South African Property Review Dec19-Jan2020 by SAPOA

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REVIEW

The voice for the industry

CSI

Corporate social investment from industry leaders

David Green

Public partnerships, the answer?

Property market overview Residential property market is beginning to stabilise

State of City Finances

Climate adaptation and resilience in South African cities

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from the CEO

Competition Commission Code of Conduct On 6 October 2019, the Competition Commission released a draft “Code of Conduct”, requesting members of SAPOA to sign it

his document suggests that the Commission may be moving away from trying to engage in direct rental regulation. However, we are concerned that the document still contains a number of problematic provisions, and would purport to bind the entire industry on a “voluntary basis” or risk facing regulation. SAPOA obtained an opinion from CDH and sent a letter to the Commission on 11 September 2019, advising the Commission that it is very concerned by the Grocery Retail Market Inquiry’s (GRMI’s) initial findings on rentals and the decision to issue the Code of Conduct with such limited opportunity for engagement by affected parties. We have concerns regarding the process adopted in relation to both the Code and the GRMI’s consideration of rentals in the market for lettable retail property. At the outset, SAPOA disagrees that the market for lettable retail property is characterised by structural competition concerns, discriminatory rentals or the prevalence of unfair practices engaged in by owners of lettable retail property against tenants and prospective tenants. The leasing practices of owners of lettable retail space, and specifically rentals, escalations and related contractual arrangements, are complex matters distinct from the issue of lease exclusivity in retail property as identified in the terms of reference and statement of issues published by the GRMI. SAPOA was not aware that interventions in rental pricing were being considered within the context of the GRMI. Had there been notice that rental pricing formed part of the GRMI process, we have no doubt that our members would have participated

vigorously and constructively in the GRMI process on rentals, escalation rates and related contractual arrangements. We are of the view that by not formally expanding the scope of the GRMI to consider rentals, escalations and related contractual terms, the GRMI has missed an opportunity to properly consult and gather facts from stakeholders. Although we are aware that some of our members have now, at a very late stage in the GRMI process, received requests for information regarding rentals after the publication of the preliminary report, this process has not afforded stakeholders sufficient time to appreciate the full import of the Commission’s process and the basis for the findings about inequity in the market for lettable retail property insofar as rentals, escalation rates and other contractual arrangements are concerned. We do not believe it is reasonable of the GRMI to expect parties to comment on the Code within a period of four business days. Stakeholders must be given an opportunity to meaningfully engage with the issues underlying the

Code. The Code will have a fundamental impact on the market for lettable retail space, and there are many difficulties with the current draft from a practical and legal perspective. There are also many areas of the Code that need to be explained by the GRMI before stakeholders can meaningfully engage with it. We are fully aware of, and support, the imperative for South African businesses to support small, medium and blackowned businesses in order to grow the economy and create jobs. We are, however, concerned that the Code in its current form has not been prepared based on enough empirical data to ensure that no unintended adverse consequences arise, both for the economy and jobs and for the “designated class” of more vulnerable tenants. Material concerns harboured by SAPOA include the potential that the Code may result in higher prices where tenants are no longer able to aggressively negotiate for differential terms. In addition, the requirement to give transparent insight into how a given firm’s rentals are determined, differences in rental levels and a push by the Code to ensure escalation uniformity may well have the effect of reducing competition in what is currently a very competitive market. There are examples where measures imposed in the UK energy market aimed at increasing price transparency and uniformity in the pursuit of increased “fairness” have resulted in significant harm to users of electricity by increasing overall energy prices. Intervention in the mechanisms for determining prices (rentals and escalation rates) in a dynamic and competitive market for lettable retail property should be done SOUTH AFRICAN PROPERTY REVIEW

from the CEO with great circumspection and based on credible and wide-ranging empirical economic assessment We submitted that the GRMI’s preliminary report does not contain a proper basis to justify any intervention, and questioned the need for a Code of Conduct to achieve this where there is no evidence of widespread mala fides by property owners and where there are other pieces of legislation administered by specialised regulators that would offer more effective protection to members of the designated class, including the Consumer Protection Act, No. 68 of 2008. We also stated that we wish to engage with the Commission further on this very important matter, and would therefore request that the Commission not seek to address rentals, escalation rates and related contractual terms within the very limited amount of time remaining in the current GRMI process. The Commission responded by advising that they would like to engage with SAPOA, and a meeting was held with the Commission on 18 September 2019. At this meeting, SAPOA asked the Commission to engage with its members directly, and a meeting was held with SAPOA members at Head Office on 30 September to facilitate an informal discussion. After hearing the concerns, the Commission advised that SAPOA should draft a document and present it to the Commission. We have sent out an invitation to our members to be nominated to a Task Team, and the Task Team was established to discuss the way forward and to consider a Code of Conduct or a best practice document. The danger facing members is that, should only a few of the members sign the Code, the Code would be binding on only those members who sign it. It would result in an anomalous situation of some members being bound by the Code and some members not. Best regards, Neil Gopal, CEO 4

SOUTH AFRICAN PROPERTY REVIEW

contents

PROPERTY SOUTH AFRICAN

REVIEW

The voice for the industry

ON THE COVER As we head towards the annual property sector shutdown, we take a look at what is affecting the industry. Legal matters give an overview of the Property Practitioners Bill, David Green, SAPOA's President outlines some of SAPOA's achievements during the first half of his tenure. This year we feature some of the industry's CSI initiatives.

From the CEO

From the Editor’s desk

David Green Public partnerships, the answer?

16 Legal update A brief overview of the Property Practitioners Bill 28 Eskom The roadmap for Eskom 2019, and its impact on the IPP industry 32 CSI Abcon Group Foundation driving transformation` 46 Property market overiew Residential property market is beginning to stabilise 61 Cost report Operating Cost Report 65 State of city finances Financing climate adaptation and resilience in South African cities 74 Howmuch.net Visualise the entire world’s wealth inequality 75 Networking 82 Off the wall Holograms You Can See, Hear, and Feel FOR EDITORIAL ENQUIRIES, email mark@mpdps.com Published by SAPOA, Paddock View, Hunt’s End Office Park, 36 Wierda Road West, Wierda Valley, Sandton PO Box 78544, Sandton 2146 t: +27 (0)11 883 0679 f: +27 (0)11 883 0684 Editor in Chief Neil Gopal Editorial Adviser Jane Padayachee Editor Mark Pettipher Copy Editor Ania Rokita Taylor Public Relations Officer Maud Nale Production Manager Dalene van Niekerk Designer Fanie van Niekerk Sales Pieter Schoeman: pieter@mpdps.com Finance Susan du Toit Contributors xxxx xxxx xxxx xxxx xxxx Photography Mark Pettipher DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright South African Property Owners’ Association (SAPOA). All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from SAPOA. The publishers are not responsible for any unsolicited material.

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

December 2019 / January 2020

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from the Editor's desk

As 2019 draws to a close… Next year, GDP growth will likely be closer to 1% y/y than 1,5% y/y, as structural reforms lag. On 25 November, the IMF warned that it projects South Africa’s “economic growth to remain sluggish in 2020 – below population growth for the sixth consecutive year,” says Investec Chief Economist Annabel Bishop. “With low growth and low job creation, the increasing labour force is projected to exacerbate unemployment pressures, poverty and inequality…”

he big news about South African Property Review is that, from February 2020, we will be going bi-monthly – not because there is less information, but because we will be bringing you more in-depth reporting. Being online only, we are no longer constrained by page count, so we will be able to redesign the magazine to make it easier to navigate, and to include more interactive elements, such as video links and soundbites. Furthermore, we have reduced the cost of advertising to reflect the magazine being an online-only product. However, the most important event on SAPOA’s calendar, the Annual Convention (which will be held at Sun City from 3 to 5 June), will feature a printed copy as part of each delegate’s goodie bag. For advertising opportunities and for our new rate card, please contact Pieter Schoeman at pieter@mpdps.com. Our themes for the year have also changed a bit: in line with giving each region an opportunity to feature in an overview, each of the six editions will carry a Regional Roundup: February 2020 will kick off with a Western Cape overview; April will feature Limpopo/Mpumalanga; and June will focus on Gauteng, to coincide with the host region of the SAPOA Convention. In August, in addition to a KwaZuluNatal roundup, we will be giving SAPOA members an opportunity to recognise the women in their company structures by including a special Women’s Monthoriented section in the magazine. For October, I’ll heading back to East London to pick up from where we left off this year. 6

SOUTH AFRICAN PROPERTY REVIEW

And, last but not least, the December edition will carry the Port Elizabeth round up. There are a number of other themes for each issue of the magazine. These can be found on our 2020 rate card, so please contact me at mark@mpdps.com so that we can begin planning editorial insertions for 2020. In this issue, SAPOA President David Green speaks to us about his views and experiences of the property industry, and we highlight some of the activities that the organisation has undertaken during the first part of his tenure. We also met with Dr Andrew Golding, CEO of Pam Golding Properties, who provided us with an in-depth overview of the country’s residential market. While there seems to be a certain amount of stabilisation, it remains a buyer’s market – but if you’re a Gauteng resident, it may take you longer to sell your property than elsewhere in the country. On the other hand, KZN seems to be attracting the most semi-gration as a result of

the proximity of King Shaka International Airport to areas such as Umhlanga, Sibaya and Umdloti. We know how import reports and analysis are to our readers, so this edition carries the SAPOA Cost Report as well as our final instalment of the South African Cities Network’s State of City Finances. We also look at Howmuch.net’s representation of the world’s wealth inequality. As usual, we included a number of legal articles, highlighting the Property Practitioners Bill (which we touched on in the November issue of Property Review); amendments to JSE listing regulations; and an analysis of arbitration in the construction industry courtesy of our regular contributor, Fasken. This year we had a great response from members who undertake various CSI activities, and I thank you all for your contributions. Featured members include Abcon, Amdec, CDH, Growthpoint, the JSE, Redefine and the SA REIT Association. Going into next year, I’ll remain the magazine’s editor, as SAPOA has again renewed my tenure. I look forward to engaging with you on important issues in 2020. Thank you all for your continued support in the past year. The magazine’s Google Analytics tells me that our page views have increased steadily, and our read time remains constant at just over 10 minutes per read. Thank you for your loyal readership, and thanks for staying online with us. I wish you all a refreshing festive break and a prosperous New Year. Mark Pettipher, Editor and Publisher

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Work your way

President's message

Are public partnerships the answer? As 2019 draws to a close and 2020 approaches, we look forward to what next year will bring. SAPOA derives its strength from the excellent home-based office team, but it would not be the success it has been were it not for the time and dedication of all its committee members around the country, who give so freely of their expertise and valuable time. Over the past six months, I have come to meet many of you, and I want to personally thank everyone for their guidance and support with the SAPOA initiatives that are in progress Interview by Mark Pettipher SAPOA President David Green

o doubt 2020 will be an important year for South Africa, as the government continues to address the challenges that exist while striving to boost and stabilise the domestic economy. At SAPOA, we provide the government with all the support we can, but we also challenge the structures when we disagree with new policy frameworks that may adversely affect our industry. The South African property sector would do well to consider supporting public-private partnerships to ensure that these work more effectively. Exorbitant escalations in municipal rates and taxes, problematic proposed changes to outdoor signage regulations, the lack of water and electricity security, and a general lack of optimism all curb investment as well as the opportunities for the property industry to play its role in the stimulation and growth of the South African economy. SAPOA President David Green agrees that there are sure signs of improvement within the broader South African economic landscape. “There is a big thrust towards business improvement districts and national legislation around that,” he says, noting that the sector could no longer solely rely on local government to pick up responsibility for restoring

SOUTH AFRICAN PROPERTY REVIEW

the economy or fixing the various issues facing our built environment. The private sector will need to play its role in maintaining the value of the country’s commercial real estate investments. “Critically, private-public partnerships do need to be considered as one means of stimulating economic growth across all South African cities,” he says. “The focus should be on ensuring the maintenance and continued provision of essential services, in particular the provision of water and electricity, and waste management. “It’s heartening to see the property sector is realise that these are essential to its own long-term sustainability.” As an active member-driven organisation, SAPOA drives the agenda of the South African property industry and its supporting services. Green likens SAPOA to the “public protector” of the industry – it challenges the institutions of government, and addresses the issues facing its members. “SAPOA plays a dynamic role with regard to understanding the pressure points within each sector of the property industry, to see where it can add the most value in the most effective way,” he says. “Our executive team met recently with various government ministers and provincial and local city managers in different cities, and it has been an enormous

President's message undertaking to understand what is driving the industry and where the issues lie. The meetings helped us crystallise some of the main points that SAPOA is working on at the moment. “More specifically, SAPOA has actively progressed the following matters that have directly affected the industry:

Property Practitioners Bill ”Since 2013, SAPOA has been engaging with the EAAB and the Department of Human Settlements to bring about changes to the Act. Over the six-year period, we submitted comments on nine versions of the Property Practitioners Bill. In 2018, despite all our comments not being considered, we managed to get the non-executive director exemption, the renewal of the FFC once every three years, the introduction of an ombud and the consideration of appointing directors with commercial property experience onto the board. SAPOA has also been invited to be part of the task team to draft the Regulations.

Competition Commission Retail Market Inquiry “On behalf of its members, SAPOA lodged a complaint with the Competition Commission in 2012, and requested that the Commission re-open its investigation into exclusivity clauses and give a definitive ruling with regard to the anti-competitive nature of exclusivity clauses in leases once and for all. The inquiry began on 27 November 2015, and the Commission aims to complete the Inquiry by 30 September 2019. ”The Grocery Retail Market Inquiry published its final report on 25 November 2019. On exclusive leases, it recommended the following: ●● As of the date of publication of the final report, the incumbent national supermarket chains (Shoprite, Pick n Pay, Woolworths and Spar (including their subsidiaries and successors)) must, with immediate effect, cease enforcing exclusivity provisions, or provisions that have a substantially similar effect, in their lease agreements against specialty stores. This also applies to provisions that serve to restrict the product lines, store size and location within the shopping centre for specialty stores. ●● No new leases or extensions to leases by the incumbent national supermarket chains may incorporate exclusivity clauses (or clauses that have substantially the same effect), or clauses that may serve to restrict the product lines, store size and location of other stores selling grocery items within the shopping centre. ●● The enforcement of exclusivity by the incumbent national supermarket chains (including their subsidiaries) and their successors in title against other grocery retailers (including the emerging challenger retailers) must be phased out within three years from the date of the publication of the final Inquiry report.

”These recommendations permit the phasing out of existing exclusive agreements where appropriate, while setting the platform for a future where such agreements do not exist to restrict entry and expansion by specialist and emerging retail chains into shopping malls nationally. ”While we take comfort that the issue relating to exclusivity has been dealt with, we are concerned that the Competition Commission has strayed from its original intentions and included a finding on rentals. The original Terms of Reference, and the subsequent amended version, made no reference to the issue of rentals, yet the findings are as follows:

Rental rates ●● 98.6 Property owners and managers of shopping centres must: – 98.6.1 use fair, transparent and commercially justifiable criteria in determining differences in rental rates across tenants; – 98.6.2 ensure that escalation rates across tenants are uniform, unless there are fair, transparent and commercially justifiable reasons for them to differ; and – 98.6.3 ensure that lease deposits and shop-fitting allowances are based on fair, transparent and commercially justifiable criteria. ●● 98.7 To continue with the work done by the Inquiry, the minister should appoint a facilitator to secure voluntary compliance by landlords and managers of shopping centres. If the facilitator is unable to secure voluntary compliance within six months of the date of publication of this Final Report, the government should introduce a legislative framework to give effect to these recommendations in the form of a code of good practice and the establishment of an industry Ombudsman to be financed by landlords. “We intend to meet with our members in the first week of December 2019 to discuss our options going forward.”

City of Johannesburg (COJ) Outdoor Advertising “At the beginning of 2017, the COJ published its new Outdoor Advertising By-law for public comment. SAPOA submitted comments, and the city did not take SAPOA’s comments into consideration. On 20 March, the city adopted and approved the Outdoor Advertising By-law. It stated that the By-law would be promulgated on 31 May 2018. “SAPOA’s view was that the promulgation of the new By-law would immediately and retrospectively criminalise hundreds of private property owners with unapproved advertising signs on their properties without affording the affected property owners the opportunity to arrange their affairs in such a manner as to ensure compliance with the new By-laws and legitimisation of the affected advertising signs. “The city, as a commercial role-player in the outdoor advertising arena, is undoubtedly conflicted between its SOUTH AFRICAN PROPERTY REVIEW

President's message regulatory function and its commercial interests. Because of the above – and from a constitutional perspective – the regulatory control over the process should ideally be divested to an impartial decision-making body and not to any particular city official. “The enforcement measures, which are severe, can be imposed arbitrarily by the officials playing the role of investigative, prosecutorial, adjudicative and sheriff’s functionaries. This is in contravention of the rule of law. “The parties went to court in October 2018 and again in April 2019, and the promulgation of the By-laws has been suspended pending the outcome of the judgment.”

