Chief Executive Officer of Dipula Income Fund ●● Dr Terence Sibiya, Managing Executive of Client Coverage at Nedbank Corporate and Investment Bank ●● Estienne de Klerk, Group Managing Director of Growthpoint SA ●● Spiro Noussis, Chief Executive Officer of NEPI Rockcastle PLC ●● Laurence Rapp, Chief Executive Officer of Vukile Property Fund ●● Jamie Boyes, Director and Portfolio Manager at Catalyst Fund Managers.

Re-igniting our economy Keynote speaker Dr Jabu Mabuza gave a positive yet cautious overview of South Africa’s new government, highlighting concerns such as the 36% unemployment and the escalation of Public Debit, due to hit a high of 56% of GDP. Mabuza was also gravely concerned that economic growth hasn’t been keeping up with population growth, and that key sectors, education and the rule of law are all in disarray. Calling for inclusivity and clarity, Mabuza recognised that President Cyril Ramaphosa has only been in office for a short time. The President has put in place measures to build a capable and

delivery-focused government that will reignite investor confidence in South Africa and, at the same time, improve and restore state-owned enterprises as a means to improving the economy. While sentiment and confidence in the medium-term restructuring and cleaning up of government departments is encouraging, Mabuza said it’s up to big business to work together with the government to generate employment, mentorship and – in the long term – economic stability and sustainability in the country. (Big business employs seven times the number of people the public sector does.) He also acknowledged the elephant in the room – land expropriation without compensation (EWC) – saying it is a topic that needs to be addressed, and that it is part and parcel to economic inclusion and development in the country. EWC is an emotive issue and needs to be looked at objectively, responsibly and in a measured way. He called for everyone to remain calm. Mabuza also noted that while uncertainty remains about the EWC, it does affect investor confidence. Current government international road-shows by Finance Minister Nhlanhla Nene

SA REIT are helping to uplift the international investor appetite for South Africa.

Business could do more, more effectively As with Mabuza’s address, Mark Wainer gave us an overview that raised the question of whether we’re doing enough. This was in the context of corporate South Africa contributing significantly to CSI projects, in the region of R8,5billion in 2017. Wainer criticised the fact that while this significant amount has been injected into needy projects, there appears to be much duplication, iteration and the same old “drip” system, rather than a deluge of activity. He also noted that there was a great deal of optimism with regards to the new government, but he was concerned about the unemployment figures that have recently been released. Of the 22-million employable people in South Africa only 16,1-million are employed. Weiner was alarmed to note that 55% of those unemployed are under the age of 30; of those, two-thirds have been unemployed for more than a year. Weiner raised concerns about the state of education in South Africa, questioning the standard of a 40% average as a passrate figure, meaning that as people enter the job market, they’re not skilled enough to be employed. On average, 1,2-million learners enrol in Grade 1 every year, 500 000 make it to Grade 8, 300 000 matriculate and only 200 000 make it to university. Of those, only 50 000 graduate. This does not bode well for our economy, given that the chances of being employed are 75% for those with a university degree, 50% for matriculants and almost zero for those with no matric.

If two-thirds of the unemployed are between the ages of 15 and 44, it means that those who should be making a contribution to the growth of our country are unable to do so because of economic circumstances. Wainer called upon the property industry to start to address the crisis before the government imposes legislation and enforces a “tax” or an employment quota on businesses. SA REIT organisations should invest in their own future by collaborating with government and focusing on job creation, skills development, and improving and opening up education opportunities.

REITs in Europe Unibail-Rodamco’s portfolio was valued at R628,1-billion in December 2017 – more than all of South Africa’s REITs combined. Chief Financial Officer Jaap Tonckens outlined Unibail’s strategy and demonstrated its market – shopping centres strategically placed in the world’s capitals. He also explained the thinking behind joining forces with America’s Westfield group. The joining of these two giants was to consolidate a single strategy of flagship shopping destinations. Tonckens alluded to the change in expectations of shoppers, who now need to have a more destination- and entertainment-based shopping experience. The company is where locals and international customers flock to. The combined value proposition comes to R894,8-billion, with 56 flagship assets in 27 capital cities playing host to more than 1,2-billion visitors annually. This combined venture effectively allows for one of the largest organisations

Marc Wainer, founder of Redefine Properties, gives the audience an ‘state of the business’ overview.

SOUTH AFRICAN PROPERTY REVIEW

SA REIT

Unibail-Rodamco’s Chief Financial Officer Jaap Tonckens

to offer a single platform for brand ventures throughout continental Europe, the UK and the US.

Logistics takes centre stage In his presentation, Photy Tzellios explained the need for the centralised centres for Checkers/Shoprite/OK Foods, and how in the past suitable warehousing has been limited. With more and more people requiring variety and a single one-stop shop for convenience goods as well as “farm fresh” produce, Checkers and its family have in the past decade built their own distribution centres in Gauteng, the Western Cape and KwaZulu-Natal. Tzellios said that after years of analysis and a drive to bring economies of scale to their customers, the group has realised that it is more cost-effective to have bulk storage of goods strategically placed in South Africa, distributing to outlets as required. To this end, Checkers has also developed a string of smaller shopping centres around the country and in other countries in Africa. The need for a one-stop shop means that there is an expansion into delivering a pharmacy, a money market, a place to buy airline tickets, a place to have a coffee and – above all – a place to get fresh produce. This makes Checkers a leader in the business.

Transformation in the property industry Both Dr Sedise Moseneke and Portia TauSekati delivered an address on the way legislation has been adjusted with regards to transformation ratings of 22

SOUTH AFRICAN PROPERTY REVIEW

companies in the property industry. Most of the property sector will already be aware of the new Amended Property Sector Code that was gazetted in June 2017. Section 12 of the BEE Act refers to the gazetting of Transformation Charters. These are also referred to as Sector Charters, and are developed by major stakeholders in the relevant industries as a way to achieve broadbased transformation. The intention of the charter is to increase the pace of transformation within that specific sector, taking into account any characteristics within that sector, that may need to be treated in a different way. The property sector is currently valued at R5,3-trillion, with a further R520-billion worth of land officially zoned for commercial and residential development. The majority of this property and land is in the hands of white-owned companies and shareholders, while the land owned by the public sector contributes a total of R237-billion. [Source: PSCC.] The key objective of the new Property Sector Charter scorecard is to increase the speed of the ownership distribution of this property and land to the benefit of previously disadvantaged South Africans. These codes will apply to a subsidiary of a holding company or division or business unit if the primary business of that entity is dealing in property or related services. However, if the holding company is required to comply with the provisions of another code, these provisions will not apply to such an entity if the services they provide are: a) Related to an internal business function of the entity b) Related to an in-house function of the entity c) Not competing on the open market with services provided by the entity The code does not apply to activities such as mortgage loans, properties in possession of banks, property owned, leased or used for the conducting of the business of the company, or any in-house related management services. JSE REIT Indices were explained

by Mark Randall, who told us that these are useful for gauging how your REIT asset class is performing in relation to the all-share index as well as specifically against each other. Then followed the tax implications of REITs investments with a REIT Tax Update by Bram Goossens, Chief Financial Officer at Equites Property Fund. Gareth Allison of MSCI explained the importance of research in his presentation on SA REITs and ESG. He explained how the world is changing, and that in order to make sense of the property sector, MSCI ESG research provides in-depth research, ratings and analysis of the environmental, social and governance-related business practices of thousands of companies worldwide. The research is designed to provide critical insights that can assist institutional investors in identifying risks and opportunities that traditional investment research may overlook. MSCI ESG Research analyses thousands of companies to help institutional investors understand how ESG factors can impact the long-term risk and return profile of their investments. MSCI has created a suite of innovative tools designed to help clients incorporate ESG factors into their investment processes. MSCI ESG research data and ratings are used in the construction of the MSCI ESG Indexes. The suite of more than 700 equity and fixed income indexes is specifically designed to help institutional investors more effectively benchmark ESG investment performance, issue index-based investment products, as well as manage, measure and report on ESG mandates. Closing out the list of speakers Dr Graeme Codrington took us through fascinating future developments, such as the need for everything heading towards “in your palm” convenience, flying cars and being SMART. In conclusion, SA REIT Association Chairman Izak Petersen reiterated the need for a united front by fellow SA REITs partners, and thanked sponsors Nedbank and the various entities that helped organise the conference.