Companies Amendment Bill – Business Rescue Provision “One of SAPOA’s main arguments is that a tenant’s rental, from the time the tenant goes into business rescue until the business rescue process comes to an end, is post-commencement finance. Accordingly, SAPOA met with the Specialist Committee on many occasions, and requested the Specialist Committee to amend the Act to specifically provide for this. “Although the committee was sympathetic towards SAPOA, it indicated that the government was reluctant to change the Act. This provision was brought into existence in the Companies Act in 2008, and continued being a hindrance to rent and services collection by landlords. SAPOA brought a declarator on 13 October 2016. The court decided that SAPOA was not entitled to the declaratory relief sought. Judge Janse van der Westhuisen said that interpreting the Act in the way we wanted would defeat the purpose or aim of business rescue intended in Section 128(1)(b), and would “elevate an obligation prior to commencement of business rescue proceedings to a preference over other creditors not provided or contemplated by the provisions of Section 135 of the Act”. “SAPOA then met with Professor Michael Katz of the Specialist Committee, which is advising the Minister on the Companies Act, on 13 February 2017, and raised its concerns. Katz confirmed that he will submit SAPOA’s concerns to the Specialist Committee, which he did on 13 March 2017. We were advised that the Committee was looking at amending Chapter 6 of the Companies Act. “On 22 August 2018, Cabinet approved the Companies Amendment Bill to be gazette for public consultation. The Bill was published for comment on 21 September 2018, and SAPOA submitted comments. After comments were received, the Department of Trade and Industry (DTI) met with SAPOA to address SAPOA’s comments, and subsequently called a meeting of stakeholders. At that meeting, the DTI explained why SAPOA’s comments on Section 135 were being accepted. SAPOA then redrafted Section 135 and submitted it to the DTI. “The Bill seeks to, among others, amend Section 135 of the Companies Act regarding business rescue.” 10

SOUTH AFRICAN PROPERTY REVIEW

City of Cape Town Drought Charge (CTDC) and the City of Cape Town Water Amendment Bill “In December 2017, the City of Cape Town put out these two pieces of legislation for public comment. “With regards to the CTDC, SAPOA conducted a survey among its members to ascertain the impact the drought charges would have on their operations. “Together with the information it had obtained from the survey, SAPOA submitted its own comments strongly objecting to the proposed drought charge, and lobbied the Mayor. The drought charge was cancelled; however, the city stated that it would be imposing heavy penalties on excess water usage. “The notice and invitation for comments were issued in December, at a time when the city knew full well that the property industry – and the city – had shut down for the festive season. Comments on the Water Amendment Bill were due on 6 January 2018; but after SAPOA wrote to the city, the city extended the deadline to 15 February 2018.”

Comments on draft rates policy and rates tariffs “SAPOA has appointed a consultant, who submits comments related to the draft rates policy and draft rates tariffs for the following municipalities: ●● City of Johannesburg ●● East London – Buffalo City ●● eThekwini ●● Port Elizabeth – Nelson Mandela Bay ●● Polokwane ●● Western Cape ●● Mpumalanga.”

Polokwane draft rate tariffs “SAPOA studied the draft rates tariffs and tariff policy of the Polokwane Municipality, and submitted comments on 29 April 2019. SAPOA objected to the simultaneous increase in property rates and property values from 1 July 2019, leading to double taxation on all properties in the city. Rates Watch also commented on the draft tariffs and tariff policy. “SAPOA’s objection read as follows: ’SAPOA strongly objects to the simultaneous increase in property rates and property values from 1 July 2019, leading to double taxation on all properties in the city. The property value of a commercial enterprise in the city was taken as an example, and increased values/taxation are reflected herewith. [See opposite page.] The owners of the property in question would have paid an increased amount of property tax to the amount of R45 471 (+6%) if the value of the property remained unchanged. The new increased valuation amount of the property (+10,77%) – plus the 6% increase in tariffs – have the implication, however, that the monthly property tax amount increases with a massive R132 162 or 17,4% from 1 July 2019.

President's message Valuation Roll value

% increase in property value

Existing tariff from 01/07/2018

New tariff from 01/07/2019

% increase in Tariff

Total property tax increase per month

Value for period 2014-2019

R65 900 000

0,01152

Value for period 2019-2024

R73 000 000

10,77%

0,01221

10,77% + 6%

Value of property

Existing tariff from 01/07/2018

Property tax amount

Tariff from 01/07/2019

Property tax amount

Difference from 2018/2019 to 2019/2020

% difference/ increase

R65 900 000

0,01152

R759 168

0,01221

R804 639

R45 471

R73 000 000

0,01221

R891 330

R132 162

17,4%

‘The National Department of Cooperative Governance and Traditional Affairs (COGTA) states in an information document regarding the Municipal Property Rates Act that, “All things being equal, municipalities that have not been rating on the market value of land and buildings combined, should consider reducing the cent amount in the rand drastically to ensure that there are no major shocks to ratepayers and economic sectors given that, in terms of the Act, they will be raising revenue from an expanded rates base than previously. Also, for all municipalities, when new valuations are done, from time to time, the cent amount in the rand should be reviewed, and if necessary reduced drastically to avoid creating major shocks to ratepayers. ‘COGTA further states that, “For example, if the municipality was raising total rates income of R1 650 295 from residential/ commercial property category based on rating land, whose

rates base was worth R56 204 500 (total market value of all individual properties within the residential/commercial property category), and the new rates base, which is land and buildings, is worth R273 204 500 in market value, the municipality would have to drastically reduce the cent amount in the rand, from about R0,029 to about R0,006.” ‘The Polokwane Municipality has clearly not applied its mind to the simultaneous increase in property tariffs and the implementation of the new valuation roll on 1 July 2019. The double taxation – and, in many instances, more than double taxation – of properties will have a major impact on property owners in Polokwane. The Polokwane Municipality is hereby requested to reduce the “cent amount in the rand” of the tariffs to avoid creating a major shock to the entire property market in the city.’ “The Polokwane Municipality responded in writing on 22 May 2019, and therein indicated that, ‘The municipality had

CODE

CATEGORY

2018/07/01 Approved

2019/07/01 Approved

% decrease

AI; AII; AVI; DIII; FII; GIII

Residential properties

0,00576

0,00543

-5,7%

B; BI; GVIII

Industrial properties

0,01152

0,01085

-5,8%

AIII; AIIIA; C; CI; DII; GI; GII; GVII; HI; QI; QII

Business and commercial

0,01152

0,01085

-5,8%

DI; FI; DIV; FIII; FIV; GV; GVI; M; NI

Agricultural properties

0,00144

0,00135

-6,3%

GIV

Properties owned by organ of state 0,01152 and used for public service purposes

0,01085

-5.8%

H; HII

Municipal properties

0,01152

Exempted

Public service infrastructure

0,00144

0,00135

-6,3%

Mining

0,01152

0,01085

-5,8%

Private open space

0,00576

0,00543

-5,7%

Properties owned by public benefit organisations and used for specified public benefit activities

0,00144

0,00135

-6,3%

POW

Places of worship

Exempted

AV; R

Non-permitted use

0,04608

0,04344

-5,7%

SOUTH AFRICAN PROPERTY REVIEW

President's message subsequently adjusted the tariffs downwards by 6% to the July 2017 cent in a rand’. “This in effect means that monthly property rates for business and commercial and industrial properties per R1 000 000 market value on the draft tariff of 0,01121 is R934,17 and R904,17 on the approved tariff of 0,01085. In practice, this means that a mall the size of the Mall of the North will save R37 230 per month.”

Integrated Development Plan (IDP) “SAPOA has appointed consultants who are town planners to assist with comments on IDP in the following regions: ●● City of Johannesburg ●● East London – Buffalo City ●● eThekwini ●● Port Elizabeth – Nelson Mandela Bay ●● Polokwane ●● Western Cape ●● Mpumalanga.”

Expropriation without compensation “The Joint Constitutional Review Committee was formed after a motion to expropriate land without compensation was passed with an overwhelming majority in parliament’s National Assembly in February 2018. “The Joint Constitutional Review Committee was set up to review Section 25 of the Constitution in order for the state to expropriate land without compensation. SAPOA instructed its attorneys Cox Yeats to submit comments, as well as to attend the public hearings to make an oral submission. Comments are available should you require a copy for your records.”

Property Sector Charter Council (PSCC) “SAPOA supports the initiatives of the PSCC, and has entered into an agreement to offer funding as a member of the organisation, and to ensure that it upholds its objectives.”

Business Against Crime “SAPOA is an active participant in Business Against Crime South Africa.”

National Precinct Management Initiative and establishment of a National Association for Precinct Management “SAPOA has always acknowledged the importance of protecting the rights of property owners and, to this effect, the role and importance of precinct management in the commercial property sector. As such, SAPOA has incorporated this into the MOU with the National Treasury as one of the key focus areas to work together on. Given this focus area, SAPOA – in conjunction with a number of precinct management 12

SOUTH AFRICAN PROPERTY REVIEW

bodies – has been working on a national precinct management initiative aimed at establishing a national enabling policy and legislation, and formalising the precinct management sector in the country. “This collaboration and initiative commenced in 2016, when SAPOA and the Johannesburg CID Forum entered into a MOU to jointly fund and undertake research into the current status regarding urban and precinct management in South Africa, evaluate the current policies and legislation as well as review international best practice, and make recommendations on what is required to move towards a national enabling policy and legislative framework for the sector. “The outcome of this research was discussed among a number of private and public sector bodies involved in precinct management in the country, and resulted in a plan and direction being agreed upon to establish a national initiative between the private and public sectors, to look into national policy and legislation as well as knowledge management and best practice. “This gave rise to the formation of the South African Precinct Management Initiative (SAPMI), which was formalised between SAPOA, a number of CID forums from the private sector, and the National Treasury, COGTA and SALGA from the public sector. The Consultative Forum for SAPMI, consisting of six private sector representatives and six public sector representatives, has made significant progress in finalising the terms of reference for the Consultative Forum as well as the two work streams: the policy and legislation stream, and the knowledge management and best practice stream. “In this process, SAPOA and the precinct management sector in the country have recognised the need for and importance of establishing a national association to be able to formalise the sector’s representation at SAPMI and start developing capacity in the sector that can provide meaningful input into the process and give the sector a collaborative voice.”

Unlisted REITs “Challenges continue in getting the necessary attention on unlisted REIT legislation at the National Treasury. After sending through requested information to the National Treasury in April, we found the process stalled again. A letter sent by SAPOA to National Treasury Deputy Director General Ismail Momoniat did not elicit a reply. “Now that the elections are over, we have held a meeting with a member of the Finance Standing Committee in parliament to appraise them of the logjam. We have also been in touch with the National Treasury again, and await the outcome of a suggested approach to unlock the impasse. We will be also be meeting with the Chairman of the Parliamentary Finance Committee. “We will keep members updated on the progress being made on this matter.”

President's message SAPOA Bursary Fund “Over the past 10 years, the Bursary Fund has supported 49 students, who are now graduates and are employed in the industry. Fifty-nine percent of these graduates are female. “As part of the wraparound support in 2017, SAPOA introduced a mentoring programme aimed at ensuring the students’ success, which led to a 91% pass rate – an improvement from the previous pass rate of 76%. “Currently, 33 students are supported through the bursary programme; 11 of them are expected to graduate at the end of the year. “SAPOA extends a special thanks to those members who have employed the graduates to assist with the skills crisis. “The degrees that have been sponsored are: ●● BSc Property Studies ●● BSc Construction Studies ●● BSc Architectural Studies ●● BSc Quantity Surveying ●● BSc Property Development ●● BCom Property Valuations and Management ●● Bachelor of Urban and Regional Planning/ Bachelor of Town and Regional Planning ●● Diploma in Real Estate

Legal expenses “We have to date spent R12-million on protecting the rights of the industry, and would like to take this opportunity to thank you for your valuable support. Without it, we would not be in the position to carry the cost of these exercises. “When we look specifically at the rates and taxes issue, which is one of the big issues on our desks at SAPOA, we can see that the national government has little or no management control over the municipalities in terms of the way they cooperate, or choose to raise assessment and other municipal charges. “The national government usually presents the councils with guidance in terms of what the metros should do relative to annual rates increases, but these guidelines are largely ignored by the cities. This has brought us to the current impasse, where the rates and taxes are having a detrimental effect on all real estate investment and on the ability to launch new development in South Africa. “The estimates are that the value of real estate in South Africa is now R5,8-trillion (including the residential sector), while the national debt is R7-trillion. This is a sobering thought because it implies that the national debt is greater than the value of the built environment. It’s a huge concern, but it is what it is, and we have to work with it. And as much as private sector investment is a necessity, the real growth is largely reliant on improved government spending on infrastructure.

“From SAPOA’s point of view, we have identified that we need to work hand-in-hand with the government. SAPOA needs to play a more assertive role in assisting the government with policy and other matters, because these affect real estate. This would obviously include the stimulus of the construction sector and many, many other sectors as a result. “As SAPOA we need to ensure sure that governmental policies are aligned with sound business practices within the public and private sector markets. “From a listed property point of view, we can see that about 46% of the value of the sector is now invested in fixed property outside of South Africa. The listed property sector has grown substantially over the last decade as listed property companies continue to search for asset growth. This has led to substantial investment beyond South African borders as a result of the sector seeking various growth alternatives. Lower interest rates, the stability of earnings and capital growth improvement potentially available in the offshore markets all provide a good alternative investment strategy in these challenging times.”

SAPOA takes on the interests of property companies “SAPOA’s objective is always to support the interests of its members – but that does not mean the broader industry and local economies in which they operate do not benefit too. The outdoor signage policy in the COJ is an example. “Essentially without obtaining the required approvals, the COJ distributed a policy that criminalised the erecting of outdoor signage on a property, which would include development boards and ‘to let’ boards. This rendered the property owner on whose property the sign was erected criminally liable, with sanctions. “Ironically, the biggest offender is the COJ itself. “This move is simply a way for the city to ring-fence generating income for itself from outdoor signage. SAPOA successfully prevented that from being written into regulation, subject, of course, to further processes. “While some might argue this is specific to Johannesburg, the issue is that if the Johannesburg City Council were to succeed, other city councils could follow suit. It would be incorrect to say that this is solely a Johannesburg property issue, and that if members are located elsewhere in South Africa it does not affect them. It’s reasonable to assume that once regulations such as these are proclaimed in certain parts of South Africa, they will quickly spread to the rest of the country. “At SAPOA, we constantly have to put out such fires as they arise – and we have to put them out very, very quickly. These kinds of topics are in the national interest, and not just in the local interest.” SOUTH AFRICAN PROPERTY REVIEW

THE SAPOA ANNUAL CONVENTION AND PROPERTY NETWORKING 03-05 JUNE 2020 > SUN CITY We are heading to one of AfricaÕs premier destinations!

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legal update

A brief overview of the Property Practitioners Bill The Property Practitioners Bill 2018 is intended to replace and repeal the Estate Agency Affairs Act No. 112 of 1976, and is intended to govern, among others, estate agents. It was introduced to the National Assembly on 14 June 2018 and was passed by the National Assembly on 4 December 2018. It has since been passed by the National Council of Provinces on 28 March 2019, and has been sent to the president for assent Supplied by Dykes van Heerden INC

he Bill has been amended since it was first published, and our previous newsflash commented on the Bill in its initial form. This newsflash, based on the Bill in its current form as amended and approved (B21B-2018), is intended to provide a summary and a brief outline of the proposed changes that will be relevant and applicable to “property practitioners”. The definition of “property practitioners” is extensive, and will regulate all estate agents. The Bill defines property practitioners as: a. any natural or juristic person who or which for the acquisition of gain on his, her or its own account or in partnership, in any manner holds himself, herself or itself out as a person who or which, directly or indirectly, on the instructions of or on behalf of any other person – (i) by auction or otherwise sells, purchases, manages or publicly exhibits for sale property or any business undertaking or negotiates in connection therewith or canvasses or undertakes or offers to canvas a seller or purchaser in respect thereof; (ii) lets or hires or publicly exhibits for hire property or any business undertaking by electronic or any other means or negotiates in connection therewith or canvasses or undertakes or offers to canvass a lessee or lessor in respect thereof; (iii) collects or receives any monies payable on account of a lease of a property or a business undertaking; (iv) provides, procures, facilitates, secures or otherwise obtains or markets financing for or in connection with the management, sale or lease of a property or a business undertaking, including a provider of bridging finance and a bond broker, but excluding any person contemplated in the definition of ‘‘financial institution’’ in Section 1 of the Financial Services Board Act, 1990 (Act No. 97 of 1990); (v) in any other way acts or provides services as intermediary or facilitator with the primary purpose to, or to attempt to effect the conclusion of an agreement to sell and purchase, or hire or let, as the case may be, a property 16

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or business undertaking, including, if performing the acts mentioned in this subparagraph, a home ownership association, but does not include – (aa) a person who does not do so in the ordinary course of business; (bb) where the person is a natural person and that person in the ordinary course of business offers a property for sale which belongs to him or her in his or her personal capacity; (cc) an attorney or candidate attorney as defined in Section 1 of the Attorneys Act, 1979 (Act No. 53 of 1979); or (dd) a sheriff as defined in Section 1 of the Sheriffs Act, 1986 (Act No. 90 of 1986), when he or she performs any functions contemplated in paragraph (a) of this definition, irrespective of whether or not he or she has been ordered by a court of law to do so. (vi) renders any other service specified by the Minister on the recommendation of the Board from time to time by notice in the Gazette; b. any person who sells, by auction or otherwise, or markets, promotes or advertises any part, unit or section of, or rights or shares, including time share and fractional ownership, in a property or property development; c. any person who for remuneration manages a property on behalf of another; d. a trust in respect of which the trustee, for the acquisition of gain on the account of the trust, directly or indirectly in any manner holds out that it is a business which, on the instruction of or on behalf of any other person, performs any act referred to in paragraph (a); e. for the purposes of Sections 34, 46, 48, 59, 60, 61 and 65 (i) any director of a company or a member of a close corporation who is a property practitioner as defined in paragraph (a); (ii) any person who is employed by a property practitioner as envisaged in paragraph (a) and performs on his, her or its behalf any act referred to in

legal update subparagraph (i), (ii), (iv), (v) or (vi) of that paragraph; (iii) any trustee of a trust which is a property practitioner as envisaged in paragraph (d); (iv) any person who is employed by a property practitioner as envisaged in paragraph (b) and performs on its behalf any act referred to in subparagraph (i), (ii), (iv), (v) or (vi) of paragraph (a); and (v) any person who is employed by a property practitioner contemplated in paragraph (a) or (b) to manage, supervise or control the day-to-day operations of the business of that property practitioner; f. any person who is employed by or renders services to an attorney or a professional company as defined in Section 1 of the Attorneys Act, 1979, other than an attorney or candidate attorney, and whose duties consist wholly or primarily of the performance of any act referred to in subparagraph (i), (ii), (iii), (iv), (v) or (vi) of paragraph (a), on behalf of such attorney or professional company whose actions will be specifically covered by the Attorneys’ Fidelity Fund and not the Property Practitioners Fidelity Fund; g. for the purposes of section 61 and any regulation made under section 70, any person who was a property practitioner at the time when he or she was guilty of any act or omission which allegedly constitutes sanctionable conduct referred to in Section 62, but does not include an attorney who, on his own account or as a partner in a firm of attorneys or as a member of a professional company, as defined in Section 1 of the Attorneys Act, 1979, or a candidate attorney as defined in that section, who performs any act referred to in paragraph (a), in the course of and in the name of and from the premises of such attorney’s or professional company’s practice, provided that such an act may not be performed – (i) in partnership with any person other than a partner in the practice of that attorney as defined in Section 1 of the Attorneys Act, 1979; or (ii) through the medium of or as a director of a company other than such professional company, and ‘‘advertise’’ for the purposes of this definition does not include advertising in compliance with the provisions of any other law.

Application of the Act (Chapter 1) The Act applies to the marketing, promotion, managing, sale, letting, financing and purchase of immovable property, and to any rights, obligations, interests, duties or powers associated with or relevant to such property. It is possible to apply for an exemption from the application of the Act in terms of Section 4. Certain persons are excluded from the definition of property practitioner in the Bill. This exclusion applies to a person offering a property for sale which belongs to him/ her/it in his/her/its personal capacity. It also excludes a sheriff acting in an intermediary/facilitating capacity when

he or she performs any functions contemplated in the Bill, irrespective of whether or not he or she has been ordered by a court of law to do so. In addition, attorneys and candidates are excluded from the definition of property practitioner.

Property Practitioners Regulatory Authority (Chapters 1, 2 & 3) The Property Practitioners Regulatory Authority (the “Authority”) will be the new regulatory body of property practitioners and will be governed by and will act through the Board of the Authority. This Authority will replace the Estate Agency Affairs Board and will be funded by government monies and fees paid by property practitioners. The Act deals with administrative matters such as the composition, appointment, disqualification, and termination of members of the board, powers and duties of the board, meetings, committees and dissolution of the board, appointment of the CEO and staff of the Authority. The Authority must in the performing of its functions, among others: ●● regulate the conduct of the property practitioners in dealing with consumers; ●● regulate the conduct of property practitioners insofar as marketing, managing, financing, letting, renting, hiring, sale and purchase of property are concerned; ●● ensure that the Act is complied with; ●● ensure that consumers are protected from undesirable and sanctionable practices (set out in Sections 62 and 63); ●● regulate any other conduct which falls within the ambit of the Act in as far as property practitioners and consumers in this market are concerned; ●● provide for the education, training and development of property practitioners and candidate property practitioners; ●● educate and inform consumers of their rights; ●● implement measures to ensure that the property sector is transformed.

Transformation of property sector (Chapter 4) The Property Sector Transformation Charter Code applies to all property practitioners. When procuring property related goods and services, all organs of state must utilise the services of property practitioners who comply with the broad-based black economic empowerment and employment equity legislation and policies. The Authority must, from time to time – (a) implement and assess measures to SOUTH AFRICAN PROPERTY REVIEW

legal update progressively promote an inclusive and integrated property sector; (b) implement appropriate measures and assess the state of transformation within the property sector; (c) create such mechanisms for the continuous monitoring and evaluation of the sector performance on the transformation imperatives and granting of incentives as may be prescribed; and (d) introduce measures to be implemented, which may include incubation and capacity building programmes to redress the imbalances of the past. Section 21 deals with the establishment of the Property Sector Transformation Fund. The Minister may prescribe measures to promote economic transformation by facilitating the accessibility of finance for property ownership, property development and investment in order to enable the meaningful participation of historically disadvantaged individuals, including women, youth and people with disabilities.

The Authority must utilise the property sector Transformation Fund in such a manner as may be prescribed, which may include the following transformation and empowerment programmes: (a) Principalisation Programme, to promote black-owned firms and principals. (b) Regularisation Programme, to promote and encourage participation of the historically disadvantaged due to non-compliance. (c) Consumer Awareness Programme, to promote awareness of property transactions and business undertaking. (d) Work Readiness Programme, to promote and enhance participation of the historically disadvantaged in the property sector. The Authority must, in consultation with the services of the Sector Education and Training Authority (SETA), develop special dispensation for the training and development of the historically disadvantaged which must include recognition of prior learning.

Inspectors and Compliance (Chapter 5) The Authority (through the CEO) must appoint duly qualified persons to act as inspectors to determine whether the Act is being complied with. The inspector may, at any reasonable time and without prior notice, conduct an inspection and may, without a warrant: a. enter and inspect any business premises, except a private residence, of a property practitioner; 18

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b. require the property practitioner, manager, employee or an agent of the property practitioner to – (i) produce to him or her the fidelity fund certificate of that property practitioner; (ii) produce to him or her any book, record or other document related to the inspection and in the possession or under the control of that property practitioner, manager, employee or agent; or (iii) furnish him or her with such information in respect of the fidelity fund certificate, book, record or other document at such a place and in such manner as the inspector may determine; and c. examine or make extracts from, or copies of, any such fidelity fund certificate, book, record or other document. If a property practitioner conducts business from his private residence the inspector is required to notify the property practitioner in advance of such inspection and the details of the inspection. If the inspector obtained a warrant from a judge or magistrate, he/she has wider search and inspection powers.

Fidelity Fund and indemnity insurance (Chapter 7) The Estate Agents Fidelity Fund (in terms of the Estate Agents Affairs Act) will continue to operate but under the name Property Practitioners Fidelity Fund. The running costs of the Authority, including insurance premiums, will also be paid from this Fund. The primary purpose of the fund is to reimburse persons who suffer financial loss as a result of – ●● theft of trust money committed by a property practitioner who was in possession of a Fidelity Fund certificate at the time of the theft; or ●● the failure by a property practitioner to apply timeously or to make payment for his or her Fidelity Fund certificate. No person has any claim against the Authority unless the claimant has – ●● within three years after the circumstances giving rise to a claim came into being, given notice to the Authority of such claim; or ●● within the three-year period contemplated in paragraph above after a written request was sent to him or her by the Authority, furnished to the Authority such proof as it may reasonably require. Anyone seeking to claim compensation from the Fund must give notice thereof to the Authority in the prescribed manner, the Act further provides that a person can’t claim against the Authority in respect of theft of trust money by a property

legal update practitioner unless such a person has, before lodging a claim with the Authority, laid a criminal charge against that property practitioner. As such it is clear that theft of trust monies will be dealt with seriously by the Authority, and that criminal sanctions will be imposed. In terms of Section 43, no person may commence an action against the Authority for payment from the Fund after the expiry of three years from the date that the Authority rejects a claim or requires compliance in terms of Section 42. A claimant may not recover from the Authority any amount larger than the difference between the amount of the loss suffered and the amount or other benefits received from another source in respect of such loss (such as insurance). No right of action lies against the Authority in respect of any loss suffered by: ●● the spouse, life partner, business partner or immediate family member of a property practitioner by reason of any negligent or intentional conduct including theft committed by such property practitioner; or ●● any property practitioner by reason of any negligent or intentional conduct including theft committed – – by his, her or its business partner; – if such property practitioner is a company, by any director of such company; – if he or she is a director of a company, by any co-director in such company; – if such property practitioner is a close corporation, by any member of such corporation; – if he or she is a partner in a partnership, by any other partner of such partnership; or – by any person employed by him or her as a property practitioner; ●● any person as a result of negligent or intentional conduct including theft, or as a result of any other act or omission in connection with trust monies held or received on account of any other person, by any person referred to in paragraph (d) of the definition of ‘‘property practitioner’’ in Section 1.

Fidelity Fund certificates (Chapter 8) In terms of Section 47, every property practitioner must every three years apply to the Authority for a Fidelity Fund certificate, and such application must be accompanied by the prescribed fees and penalty fees applicable if any. (Penalties are payable if the application is made late or the fees were not paid with the application.) The Authority must supply the certificate within 30 days (unless extended by the Authority for a period of up to 20 working days on “good grounds” in writing), failing which it is deemed that the application for the certificate was compliant and the practitioner may then make demand for the issue of the certificate within 10 working days.

Property practitioners must notify the Authority within 14 days of any change in contact details. Certain disqualifications apply, as set out in Section 50, in which circumstances the Authority may not issue a Fidelity Fund certificate, one of which is if the property practitioner is not in possession of a BEE certificate. The Bill does not further deal with minimum levels in this regard, and does not otherwise deal with this aspect in detail. No-one may act as a property practitioner unless he or she or it is in possession of a Fidelity Fund certificate, or if he or she or it employs any other person as a property practitioner, that person is also in possession of a Fidelity Fund certificate. If an entity is a company, a close corporation, a trust or a partnership, then every director of such a company, every member of such a close corporation, every trustee of such a trust and every partner of such a partnership, as the case may be, must be in possession of the Fidelity Fund certificate. A person who contravenes this requirement must immediately upon receipt of a request from any relevant party in writing repay any amount received in respect of or as a result of any property transaction during such contravention (Section 48(4)), and is not entitled to remuneration in terms of Section 56. A conveyancer may not pay any monies to a property practitioner unless he or she received a copy of the practitioner’s certificate (Section 56(5)). The Authority in terms of Section 52 may, on its own initiative, in terms of an order of a court of law, or in terms of an order from an adjudicator, withdraw a Fidelity Fund certificate in certain circumstances, which include if any person is summoned to appear before the Authority and without just cause fails to comply with the summons and has prior to such date not been excused by the Authority from appearing. Importantly, the Fidelity Fund certificate must be prominently displayed in every place of business from where property transactions are conducted to enable consumers to easily inspect it; ensure that the prescribed sentence regarding holding a Fidelity Fund certificate is reproduced in legible lettering on any letter head or marketing material relating to that property practitioner; and in any agreement relating to property transactions include the prescribed clause that ensures that he, she or it guarantees the validity of the certificate.

Conduct of Property Practitioners (Chapter 9) The Minister, in consultation with the Authority, must prescribe a code of conduct to be complied with, which must be published on the Department and Authority’s websites. On request, a property practitioner must provide a consumer with a copy of such code of conduct. SOUTH AFRICAN PROPERTY REVIEW

legal update Section 62 of the Act sets out sanctionable conduct of property practitioners, which includes, if a property practitioner – ●● in the same transaction acts as a property practitioner on behalf of two or more persons whose interests are not in all material respects identical and received remuneration from both (unless the parties agree thereto in writing); ●● fails to give the Authority a full explanation in writing within 30 days of being called to do so; ●● fails to pay any money due to the Authority or in respect of the Fund within one month after such monies become due; ●● contravenes any provision of the code of conduct; ●● in his or her capacity as a director of a company, or member contemplated in paragraph (b) of the definition of ‘‘property practitioner’’ in Section 1, of a close corporation, or trustee of a trust, which is a property practitioner and which failed to comply with Section 50 or 51, did not take all reasonable steps to prevent such failure; ●● carries on an undesirable practice prohibited under Section 63; ●● commits an offence involving an element of dishonesty; ●● fails to inform the Authority within 14 days of a change in his, her or its contact details; ●● differentiates, distinguishes or excludes consumers directly or indirectly on the basis of their race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth or commits a criminal offence while performing a function of a property practitioner; ●● fails to comply with or contravenes any provision of this Act. In terms of Section 63, the Minister may, after consultation with the board, declare a particular business practice in the property market to be undesirable and prohibited. In terms of Section 64, a candidate property practitioner may not draft, complete any document or clause conferring a mandate or relating to the sale or lease of property. If such person is in contravention of this section, that person and the property practitioner who allowed this may not receive remuneration. In terms of Section 65, a franchisee property practitioner must state clearly and unambiguously in all of his written communications, advertising and marketing materials that he or she operates in terms of a franchise agreement, as well as the name of the franchisor. 20

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Section 66 prohibits a property practitioner, whether by means of financial or other incentives, to influence a person who issues a certificate in respect of the condition or defects of electric wiring, the presence of vermin, the presence of water or damp, or any other matter or condition provided for in law. Any contravention hereof is an offence.

Consumer Protection (Chapter 10) In terms of Section 67, a property practitioner may not accept a mandate unless a lessor or seller of the property has provided him with a fully completed and signed mandatory disclosure form, and such practitioner must provide a copy of the completed mandatory disclosure form to a prospective lessee or purchaser who intends to make an offer to lease or buy the property. The mandatory disclosure must be signed by all parties, and forms an integral part of the agreement. If such disclosure form is not completed, signed or attached, the agreement must be interpreted as if no defects or deficiencies in the property were disclosed to the purchaser. If a property practitioner fails to obtain a completed mandatory disclosure from the seller or lessor, the property practitioner may be held liable by the affected consumer. Section 68 provides that an agreement to sell or lease and the mandatory disclosure form must be drafted by the seller or developer for his own account. In addition, the Authority must publish updated guideline agreements on its website from time to time. Section 69 states that the Authority must conduct campaigns to educate and inform the general public of their rights in property transactions, and property practitioners of their functions, duties and obligations. Importantly, Section 69(2) provides that the property practitioner owes a buyer and seller a duty of care. It is noted that no corresponding duty of care towards both a lessor and lessee is recorded in the Bill.

Chapter 11 (General) Section 71 provides that a person convicted of an offence in terms of the Act is liable to a fine or to imprisonment for a period not exceeding 10 years. Section 75 deals with transitional provisions where members of the Estate Agents Affairs Board become members of the Property Practitioners Board. This newsflash has been prepared for information purposes only, and does not constitute legal advice or a legal opinion. The practical application of the provisions of this newsflash will vary depending on the facts of each case.

legal update

South Africa’s new property laws you need to know about The past few years have seen a number of important new laws and amendments introduced, which are having a drastic effect on selling and leasing of property, says Seeff property group First published on Businesstech on 2 November 2019 businesstech.co.za/news/property/34946/south-africas-new-property-laws-you-need-to-know-about

eeff says that the new Property Practitioner’s Act – which was recently signed into law, replacing the 43-year-old Estate Agency Affairs Act – brings important reform to the property industry as a whole and introduces a number of much-needed changes.

It outlines some of the major changes below. ●●Defining who is a property practitioner

The Act broadens the scope of legislation beyond traditional estate agents to cover commercial property brokers, bond originators, home inspectors, homeowners’ associations, companies selling timeshare and fractional title, property developers and property managers, who now all fall under the Act.

●●Fidelity Fund Certificates Anyone who earns a commission or brokerage from the sale or leasing of a property needs a valid Fidelity Fund certificate, which must be produced on request from a seller or landlord. The Act tightens the regulations around Fidelity Fund certificates beyond the current requirements to include possession of a valid tax clearance and a BEE certificate. It is also required that not just the agent/s, but the agency/business and all of its property practitioners must be fully compliant.

●●Property defects This is an important element that sellers and landlords need to be aware of. While it has for some time been best practice to include a comprehensive property defects disclosure document as part of a property transfer, it is now mandatory for all property sale and lease agreements. No mandate may be accepted from a seller or landlord without this document, which will then also form part of the sale and lease agreement.

●●New Board of Authority The current Estate Agencies Affairs Board will be replaced by a new governing body known as the Board of Authority. This new board will govern the property profession across the board, not just estate agents as is currently the case.

Rental Housing Amendment Act Seeff also sets out the key changes in the new Rental Housing Amendment Act, which makes amendments to the Rental Housing Act of 1999:

●●Lease agreement in writing All lease agreements must now be in writing and legally enforceable. The agreement and all provisions, duties and obligations must be explained to the tenant. All amendments to the lease must also be in writing.

●●The property must be habitable The landlord must ensure that the rental property is in a habitable state, and that it is safe and suitable for living, is properly maintained and has access to basic services such as water and electricity.

●●Tenant may not be denied access basic services or to the property Another important aspect is that the landlord may not cut off basic utilities such as electricity and water to non-paying tenants. Only a local authority can do so. A landlord may also not change the locks or deny the tenant access to the property without a proper court order.

●●Defects to be recorded A joint inspection of the property must be done at the commencement of the lease to identify defects, including those that need to be repaired by the landlord. The defects list must be attached to the lease agreement. Upon expiry, another inspection must be done to determine whether any damage was caused during the tenant’s occupancy.

●●Deposit must be invested and refunded According to the Act, the deposit must be deposited in an interest-bearing account. The landlord must issue a written receipt for all payments received from the tenant, including the deposit. The deposit, together with interest accrued, must be paid to the tenant within seven days of the expiration of the lease. Reasonable costs incurred to repair damage may be deducted from the deposit, but are subject to proof of damage and the costs. SOUTH AFRICAN PROPERTY REVIEW

legal update

Amendments to the regulation of primary and secondary listings on the Johanesburg Stock Exchange (JSE) On 5 November, JSE Limited (the JSE) announced amendments to its Listings Requirements to strengthen the regulation of primary listings and secondary listings. The amendments follow an extensive consultation process with the market and the public that kicked off in September 2018 after the JSE released a consultation paper (Paper) on “possible regulatory responses to recent events surrounding listed issuers and trading in their shares”. (Click here to read the e-alert on the Paper.) Following the consultations, the JSE published draft amendments in April 2019 for formal comment. (Click here for the e-alert on the draft amendments.) Words by Colin du Toit, Madelein Burger and Elodie Maume/Webber Wentzel

he amendments will become effective on 2 December 2019. The JSE will, however, allow for a transitional period for certain provisions, and will provide listed companies with guidance on the implementation of certain amendments before the effective date, to afford them enough time to adhere to the amendments.

Key amendments to the regulation of primary listings Stricter conditions for listing on the Main Board

The JSE introduces stricter listing criteria for entry on the Main Board, including the following: ●● Subscribed capital requirement: companies seeking a listing on the Main Board must meet the subscribed capital requirements (of at least R50million generally, or R500-million for companies without a profit history) before listing and not through listing. ●● Shareholder spread requirement: the definition of “public shareholders” has been narrowed down. Shares held by a director’s extended family or by prescribed officers, or which are held by any person subject to a six-month or longer restricted trading period imposed by the issuer, are no 22

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longer regarded as being held by the public. Prior to listing, the board of directors and the sponsor will be required to make a positive statement to the JSE that the public shareholder requirement has been achieved and evidence the basis for this conclusion. Where the listing is by way of introduction, the board of directors will additionally be required to make the positive statement confirming this requirement in the pre-listing statement (PLS). ●● New listing announcement: companies applying for a listing on the JSE through a placing or an introduction will need to publish an announcement on the Stock Exchange News Service (SENS) 10 business days (increased from five business days) prior to the date of listing to give investors sufficient time to assess the listing. Sponsors and boards of directors will also be required to confirm in writing to the JSE on listing that no material objection was reported to either of them in respect of the listing during that period (and to immediately notify the JSE should any such objection be notified or reported). ●● Appointment of sponsor: issuers must appoint an independent sponsor (as was the case prior to September 2014).