new banks

Discover whether it’s Tyme to post a zero branch bank With South Africa’s banking system being dominated by four major banks – Absa, First National Bank (FNB), Nedbank and Standard Bank – Property Review takes a brief look at four new banks appearing on the horizon Compiled by Mark Pettipher

Discovery Bank Discovery Chief Executive Officer Adrian Gore first announced plans for a retail bank in 2015, saying it would be a direct competitor to Absa, FNB, Nedbank, Capitec and Standard Bank. Speaking to Forbes Africa, Gore said Discovery had been working on its bank for more than two years. The company now has a strong team of people involved in the project, and is already interacting in the payment space. The Discovery Bank is being built from the ground up, with about R1,5-billion having been invested in the project. Gore added the investment is needed to ensure Discovery builds the best platform to serve customers, without taking any short cuts. “The value proposition itself will be good for customers. I mean, that is what we do,” he said. According to Gore, using incentives to change behaviour where people are often irrational works well – and Discovery believes it can add value with its model of sharing value and creating behavioural change. Discovery Bank will target the “mass affluent market” in South Africa, which Gore believes covers “a low LSM right through to the top”. Gore mentioned that Discovery’s focus is on customers, and offering them a value proposition makes sense. “It’s simple: if you meet people’s needs, they will buy your products.” https://youtu.be/YiORpBtloj8

Discovery Bank has received the following licences/memberships: ●● National Credit Act (NCA), which facilitates the advancement of credit to the public ●● South African Multiple Options Settlement (SAMOS), which allows Discovery Bank to settle transactions with other banks within South Africa and enables it to be a settlement bank from date of launch ●● Society of Worldwide Interbank Financial Telecommunication (SWIFT), which allows Discovery Bank to transact on the SAMOS systems with the South African Reserve Bank (SARB) ●● Payments System of South Africa (PASA), reflecting that the business is able to conform to the rules and conventions necessary to process specified payments, such as EFT transactions and debit orders ●● Visa Principal Issuer licence, with Discovery Bank receiving its globally unique six-digit BIN number for both credit and debit cards. ●● “Restricted Authorised Dealer in Foreign Exchange”, granted by the Financial Surveillance Department of the SARB Exchange Control.

“The Post Bank operates as a bank under an exception, which is that we are allowed to take deposits – usually the primary reason for getting a banking licence,” Barnes told eNCA in April 2017. “We are moving from that to become a fully fledged bank. “The reason for that is that we believe, as an organ of the State, at an appropriate cost of capital and given an appropriate financial inclusive mandate, we can start looking at financing what are traditionally known as unbankable or unsecured lending opportunities, as a start.” Barnes also said that the Post Bank was doing very well. “We have a very competent bank that is a fully fledged member of the payment system,” he said. “We have 5,7-million clients and we have excess capital – much more than you need even under the most stringent Reserve Bank requirements for capital adequacy. We have systems that all work. “We carry out something in the region of 14-million transactions per month. We are a fully operational bank approved by Mastercard and Visa. We are part of the ATM system. Why aren’t we being used for the payment system relating to all forms of payment?”

Post Bank

Tyme Bank

In July 2016, Chief Executive of the Post Office Mark Barnes announced that the SARB had approved Post Bank’s application to establish a bank, taking it a step closer to obtaining a banking licence.

Backed by billionaire Patrice Motsepe’s African Rainbow Capital (ARC), Tyme Bank was granted a banking licence by the SARB in September 2017. It was the first bank operating licence to have been issued since 1999. SOUTH AFRICAN PROPERTY REVIEW

new banks Fin24 reported that “Tyme’s debut as a fully fledged bank will create the first competition among the South African banking sector since Capitec Bank entered the market more than 15 years ago.” Looking at TymeDigital’s website, (Tymedigital.co.za) we are able to get a bit more of a background. The Commonwealth Bank of Australia (CBA) bought Tyme (Take Your Money Everywhere), a South African fintech business, in 2015. TymeDigital uses cutting-edge tech at its self-service kiosks to enable the authentication of an individual and verification of address details, which then allows them to transfer money – easily and within minutes. CBA is now building a full-service digital bank in South Africa, TymeDigital by CBSA. It aims to provide affordable and accessible banking services through a growing network of partners. Increasing awareness about financial services as well as their responsible use through financial education is an essential part of its plans to grow the market in South Africa and win new customers. TymeDigital is a non-guaranteed subsidiary of the Commonwealth Bank of Australia, one of the top global banks. In South Africa, ARC – an empowerment investment company – has a 10% shareholding in the bank. https://www.enca.com/money/ its-tyme-sa-gets-new-bank https://www.facebook.com/ tymedigitalza/videos/368687583561366/ “We expect to market our first banking products to the public in the second quarter of 2018, but we will start to engage consumers about their financial wellbeing in the coming months,” said TymeDigital spokesperson Thoraya Pandy during the announcement of the launch of the bank. “We will be running pilots in November and April next year in preparation for the our first product launch.” 24

SOUTH AFRICAN PROPERTY REVIEW

“Our investment is an essential part of our plans to build an empowered, pan-African financial services group,” said ARC founder Motsepe. “Supporting technology that can be used to provide access to financial services is one of the ways we plan to broaden and deepen financial inclusion in South Africa and other emerging markets.” The bank is scheduled to market its first banking product to the public by the middle of 2018.

Bank Zero This 45% black-owned bank is set to launch in the fourth quarter of 2018. Bank Zero will make use of a mutual banking licence. The mutual banking concept mirrors current social media trends, and benefits its customers by allowing for the support and creation of financial communities. It also provides for a capital-efficient framework, and Bank Zero will be sharing the subsequent cost benefits with its customers (both businesses and individuals). Founded by two game-shakers and path-makers in South Africa’s financial services industry – tech entrepreneur Michael Jordaan and banking innovator Yatin Narsai, who together built FNB up into the most innovative bank in the world during their decade-long leadership – Bank Zero will offer a unique and fresh approach to banking without any legacy systems, which can be costly to maintain. “We see the business banking segment as particularly neglected and think we can provide long-overdue fee relief to businesses – but also to anyone with a smartphone,” Bank Zero co-founder and Chairman Michael Jordaan told Property Review. “In addition, there will be much richer functionality than that which is currently provided by the competition.” Businesses, individuals, families and communities will benefit through Bank Zero’s products and services, which are in tune with modern-day realities, said Jordaan. “Facebook, WhatsApp, Twitter and Instagram are the new normal for societies,” he said.