Enhanced disclosure requirements ●● Dealings in securities: the disclosure requirements applicable to transactions in an issuer’s securities are enhanced. All dealings by prescribed officers or their associates in securities of the issuer must now be disclosed (in addition to disclosure by directors, the company secretary or their associates). Dealings in securities are extended to include agreements giving rise to security interests over the issuers’ securities. These types of agreements trigger an announcement obligation: at the time the agreement is concluded; at the time of any exercise of the lender’s rights thereunder; and at the time of any amendment or termination of the agreement. The number, value and class of securities offered as security, guarantee, collateral or otherwise must be disclosed, together with the nature, terms and amount of the financial obligation secured by the issuer’s securities. In addition, issuers must disclose in the their annual report and annual financial statements their directors’ (and associates’) holdings in securities which are subject to such security arrangements.

legal update ●● Disclosure of compliance with applicable laws: the social and ethics committee (SEC) of the issuer must make a positive statement in the PLS that it has complied with its mandate set out in the Companies Act 2008 (the Act), read with the Companies Regulations 2011. The SEC must also either state that there is no material non-compliance to disclose, or disclose any such material non-compliance. This disclosure obligation places significant responsibility on the SEC. The board of directors is also required to make a positive statement in the PLS that the issuer complies with the provisions of the Act (or other relevant laws of its establishment) in relation to its incorporation, and that it operates in conformity with its constitutional documents, and must provide a narrative statement on compliance with this provision in its AFS. ●● Material risks disclosure: all issuers must disclose in their PLS and their annual financial statements (AFS) all material risks which are specific to the issuer, its industry and/or its securities. The disclosure may be via a web link.

Corporate governance ●● Board diversity: issuers are required to adopt a policy on the promotion of broader diversity on the board, focusing not only on gender and race (as is the present case) but also on the promotion of diversity attributes such as culture, age, field of knowledge, skills and experience. The company must also publish its performance against the policy annually. ●● Appointment of auditor: the appointment of the auditors of listed companies must be approved by shareholders at each annual general meeting. Accordingly, auditors may no longer be reappointed automatically without a shareholders’ resolution to that effect. ●● CEO and FD responsibility statements: the chief executive

Key amendments to the regulation of secondary listings

JSE from issuers with a primary listing on an approved exchange. Approved exchanges for secondary listings on the Main Board are presently the Australian Securities Exchange, the London Stock Exchange, the NYSE, the Toronto Stock Exchange, the Nasdaq Stock Market, Euronext Amsterdam, Euronext Brussels, the Frankfurt Stock Exchange, the Luxembourg Stock Exchange and SIX Swiss Exchange. ●● Required announcements: if the issuer issues notifications in relation to changes to beneficial ownership in a secondary listed issuer or dealings in such issuer by directors or those closely related to directors, as required by local legislation or exchange requirements, such changes or dealings must also be announced on SENS within 48 hours of such notification. ●● Change in the primary listing from the JSE to another exchange: the JSE will only allow an issuer to electively move its primary listing from the JSE to another exchange while retaining a secondary listing on the JSE if the primary exchange it intends to move to is an approved exchange, and if the issuer’s shareholders have approved such move (the shareholder resolution must set out the key regulatory and disclosure differences between the JSE and the new primary exchange). The provisions that allow the JSE to re-classify a secondary listing on the JSE to a primary listing (and vice versa) if the value and volume of the issuer’s shares traded on the JSE exceeded 50% over a 12-month period have also been revised. These provisions now apply to a 24-month period, and only if the primary listing is on an exchange that is not an approved exchange.

The key changes in respect of secondary listings on the JSE are: ●● Pre-approved list of foreign exchanges: prospectively, the JSE will only accept secondary listings on the Main Board of the

As with the changes to the Listings Requirements for primary listings, the amendments adopted by the JSE are in line with those published in April 2019 for formal comment.

officer (CEO) and financial director (FD) are required annually to give substantive responsibility statements, including in respect of the accuracy and completeness of the company’s annual financial statements, and the adequacy and efficacy of the company’s internal financial controls.

Short-form announcements dealing with the annual financial statements Additional requirements now apply to short-form announcements dealing with the AFS, requiring, among others, specific disclosure of the presence of key audit matters through inclusion of the full auditors’ report and the annual financial statements via a link to the issuer’s website; details of the type of review conclusion/audit opinion that was reached (i.e. unqualified, qualified, disclaimer or adverse); and details of any increases/decreases in certain specified financial metrics.

Changes from the draft proposals The amendments adopted by the JSE are largely in line with the draft amendments published in April 2019 for formal comment, with the incremental changes largely reflecting drafting and conceptual refinements rather than substantive changes or additional provisions. One notable proposed amendment which was not adopted, however, was the proposal to lower from 10% to 5% the threshold at which a shareholder would be classified as “non-public”, and to aggregate associate holdings for this purpose. Given the significant number of institutional and other holdings that lie between 5% and 10%, this will no doubt come as a relief to the market.

SOUTH AFRICAN PROPERTY REVIEW

legal update

Arbitration agreement in construction contracts In the construction and project space, the contracting parties often focus on and pay significant attention to the commercial provisions as well as the provisions relating to their goals and objectives. Although disputes are very common in the construction industry, it is likely that the rate at which they arise will increase even more due to the growing challenges faced by the industry. The provisions pertaining to the resolution of disputes should therefore not be neglected Words by Antoinette van der Merwe and Jesicca Rajpal, senior associates at Fasken

Antoinette van der Merwe

rbitration is generally the preferred method of dispute resolution in construction contracts, and is attractive because the parties have the opportunity of appointing an arbitrator with specialised knowledge and experience in the field (which is particularly important in the construction industry with its specialised standard forms of contract and technical provisions). It is also a less expensive means of settling a dispute expeditiously compared to litigation, and the proceedings and arbitration awards are confidential. The arbitration agreement, setting out the framework for such arbitration proceedings, is typically contained within the principal construction contract – and, if regulated by South African law, requires a few considerations which are set out below.

Legislative framework

Jesicca Rajpal

SOUTH AFRICAN PROPERTY REVIEW

The Arbitration Act 42 of 1965 defines an arbitration agreement as a “written agreement providing for the reference to arbitration of any existing dispute or any future dispute relating to a matter specified in the agreement”. Although no particular form is prescribed for an arbitration agreement, it is clear from the above definition that, in order to fall within the ambit of the aforementioned Act, the arbitration agreement must be in writing and must expressly refer the dispute to arbitration.

Arbitration agreements and standard form construction contracts An arbitration clause in a construction contract can take many forms, from a simplistic declaration that the parties agree to refer any dispute arising between them to arbitration, to a more detailed agreement containing not only the consensus of the parties to arbitrate disputes, but also outlining the governing law of the arbitration, how the arbitrator/s should be appointed, the seat and rules of arbitration as well as the procedures to be adopted by the contracting parties in the process. In the majority of standard form construction contracts (including FIDIC, NEC and JBCC), arbitration is the prescribed final method of dispute resolution and occurs under prescribed arbitration provisions. It should, however, be considered whether the arbitration provisions of each standard form contract are appropriate in view of the variable components applicable to each construction project, including, among others, the location of the project. The contracting parties are at liberty to dictate the scope of the arbitration agreements, including the proceedings as well as the arbitrator’s powers, by drafting context-specific arbitration agreements, or supplementing the applicable provisions of standard form construction contracts. This will allow the parties to exercise greater control over the proceedings and

legal update outcome of the arbitration, compared to court litigation. The parties may, for example, decide that they do not wish to have a standing Dispute Adjudication Board throughout the lifespan of the project (as a precursor to arbitration) as provided for by FIDIC. They may also wish to change the rules of arbitration nominated by the standard form contracts based on considerations such as cost and enforceability.

Enforceability of domestic arbitration awards The enforcement of the arbitration award is undoubtedly the final and most important step in the arbitration process. In South Africa, a successful party may approach a court of competent jurisdiction to make the arbitration award an order of court. Once such arbitration award has been made an order of court, it may be enforced in the same way as any judgment or order.

Enforceability of foreign arbitration awards Due to the nature of construction contracts and the projects that they relate to, various jurisdictional issues may arise, and arbitration proceedings may take place or require enforcement in foreign jurisdictions. A foreign arbitration award, viewed from a South African perspective, is an award made in a state other than South Africa. Commonly referred to as the New York Convention, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 governs the enforcement of foreign arbitration awards. The New York Convention not only deals with the enforcement of foreign arbitration awards but also with the enforcement of arbitration agreements. South Africa ratified the New York Convention in 1976, and enacted legislation to give effect to this ratification in 1977, adequately giving effect to South Africaâ&#x20AC;&#x2122;s obligations under the New York Convention.

The advantage of arbitration is that its enforceability is easier at international level because of international treaties and conventions entrenching the enforcement and recognition of the arbitration award. Upon completion of arbitration proceedings, the successful party will seek to enforce the arbitration award. Through the New York Convention, a final arbitration award, if made internationally, between member-countries, can be recognised as an ordinary court judgment in South Africa subject to certain specified legal requirements. It should be held in mind that a number of countries are not a party to the New York Convention. The extent of the complexity of enforcing an award depends on the regulatory framework of the specific nonconvention country, and extra caution must therefore be taken when concluding contracts with parties situated in nonconvention countries.

Conclusion Arbitration is likely to remain the preferred method of dispute resolution in construction contracts. However, it is clear that the best method for ensuring that a construction dispute is correctly and fairly resolved is through properly drafted arbitration agreements. The contracting parties should accordingly not ascribe to generic arbitration agreements or standard form provisions, to the extent that they do not accord with the circumstances and context of the specific project. In light of this, an arbitration agreement may require the parties to address the following issues: i. Seat and arbitration rules The seat or venue of arbitration proceedings is primarily a consideration of convenience and cost effectiveness, and ought to be selected on this basis. The rules in terms of which the arbitration proceedings are to be held is also a matter of agreement based on considerations of cost and enforceability.

ii. Governing law The parties may select a suitable law to govern the arbitration agreement (which may differ from the governing law of the principal construction contract), bearing in mind its impact on the enforceability of the arbitration award. iii. Commencement and duration of the arbitration In order to benefit from the expediency that the arbitration forum can offer, the parties may wish to be prescriptive with regards to timelines. iv. Appointment and role of the arbitrator/s The parties may prescribe the number of arbitrators, his or her qualification or credentials and area of expertise, as it is imperative that a suitable arbitrator is appointed with sufficient knowledge of the particular dispute. It is also advisable that provision is made for appointment by an independent party and its successor in title, in the event that the parties fail to appoint an arbitrator. The powers of the arbitrator are restricted by the provisions of the Arbitration Act and may be further delineated in the arbitration agreement. It is to be noted that unless provided otherwise, the arbitrator may determine the procedural rules of the arbitration, subject to the overriding requirement that the parties to the arbitration be treated equally and fairly. v. Option to review the award Finally, the parties have the option to decide whether the arbitration award should be final and binding or subject to review by a competent court.

SOUTH AFRICAN PROPERTY REVIEW

Gauteng and KwaZulu-Natal Negotiation Skills Master Programme SAPOA Gauteng and KwaZulu-Natal regions each hosted a two-day workshop. The Gauteng workshop was held on 24 and 25 October at the Fasken offices in Sandton, while the KwaZulu-Natal programme took the form of in-house training for executive staff at JT Ross on 28 and 29 October

A total of 14 delegates attended the KwaZulu-Natal Negotiation Skills Master Programme (in-house training)

egotiators need to understand the psychology of the negotiating game – how to use heightened emotional intelligence to achieve desired outcomes and to manage other parties effectively. Both of these workshops, facilitated by Candis Cheyne of Corporate Intelligence, provided delegates with the fundamental tools, techniques and confidence they need to achieve the desired outcomes when negotiating. In each case, the two-day programme included the following topics: ●● Understanding the negotiation process and different negotiation styles; ●● Correct approach to negotiation; ●● Flexible and varied communication; ●● Ability to achieve a win-win situation; ●● Becoming more goal-focused when negotiating; ●● Emotional intelligence; 26

SOUTH AFRICAN PROPERTY REVIEW

Delegates who attended the Gauteng leg of the two-day Negotiation Skills Master Programme

●● Confidence and self-esteem; ●● Enhanced communication skills; ●● Assertiveness; ●● A winning negotiation style;

●● Focusing and listening skills; ●● Understanding personality profiles; ●● Conflict management: the causes of conflict and how to handle it.

eskom

The roadmap for Eskom 2019, and its impact on the IPP industry Jason van der Poel

Alexandra Felekis

On 29 October 2019, the South African Minister of Public Enterprises Pravin Gordhan released, and held a media briefing on, a special paper entitled “Roadmap for Eskom in a Reformed Electricity Supply Industry, 2019” (the Roadmap). The Roadmap highlights the issues that Eskom is currently facing and sets out the government’s plan to address them. Eskom is currently vertically integrated. The aim is for Eskom’s transmission business to be fully functionally separated into a newly formed subsidiary of Eskom Holdings SOC Limited by 31 December 2021, and for the legal separation of the utility into three companies – generation, transmission and distribution – by 30 December 2022. Webber Wentzel sets out below a summary of the Roadmap, and thoughts on some key takeaways flowing therefrom for independent power producers (IPPs), lenders and other stakeholders Words by Jason van der Poel, Alexandra Felekis, Mzukisi Kota and Mongezi Dladla/Webber Wentzel

Mzukisi Kota

Mongezi Dladla

SOUTH AFRICAN PROPERTY REVIEW

skom is facing financial, governance and leadership, operational, structural and climate change challenges. The Roadmap makes it clear that Eskom, in its current form, has failed. The Roadmap, in a high-level manner, outlines the process that will be followed in the restructuring of Eskom as well as the actionable steps to mitigate electricity supply risks, and to put Eskom and the electricity supply industry on a new path of sustainability. Among other things, the Roadmap seeks to: ●● Address steps to restore Eskom’s finances, including government support; ●● Identify measures to reduce Eskom’s cost structure; and ●● Commit to a just transition, safeguarding the livelihood of workers and communities in observing South Africa’s climate change commitments.

The new business model Eskom Holdings will hold three subsidiaries – Eskom Generation (Generation Entity), Eskom Transmission (Transmission Entity) and Eskom Distribution (Distribution Entity). The aim is to improve the power utility through greater transparency and accountability, and to allow government more effectively to address generation, transmission and distribution challenges separately. Webber Wentzel notes that the Generation Entity, the Transmission Entity and the Distribution Entity will not become separate state-owned enterprises and will not have any strategic equity partners from the private sector as had been mooted by some stakeholders. In the immediate future, the creation of the Transmission Entity is a priority as it is the keystone in Eskom’s reform. This entity will be wholly owned by Eskom Holdings and “its core functions will be

eskom to act as an unbiased electricity market broker, to promote capital investment within the industry, and to catalyse energy efficiency and cost sustainability”. In order for it to achieve its objectives, this separate Transmission Entity will need to meet certain conditions that are set out in the Roadmap, including to: ●● Provide access to the grid on a non‐discriminatory basis to the Generation Entity and IPPs; ●● Dispatch electricity from the existing asset base of generators, and follow clear least‐cost principles and penalise generators that do not perform as contractually agreed; and ●● Provide full transparency about the performance of the power system to all market participants and the general public.

Governance and leadership One of the main drivers for the restructuring of Eskom is the necessity to improve the governance of Eskom. The restructuring of Eskom therefore aims to introduce a robust and transparent corporate governance at the entity. Each of the subsidiaries having their own boards with separate mandates is intended to increase leadership’s accountability for each of the functions. It will also be simpler for the boards to identify and address governance and operational issues within their functions. The Roadmap provides that the board of Eskom Holdings will be reinforced with individuals with the appropriate skills set, and that a new CEO for Eskom Holdings will be appointed “soon”.

Thoughts on the impact of the restructuring of Eskom on the IPP industry Is a change in law required, and how long will this take? The aim is for Eskom’s transmission business to be fully functionally separated into a newly formed

subsidiary of Eskom Holdings by 31 December 2021, and for the legal separation of the utility into three companies – generation, transmission and distribution – by 30 December 2022. We note that this restructuring of Eskom as is currently envisaged in the Roadmap does not in and of itself necessitate a change in legislation. Currently, Eskom is regulated by, among other things, the Eskom Conversion Act (ECA) and its Memorandum of Incorporation. Under these instruments, Eskom has the power, among other things, to incorporate subsidiaries, subject to other relevant regulatory statutes such as the Public Finance Management Act and the Labour Relations Act. Accordingly, the mere formation of the operational divisions into subsidiaries would not, in the ordinary course, require legislative changes. Setting up new corporate entities with independent boards will, however, be a time-consuming task. From a legislative perspective, what is of greater concern is how Eskom's debt will be allocated as a result of the restructuring. Neither the Roadmap nor the Minister of Finance’s Medium Term Budget Speech 2019 provides any detailed guidance on how Eskom’s existing debt will be managed or restructured. The ECA provides that Eskom’s debt and interest, unless otherwise agreed between Eskom and the lender, must be a first charge against all revenues and assets of Eskom. The successful implementation of the Roadmap will thus require substantial buy-in from Eskom’s lenders. The Roadmap recognises this and specifically acknowledges that engagement with Eskom’s lenders is required. In future, however, and if the plan is to separate these subsidiaries from the Eskom group and establish them as independent state owned entities, there will likely be a need for the appropriate legislation to be enacted.

The Transmission Entity will be the buyer According to the Roadmap, the last phase of the restructuring will be completed by the end of 2022, with the three functions of generation, transmission and distribution housed in the three different Eskom subsidiaries. During the transitional separation period, the function of procuring new energy will remain with the Department of Mineral Resources and Energy (the Department) and the buyer function will reside in the Transmission Entity. The Transmission Entity will buy energy from the generators under power purchase agreements (PPAs) procured by the Department, and sell the energy under electricity supply agreements (ESAs) entered into with the Distribution Entity, municipalities or large power users. When the restructuring has been completed, the buyer for the purposes of the PPAs entered into with generators (including the IPPs) will be the Transmission Entity, and therefore the existing PPAs between Eskom and various IPPs will have to be transferred to the Transmission Entity. This, however, should not be of great concern to IPPs and lenders, provided the sovereign guarantees given by the government of South Africa under the implementation agreements are not adversely affected. Distribution is only discussed briefly in the Roadmap. The Distribution Entity will be authorised to buy from the Transmission Entity, licensed municipal generators and embedded generation. The Roadmap states that further consideration will be given to the structure of the distribution sector as a whole, and that the appropriate policy parameters will be formulated in due course. This is a fundamental shift towards an open and competitive market, and should be welcomed by the private sector. However, the credit worthiness of the Distribution Entity will be a key challenge that will have to be addressed. SOUTH AFRICAN PROPERTY REVIEW

eskom What does the Roadmap mean for the Renewable Energy IPP Procurement Programme Bid Window 5 expected to commence next year? Probably not much, as the timing for establishment of the three entities is estimated only to be achieved by 30 December 2022. If the bid window goes ahead next year, Eskom in its current form will still be the buyer. So what is relevant to Bid Window 5? The plan states that the 2000MW that will stabilise the system in response to load-shedding must be procured on an urgent basis. The Department intends to issue a request for information (RFI) that seeks information regarding the supply and demand options available that can be brought online in the shortest possible time at reasonable cost. The RFI responses will most likely inform which technologies are procured or developed first and in what period of time. It is clear from the recently published 2019 Integrated Resource Plan (IRP 2019) that new solar PV and wind could be feeding electricity into the grid by 2022. At this stage, the exact number of MW available to IPPs is an open question as all existing ministerial determinations will be revised to give effect to the IRP 2019, and some of these MW may be allocated exclusively to Eskom.

What will Eskom’s new Generation Entity mean for IPPs? Regarding the generation of electricity, the restructured Eskom as envisaged by the Roadmap will have a Generation Entity that is responsible solely for generation. The Roadmap proposes that the current power plant base will be separated into a number of feasible smaller generation units, including renewables, with the intention that over time, the generation market will become more competitive and decentralised. All Eskom-owned power plants will be housed in this entity, and the entity will contract with the Transmission Entity for the right to sell electricity and use the grid in the same way as IPPs would 30

SOUTH AFRICAN PROPERTY REVIEW

need to. A key concern for IPPs is whether, in fact, all parties will be treated equally – will the agreements to be entered into between these affiliated entities be on a true arm’s-length basis, or will priority be given on the basis that the majority of the required generation capacity is generated by the Generation Entity’s assets? As indicated above, the idea of a more open and competitive generation market is reiterated in the Roadmap, and therefore a level of competition could exist between the Generation Entity and the IPPs. Eskom will likely seek to broaden its business by diversifying into various sectors of energy production, including renewable energy. Should this be the case, the allocations for renewable energy technologies in the IRP 2019 may not be sourced from IPPs exclusively, as may have been assumed by stakeholders. Another key question is whether or not the Generation Entity will be permitted to participate in REIPPPP and compete directly with IPPs. The industry will, however, have to wait for the ministerial determinations in respect of this new generation capacity in order to ascertain whether the renewable energy MW allocations under the IRP 2019 will be sourced from the Generation Entity, IPPs or both.

What does the Eskom split mean for captive power IPPs wanting to wheel electricity? Currently, the Electricity Regulation Act (ERA) governs the generation and sale of electricity in South Africa. The ERA contemplates access to the system by third parties, and expressly obliges a distributor or transmission licensee to grant non-discriminatory access to the system to an IPP provided that: (i) the IPP has obtained the necessary licence for the generation and sale of electricity to a third party; and (ii) the conditions of the distributor or transmitter’s licence are met. In addition to meeting the requirements in the ERA, an IPP will need to meet

Eskom’s wheeling requirements. To date, rights to wheel electricity on Eskom’s transmission or distribution system have been granted sparingly by Eskom. The Roadmap echoes the ERA and includes non-discriminatory access to the grid as one of the objectives of the split. IPPs would be required to agree on wheeling arrangements with the Transmission Entity. On the premise that the grid will be available for all generators of electricity, rules and procedures for wheeling will have to be put in place to ensure equality among all users. A key question will be whether it will be easy to put wheeling arrangements in place for captive power projects looking to sell to private third-party off-takers, or whether priority will be given to power plants supplying the transmission and distribution entities.

Conclusion Webber Wentzel sees the release of the Roadmap as a positive step in the commencement of a restructuring of South Africa’s electricity supply industry to minimise Eskom’s reliance on fiscal allocations and to stabilise electricity supply. Although the Roadmap provides some clarity on the way forward for the struggling utility, the process poses many questions that need to be answered to restore investor confidence and drive further private investment in the energy sector. To this end, the market is patiently awaiting greater clarity from the government of South Africa on the management of Eskom’s debt in light of the Roadmap, the appointment of a permanent Eskom CEO, and how national stakeholders who oppose Eskom's restructuring will be managed. The questions to be answered in order to restore investor confidence in the South African electricity market will require a high degree of alignment between the Minister of Public Enterprises, the Minster of Mineral Resources and Energy and the Minister of Finance.

PROPERTY SOUTH AFRICAN

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Each SAPOA member is a leading player and decision-maker in the commercial property arena, they use the South African Property Review as a way to gain important peer exposure and recognition. With a South African property market value in excess of R5,7-trillion, SAPOA members control about 90% of South Africa’s private sector

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

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CSI

Abcon Group Foundation driving transformation Abcon Group Foundation (AGF) was founded by Abland Property Developers and is part of the Abcon Group of companies which operate in the property and built environment industry. AGF adheres to delivering ethical and comprehensive transformation solutions though the establishment of key community and corporate partnerships.

he group provides holistic B-BBEE facilitation services to sustain three pillars of transformation, Socio Economic Development, Skills Development and Training including Enterprise and Supplier Development. The Group’s focus in the Socio-Economic Development pillar is to mainly support disadvantaged communities in South Africa. By doing so, AGF then becomes the driver of progressive social change in their sphere of influence as approved by the Section 18 (a) of the income Tax Act 58 of 1962. AGF has adopted three beneficiaries to assist and to support their required needs. Furthermore, the group runs SED projects and initiatives benefiting underprivileged pupils from creches to matric.

Londiwe Mthembu, with Dave Savage

2019 achievements AGF SED Property AGF owns a 2.5 HA piece of land. This land has been lying fallow, they contacted the Bona Lesedi Disability Centre, who for many years were based in the informal settlements of Diepsloot. As the number of the students with disabilities increased in their container classrooms, the operating conditions grew to be unbearable for the physical and mental state of the students. The venue became smaller, making it difficult for the students to learn and to be physically mobile. AGF found a solution to one of the countries neglected sectors and partnered with Bona Lesedi; the disability center then moved into their new home at the AGF’s property in Timsrand. This gave light to the 60 people living with disabilities. Today, they can plant their own garden, run skills development programs, play on their own tennis court and as for the cherry on top, benefit from 10 of their in-house classrooms 32

SOUTH AFRICAN PROPERTY REVIEW

AGF Genesis Creche Beneficiary Education plays an important role in AGF’s heart which has led to the group’s longterm sustainability strategy at one of their

beneficiaries, Genesis Creche. The objective is to create an environment of growth and influence for som 130 kids coming from underprivileged homes. AGF

CSI invests time in taking care of the kids’ emotional needs. AGF give them support in providing for their needs as well as spoiling them with Easter parties during their favorite time of the year.

Hawk Academy school The thought of 140 grade 4 learners coming from information settlements at one of AGF’s other beneficiaries, Hawk Academy School, still using an old tent as a classroom had grieved the group’s hearts greatly. It was not long after that and the group reached a conclusion with the help of supporting partners to launch two brand new mobile classrooms catering for all the grade 4 learners. Not only that, addressing the issue of sanitation in most of our schools, the group also launched 24 secure ablutions facilities ensuring the standard required by the Department of Education has been met. Abcon has in this year placed 9 classrooms and 24 ablution facilities at the school. Two of the classrooms are being used as a science lab and a computer lab.

Mandela Day Nothing beats the overwhelming support Abcon receives from their annual Mandela Day events. Over 200 volunteers from partner companies took part and the day ended with almost 1400 people being fed from their soup kitchen activity. 50 trees were planted, that soon, will provide shade for the kids in their playgrounds. The team handed out 1200 scarves to the learners. Knitted 150 blankets for the grade R students who were once sleeping on their classroom floor. The senior learners got a chance to meet one of the Mrs SA finalists who taught them more about career goals and the secret behind creating vision boards as an investment into their futures.

Fundraising Potjie Competition Abland, hosted the biggest Potjie fundraising competition with 103 companies participating in support of the AGF’s vision. The event was a great success, a family fun day held with loads

of fundraising activities. Over R1 million was raised towards helping with the infrastructural developments at Hawk Academy School. Abcon Group Foundation hopes to continue reaching out to disadvantaged communities in need. We aim to expand

our partnerships to minimise the effect of our economic challenges.

The Amdec Group – developing more than property The Amdec Group is marking 30 years in business and making concrete plans for the future, with a pipeline of big developments coming on-stream, as well as significant recent acquisitions, and the completion of a major project. They have also put considerable effort into their CSI programmes, which have seen dynamic growth in the past year.

he upcoming R14 billion Harbour Arch mixed-use precinct on the eastern edge of the Cape Town CBD, is set to break ground before the year is out. The Amdec Group has also acquired Sitari Country Estate near Somerset West in the Western Cape, adding to its portfolio of lifestyle estates that includes Val de Vie and Pearl Valley outside Paarl, and Westbrook in Port Elizabeth. Meanwhile, the first residents have moved into its latest residential development – One on Whiteley at Melrose Arch in Johannesburg. Its international portfolio is also growing, bolstered by a number of properties secured through its Amdec USA operations.

Amidst all of this growth, the Amdec Group has not lost sight of its social responsibilities, maintaining a twin focus with its CSI programmes: the environment, and supporting talented but disadvantaged youngsters who excel at academics and sport through initiatives linked to education and sports development. The Amdec Group CEO, James Wilson, says, “Education and young children really are the future of our country. If we’re going to be prosperous and take our rightful place in the world, we all need to be focused on our young children getting a good education. SOUTH AFRICAN PROPERTY REVIEW

CSI Also, in tough economic times, it’s important for businesses to stay the course in terms of their commitment to charitable causes.

The Amdec Group supports: ENVIRONMENT Save Our Rhinos is the brainchild of the Amdec Group Chairman, John Wilson, a wildlife enthusiast and photographer. It raises funds for the SANParks Honorary Rangers, a group of unpaid volunteers who give freely of their time to support conservation in South Africa’s National Parks. Amdec has raised more than R1.25 million for them over the past five years. All of the donated funds are poured into their work – no public money is used to finance the rangers’ activities, and every cent donated goes towards funding anti-poaching activities. Find more information on the new Save Our Rhinos Facebook page at facebook.com/ AmdecSaveOurRhinos.

EDUCATION The Amdec Group’s CSI work in education includes supporting a young learner at Christel House school in Ottery, a southern suburb of Cape Town, where the philosophy is to give children a hand up – not a handout. Young lives change when children are brought from areas where poverty, gangsterism, drugs and crime are the norm, and taught to become self-sufficient, contributing members of society. Robust education and strong character development are supported by healthcare, nutritious meals, counselling, career advice, and family assistance. Children are tracked until they are in their mid-20s to make sure they are able to sustain themselves. This year, the Amdec Group brought former NASA astronaut Dr Don Thomas to Christel House. He shared the story of journey to outer space happening only after NASA turned him down three times. But he persevered and ultimately soared. His story gripped his young audience. 34

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Through its involvement as main sponsor of the Reddam Foundation Golf Day, the Amdec Group helps support several talented children from disadvantaged backgrounds to get a world-class education at Reddam House Constantia, one of the best schools in the country. Not only do they benefit from superior quality education, but they can also draw upon the outstanding resources and facilities at the school.

SPORT The Amdec Group is the main sponsor of the Marius Schoeman Sports Festival, one of the largest celebrations of school sports in the world. This year, it expanded to include short formats of three codes: Sevens rugby, Fast-Five hockey and FastFive netball, across three age groups – under 12, under 15 and under 17.

An under-17 invitational development schoolboy sevens rugby team took to the field for the first time this year in the shape of the Amdec Blitz. Funded by the Amdec Group, the squad is drawn from the Be The Difference foundation, which helps children from areas ravaged by drugs, gangsterism and violence, uplifting them through sport, nutrition, education and social programmes. Be The Difference players are routinely scouted and given bursaries to attend top schools throughout the country. That is a ticket out of poverty and a pass to a bright future for not only the individual children but often also their families and communities. In addition, the Amdec Group supported young cyclists from the Songo social development programme, based in the Kayamandi informal settlement

CSI outside Stellenbosch, so that they could participate in the STBB4GOOD MTB Challenge, with hundreds of mountainbikers and trail-runners all helping to raise funds for Miles for Smiles.

OPERATION SMILE Every year, the Amdec Group lends a helping hand to children born with facial deformities like cleft lip and palate by way of raising funds for the work of Operation Smile. The STBB4GOOD MTB Challenge is the flagship CSI initiative of long-time Amdec business associates, STBB. This year, it brought together nearly 600 trail-runners, and more than 1,300 mountain-bikers to raise funds for the Cipla Foundation’s Miles for Smiles initiative that helps children with facial deformities. Miles for Smiles supports the work of Operation Smile, an organisation that arranges the delicate operations that help these children live normal lives. For just R5,500 per operation, a child’s life is not only changed, but saved. These deformities are not just cosmetic – they are life-threatening. These children cannot be breast- or bottlefed as they are unable to breathe and swallow normally. They face an uncertain future from the moment they’re born. Many suffer from malnutrition and other medical problems, and often don’t reach their first birthday. Even if they survive beyond that, they could be ostracised for their appearance and the speech impediments that result from the condition. The annual cyclethon that takes place at the Amdec Group’s Melrose Arch development in Johannesburg, raises funds for the Smile Foundation, another charitable organisation working in support of children born with facial deformities. The Smile Foundation collaborates with academic hospitals to offer corrective facial reconstructive surgery and treatments. Hundreds of children have been helped over the years, through relatively simple operations that have completely transformed their appearance and their lives. Each one a little miracle.

For more information, please contact the Amdec Group CSI Manager, Shannon Mark on shannonm@amdec.co.za or 021 702 3200, or visit www.amdec.co.za and click on Giving Back.

CDH pro bono and human rights practice, commitmented to giving back As a well-resourced and influential commercial law firm Cliffe Dekker Hofmeyr (CDH) recognises that with every success comes an ever- increasing responsibility to give back to society. In 2011, as a demonstration of our commitment to giving back, CDH formed its dedicated Pro Bono and Human Rights Practice (our Practice). Our Practice's core objective is not only to provide access to legal services to those who cannot afford to pay for them, but also to constructively engage in promoting constitutional values and uplifting communities through training and special project work, with a focus on the development and empowerment of our youth.

e also recognise that the future of our nation lies with our youth, and hence the necessity of uplifting and supporting our youth as best we can. As lawyers, we believe that an essential step in uplifting the youth is building awareness about the Bill of Rights and other laws that provide fundamental protections to all in

our country – because knowledge is power. We also recognise the importance of skills development and mentoring. Accordingly, CDH has over the years initiated and supported several youth development initiatives and continues to expand its involvement in such projects. One of our most recent youth SOUTH AFRICAN PROPERTY REVIEW

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development initiatives was the roll out of our 2019 Youth Day initiative. As part of this initiative young lawyers from both our Johannesburg and Cape Town offices spent time with youth from disadvantaged communities as the first step in fostering longer term programmes. In Johannesburg we reached out to the Strathyre Girls Home which houses roughly 45 girls who have all been placed in the care of the Salvation Army via the Children's Court. While the girls all have different reasons for being at the Home, many come from a background of abuse, neglect or abandonment. Members of CDH visited approximately 30 of the girls at the Home. Young woman lawyers gave an inspirational talk to the girls on the importance of self-love, selfaffirmation and understanding the meaning of one's name as a crucial tool in establishing one's identity. The talk concluded with each girl sharing their respective dreams and aspirations for the future, followed by an informal tea with lots of eats, photos and laughs. CDH will continue to engage with the Home to explore training opportunities that will harness and grow the potential of these girls. In Cape Town we partnered with Just Grace, an NGO focused on providing holistic support for the Langa, Cape Town community, with a special focus on supporting and empowering the youth of Langa. Just Grace currently supports 36

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between 200 to 250 primary and secondary school students and their families by providing access to social work, legal and socio-economic support. During June 2019 Just Grace ran its holiday club programme, creating a safe, stimulating and positive space for the students to spend their school vacation. It was during this holiday club programme that 10 young lawyers from CDH visited Just Grace to run a workshop themed "Youth Empowering Youth". They shared challenges faced in their journeys to becoming successful young lawyers and the tools they'd used in overcoming these challenges. The students were invited to share their own challenges, and together with our young attorneys created empowerment posters that shared messages of hope, positivity and

encouragement. The posters remain on display as a motivational reminder to the students. Our Practice will continue to collaborate with Just Grace on various youth empowerment initiatives. In August 2019, as part of our Women's month initiative, in partnership with the Zola Advice Office, the Johannesburg office hosted a women's day finance workshop in Zola, Soweto. The workshop was aimed at women in the area who are owners of small businesses / head up non-profit organisations (NGOs) and it was focused on themes such as setting up a company / NGO and various aspects of corporate governance and compliance. The objective of the workshop was to help empower young women entrepreneurs and to encourage and foster entrepreneurship in the Zola community. In November 2019, the Johannesburg office will in partnership with the Ethafeni Multiskill Centre (the Centre) also host a wills and estates planning workshop in Tembisa for members of the Tembisa community as part of an ongoing partnership with the Centre to provide legal education to the community it serves. The workshop will focus on a range of topics including factors and implications to consider when drafting a will, marital property regimes, estate structures, tax implications, and the administration processes of deceased estates. In recognition of the importance of fostering skills among our youth, CDH runs a two-week biannual vacation programme. The programme provides law students

CSI from universities across the country with an opportunity to be exposed to the inner workings of a commercial law firm while developing their professional skills. As part of the programme, CDH also awards several bursaries to law students on an annual basis. Another notable initiative is our partnership with the National Schools Moot Court Competition, a project aimed at building human rights awareness amongst school children across the country and providing exposure to the legal profession. Importantly our Practice also dedicates significant resources in protecting and enforcing rights by litigating on behalf of vulnerable youth and other vulnerable individuals and communities. For example, we are presently helping the Field of Dreams Children's Centre (Field of Dreams) to obtain documentation for a number of learners who are currently not attending school due to their undocumented status. Field of Dreams is an NGO established to give hope to children in the Brits community in the North West Province through learning programmes, feeding schemes and health care services. We will be working closely with Field of Dreams to ensure that these learners are able to access their rights to basic education. CDH is also excited to be partnering with Section27, an influential public interest law centre that works to promote substantive equality and social justice. In September 2019, we launched a new pilot project in which some of our candidate attorneys volunteer their time on a weekly basis at the Section 27 advice office. We are of the view that this project will provide an invaluable opportunity for young lawyers in our firm to learn about public interest law and assist in promoting social justice. At CDH we recognize and hold ourselves to the duty to use our legal skills to shape and mold our society toward one that is just for all. We recognize that if we want to go far, we must go together. It is in this spirit that our Cape Town office has partnered with Ikamva Labantu, a grassroots, nongovernmental and non-profit organization

focusing on childhood development and the wellbeing of older persons in Cape Town's townships. Through initiatives with Ikamva Labantu, CDH attorneys are able provide expert legal services to and otherwise support members of the communities in which Ikamva Labantu has a presence. One such initiative is the 2019 Mandela Day Event. For our 67 minutes of action, we invited 10 of Ikamva Labantu's senior citizens to our office where we ran a beading and jewellery making workshop. In honour of Madiba, members of the Cape Town office sat with and learnt from the older generation, reflecting on the importance of giving back whenever we can. We were taught by the Ikamva seniors to make beaded accessories, and some of those already on display were purchased, the proceeds of which were handed over to the seniors and Ikamva.