Locally controlled banks ●● African Bank Limited ●● Bidvest Bank Limited ●● Capitec Bank Limited ●● Discovery Bank Limited ●● First National Bank ●● FirstRand Bank A subsidiary of First Rand Limited ●● Grindrod Bank Limited ●● Imperial Bank South Africa ●● Investec Bank Limited ●● Nedbank Limited ●● Sasfin Bank Limited ●● Standard Bank of South Africa ●● UBANK Limited

Foreign-controlled banks ●● Absa Group Limited ●● Albaraka Bank Limited ●● Habib Overseas Bank Limited ●● Habib Bank AG Zurich ●● Mercantile Bank Limited ●● South African Bank of Athens Limited

Mutual banks ●● GBS Mutual Bank ●● VBS Mutual Bank ●● Finbond Mutual Bank ●● Bank Zero

Other banks ●● Development Bank of Southern Africa ●● Land and Agricultural Development Bank of South Africa ●● Post Bank “Why shouldn’t banks also innovate in this era of wider connectedness while still ensuring a robust banking value proposition? Bank Zero is addressing these realities, while at the same time employing cutting-edge technologies and delivering state-ofthe-art security. “Just as we do not need an adviser to use Facebook, Google or WhatsApp, the Bank Zero app will be so intuitive that it will not be necessary to talk to anyone in order to be able to use it. However, the app will have a chat functionality should the customers have any queries. Obviously some customers

new banks will still want to go to branches and are happy with paperwork – but there is a new generation out there that prefers intuitive mobile banking at a low or zero cost – and that is our niche. We have a very basic head office (no canteen, no art collection and no wine collection); we want to be frugal so that customers can save. “We are automating everything so there will be no manual processes. We currently have 10 staff and envisage that we will peak at 15 as we add more developers to the team.” Bank Zero is part of the new frontier of banking that has arrived through smartphones and associated digital technologies, says co-founder and Chief Executive Officer Yatin Narsai. “Beyond the mobile technology revolution, other innovations will bring more financial transparency and control to our customers in an intuitive, secure and affordable way,” he says. “Coupled with the mutual banking concept, this will help nurture a savings culture in South Africa. New technologies, together with tried-andtested account features such as chipand-PIN cards, will deliver real value to our customers.” “A mutual bank differs from a commercial bank in that its customers can also become its shareholders,” adds Jordaan. “We want to pass the benefits of our mobile banking model back to the customers in the form of much lower fees and by sharing profits with customers that will help Bank Zero to grow.” Bank Zero’s other formidable cofounders also have extensive experience and knowledge of banking through their previous specialist roles in financial services. Yatin is full of praise for the team. “Innovation is hard work: it needs a business culture where everyone contributes and is free to challenge,” he says. “Such passion is in itself innovative; it’s our DNA.” To find out more about Bank Zero, listen to Radio 702 talk show host Bruce Whitfield at https://omny.fm/shows/themoney-show/south-africa-gets-a-newbank-bank-zero

Forms of banks Universal banks, commercial and retail banks Takeovers and mergers, as well as organic growth fuelled by de-regulation, have led to large banks with many interests and services. Labels traditionally given to different banks are becoming increasingly meaningless. However, it is useful to distinguish the typical labels used by different kinds of banks according to their main type of activity. State-owned banks There are no state-owned banks in South Africa. Investment banks Investment banks buy and sell corporate and government securities issues and advise companies on raising capital, but do not accept deposits or make loans in the traditional sense. The term “investment bank” is increasingly used by any bank offering a wide range of financial services and advice to corporate clients. Private banks This term usually refers to banks that act for high-net-worth individuals rather than businesses. Private banks are usually owned by commercial or investment banks. Land Bank The Land and Agricultural Development Bank of South Africa (trading as the Land Bank) is a legal person operating under the Land and Agricultural Development Bank Act 2002. The state is the sole shareholder of the Land Bank, and the Minister for Agricultural Land appoints a board of directors to manage its business. One of the objectives of the Land Bank is to increase the ownership of agricultural land by historically disadvantaged persons, by providing financial services. The Land Bank is exempt from other laws specifically governing banks, unless the other law expressly provides for its application to the Land Bank. Development Bank of Southern Africa This is a legal person under the authority of the Department of Finance. Its function is promoting economic development and growth in the Southern African region in an integrated financial development system, which aims at the efficient deployment of scarce resources. The Minister of Finance can by notice in the Government Gazette apply any provision of the Companies Act, the Banks Act or other law to this bank. Mutual banks These are governed by the Mutual Banks Act. A mutual bank is defined as a legal person registered as a mutual bank, whose members qualify as such by being shareholders entitled to participate in exercising control in a general meeting. Certain provisions of the Banks Act apply to mutual banks. The registrar for the administration of the Mutual Banks Act is the Registrar of Banks under the Banks Act.

SOUTH AFRICAN PROPERTY REVIEW

Africa report

2018 Africa Report

reveals optimistic outlook Cushman & Wakeﬁeld Excellerate has released its 2018 Africa Report: a comprehensive explanation of trends and dynamics affecting the commercial, industrial and retail property sectors in key markets on the continent. The Africa Report provides an overview of industry developments in South Africa, Mozambique, Zimbabwe, Namibia, Zambia, Nigeria, Ghana, Kenya, Tanzania and Mauritius. In each case, the report offers an explanation of the economic and political events taking place within the country, how these are impacting on the industry, and what this means for property stakeholders SOUTH AFRICA A CUSHMAN & WAKEFIELD EXCELLERATE RESEARCH PUBLICATION

SOUTH AFRICA

Africa Report 2018

SOUTH AFRICA

City Introduction: Cape Town

City Introduction: Pretoria

Africa Report 2018

City Introduction: Johannesburg Messina

Messina Messina

THE WINDS OF CHANGE – AN AFRICA PERSPECTIVE

Total Population

Total Population Growth

Area

2 455KM²

PRETORIA

3,10%

2,57%

PER ANNUM

nodes

FIT-OUT

precinct

area STOCK

strip

mall rental OFFICES

East London

Airports (Including distance in km from CBD)

BUILDINGS walls RATES

yield

external leasing

property STRIPwater

rent LANDLORD

An independently owned and operated affiliate of Cushman & Wakefield

Extracts from CWE Africa Report 2018

he report notes that political developments in several countries have had a positive spin-off, helping to revive previously stagnant sectors and therefore driving new developments in the industrial space. South Africa and Zimbabwe are both examples here, with the change in political regimes fostering renewed business confidence. “Our report shows that the outlook for the African property industry is, on the whole, positive,” says Marna van der Walt, Chief Executive Officer of Cushman & Wakefield Excellerate. This assessment is based on the recovery of several economies, especially in markets such as Nigeria and Zimbabwe. Other countries deserving a mention include Ghana and Mauritius, where concerted efforts on the part of the government have successfully sparked development in several business categories, with positive implications for economic growth impacting on demand in the sector. Namibia and Mozambique have also been earmarked in the report as markets to watch, along with Kenya, Tanzania and Zambia. In each instance, Cushman & Wakefield Excellerate has outlined critical nodes that are likely to offer attractive prospects for investors, or that may evolve to become essential property hubs. The report further provides details of landmark developments under way in each market. “Our message is clear: while African countries have faced their share of challenges and continue to do so, there are many markets worth exploring, with great potential for further development,” says Van der Walt. She adds that urbanisation will remain a major driver in this regard.