These and the various other relationships we have built, are rooted in our shared goal of actualising human rights in some of the most vulnerable areas of our society and our commitment to giving back. With Practices in our Johannesburg and Cape Town offices, we are able to contribute to the realization of an equitable society in which the most vulnerable members are heard, supported and have sufficient access to legal skills and services. For more information about CDH, its pro bono practice and vacation programme please visit our website: https://www. cliffedekkerhofmeyr.com/en/index.html.

Growthpoint GEMS Growthpoint’s CSI programmes are aimed at creating a more inclusive society. We use our existing resources and work with historically disadvantaged communities to achieve this. One of our core focus areas is education and we work across the education value chain to effectively create impact within the communities we work with. One of our growing and exciting projects is the company’s in-house project - Growthpoint GEMS.

hile Growthpoint had established its footprint in a wide range of communities through its CSI initiatives, the CSI team felt it was important to provide support to the dedicated staff within in the company. Growthpoint GEMS started in 2017, with the mission to provide support to qualifying staff’s children in the form of bursaries. Bursaries are awarded to learners from Grade 4 or who are already in secondary school. Secondary school bursaries are limited to students younger than 20 years old. The overall objective of the Gems fund is to afford learners and students the opportunity to enroll at

good public or former Model C schools, as well as tertiary institutions. The bursary covers costs related to prescribed school fees, uniforms, stationery and learning materials, and transport limited to school field and sporting trips. Tertiary bursaries are awarded to students who are currently in Grade 12, those that have completed their secondary schooling and those already at tertiary institutions. Ultimately, Growthpoint Gems is aimed at assisting students to obtain or complete their first undergraduate degree. As the programme has progressed, we have gained valuable insights into SOUTH AFRICAN PROPERTY REVIEW

CSI adults from all backgrounds to learn and excel. By investing in the future, we hope to have an enduring positive influence on the fabric of South African society, while also assisting our dedicated staff, where possible.

GEMS 2017/18 statistics: ●● Total: 63 students ●● R4.9 million invested ●● Year group split: 17 in primary, 29 secondary, 17 tertiary

Geographic split: the socio-economic issues that are facing multiple homes in South Africa. To provide a more holistic approach, we have extended the programme to include psychosocial, leadership and parent support.

We understand that for education to thrive, investment in our own people is crucial. As a committed partner to bettering South Africa and its children, we have ensured that we create opportunities for children and young

●● Eastern Cape – 3; ●● Gauteng – 34; ●● Western Cape – 18; ●● North West – 2; ●● Limpopo – 1; ●● KwaZulu Natal 5;

Smartest kids in the Eastern Cape Gcobani Primary School has been named champion of this year’s Eastern Cape Growsmart Literacy Competition, clinching not only a R350,000 iPad Lab for the Buffalo City school, but also R20,000 each towards furthering the education of the three students on the winning team.

he delighted Gcobani Primary School pupils who triumphed at the ICC on the day are Oyintanda Molose, Bonga Lisakhanya, and Lathitha Songelwa, mentored by Ms Buyiswa Gobe. Eighty schools took part in this year’s hotly-contested inter-primary competition, featuring group literacy and individual story-writing. Participation was substantially increased from the 60 schools that registered for the inaugural competition held in the province last year. Five schools made it through to the final, with Malabar Primary (Nelson Mandela Bay) placed second with team members including Laaiqah Khan, Aasiah Niekerk, and Suhaylah Essop, mentored by Ms Meena Ragar. Nontuthuzelo (Buffalo City) come in third thanks to team members Njabulo Melane, Thayama Matolweni, and 38

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Akhanya Dayimani, mentored by Mr Siya Mgalagala. Other finalists included Sydenham Primary and Young Park Primary, both from Nelson Mandela Bay district. In the concurrent Growsmart storywriting contest, Linathi Nyiki from CW Hendrickse Primary took first prize of R20,000, followed by Shamirah Witbooi

in second, and Sivuyiso Oyo in third. A highlight of this year’s competition was the publication of the Eastern Cape’s first ever Growsmart Story Book, containing the top 20 stories – 19 of which came from Nelson Mandela Bay. Growsmart – a joint initiative from Growthpoint Properties and the Eastern Cape Department of Education – aims to

Winning School Gcobani Primary School

CSI actively inspire and improve performance in the province’s primary school students. The region’s Growsmart prize pot totals around a half-a-million rand in rewards for winning pupils, mentors, and their schools. “The value of this project cannot be underestimated,” comments Genevieve Koopman, Chief Director of the Eastern Cape Department of Education. “Growsmart is happening at the right time, where the country is focusing on improving reading in all primary schools. It encourages learners to read, understand and narrate stories, in sentences. It also empowers teachers to be great mentors of teaching and reading.”

“I was part of the Growsmart Programme from the beginning in the Eastern Cape, when it started in 2018,” adds Lutho Kota, from the department. “I will support and continue to be part of this great programme – we are committed to working with the Growsmart Programme all the way.”

Jewel Harris, Regional General Manager at Growthpoint Properties, says, “We are so excited to see the programme grow and to witness the positive impact that it has on our young learners. Not only is Growsmart inspiring, it’s also about making learning fun, and rewarding the children’s efforts.”

Growsmart turns ten – and the champions are crowned If there was a champion of champions in this year’s tenth annual Growsmart primary schools’ competition in the Western Cape, then it must surely by Factreton Primary School, which clinched not only top spot in the literacy category, but also came third in the story writing competition.

t Raphael’s Primary School triumphed overall in the fiery debating category; Floreat Primary School clinched Mathematics; and Montague Primary took home the story writing trophy, in which individual learners both pen and illustrate their own book. For the winning school in the literacy category, this means a spectacular R350 000 iPad Lab, as well as R20,000 for each of the children in the winning team, to go towards furthering education. Second and third place also win substantial improvement prizes for their school, and education funds for the children. Growthpoint gave the winning schools even more reason to celebrate by announcing a R10 000 prize for winning schools in all subjects, for school refurbishments. The keenly-contested Growsmart competition, an initiative of Growthpoint Properties in collaboration with the Western Cape Education Department

(WCED), began in 2009 in an effort to boost literacy, numeracy and science performance in primary schools in the province. “Twenty-first century skills such as communication, critical thinking, creativity and collaboration are essential for every learner,” says Dr Peter Beets, Deputy Director-General of Curriculum and Assessment Management at WCED. “They each have a very unique and powerful aspect and will better prepare students for tomorrow’s jobs. Being

proficient in reading, writing and math skills will not be sufficient skills for the future. The importance of developing all these skills is something that Growthpoint Properties fully understands and we are very appreciative of the investment Growthpoint has provided.” He adds: “Corporate investment in education is vital and I would sincerely like to thank Growthpoint not only for realising the importance of education in creating a better South Africa, but for actively promoting reading, writing and calculating,

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CSI and the 4 C skills in our primary schools. They have invested a lot – not only money-wise, but also time-wise.” Growthpoint Properties’ regional general manager Jewel Harris comments: “Despite their circumstances, where they may come from, and what they may deal with on a daily basis, these children have learned that they too can shine. That is what Growsmart is about: giving children an opportunity to thrive, to go above and beyond, and to reach their dreams.” She further encourages all this year’s contestants to “shine like the super stars that you are.”

WINNERS’ TABLE: Debating:

Winner: St Raphael’s Primary School – Libhongo Nogqala, Rosie Tshinguta, Sinovuyo Qongo. Mentor: Althea Serenge.

Literacy: Winner: Factreton Primary School – Juliet Nduwayo, Sheldon Gladden, Inako Tu. Mentor: Juan Smith. 2nd: Blue Downs Primary School – Camagwini Njoli, Campbell Dirks, Dylan Afrika. 3rd: Balvenie Primary School – Aisha Williams, Liam Libbie, Devaun Van Niekerek.

Mathematics: Winner: Floreat Primary School – Andre Cerf, Keyon Johnson, Diego Vorster. Mentor: Brent Solomons. 2nd: Newfields Primary School – Zavier Petersen, Yusuf Hartley, Uthmaan Moos. 3rd: West End Primary School – Adhraa Richards, Darryl Afrika, Tamika Sam.

Story Writing Winner: Montague Primary School – Cade Arendse. 2nd: Regina Coeli Primary School – Jayden J Willemse. 3rd: Factreton Primary School – Moegamat N Daniels. Most creative: Balvenie Primary School – Keisha Geduld. 40

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Growsmart winners represent South Africa at the African Spelling Bee A young learner from Liwa Primary School in Nyanga, one of Cape Town’s townships with a troubling past and few resources today, showed the world that a person’s background doesn’t define their future.

namandla Mqaleni represented her country, school and community at the African Spelling Bee in Uganda where 18 countries and 108 spelling champions competed. Mentor and teacher Andrew Gumindoga accompanied her to the competition and described her performance as extraordinary. Rising above the difficult circumstances in her community, Unamandla competed with excellence and made it all the way through to the competition’s second round. The day after she returned from the competition, Mr Gumindoga overheard her telling her fellow learners at Liwa Primary School, that their background doesn’t determine their ability and if they always work hard, they can do it. Learner and teacher ascribe her success in large part to the Growsmart literacy competition - both were part of the team that won the prestigious Growsmart title in the Western Cape province in 2018. Liwa Primary has been participating in the Growsmart educational programme since Growsmart’s inception a decade ago. Growsmart is a keenly-contested annual competition, was started and funded by Growthpoint Properties and fully supported by theWestern Cape Education Department. It helps the learners and schools that need it most to boost Literacy, Story writing, Mathematics, Science and Debating in, and takes place at a level where it can have the biggest impact, in Grades 4, 5 and 6. It has grown to include the abovementioned competitions and as of next year, intends to add Entrepreneurship to the Western Cape competition offerings. Two years ago, Growsmart expanded into the Eastern Cape and next year, the competition intends to launch in Limpopo.

Growsmart - Unamandla Mqaleni, learner from Liwa Primary School in Nyang

It is no secret that South African schools continue to face major challenges in Literacy, Mathematics and Science. The size of this massive challenge is clear in the alarming statistics, which place South Africa troublingly low on national and international benchmarks in all three areas. Since inception it has more than doubled its reach from 80 to 160 schools in the Western Cape and the Growsmart newspapers have been distributed to over 70,000 children. Mr Gumindoga explains that while he put Unamandla through her spelling paces in preparation for the continental spelling battle, Growsmart had already ensured that she was very well equipped. “In fact, a spelling bee covers only one of the three levels of literacy training emphasised in Growsmart, which includes spelling, defining and using a word correctly,’ says Mr Gumindoga. “This prepared Unamandla well and has created and important stepping stone for her. She is also very talented and hardworking. Unamandla was exceptionally brave. She presented

with such grace. We are incredibly proud of her.” Growthpoint Properties’ regional general manager Jewel Harris explains that the Growsmart competition is designed to boost their school performance, but also to change lives. “Growsmart helps children gain exposure on bigger platforms and really launches them to greater things. It is a platform to excel. This is exactly what Unamandla has done, and we congratulate her on all her hard work and this wonderful achievement.” Growsmart was approached to enter an alumni into the 4th African National Spelling Bee, and facilitated sponsorship for Unamandla and Mr Gumindoga to attend along with young spelling champs from counties including Benin, Botswana, Ethiopia, Gambia, Ghana, Kenya, Lesotho, Liberia, Malawi, Nigeria, Rwanda, Sierra Leon, South Africa, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe. Mr Gumindoga says, “I want to thank you guys for the opportunity, we salute you guys.” He also learned for the trip, and SOUTH AFRICAN PROPERTY REVIEW

CSI notes with interest how many of the young competitors would ask judges for the origin of a word before trying to spell it. “English is made up of words from many other languages. Knowing a few basic spelling rules from Latin, German, Greek and other common source languages goes a big way in helping youngsters to spell. As educators and teachers in South Africa

it is important for us to ensure our learners are literate in English. Even at the African Spelling Bee, this was the common language of communication between the different nations.” Based on this experience, Growsmart is exploring way to incorporate an opportunity to compete in the African Spelling Bee for the top spellers in its programme in the future.

“This would provide yet another Growsmart space to inspire, boost confidence and create positive experiences that will subsequently translate into courageous and passionate future leaders,” says Harris.

High school and university students scoop top prizes in the JSE’s 46th annual Investment Challenge awards 23 000 high school learners and university students have spent the last six months competing for the number one spot in the Johannesburg Stock Exchange (JSE) Investment Challenge, which is the Exchange’s flagship programme.

Ralph Speirs

he annual competition enables learners and students to understand the fundamentals of investing by trading JSE-listed shares on a virtual trading platform. Of the 421 schools that competed this year, the majority are from rural areas. Teams from the Eastern Cape dominated by winning the top four awards in the Income category. Mentors from the Walter Sisulu University in Mthatha, who previously participated in the Investment Challenge, have been 42

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instrumental in the teams’ success because of their continuous engagement and giving of their time to the learners. Ninety-five universities and colleges across South Africa participated in the challenge this year. Each winner gets a head start to building a secure financial future with a Satrix ETF investment which enables them to grow their winnings through smart investment decisions. “Our aim is to demystify investment through building a financially literate society from as early as high school. Equipping these learners with the fundamental skills required to build wealth, is part of how we are going about it,” says Ralph Speirs, CSI Officer at the JSE. “We believe that this initiative will be a life-long lesson that can impact what they do with their first income and every earning in their adult life going forward. I am particularly encouraged to see a lot more rural schools not only participating in the investment challenge, but winning top positions whereas in the past, it was predominantly the metro schools that performed well.” Speirs says the JSE is playing a responsible role by teaching learners the value of consistent saving and investing for the long-term, in a country with a low

savings rate and little long-term retirement planning. Each school and university team is given a fictitious amount of R1 million to invest on a virtual trading platform that mimics the live stock market, but without any real risks. Monthly and annual prizes are awarded to the best performing teams, their schools, and their teacher or mentor. The overall winning team members each receives R4, 000 deposited into a Satrix Investment account, with the top performing university team also winning a trip to an international stock exchange plus R25000.