Wonderboom Airport (15.9km)

Estimated Contribution to National GDP

10%

Population Density

1 530 PEOPLE PER KM2

Saldanha

East London Port Elizabeth

2 729 PEOPLE PER KM2

Cape Town

Airports (Including distance in km from CBD)

Port Elizabeth

Cape Town International Airport (19.5km)

Time Zone

UTC+02:00

RENTAL RATES AND VACANCIES

Estimated Contribution to National GDP

14%

Airports (Including distance in km from CBD)

OR Tambo International Airport (28.4km) Lanseria (52km)

Time Zone

UTC+02:00

$4-$15 $3-$4

Rental Rates Retail (range) (monthly nett-rent in USD per sq. m)

$10-$50

Vacancy Office Stock (%)

11%

Vacancy Industrial Stock (%)

Vacancy Retail Stock (%)

1%-5%

16%

Time Zone

UTC+02:00

RENTAL RATES AND VACANCIES

Rental Rates Office Stock (range) (monthly nett-rent in USD per sq. m) Rental Rates Industrial Stock (range) (monthly nett-rent in USD per sq. m)

Estimated Contribution to National GDP

Rental Rates Office Stock (range) (monthly nett-rent in USD per sq. m)

$4-$18

Rental Rates Industrial Stock (range) (monthly nett-rent in USD per sq. m)

$3-$4

Rental Rates Retail (range) (monthly nett-rent in USD per sq. m)

$10-$50

Vacancy Office Stock (%)

Rental Rates Office Stock (range) (monthly nett-rent in USD per sq. m)

$4-$17

Rental Rates Industrial Stock (range) (monthly nett-rent in USD per sq. m)

$3-$4

Rental Rates Retail (range) (monthly nett-rent in USD per sq. m)

$10-$50

Vacancy Office Stock (%)

Vacancy Industrial Stock (%)

11%

Vacancy Industrial Stock (%)

Vacancy Retail Stock (%)

1%-5%

informal economy. The latter is estimated at 30% of GDP and accounts for 27% of employment. The contribution of mining and agricultural sectors to GDP is declining, even though longterm growth in these sectors is expected. During the global economic crisis towards the end of the last decade, South Africa managed to stay afloat compared to the rest of the world. This was largely because of sensible fiscal and monetary policy. However, over the past few years the economy has experienced sluggish growth, a weakening currency and increased inflation, mainly as a result of political instability, labour market unrest and severe drought. This has meant that South Africa’s investment ratings were downgraded by global rating agencies, resulting in a nett outflow of foreign direct investment. South Africa’s economy proved resilient in the past, and 2018 will hopefully bring further economic recovery. The ruling party (the African National Congress) in South Africa underwent a leadership change in December 2017, resulting in the recall of President Jacob Zuma in February 2018. The newly elected President Cyril Ramaphosa, brought renewed hope to the table, with promised fiscal and economic policy favouring a free-market economy, as well as a clear direction on land redistribution backed by driven, corruption-free leaders. The exchange rate, bond yields and Johannesburg Securities Exchange have already shown significant improvement. Vacancy Retail Stock (%)

1%-5%

Ratings and indices 61/137

South Africa: overview

Cost of Living (1USD/USD; 2017)

79/121

The South African economy is the second-largest in Africa after Nigeria and accounts for about 14% of the continent’s GDP. Despite extreme levels of inequality, the economy is ranked as one of only eight upper-middle income economies in Africa together with Algeria, Botswana, Equatorial Guinea, Gabon, Libya, Mauritius and Namibia. Sophisticated financial, services, retail and manufacturing sectors exist alongside a significant

Peace Index (2017)

123/163

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Richards Bay Durban

Competitive Index (2017)

Total Population

4,49 MILLION (2016)

Ladysmith Kimberley Bloemfontein De Aar

Population Density East London

Saldanha

CAPE TOWN

Port Elizabeth

MUNICIPAL

allowances

JOHANNESBURG

1 645KM²

Richards Bay

De Aar

PRETORIA

338 PEOPLE PER KM2

Cape Town

GDP unemployment

Pretoria

PER ANNUM

3,18%

Durban

Population Density

WAREHOUSE

Total Population Growth

Area

Kimberley Bloemfontein

Richards Bay

De Aar

Saldanha

leasing

nodes landlord

COMMERCIAL

factories living COURSE

investment services

Total Population

4,01 MILLION (2016) Ladysmith

PER ANNUM

Ladysmith

regional

Pretoria Johannesburg

Total Population Growth

Johannesburg

Kimberley Bloemfontein

Polokwane

2,13 MILLION (2016)

Polokwane

Area

6 298KM²

MARKET INTELLIGENCE TO SUPPORT INFORMED DECISIONS

Quality of Infrastructure Ranking (2016)

21/160

Political Stability Index (2015)

117/194

Ease of Doing Business Index (2016)

82/190

Ease of Getting Electricity Rank (2016)

112/187

Energy Supply Reliability Index (2016)

Some Concerns

Africa report Africa Report 2018

SOUTH AFRICA

25.7479° S 28.2293° E

Capital PRETORIA

Official Language ENGLISH Land Area 1,21 MILLION KM2

Currency

SOUTH AFRICAN RAND

Population (2016)

55,91 million

GDP 2016 (USD MILLIONS)

419 556,63

Population Density: 46 Urban Population: 65% Total Population Growth: 1,6%

GDP Growth: 0,3% GDP per Capita: 7504,30 GDP per Capita Growth: -1,3%

Unemployment Rate (latest)

Tertiary Enrolment (2014)

26,7%

19,37%

SOUTH AFRICAN PROPERTY REVIEW

market reports

Positive implications for real estate with business conﬁdence expected to return JLL’s Q4 2017 market reports share valuable insight into South Africa’s main ofﬁce, industrial and retail markets in an unpredictable landscape

he JLL South African Q4 2017 market report for key markets across the country, including the office markets in Johannesburg, Durban and Cape Town, the industrial markets in Johannesburg and Durban, and an outline of the South African retail market, lends perspective to the current South African commercial property landscape. The announcement of Cyril Ramaphosa as the President of the ANC in December last year (and his subsequent appointment as the country’s new president) as well as an improving GDP have much to do with the positive outlook for the industry. Average vacancy rate

Development pipeline

GDP growth

4.0%

280,500m²

2.0%

The Johannesburg office market continues to record the highest vacancy rate compared to other major metros in South Africa, with the Q4 vacancy rate at 12,6%. Office development activity is still concentrated in Johannesburg, accounting for more than 67% of the ongoing office developments nationwide despite oversupply concerns. While no shortterm improvement is expected, it is clear the city remains an attractive corporate address for many blue-chip and smaller businesses. And while the vacancy rate may currently be stagnant, there’s been improvement on a nodal level. It’s surmised that nodes such as Sandton, Rosebank 8.0 7.0and the CBD have contributed positively 6.0to the decrease in national vacancy rate.

Net absorption is estimated at just over 158 000m², proportional to the 178 000m² growth in accommodation in the past year. It also suggests that the development

3.0

Compared to other real estate subsectors, the country’s industrial sector was a key performer in 2017 with some encouraging statistics to note: The year ended on a positive note for the Durban industrial property market. Analysis reports rental growth across all grades. Average rentals witnessed growth on a yearly basis, attributable to annual escalations, with Grade A accommodation recording the highest growth of nine percent year-on-year. The market has seen much developer interest in logistics and distribution facilities, including Clairwood

12.8

12.6%

12.6 12.4 12.2 12.0

11.8%

11.8 11.6 11.4

11.4%

11.9%

11.3%

11.2 11.0 10.8 10.6 Q4 2013

Source: SAPOA

5.0 4.0

pipeline may be insufficient for future growth in the market. Current projects indicate office stock will have increased by a further 134 500m² into 2019 – a nine percent increase over two years. It was a positive close to 2017 for a resilient Cape Town office market. There are indications of vacancy improvements across all sub-sectors, most notably in Grade P and Grade A accommodation. While a trend to convert office buildings to residential use has contributed to the decline in vacancies, office stock still increased by four percent in 2017.

Overall Johannesburg vacancy rate

Vacacy rate (%)

Facts and figures for the office sector have revealed markedly different environments across the three metros:

Vacancy rate (%)

Quarter-on-quarter volatility in the Durban office sector has made it a very difficult market to predict in the past year. In JLL’s Q3 report, the question of a possible oversupply developing in the market was raised. Despite an increase in the vacancy rate to 12,4% in Q4 2017 from 11,7% in Q3 2017, the market has seen a 1,5% decline in the year-on-year vacancy rate – regardless of the notable increase in overall accommodation in the market, with an 11% increase of office stock in the past year. This anecdotal evidence suggests that developers in the Durban market have been timeous in adding accommodation to what seems to be a growing market.

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2.0 1.0

Q3 2016

0.0

Q3 2017

Q4 2014

Q4 2015

Q4 2016

Q4 2017

Stock

Vacancy rate

2,609,022m²

6.9%

burg Office Johannes port Market Re ed in

Q4 2017

trat s still concen elopment over-supply concern Office dev urg despite Johannesb

Report

Q4 2017

ice Market

Durban Off

35,000m²

wn Office Cape ToRe port Market

ting healthy

eline indica pment pip market Solid develo terest in the developer in

Q2 2017

| Q2 2017 ket Report Office Mar

Cape Town

tion with In associa Properties et Bak1 er Stre

Logistics Park, which is one of the major ongoing developments located 10km from the Port of Durban, and is planned to span more than 80 000m2. The Johannesburg industrial market ended 2017 with a relatively low vacancy rate, and a substantial development pipeline. The push towards high-end modern facilities is driving rental rates up, contributing to positive investor sentiments. To date, the Johannesburg industrial market has more than 884 000m² in the development pipeline, mostly concentrated in the northern and eastern parts of the city. Industry players should take care not to overstate the buoyancy and confidence in

Q4 2017 ce amid

ows resilien

t sh office marke

Cape Town water crisis

arket Repo

ice M Durban Off

Development pipeline market reports

the sector. Beneath the surface, a segmented market seems to be developing: on one side Grade P accommodation continues to be landlord-driven, while on the flip side, an occupier market is developing in the Grade A and Grade B space, with landlords incentivising occupiers with lower rental rates. This will play a significant role in the deals of 2018. In the South African retail space, vacancy rates went up in Q4 2017 across the board, compared to the same period in the previous year. Neighbourhood and community shopping centres continued a positive trajectory, performing better than bigger centres. The poor trading density growth reflects the consumers’

short- to medium-term concern for economic growth. Vacancy rates ended the quarter at an average of four percent. Super-regional shopping centres saw a further increase from 4,1% in the previous quarter to 4,7% in Q4, while small regional centres recorded a one percent vacancy rate decline on a yearly basis. The Consumer Confidence Indicator is expected to improve as we head deeper into 2018, with other indicators such as household credit extension already showing signs of improvement. This, coupled with the recent hopeful political changes and a strengthening rand, bodes well for a positive turn in property investment decisions.

Vacancy rate (%)

Cape Town office vacancy rate 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0

Source: SAPOA

18.5% 13.7% 12.1% 10.0% 9.7% 7.6% 6.9%

7.7% 5.0% 4.0%

Q4 2016 Q4 2017

Grade P

Grade A

Grade B

Grade C

Total

SOUTH AFRICAN PROPERTY REVIEW

Cape Town Office Market Report | Q4

investment

Affordable housing:

an under-resourced investment sector? The Constitution of South Africa states that everyone has the right to have access to adequate housing, and that in order to realise this right, the State must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of this right. Property Review talks to Shaheen Adams, General Manager: Rental Property Management and Michelle Matthee, Stakeholder Relations and Advocacy Officer at Communicare, one of South Africa’s oldest, independent, non-profit social housing providers, to find out about Communicare’s unique social development commitment By Mark Pettipher

ocial housing, by definition, is subsidised rental accommodation driven by social housing institutions, the Social Housing Regulatory Authority (SHRA), and provincial human settlement departments in conjunction with local municipalities. Social housing is a relatively new concept within formal housing policies, even though it is not a new approach in South Africa. From as early as the 1920s, social housing has been pursued formally and informally. It was used to address the issues of poverty that had arisen as a result of war conditions. SAPOA member Communicare began life as the Citizens Housing League Utility Company in 1929, when citizens of Cape Town were concerned about housing conditions for the poor and needy. Soon after its formation, the first housing development – Crawford – was built in 1930, followed by Cape Town’s first large-

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scale “model village”, Brooklyn. Eight years later, in 1938, Ruyterwacht Township was established in response to the Armblanke-vraagstuk. Now, almost 90 years later, Communicare owns and manages a growing residential portfolio, currently standing at 3 375 rental units in the Cape Town Metropolis and in Hermanus, with an additional 135 units being developed at Diep River as well as a number of units under construction in conjunction with the City of Cape Town at Salt River. While Communicare’s past may be seen as chequered, it has grown from an organisation that was considered to be an implementing agent of the apartheid spatial planning system to an organisation that has a sound social conscience and is putting a great deal of effort into reversing the ills of that previous system.

Today, Communicare’s board, made up of 13 women and two men, drives an organisation that has reinvented itself. It is committed to the principles of openness, integrity and accountability as advocated in the King Report of Governance for South Africa, and it exercises its fiduciary responsibility while playing a critical role in strategy development, risk management and stakeholder engagement. “We are self-sustaining in all spheres of our business – from planning and developing feasibility studies to managing our assets,” says Shaheen Adams, General Manager: Rental Property Management. “Our social enterprise business model enables us to provide social rentals while also growing sustainably. We combine the state’s capital grants and subsidies with surpluses from our commercially viable residential property activities to

investment finance the development of new social rentals, making them financially feasible and sustainable. “A number of our early developments have large amounts of surplus space on the erfs, which we are in the process of developing in line with the City of Cape Town’s densification policy. We are adhering to all municipal regulations – and where we are developing on existing spaces, zoning permissions are already in place.” According to the Communicare website, Communicare targets a mix of tenants. The tenants who pay market rates enable Communicare to achieve a steady flow of annuity income that allows the company to sustainably add new social rental units. It also makes it possible for Communicare to offer concessionary rentals to its most vulnerable tenants, especially those dependent on the old-age pension. “Our market-related rentals crosssubsidise our discounted or low-rent stock, and help provide accommodation to those who survive purely on government grants,” says Adams. “To coin a phrase, people are helping people. Our demographic mix is quite diverse, with income bands ranging from R3 500 to R12 000. This includes a large number of SASSA pensioners. “Providing housing for the elderly – people over the age of 60, of whom 80% are on SASSA pensions – makes up a large portion of housing responsibility.” “To quell the misconception that seems to exist out there, we are not a government organisation, and we do not give people homes for nothing,” says Michelle Matthee, Stakeholder Relations and Advocacy Officer at Communicare. “Our social housing policy is that there must be a rent paid, albeit at a rate that is subsidised.” “What makes our model sustainable is that we have 99% collection rate,” says Adams. “Yes, there are people whom we have to hand over and eventually evict, but only when we have exhausted every other avenue. We ensure that we are doing the right thing, and – compassion and our moral obligations notwithstanding – we make sure that

Communicare’s position is completely legal and defensible.” That may sound negative – but it is a reality of making sure that the organisation remains sustainable. To counter the negativity, Communicare’s unique social development programme does create an environment that supports the economic mobility of its tenants, while at the same time building a model for social cohesion among its diverse client mix. The social development programme is run by Communicare’s foundation Vula’mathuba (which means “unlocking opportunities for oneself”). This economic mobility programme aims to shift people’s mind-sets in order to help them improve their own lives. “We go beyond the role of the everyday landlord by offering young people the opportunity for economic mobility, offering vulnerable tenants support, and giving older people the opportunity to age actively, with dignity and support,” says Matthee. “Vula’mathuba works closely with the property management team, offering its programmes to tenants within Communicare’s complexes.” Partnerships with various organisations enable Vula’mathuba to deliver a wide range of programmes focused on three key areas: supporting vulnerable tenants, promoting social cohesion and promoting economic mobility. Vulnerable tenants are supported to maintain their tenancy and to gain access to appropriate support services.