Winners of the 2019 Investment Challenge are: The Schools Challenge: Income Portfolio ●● First place: KCC-Traders, King's Commercial College, Eastern Cape ●● Second Place: IZI BAD BOYS, Zimele High School, Eastern Cape ●● Third Place: KCC-Commercials, King's Commercial College, Eastern Cape ●● Fourth Place: IZI Future leaders, Zimele High School, Eastern Cape ●● Fifth Place: Lethas D, Lethukuthula Secondary School, Gauteng

CSI Equity Portfolio: ●● First Place: The bizzar investorsPCCP, Acudeo College Crystal Park, Gauteng ●● Second Place: Fortius Quo Fidelius, Hoërskool DF Malan, Western Cape ●● Third Place: JJJM, DF Malan School, Western Cape ●● Fourth Place: Steyn City School - Grade 10A (2019), Steyn City School, Gauteng ●● Fifth Place: PHS, Pearson High School, Eastern Cape

Redefining the CSI paradigm, one mall at a time Shopping is an integral part of modern human culture and South African malls from Centurion Mall in the north to Maponya Mall in the south amongst many others have become key components of the local environment and lifestyle. Beyond the convenience, malls are also the epicentre of community life, from creating employment to other downstream economic opportunities. By Marijke Coetzee, Head of Marketing & Communications, Redefine Properties

Speculator Portfolio: ●● First Place: Wise Owls, Queensburgh Girls High School, KwaZulu-Natal ●● Second Place: GKBK Pupils, Grenville High School, North West ●● Third Place: Minfin Capital, Herzlia High School, Western Cape ●● Fourth Place: The PHD's, Ashton International College Benoni, Gauteng ●● Fifth Place: Prophets Of Profit, Reddam House Durbanville, Western Cape

Winning teams in the University Speculator portfolio: ●● First place: 100 Baggers, University of Cape Town ●● Second place: Gym buddies, Nelson Mandela University ●● Third place: ARBITRAGE, University of the Western Cape

To find out more, visit: https://schools.jse.co.za and https://university.jse.co.za or contact the Investment Challenge coordinators on 011 520 7344/7129. For further information, visit the JSE Challenge Twitter and Facebook pages.

aving closely looked at the interplay between local economic and social issues, assets in the communities like the mall for example can provide a good ground to engage with the residents in the communities. Essentially, malls are an asset that can be “used as a vehicle” to meet community needs and to strengthen the community as a whole. At Redefine, our purpose is to create and manage spaces in a way that changes lives, embodying our understanding that although property is our commodity, people are our business. We also recognise that the socio-economic context in which we operate, fraught with rising unemployment, weak economic

growth and increasing social instability, requires businesses to do more than ever before. We firmly believe that to shape a more sustainable outlook, a shift from social investment to social innovation and involvement is critical. In line with this thinking, we launched an initiative called the Challenge Revolution, which encompasses several major business initiatives, including the Challenge Convention series, the Innovation Challenge and the Mentorship Challenge. These reflect our belief that we need to remain relevant and forward-thinking by considering and collaborating with the people in and around our properties to identify and address their real needs in a truly South African way. Through SOUTH AFRICAN PROPERTY REVIEW

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this focus, we are able to tackle material business and social challenges facing the communities such as transformation and skills gaps, while remaining relevant and offering better experiences in our spaces. Redefine has identified Sustainable Development Goals (SDGs) 8, 9, 11 and 13 against which the interventions will be benchmarked and specifically the National Development Plan for 2030 (NDP), which is closely aligned with the SDGs. The NDP is of high interest and importance to communities as well as the private sector as it shapes and guides programmes for each year until 2030. Our Asset Based Community Development (ABCD) approach recognises this and the communities as partners who possess the agency and skills to develop and support solutions for sustainable transformation. We commissioned FNB Philanthropy to develop and host a series of community-centered conversations in Soweto, specifically in the immediate communities surrounding Maponya Mall. These conversations were intended to gather information from the community regarding their assets, social needs and determine the best possible avenues for future social investment in the area. In its initial phase, the process involved extensive engagements with over 1 000 community members, community-based organisations, local 44

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NGOs, political representatives and local businesses and entrepreneurs. This was followed by the Challenge Convention late last year during which the key representatives from the community were invited to highlight the real challenges they faced and identify existing community assets that could be leveraged to address these. Using #ifihaditmyway to lead discussions; innovative solutions emerged which are now being developed further for implementation. Some of these conversations revealed that entrepreneurs in Soweto battled to promote their goods and services to potential consumers. Our own ads rang a bell - need space, more space? Many of the entrepreneurs who were interviewed simply wanted space in the mall to exhibit their goods. In other words, the asset based approach immediately identified the problem making it easy for the team to consider ideas to make a tangible difference. What became apparently clear from these engagements is that to enable the community to sustain themselves, efforts needed to be anchored down to reliably connect the needs of the identified community stakeholders and provide access to resources and information that will promote participation in the local economy. Amongst the many ideas, a community hub in Soweto has emerged as the strongest. The hub could be an

enabler to scale community development and attract partnerships with other private social investors with similar vision and objectives. The focus is on addressing the needs of the three stakeholder groups in the community, with emphasis on access to services, resources and participating in programmes and opportunities that promote empowerment. The Maponya Mall pilot is just the first of a number of planned initiatives that Redefine intend to undertake over the next couple of years. Already similar consultation with the communities around Centurion Mall has resulted in a partnership with the City of Tshwane (CoT) to deliver a state of the art taxi rank to the community. Maponya Mall bears testimony to how ABCD can deliver significant results by simply focussing on equipping and mobilising community members to use their available assets, skills and strengths, to co-create opportunities and build their own communities. At Redefine, we continue to live our ethos and are committed to leveraging the spaces we manage to change the lives and the future of the people and communities around them.

Marijke Coetzee

CSI

SA REITs featured among the JSE’s most empowered companies Five South African REITS (real estate investment trusts) have been named among The Top Empowerment Companies of 2019 in this year’s The Empowerment Report.

n order of most empowered, the REITs are: Arrowhead Properties, Redefine Properties, Growthpoint Properties, Equites Property Fund, and Rebosis Property fund. According to the scorecards for the report, published by Intellidex with research by Empowerdex Research and Advisory, Arrowhead achieved 80.27% (total BEE score 68.23), Redefine 78.52% (91.87), Growthpoint 78.26% (91.26), Equites 70.98% (83.05) and Rebosis 57.08% (66.78). Estienne de Klerk, Chairman of the SA REIT Association which represents South Africa’s JSE-listed REIT sector, notes the sector’s transformation leaders have achieved an impressive track record of driving best practice aligned with the Property Sector Charter. De Klerk says: “Having five REITs among the most empowered companies from across all sectors of the South African economy proves that the REIT sector is playing an important role in economic transformation. We are acutely aware that with an active commitment to transformation, responsible and ethical business practices and good governance, SA REITs positively influence our economy and the lives of South Africans through their property assets.” Commenting on the sector’s transformation journey progress so far, Chairman of the Property Sector Charter Committee of SA REIT, Shawn Theunissen, says: “The SA REIT sector is doing very well in several areas of transformation, and this can be seen especially in the scorecards of those

Estienne de Klerk_SA REIT Chairman

REITs that are leading the drive to transform. That said, there are opportunities for the sector to do more, and we remain committed to furthering the transformation of South Africa, within SA REITs specifically and the property sector in general.” SA REIT Association members comprise all publicly listed SA REITs – a sector with the market capitalisation of more than R300bn. As the unified voice of JSE-listed South African REITs, SA REIT plays a significant role for the sector. It provides advocacy in matters of common concern, prepares opinion and policy for interacting with stakeholders, represents the industry in meeting challenges within the sector, and boosts awareness of REITs as a unique asset class that creates and preserves wealth. Creating a compelling platform for conversations around transformation and other vital issues for the sector, the SA REIT Association is presenting its one-day executive SA REIT Conference, sponsored by Nedbank CIB on 16 July 2020 at Summer Place, Johannesburg.

More information is available at www.sareit.com. Shawn Theunissen, SA REIT Association Property Sector Charter committee chairman

SOUTH AFRICAN PROPERTY REVIEW

Property market overview

Residential property market is beginning to stabilise At the beginning of November, Property Review attended the annual Pam Golding Media networking function at their head office in Bishops Court, Dr Andrew Golding the group’s CEO outlined the market’s trends and outlook.

Dr Andrew Golding, CEO

verall, 2019 is proved to be another year of tepid economic growth resulting in yet another year in which government revenues have disappointed – placing additional pressure on the country’s financial situation and in turn, on consumers.

SOUTH AFRICAN PROPERTY REVIEW

Dr Andrew Golding pointed out, “Until there is greater clarity on the prospects of a recovery in the local economy, the housing market, which remains resilient but is currently weighted in favour of buyers, is unlikely to enter another fully-fledged recovery.

The recent recurrence of load shedding, ongoing socio-political challenges and a volatile global environment have created further headwinds.” As with the opinion of many of the country’s leading economists Golding echoed their sentiments “It is also important to keep in mind that the ongoing turmoil created by Brexit, the brewing trade war between China and the US and the downturn spreading across Europe is raising the very real threat of a global recession. It was recently noted that the Wall Street Journal’s uncertainty index rose to a record high in August. This suggests that financial markets are currently more uncertain than was the case after 9/11, the European debt crisis and Trump’s election. Current estimates suggest that there is a 30% probability of a global recession.” Notably, Professor Francois Viruly (UCT), recently pointed out that it is not the depth of the slowdown that is hurting the property market this time but rather the length of time the economy has remained sluggish. Continued pressure on consumer household finances, and on property developers, is creating a robust headwind for the market. However, there is one upside to this sustained period of weak growth. Price pressures from higher global oil prices and/or Rand weakness are having limited impact on the inflation rate, which is stabilising around the midpoint of the inflation target range (36%). This means that there is little pressure on the Reserve Bank to raise interest rates. There is even a small

Property market overview chance of a further 0.25 bps rate cut in November this year or in early 2020, but other than that, interest rates are expected to remain steady for an extended period of time.

have since rebounded strongly. Further good news is that conditions in the national property market are, nonetheless, beginning to stabilise. From a low in Q1 2019, unit sales have since risen steadily from 63 887 in Q1 to 73 656 in Q2 to 77 086 in Q3. And unit sales during the first half of 2019 remain just over 11% below year-earlier levels, Q3 2019 sales are 2% above year earlier levels (i.e. above Q3 2018).

Sales volumes up since Q1 2019 According to Lightstone, although total unit sales slumped in the first quarter 2019 (quite possibly due to load shedding and pre-election jitters) they

The increase in units sold is seen partially as a result of growing competition between financial institutions for market share, resulting in the easing of lending conditions with loans – including 100% loans - being extended at a pace last seen 12 years ago, and generally lower deposits required. One of the signs of banks’ increased appetite for bank lending is the fact that mortgage advances are growing

at a faster pace than house prices (see chart below), suggesting that there are more home loans than before – a scenario last seen in 2012. According to ooba, the average interest rate achieved for its buyers in Q3 2019 was 16 bps lower than in Q3 2018.

This appetite for lending, combined with relatively low interest rates plus inflation which has surprised on the downside in recent months, reinforces the likelihood that conditions could stabilise. However, for a more sustained recovery in the market, it will require an improvement in economic growth and employment prospects.

Market activity However, this is seen against a backdrop which reveals that total housing activity slowed from a peak of 210 465 units sold in 2015 to 196 375 units in 2017 before rebounding modestly in 2018. Sales last year totalled 197 634 units – nearly 13 000 units or 6.1% below the 2015 peak. Of interest is the shift from freehold to sectional title which is evident in the national sales, with freehold properties accounting for 71.2% of all sales in 2010 – declining to 63.1% in 2016 before rising to 65.7% in 2018. (As affordable housing is typically freehold, the shift to sectional title homes is likely to be more evident if one were to exclude affordable housing). According to Lightstone, nearly a third (29%) of all sales across South Africa during the past 12 months SOUTH AFRICAN PROPERTY REVIEW

Property market overview According to FNB, despite the slowdown in sales volumes, the middle income categories continue to see growth in unit sales from year-earlier levels while the lower and the upper ends continue to contract. The decline in lower end sales can be attributed to a deterioration in affordability high levels of unemployment, while the upper end is presumably impacted by a loss of confidence and the fact that many sellers can afford to sit out the market down-cycle. During the past 12 months (Oct’18Sep’19), freehold sales have dominated in all price bands – particularly in the <R400 000 category (largely affordable housing) and in the upper price bands (notably >R3m). Sectional title properties account for almost half all sales in the R0.4 - R0.8m and just over 40% in the R0.8 – R1.5m price band. Interestingly, over the past 12 months (to Sept ‘19), just 9.9% of all sales have been of new properties. And during this period, just over 35 000 vacant plots have been sold – nearly 20% of which (19.4%) were located within security estates. Of all homes sold, 13.5% were located in estates, and of all new homes sold, almost 10% were located in estates.

(Oct’18 – Sep’19) were in the lowest price band (<R0.4m) while just 16% were between R1.5-R3m and only 5% of all sales during this period was properties priced over R3m. Nearly 80% of all properties sold during the past 12 months were priced below R1.5 million. 48

SOUTH AFRICAN PROPERTY REVIEW

Property market overview

Price performance freehold vs sectional title South Africa

Average price (Rm, 2019)

Five years % (2014-2019)

Ten years % (2009 – 2019)

-freehold -sectional title

1.12 1.03

+18.8 +24.2

+85.8 +51.4

Further to the above, during this 12 month period to September 2019, the average price of a sectional title property sold was R1.07m, while the average price of a freehold property was R1.15m (these differ from the figures in the table above because the figures in the table do not separate out estate homes and are for the year to

date rather than the past 12 months). For the same 12-month period, the average price of an estate home sold was R2.08m – nearly double the average price of a freehold home (although this figure will have been influenced by a large percentage of affordable freehold properties coming on to the market).

According to the Pam Golding Residential Property Index, house price inflation continues to slow. While the Standard Bank and PGP House Price Indexes continue to slow, the FNB index has rebounded somewhat in recent months. During the year to date (September), the PGP Index has averaged 3.21%, FNB = 3.54% and Standard Bank = 4.12%. Even as inflation surprises on the downside, the continued slowing in national house price inflation sees real (inflation-adjusted) house price inflation remaining in negative territory this year – for the fourth consecutive year. The one region where real house price inflation remains positive is the Western Cape, which is currently enjoying the seventh consecutive year of positive real house price inflation.

Regional trends Notably, the Western Cape housing market has enjoyed real growth in house prices since late 2013, when it began diverging from the rest of the South African market, While the rest of the national housing market was experiencing a downturn, the Cape benefited from the influx of older, more affluent home owners as the semigration trend intensified. However, from late-2017 until early-2019, the Western Cape housing market – though still outperforming the other major regional markets – experienced slowing house price inflation, bringing it back into line with the rest of the country. While the recent revisions by Lightstone have removed an earlier rebound in national house price inflation, the Cape market appears to have reached a modest turning point, with house price inflation rising from a recent low of 4.97% in May 2019 to 5.12% in September (see below). According to the PGP Index, price growth in Gauteng continues to lose momentum, while in KZN prices appear to have stabilised. SOUTH AFRICAN PROPERTY REVIEW

Property market overview PGP House Price Inflation (Jan-Sep 2019) AVG

<R1m

R1-2m >R2m

3.21

5.40

2.55

0.79

Gauteng

2.43

4.79

1.66

-1.05

5.78

12.60

5.10

0.00

KZN

3.15

5.02

1.88

-0.22

Lower price band is top performer Breaking the lower price band down further, FNB shows that the sub-R400 000 price band is currently enjoying double digit growth, remaining the top performing nationally and across all major regions. According to the PGP Index, the Western Cape continues to show the strongest growth across all three price bands. The top price band is weakest in Gauteng while the lower price band is still registering double digit growth in the Western Cape, which suggests a high demand and shortage of stock. In the Eastern Cape, house price inflation also appears to be stabilising at a level of 3.37% after slowing over the past year, having averaged 3.43% during the first half of the year (latest available data). Eastern Cape house price inflation continues to outperform the national average by a small margin (0.24% average) during the first half of the year. Positively, the Northern Cape is experiencing a rebound in prices, from a low of 1.32% in August 2018 to a high of 2.73% in June 2019 (latest data).

Metro housing markets The three coastal metros continue to outperform the national market, with Cape Town remaining the top performing metro while Johannesburg (and Gauteng overall) remain the weakest. 50

SOUTH AFRICAN PROPERTY REVIEW

Property market overview The rebound evident at a regional level (data to September 2019) is not yet visible at the metro level (June 2019 latest data). Nevertheless, house prices in both Cape Town and Tshwane metro markets are showing tentative signs of stabilising The slowdown in Johannesburg is rapid and is showing no sign of slowing or stabilising. Tshwane, as noted above, appears to be turning upward while Gauteng East is losing momentum but remains the top performing metro market in the region. South Africa’s demographic profile means that young, first-time buyers provide a solid underpinning to the residential property market. So it is encouraging to see a marked rebound in the percentage of loans extended to first time buyers in September2019 (51.4%). For the year to date (Sep’19) just over half (50.2%) of all loans extended by ooba have been to first-time buyers. Further evidence of the appetite for home loans is visible in the improving loan conditions – with the average rate of concession falling below prime three times thus far this year. For the year to date, the average concession is just 0.04% above prime – the best rate charged since January 2011. The effective bond approval rate continues to rise – reaching levels last seen just before the 2008/09 recession, rising to 83.4% in September and averaging 81.4% so far this year – up from 77.4% during 2018 overall. The approval rate linked to prequalification rose to 89.6% in September and has averaged 88.6% during the year to date (Sept). The average deposit is also declining, again reaching levels last seen just prior to the 2008/09 recession. In August the ratio of loans to value had declined to 10.8% before rebounding to 11.7% in September. For the year to date, the average deposit to loan was just 13.02% while for first-time buyers, the average deposit paid during the year to date is 9.38%. Applications for 100% bonds have risen steadily in recent years, reaching a level of 59% during the third quarter. SOUTH AFRICAN PROPERTY REVIEW

Property market overview

SOUTH AFRICAN PROPERTY REVIEW

Property market overview According to ooba, the average age of bond applicants overall has remained steady at 38 years for some time now, after rising from 37 to 38 in late 2016, while the average age of first-time buyers has risen in the past year from 33 to 34 years. For the year to date, 94.3% of all mortgages extended have been for primary residences. While loans for holiday homes remains subdued at 0.3%, there has been an increase in demand for investment properties (buy-to-let) at 5.4% during the year to date. According to FNB, demand for investment properties has been particularly strong in the coastal metro markets – which are the best performing housing markets in SA, particularly Cape Town, with investment properties accounting for 10.6% of all properties sold during Q2 2019. Coastal properties (homes located within 500 metres of the coastline) continue to enjoy a price premium which has risen from a low of 0.9% in Sep/Oct 2018 to a level of 2.13% in June 2019 (latest available data).

Sentiment a key driver of demand It is not just about the ability of people to purchase a home but also their willingness (see chart below). One of the key measures of “willingness to buy” is consumer confidence, which is in turn driven by market sentiment as well as affordability. Nationally, consumer confidence rebounded slightly in the second quarter – with the ending of load shedding in the first quarter and the market-friendly outcome of the May general election contributing to the recovery. At current levels, consumer confidence is marginally above the long term average (and is not nearly as negative as business confidence, which is currently at a two-decade low).

Downscaling remains a key theme – with 23% of all sellers offering that reason. It is also the dominant theme across all price bands. The second most popular reason for selling is financial pressure. While the percentage selling for financial reasons has risen to 19% in Q2 2019 this remains well below the levels seen in the wake of the 2008/09 recession (see chart below).

Emigration The same is true for emigration – which became a more prominent factor over the past two years, according to FNB. Emigration sales have risen to 13.4% in Q2 2019 – which represents a 10-year high. While emigration sales are highest for the upper income groups, the increase in middle and lower price band sales due to emigration could reflect people selling their investment or holiday homes. A map of where most South Africans are emigrating from, shows that the majority of emigrants are leaving from Gauteng – a factor which is undoubtedly contributing to the subdued Gauteng housing market. SOUTH AFRICAN PROPERTY REVIEW

Property market overview Market conditions: FNB Estate Agent Survey Q2 2019 The FNB Market Strength Index suggests the market is still moderately oversupplied, particularly in the middle- to upper-income areas. According to FNB It appears that the sectional title market is currently oversupplied, which is consistent with the surge in construction of new flats and townhouses, while demand and supply of freestanding properties is relatively evenly balanced.