A variety of services are provided, including: ●● Tenant support services such as counselling and mediation or psycho-social support ●● Assessment and screening of older persons for mental health, safety and level of independence ●● Activities that support “active ageing”, which assist tenants in achieving a healthy, productive and active lifestyle ●● Supporting older tenants to find suitable accommodation when they can no longer live independently

●● Housing benefits and a short “rent holiday” (maximum three months) for tenants experiencing short-term unexpected financial set-backs such as the death of a breadwinner or unemployment, which threatens their tenancy ●● Rental concessions to provide financial relief to tenants who are dependent on the State’s old-age pension. “Promoting social cohesion and a community spirit plays a major role in what we do,” says Matthee. “When we develop our properties, the quality of all our units is similar. Whether you are a high- or low-income tenant, you cannot externally differentiate between the type and quality of the unit occupied.” “All our properties are built near Cape Town’s support services, and close to public transport as well as daycare facilities,” says Adams. Communicare has also created a separate brand, Yes! Properties (Yesproperties.co.za). This is part of a strategy to diversify its portfolio, and to serve a wider market aimed at buyers in the middle-LSM bracket. Its aims are to acquire and develop middle-segment housing to either hold long-term or sell. The division devotes all of its profits to the development of social and affordable housing for “qualifying individuals and families” in the Western Cape. Going forward, Communicare will continue to add and develop stock. In so doing, Communicate is looking to work with banks and investors and develop partnerships to assist with funding, debit financing or donations, so as not to rely on government grants.

Housing authorities and organisations ●● Social Housing Regulatory Authority (SHRA) ●● The National Association of Social Housing Organisations (NASHO) ●● Gauteng Partnership Fund ●● Centre for Affordable House Finance in Africa (CAHF) ●● National Housing Finance Corporation (NHFC) ●● Communicare SOUTH AFRICAN PROPERTY REVIEW

developing talent

The best countries and cities attracting and developing talent When it comes to making a country, a city or an organisation competitive, there’s an essential ingredient: people Source: Weforum.org

or the past six years, the Global Talent Competitiveness Index (GTCI) has ranked countries and major cities on their ability to attract, develop and retain talent. GTCI is an annual benchmarking report compiled by international business school INSEAD with the Adecco Group and Tata Communications. It measures and ranks 119 countries and 90 cities based on their ability to grow, attract and retain talent. Here’s a closer look at the places that came top in the 2018 ranking, which was released at the World Economic Forum Annual Meeting in Davos.

Top five countries The study measures the performance of countries – there are 119 in the index – using six pillars: ●● “Enable” looks at the regulatory, market, business and labour landscapes, and whether they help to attract people, or put them off. ●● “Attract” assesses how open a country or city is to outside talent – whether that’s people or businesses – and also to those from underprivileged backgrounds, women and older people. ●● “Grow” examines how well a country or city develops its people – for example through a good education system that offers lifelong learning. ●● “Retain” looks at how nice it is to live there. One of the main components of talent retention is quality of life. ●● “VT Skills” measures the availability of workers with vocational and technical skills. ●● “GK Skills” looks at the availability of global knowledge skills (workers in professional, managerial or leadership roles). 32

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First-placed Switzerland performs strongly over all six pillars, but is particularly good at retaining talent, and offers “an ideal economic environment in terms of its regulatory, market, business and labour landscapes”. Next is Singapore, which comes top in the Enable category for its ability to attract talent from abroad. The US is in third place, performing particularly well in the Grow pillar. This is due in part to its leading network of universities and opportunities for career development. As a result, the US has an outstanding pool of Global Knowledge Skills. Offering access to social protection and benefits and a good lifestyle, Norway, like Switzerland, excels at retaining talent. Sweden performs well across all six pillars, but is especially good at retaining talent.

Top five cities In the Global Cities Talent Competitiveness Index, cities are measured using the same first four pillars as countries (Enable, Attract, Grow, Retain) with the addition of a new pillar: “Be Global”. This reflects the feeling of internationalisation within a city. Europe sweeps the board, with Zurich, Stockholm, Oslo, Copenhagen and Helsinki taking the top five positions. Zurich does particularly well at attracting talent, thanks to the city’s good quality of life and international feel. Out of the top five cities, Zurich scores highest on Be Global. Stockholm scores highest on the Enable pillar, which explains the presence of many Forbes Global 2000 companies in the Swedish capital.

developing talent Oslo and Copenhagen both receive high scores on Attract and Grow thanks to their high quality of life and abundance of major universities. Meanwhile, Helsinki does well on the Retain pillar, helped by a high doctorpatient ratio.

What are these places getting right? The top performers have four key traits in common. These are: an education system that looks ahead to the needs of employers and adapts accordingly; a business and regulatory landscape that is flexible; a working environment where employees enjoy flexible working hours and receive social protection; and governments that foster openness.

The top five cities offer great quality of life, good education systems and business environments with a global feel. Employees also have opportunities for development. But there’s also plenty that these places are not getting right. Even those highest in the index do not perform consistently, especially when it comes to diversity and inclusion. Switzerland, for instance, is criticised for not having enough female graduates or women in leadership positions. The US has a great pool of talent, but is less tolerant of minorities. Nordic countries rank very highly for social mobility and gender parity, but lag in attracting foreign talent and the development of multicultural societies.

Go East, expatriates looking to make the big bucks Sourced from Bloomberg LP

Mumbai, India’s financial, commercial and entertainment capital, tops global rankings for expat salaries, according to a survey conducted by HSBC Bank International Ltd. Foreigners moving to the subcontinent’s most populous city reported average annual earnings of US$217 165. That’s more than double the global expat average of US$99 903, the HSBC Expat survey shows. “Mumbai has the highest percentage of expats sent by their employer – these expats often benefit from relocation packages, which goes some way in explaining the higher salaries expats enjoy in the city,” said Dean Blackburn, who heads HSBC Expat. He also cited high employment and experience levels among expats, and a substantial stake of engineers relocating from German and other infrastructure companies, as reasons for Mumbai’s top slot.

Show me the money The average expat salary in Mumbai is more than twice the global average Source: HSBC Expat Explorer survey

Note: The survey was completed by 27 587 expats from 159 countries and territories. With a minimum sample of 90 expat respondents required, 52 cities were included in the data analysis. Other Asian cities joining Mumbai in the top 10 expat salary rankings were Shanghai, Jakarta and Hong Kong. While expats in Asia were generally well compensated financially, all

Staying ahead The report warns that, in today’s unstable and fast-changing world, having access to a good pool of talent is not enough. Countries and cities need to put more effort into making sure that talent is diverse and have to show a commitment to developing a culture of inclusion. “People do not just need to be different: they need to be fully involved and feel their voices are heard,” says the report. The report admits that achieving diversity is not easy, and that it requires commitment. It might even disrupt social cohesion and make managing people more complex. “The fact is that, beyond the bombast, diversity is hard – and no country or company has completely cracked it yet.”

– including Mumbai, the megacity that’s home to more than 18-million people – ranked lower in expat job opportunities than UK and US destinations such as London, San Francisco, New York or even Birmingham, according to HSBC. “The financial and technology hubs of the US and the UK are the most attractive for ambitious expats eager to push their career to the next level,” Blackburn said. Dublin, a tech centre in Europe, also ranked in the top five for expat job opportunities, but was below the global average in expat salaries. Nonetheless, 61% of expats in the capital of the Republic of Ireland reported an improved work-life balance.

Expat job opportunities Top ranks dominated by US and UK cities Source: HSBC Expat Explorer survey

Switzerland, the nation that has previously topped country rankings for expat salaries, had two cities in the top five. Zurich, home to banks such as Credit Suisse Group AG and UBS Group AG, and a tech hub for firms including Alphabet Inc, reported the third-highest expat salaries, while Geneva, the base for some of the world’s biggest commodities traders (such as Trafigura Group and Mercuria Energy Group), was fifth. Despite Switzerland’s notorious living costs, the country’s high salaries, and low personal tax rates saw 77% of expats in Zurich report that their disposable income had increased since moving. In fact, more than half of Zurich expats reported they are living in a better dwelling than they did at home, even with the Swiss city’s expensive rental and property markets. And while Berlin and Prague rank towards the bottom of HSBC’s list of 52, the majority of expats in those cities said the cost of living is affordable.

SOUTH AFRICAN PROPERTY REVIEW

how much

Which countries attract more foreign investment? More foreign direct investment (FDI) flows into China than into any other country. Few will be surprised: the Middle Kingdom’s economic ascendancy is well documented. But do you know who is second on the list? Bet you wouldn’t have guessed the runner-up: Hong Kong. So basically, China again… Top five countries that attract the most foreign direct investment 1 China: US$128,5-billion 2 Hong Kong SAR: US$103,3-billion 3 United States: US$92,4-billion 4 United Kingdom: US$72,2-billion 5 Singapore: US$67,6-billion

Top five in the Index of Economic Freedom (free countries) 1 Hong Kong: 88,6 points (out of 100) 2 Singapore: 87,8 points (out of 100) 3 New Zealand: 81,6 points (out of 100) 4 Switzerland: 81 points (out of 100) 5 Australia: 80,3 points (out of 100)

Bottom five countries that attract the least foreign direct investment 172 Bhutan (US$5,8-million) 173 Suriname (US$4,2-million) 174 Central African Republic (US$3,5-million) 175 Kiribati (US$1,2-million) 176 Micronesia (US$800 000)

Bottom five in the Index of Economic Freedom (repressed countries) 174 Turkmenistan: 41,9 points (out of 100) 175 Zimbabwe: 38,2 points (out of 100) 176 Venezuela: 33,7 points (out of 100) 177 Cuba: 29,8 points (out of 100) 178 North Korea: 2,3 points (out of 100)

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Source: https://howmuch.net/articles/foreign-direct-investment-map

n 2015, China and Hong Kong together attracted 2,5 times more FDI than the United States. That’s why Hong Kong’s unfamiliar shape is about as big as China’s on this map (which morphs countries’ sizes for the amount of FDI they received last year) and why both are larger than the US. One thing is different for all three: their colour, which indicates where they figure on the Economic Freedom Index, an annually updated ranking compiled by the Heritage Foundation that reflects the ease of doing business all over the world. Economic freedom and economic opportunity are not synonymous. If they were, China would rank much lower on the FDI list. (Think India, a country in the same category and with about the same population size, and FDI totalling “only” US$34,4-billion in 2015.) Foreign investors are willing to work with difficult business circumstances if they see chances of a good return on investment. On the other hand, there is some connection between both categories – otherwise, tiny Hong Kong wouldn’t score so high on the FDI list. In 1997, when the UK handed back its last crown colony to China, it was agreed that Hong Kong would maintain a measure of economic independence – summarised by the slogan “one country, two systems”. As a result, Hong Kong last year was the only other economy in the world attracting FDI in the triple billions (US$128,5-billion

for China, US$103,3-billion for Hong Kong). The US – 324-million inhabitants against Hong Kong’s 7,3-million – attracted just shy of US$92,4-billion in FDI. At the much, much lower end of the scale, the link between economic (un)freedom and foreign direct (non) investment seems much stronger than at the top end. Argentina, which with an economic freedom score of 43,8 points falls within the “repressed” category, attracted just over one-tenth of the FDI of its much bigger, but “mostly unfree” neighbour, Brazil (US$6,6-billion vs US$62,5-billion), and also almost three-and-a-half-times less than its much smaller, but “mostly free” neighbour, Chile (US$22,9-billion). Mineral-rich but corruption-prone, both the Congos (and both firmly in the “repressed” category) together received less FDI than tiny Malta (US$9,3-billion). But then, even “moderately free” African nations such as Morocco (US$3,6-billion) attracted less FDI last year than other countries elsewhere in the same category, such as Hungary (US$4-billion). Economic freedom is just one of the factors that play a role in determining whether a country will attract FDI. Other factors include the size of a country’s market, that market’s growth prospects, and its proximity to other markets. That being said, free markets (in dark and light green) clearly outsurface the unfree ones (in dark and light red) on this map.

how much

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Mbombela’s commercial property market

Success through coalition Our economy and the role of Mbombela’s commercial property market By Nicky Manson

FROM LEFT SAPOA Mpumalanga Regional Chairman, James Aling, GM for City Planning & Development: City of Mbombela, Dumisani Mabuza, SAPOA President Peter Levett, Thulani Nobela, SAPOA CEO Neil Gopal, Themba Camane, GM: Properties & Infrastructure at MEGA and Desiree Ntshingila

unicipality leaders, associates of the Mpumalanga Economic Growth Agency (MEGA), estate agents, architects and representatives from the private sector joined members of SAPOA to investigate the role and impact of the commercial property market on the country’s GDP, with a specific focus on the city of Mbombela in the province of Mpumalanga. This research has been previously carried out in the Western Cape, Gauteng, Pretoria and KwaZuluNatal, but it is the first time that Mbombela has been in the hot seat. SAPOA aims to bring more of its services and insights to this city with the development of its regional office in Mbombela. “Property is a key driver to city growth and the creation of jobs,” said James Aling, SAPOA Mpumalanga Regional Chairman. “We need assistance. We need processes in place. And this is a new chapter, where we should formalise these interactions.” As such, SAPOA commissioned this research project, which aims to give members of both the private and the public commercial property sector in the city of Mbombela a better understanding of the market, its pros, its shortcomings and its challenges.

“If you listened to the President’s State of the Nation address, it was emphasised that there’s a need for partnership between government and private enterprise, in particular local government,” said Aling. “The property sector is no different.” Peter Levett, SAPOA President, agreed. ”Mbombela is warm in our hearts,” he said. “We are grateful today to have the MEGA team here and the General Manager of City Planning & Development of the City of Mbombela, Dumisani Mabuza. Together we can make a difference to the city and its communities.”

How can SAPOA help? “SAPOA’s immediate focus is on smaller cities such as Mbombela, where we focus on the built environment,” said Aling. “We work with cities and assist municipalities in building regulations, spatial development, by-laws, focus research, and general research across the property section, including retail, industrial and commercial. “We want to engage key stakeholders, and we strongly support education through bursary schemes and courses. In fact, we have 25 courses across universities nationally. Partnerships are equally important at SAPOA, and we are grateful for the partnerships we have here in Mbombela.”

What did the research find? Pierre van Jaarsveld is a national development economist. His team partnered with SAPOA to investigate the effect of the property market on the country’s GDP. “There are two parts to the research,“ he said. “First, we looked at the economic value of the commercial private property sector; then we quantified this and looked at the economic impact of application delays. Part two looks at application processes and tracking.” One of the biggest issues that need to be addressed is the relationship between the private and public sector. Van Jaarsveld cleverly described the private sector as the father in the relationship. Time is paramount: he is profit-driven and responds to market demands. The public sector is represented as the mother: patient, cautious and wanting sustainable development. The market is the child. It is impatient, and requires commitment and support from both sectors. Indeed, the market cannot work when the sectors do not work together and when efficient processes are not in place. SOUTH AFRICAN PROPERTY REVIEW

Mbombela’s commercial property market

Over a period of several months, several interviews were undertaken in the private and public sectors. The Department of Economic Development was consulted, as well as the Department of Rural Development and Land Reform. Statistics South Africa was conferred with. Meetings were held with Cooperative Governance and Traditional Affairs in Mbombela, and the City of Mbombela’s land use management and building control departments were also referred to.

2016 and revealed positive results. The economic quantification looks at the value of the following features: GDP generated, jobs sustained and tax revenue. In terms of the GDP, there was a R14billion provincial contribution, R2,8billion in the CoM, 6,2% sectorial share in Mpumalanga, and 0,45% national GDP contribution. With regards to jobs sustained, there was 134 320 provincial employment, 26 050 in the CoM, 11,5% of total provincial employment and 0,8% of total national employment. Lastly, in tax revenue, R425-million was earned in provincial tax revenue, R11-million in the CoM, 9,5% of total provincial tax revenue, and 0,61% of total national tax revenue. One of the biggest contributors to loss of income, employment and tax revenue was found to be the delays in the application processes and tracking. An impact assessment was made on these delays, and the results are staggering. The scenario given by Van Jaarsveld and his team was a small 1 000m2 commercial property valued at R5-million. In each delay with an application or process, there is a delay in construction, and these delays cost the economy in excess of R70 000 a day. This means that each day that the build does not move forward, R70 000 is being lost. If the delays go on for a month, this would mean a loss of R2-million to the South African economy. In terms of GDP, R27 000 is lost per day; in a month’s delay, it is a R800 000 loss in GDP. It also affects employment, and a one-day delay affects four jobs. With regards to loss of income by the unfinished business property, a one-day delay is a loss of R13 500 and a month’s delay is a loss of R400 000 in income. “These are short delays in the building arena,” said Van Jaarsveld. “Can you imagine what it costs our economy when there are longer building delays?”

What was discovered?

What is causing these delays?

It’s important to note the role the commercial property market has in South Africa’s economy. This was quantified in

The approach to gathering information by the research team was to investigate the development application processes such as

Pierre van Jaarsveld of Urban-Econ

Aims of the research The project’s purpose was to determine the role and impact of the commercial property sector in the City of Mbombela Local Municipality. To do this, Van Jaarsveld and his team looked at the economic value of the commercial private property sector, the state of the provincial economy, statistical analysis, and the economic contributions made by the commercial private property sector in terms of GDP, employment and tax generated. Their Application Processing Report looked at land use management, application processes, understanding SPLUMA, case study analysis (reviewing a sample of applications), and identifying possible problem areas.

How was this research generated?

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rezoning, township establishments, subdivisions and consolidations, and building plan applications. The research team also applied application-tracking analysis that looked at the municipal application database and the evaluation of applications, and held a number of interviews with the private sector. “We discovered that the average processing time in 2016 was 260 days,” said Van Jaarsveld. “The suggested timeline was 266 days, which means more than 80% of applications do get processed within the allocated time frame, with thanks to municipality efficiency.” Considerable delays could be blamed on township creation, amendments to applications, tribunal hearings taking too long and outstanding or missing documents.

“The public and private sector must have a professional relationship. We are all on the same team” With regards to building plan applications, Van Jaarsveld explained that the suggested time frame is 60 days, but that this is rarely met. There were many challenges found in the building plans applications, with Mpumalanga’s building plan efficiency pegged at only 55% compared to the Western Cape at 85%, and KZN’s 98%. The biggest areas needing improvement were found to be communication, technical issues, capacity issues and application administration. More specifically, communication gaps between external companies and municipality caused significant delays. Capacity issues were due to the lack of personnel, which creates backlogs, and not getting to tribunals in time for approval. Applications administration refers to incorrect documents filed, and missing information. It seems that the biggest steppingstone, however, is the lack of participation between private and public policies.

Mbombela’s commercial property market Recommendations by SAPOA The private sector must: ●● Make use of pre-admission consultations; ●● Inform applicants so they know the by-laws, which must be easily accessible; ●● Keep records of correspondence; ●● Improve relationships and communication with municipality; ●● Reply timeously to requests; and ●● Familiarise themselves with guidelines of spatial land development, land use and so on. The public sector must: ●● Promote continual engagement between both sectors; ●● Follow a compatible approach within all departments; ●● Relay incomplete applications to the private department timeously; ●● Improve record-keeping; ●● Implement continual training; ●● Improve communication, and make sure everyone knows who is responsible for what in the municipality; ●● Communicate problems identified to the applicant ASAP; and ●● Make municipal by-laws and guidelines available to all. “The public and private sector must have a professional relationship,” concluded Van Jaarsveld. “We are all on the same team. It is up to the authorities to promote development. There are many great development opportunities in Mbombela, but we need to assist one another in the implementation.”

Themba Camane of MEGA

In closing, Aling appealed to the public and private sector that the morning’s information and recommendations be addressed in a formal, structured way to get a resolution. “We need a developers’ forum to take the recommendations of this report and create formal solutions.”

The tribunal’s challenges The biggest problem currently faced by the municipality tribunal hearings is the long backlog of applicants. Research shows that more often than not the meetings get cancelled or moved because of availability of members and applicants. Mabuza agreed: “Tribunals not making decisions is one of the biggest delays,” he said. “Between 2016 and 2017 we set up systems and structure to combine our two municipalities, which each had their own tribunal. According to the regulations of SPLUMA, these had to be integrated. Tribunals should sit once a month but we sit sometimes three times a month. The volume of the work is so high, we have battled to catch up.

“We are looking at splitting the tribunals into two again as a temporary measure to help get rid of the backlog, but we first need to address the legalities of doing this.” Van Jaarsveld supported these positive steps forward made by the public sector. “We need to understand the impact of these delays on commercial developments. It’s costing our economy. There is a loss of income and a loss of employment. The bigger the delay, the bigger the impact on our economy.” Mabuza concurred: “We need to take the time to analyse the delays, then cut the lead time and become more efficient.” It’s not all bad news, said Van Jaarsveld. “The report looks at specific areas we can improve on, and some of these issues are already being addressed, which is great.” MEGA and SAPOA partnered on the research report, and they supported the findings. “We must take practical steps now to change the property sector going forward,” said Themba Camane, MEGA’s General Manager of Properties & Infrastructure. “Take these theories and now implement them. Capital cannot wait. It doesn’t wait for anyone – not MEGA, not Nelspruit.” “The new year has bought with it a positive sentiment in South Africa,” said Derek Todd, Deputy Chairman of SAPOA Mpumalanga, in his conclusion. “We hope that with our property investments, with your help and with everyone playing ball, we can only go from strength to strength.”

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Western Cape Brokers’ Breakfast and Legal Forum SAPOA Western Cape Regional Council, in partnership with Cliffe Dekker Hofmeyr (CDH) hosted a Brokers’ Breakfast and Legal Forum on 15 March at the CDH ofﬁces in Cape Town

FROM LEFT Paul Aitkin, Sedica Knight, Annie Swan and Nikita Kekana

he informative session touched on a broad spectrum of legal concepts applicable to brokers. Competition Commission approvals, achieving zero ratings, dispute resolution and environmental law considerations were a few of the agenda points discussed.

FROM LEFT Johan Kriel, Andrew Dewey and Nathan Brajtman