Need for realistic pricing The fact that the market remains slightly oversupplied (imbalanced) is highlighted by the increase in the percentage of sellers who have to drop their asking price. According to FNB, this rose to 98% in Q2 2019 – the highest percentage of sellers since 2007. Furthermore, the average price drop rose to 9.9% in Q2 – slightly above the historical average of 9% since 2010 (see chart below). This underlines the critical importance of accurate, marketrelated pricing when a property is first brought to market. Buyers are wellinformed and many under financial pressure, so a serious seller is advised to price right.

However, it seems that the supply of properties onto the market is responding to weak market conditions and is thus slowing – a positive for sellers. On another encouraging note, time on the market improved to 14 weeks and one day, down from a recent peak of 17 weeks and six days in Q3 2018, possibly due to the fact that improved affordability is attracting more buyers. According to FNB, current time on the 54

SOUTH AFRICAN PROPERTY REVIEW

market is approaching the long-term average of 13 weeks and four days.

SA rental market Growth in national rentals has been slowing steadily since early-2017 – declining from 7.4% from year earlier levels in Q1 2017 to a low of 3.2% in Q3 2018. Growth in rentals has fallen below the prevailing inflation rate since Q1 2018 but has at least stabilised at 3.9% during the first half of 2019 even as the inflation rate continued to surprise on the downside. Real (inflation adjusted) rental growth declined by an average 0.5% during the first half of the year, according to PayProp.

most expensive for renters, rental growth in the province continued to slow during the first half of the year. In the Western Cape, we are finding that areas which remain popular include the Southern Suburbs, due to the schools in the area and proximity to Cape Town; City Bowl/Foreshore/Waterfront and Atlantic Seaboard in general for its appealing lifestyle and easy access to work; and the Northern Suburbs with its good schools, shopping centres, wine routes, medical and educational facilities and more affordable rentals, making it appealing for those working in the area or the Boland region, including Stellenbosch. Noordhoek has also become sought after, offering community living away from the hustle and bustle, as well as Woodstock/ Salt River/Observatory as rentals are lower than the City Bowl and ideal for students and those commuting to the central city. We are also seeing an increase in demand for apartments to rent in secure developments, especially in the Southern Suburbs, City Bowl, Foreshore, Observatory and surrounding areas, where rentals vary from R7 800 for a bachelor unit and two bedrooms up to R20 000 plus.

Pam Golding Properties sales

While growth in national rentals has stabilised at 3.9% during the first half of the year, the performance of various regional markets has been more diverse. Rental growth in six of the nine provinces recorded stronger rental growth rates in the second quarter compared to the first. While the Western Cape remains the

Nationally, for the group’s financial year ended February 2019, the company achieved sales turnover of just under R18.8 billion despite the challenging economic and sociopolitical trading conditions experienced, and for financial year to date (seven months March to September 2019), we are currently on sales turnover of R11.6 billion, which compares favourably with R10.7 billion for the same period in 2018.

Regional rental Q2

Rental growth Q1’19

Rental growth Q2’19

Gauteng

R8 053

+4.38%

+3.87%

Western Cape

R9 025

+2.96%

+2.51%

KwaZulu-Natal

R8 171

+4.62%

+5.43%

Eastern Cape

R5 840

+3.18%

+3.52%

+3.85%

+3.86%

Average growth

Property market overview Reviewing our sales performance over the same seven-month period we are finding that sales volumes (units) are slightly up from 2018 levels. Notably, in terms of market share, we have increased our sales volumes by 29% in the price band from R12 million upwards – with sales above R25 million having doubled, and by 12% in the price band from R3 million to R6 million. In line with market trends, we continue to see high activity in the price band below R3 million.

Foreign buyers During this period Pam Golding Properties sales to foreign buyers remain at more or less the same volume as last year, namely just over 3%. Emanating from some 36 countries around the globe, these buyers tend to purchase property across all price bands, but particularly between approximately R2 million and R6 million. Interestingly, we’ve seen a surge in buyers from Botswana, with UK and German buyers second and third in terms of volumes, followed by Zimbabwe, Switzerland, the Netherlands, France, Denmark, USA, United Arab Emirates, Namibia, Mozambique, Congo, Zanzibar, Turkey, Tanzania, Sweden, Spain, Russia and even Romania, among others.

Market overview While the last real boom was just over a decade ago (2003-05) the residential property market in South Africa has demonstrated ongoing resilience in recent years despite the challenges of a muted economy, socio-political impacts and drought. The market is, however, nuanced and varies from region to region and across metros and towns, with pockets of excellence in high demand areas and nodes around the country, coupled with a strong demand, as stated, in the price band below R3 million. What we are seeing is that only correctly priced properties are selling often in weeks or days, sometimes even hours of listing. Currently, sound investment opportunities for the savvy buyer and

investor are still available in the various sectors of the market which continue to thrive. We also have a sense that there is the possibility that the economy has the potential to improve, and that from a cyclical point of view the property market is at or near the bottom of a down cycle, and hence this is potentially a good time to buy. Property markets through the ages have behaved in cyclical patterns and there is nothing to suggest that the current environment is systemic or permanent. As with all property investment decisions, due care needs to be taken with location, price and resale potential, regardless of the particular market cycle. As per usual, the property market is not a case of one-size fits all, with sales activity in different regions and with higher demand and activity in sought after centres and conveniently located nodes around the country. These include Cape Town central, Stellenbosch and Somerset West in the Cape Winelands, Pretoria and Rosebank in Gauteng and the KZN North Coast (uMhlanga, Ballito and Sibaya). Welllocated growth nodes, which have mixeduse developments, continue to see elevated levels of activity as these meet the abovementioned demand, offering a secure, live-work-play lifestyle appealing to a growing number of South Africans across a wide range of income bands and age categories. Further areas of growth include relatively more affordable homes in towns traditionally considered retirement or holiday destinations, particularly those experiencing strong growth in amenities (medical and education) which reduce the necessity to travel to a large neighbouring town or city. A good example of this is Knysna on the Garden Route, also Jeffreys Bay and to some extent St Francis Bay on the Eastern Cape coastline.

Current and ongoing trends in the market:

convenient locations close to schools, the workplace and all amenities – thereby allowing homeowners and tenants to avoid heavy traffic congestion. This is particularly evident in key hubs or growth nodes such as Menlyn Maine in Pretoria, Sandton, Cape Town central and uMhlanga. More single people are buying property, which is also driving demand for sectional title living, which is not surprising as in today’s world many people are delaying marriage or not marrying at all. We’ve seen large numbers of millennials (aged 22-37) buy homes in recent years. Aside from having appeal for the younger generation, sectional title buyers include professionals who travel frequently, downscalers and retirees who travel overseas to visit family.

Semigration: The semigration trend will continue to the coast, primarily the Garden Route and KZN – Durban and north to Ballito, and the Western Cape – including the Boland and Overberg. Areas such as Ballito and Knysna, also St Francis Bay, Port Alfred and Jeffreys Bay, which were previously considered holiday hamlets, have become primary residential areas. In addition to attracting semigrators, Knysna is currently seeing an influx of buyers from Europe. In George, currently over half our home buyers are from regions outside the Garden Route – mainly from Gauteng and the Western Cape, followed by Mpumalanga and the Eastern Cape. Interestingly, outside of estates, George is seeing a considerable reduction of 20.8% in available stock when compared to the same time last year (August 2019/18). On the KZN North Coast, we’ve recently seen as much as 60% of our buyers for new offplan developments originating from Johannesburg, while Sibaya near eMdloti is also in demand due to its close proximity to King Shaka International Airport.

Value-for-money and hotspots: Sectional title: There is an ongoing Country towns inland offer exceptional demand for sectional title homes, more compact homes with lower maintenance and lower operating costs, and homes in

value especially for retirees, and from a coastal perspective, we may see increased interest in KZN areas from SOUTH AFRICAN PROPERTY REVIEW

Property market overview Amanzimtoti through to Port Shepstone on the South Coast, where lifestyle, cost of living and house prices are affordable. In the meantime, the KZN North Coast is seeing developments still selling well and correctly priced stock moving. An influx of Johannesburg commuters and semigrants moving to the coast has kept the developments market alive. In addition, KZN is still well-priced compared with the Western Cape and affordable to the local market. Sibaya is this region’s most buoyant new precinct, having enjoyed exceptional sales over the past two years and achieving record prices on vacant land at Signature Estate, where luxury homes range from R20 million up to R50 million. However, at Saxony at Sibaya, a luxury development with sea views, apartments and penthouses are selling starting from R1.85 million. We are expecting our new development, Sibaya Sands, to be well received by the market as it caters to both an investor clientele as well as an end-user market, with prices starting from under R2 million. uMhlanga sectional title is also sought after and the beachfront node popular as there is limited supply in this prime area. Stable Durban North continues to hold its own as a primary residential market that is well-priced and offers a family lifestyle with an abundance of schools. In uMhlanga, Somerset Park and Sunningdale are becoming more and more popular as you can buy small three-bedroom, family homes in these nodes for under R3 million, while apartments trade for around R2 million. In Durban, the Florida Road area is a hotspot with a one-and-a-half bedroom flat with parking selling in three days for R980 000, close to asking price. Krugersdorp on the West Rand, with its new developments, are a good buy and should provide excellent returns in five years. Due to its good value-formoney offering, people are buying here and are willing to commute to Johannesburg and Pretoria. In the new 56

SOUTH AFRICAN PROPERTY REVIEW

Copperhill Lifestyle Estate development you can buy a three-bedroom, 2.5 bathroom sectional title home of 165sqm with single garage and carport and sizeable private garden for R1.7 million. Catering for the younger, middle-class buyer, sectional title developments are on the increase and range from R1.65 million to R2 million. Three new developments are being launched in the future in the Homes Haven area. In Gauteng East, ‘The Neighbourhood’ is likely to become ‘the’ estate in this region. Providing a clear indication of investor confidence in the area, this new development is in the historic Linksfield suburb, with 315 stands priced from R2 million to R4.2 million. Phase One sold out in days, underlining the demand that exists for prestigious living within a secure environment, close to important amenities. This development also features a sectional title component called The Lofts and a shopping centre, The Square. In addition, catering for the growing demand for homes in Gauteng East, large tracts of open land between Benoni, Boksburg, Kempton Park, Edenvale and Greenstone have been developed with clusters, townhouses and shopping centres. Here you can acquire a quality two-bedroom, twobathroom sectional title unit for R850 000, ideal for first-time buyers, as well as a top-end two-bedroom, two-bathroom unit for just R2.6 million in upmarket Infinite development in Bedfordview. The greater Fourways area – in suburbs such as North Riding - has also seen many new developments coming onto the market particularly in the under R1 million bracket, while continued commercial development in Rosebank and Sandton has seen the construction of some large sectional title developments. People look to live in a radius of offices and good schools so The Parks, Westcliff, Saxonwold, Parkhurst, Morningside, Atholl, Illovo and Inanda continue to attract people for correctlypriced properties. This trend is further

driven by offices such as Discovery and Sasol in Sandton which house some 8 000 workers who in some cases look for convenient living and lifestyles. Access to Pretoria and the burgeoning residential growth on the N14 which has been upgraded will enable access into Fourways, the new areas around Steyn City and the Centurion area of Thatchfield. The entire Waterfall area situated in Midrand has seen increasing growth over the last year, attracting both investors as well as buyers seeking a long-term lifestyle. Large companies such as PricewaterhouseCoopers and Deloittes moving their head offices to the area and the presence of good schools are fuelling the demand for residential accommodation. The Waterfall area also provides upmarket lifestyle apartment living including all amenities such as gyms, restaurants, movie centres, as well as an amazing pool and recreation facilities. In Waterfall Estate we recently sold a R4.9 million two-bedroom home in three days and a R5.5 million two-bedroom home in two weeks. In Pretoria in Tshwane Municipality sales continue apace in the Trilogy Collection, a R1.16 billion residential development in the major mixed-use Menlyn Maine precinct. With a total of 531 apartments when completed, 374 units in Phase 1 have been sold with limited units available in Phase 2 comprising 157 apartments. Such is the demand that apartment prices have risen by as much as 20% since the development was launched in 2016, underlining the demand for a live, work, play lifestyle in this urban setting. In Phase 2, prices range from R1.6 million for studio apartments, R2.2 million for one-bedroom units and R4.8 million for two-bedrooms. Part of Phase 2 comprised the sold-out Platinum Collection, exclusive apartments on the 10th and 11th floors, plus a doublestorey, 574sqm presidential suite on the 12th floor which sold for R20.5 million.

Property market overview In the Western Cape, value is driving sales in Cape Town’s Southern Suburbs across all price bands and we expect this to continue. Top end sales include a modern, double-storey Bishopscourt home which fetched R41.3 million. We also recently concluded the highest residential sales transaction in the Southern Peninsula for a five-bedroom house in the exclusive lifestyle and security estate, De Goede Hoop, for R29.5 million. In Bergvliet/Meadowridge we find older homes to be renovated are always popular, but at the right price, and in Rosebank, we recently sold a three-bedroom home in just five days at a fraction below the asking price of R3 million. On the Western Seaboard, the areas of Tygerhof and Sandrift, nestled between Century City and Milnerton and with its proximity to major arterial routes, are definitely beginning to upgrade. Currently the entry level is around R1.8 million. Opportunities are still evident in the under R2.5 million market, in areas such as Sunningdale, Parklands and some of the older areas of Table View, as well as generally in the sectional title market. With its affordability at entry level, proximity to the city and beach, magnificent Table Mountain views, watersports and laidback lifestyle, the Western Seaboard is an appealing place to live. The Atlantic Seaboard offers a compelling lifestyle proposition, so it remains a perennial hotspot, drawing local, national and global buyers and investors, attracted not only by the investment opportunity but also its highly appealing and convenient, luxury lifestyle, with developments such as the V&A’s Waterfront Marina, Harbour Bridge and Canal Quays on the adjacent Foreshore doing well. Top end sales on the Atlantic Seaboard are currently frequently in the R20 million to R40 million plus price range. In the Boland region, the Northern Suburbs has seen huge commercial development, including new road infrastructure, businesses and

restaurants, and in particular Durbanville’s commercial hub with the opening of Durbanville Square. Curro is also planning its first university on the outskirts of Durbanville in 2021 and, from our experience in student towns like Stellenbosch, we anticipate a meaningful positive impact on prices in the area. This may not be the size of Stellenbosch, but it will create opportunities for investors, student accommodation and a demand from lecturers to live in nearby suburbs such as Graanendal, Vierlanden, Pinehurst, Uitzicht and Langeberg Ridge. And due to the growth around Tygervalley, with the business and financial sector moving offices to the area, we are seeing a demand for property for Airbnb and guesthouse accommodation in nearby areas such as Rosendal, Ridgeworth, Kenridge, Bella Rosa and Tygervalley Waterfront. In the Helderberg area, buyers have over 25 developments to choose from and, with competition in the resale market, the area offers value for money compared to many other towns in the Western Cape. Demonstrating sound return on investment, in Andringa Walk in Stellenbosch, a two-bedroom apartment registered in 2015 for R2.65 million and a two-bedroom unit in this development sold through Pam Golding Properties in October 2019 for R4.3 million. The new road being constructed connecting Technopark and Polkadraai will make Longlands Country Estate and Bosman’s Club – a new development comprising 46 units starting at R1.4 million, a very savvy investment now before the road is built. As mentioned under student accommodation below, we are also marketing units in The Niche, a new apartment block in Paul Kruger Street, so with another five blocks in the process of rezoning, this will turn the entire area into a student hub in the next few years. With the escalation of building cost and high demand for student housing, being one of the first to buy will be a very strategic investment decision.

Along the Whale Coast, buying opportunities include affordably priced vacant land starting at R275 000 for 600sqm in Bettys Bay, and seafront properties in this coastal hamlet from R1.95 million for a 1 520sqm seafront stand to R3.995 million for a fourbedroom front row home in Rooi Els. Other hotspots which present good value can be found anywhere in metro hubs across the country in townhouse or cluster communities with a price tag of R1.5 million and where there are pools, a clubhouse or other facilities. Also good, older areas around sought after government schools which are situated in areas where there is little through traffic might become in demand and increase their security levels. Estate living: This remains sought after, especially eco-estates and those which provide a range of amenities, even schools and leisure activities. Then there are what one could refer to as mixed-use estates, such as the new estates being developed on the periphery of Somerset West, a town experiencing a virtuous cycle in that the surge in residential development has sparked commercial growth to cater for the growing population. Shopping centres and offices are being developed to service the newer, outlying areas of town while new residential developments along the N2 also include commercial and industrial components. For example, Paardevlei, on the old AECI grounds, is a self-sustaining town with residential, commercial and light industrial areas. There is also a strong focus in estates on creating a greater mix of price bands and retirement developments, ensuring broader appeal both in terms of available homes and amenities, such as shops, educational and medical amenities. With land in Stellenbosch a scarce commodity, welcome new developments include Welgegund Domaine Prive, a new 32 erven boutique estate in Paradyskloof, close to the new Mediclinic and the very popular Brandwacht Aan Rivier, where we are SOUTH AFRICAN PROPERTY REVIEW

Property market overview selling erven from R2.1 million to R5.7 million for stands from 260-600sqm. Estates located in Paarl are also very popular because of the security and country lifestyle offered, while Wellington offers a more affordable country lifestyle, such as Stadsig Private Country Estate – considered the best location in town. In Pearl Valley at Val de Vie Estate in Paarl, we recently sold a home for R33 million – the highest price achieved to date in Pearl Valley and Val de Vie. In Olivewood Private Estate at Cintsa in East London a boutique hotel has just been launched in addition to an offering of a number of value-added facilities on site to pique the interest of prospective buyers while, a new development at Toboshane in Dorchester Heights, conveniently accessible to the city (East London), will see 208 erven coming online in the next three years. On the outskirts of Ballito area on the KZN North Coast, Pam Golding Properties is marketing vacant land in the 411ha Seaton Estate, a newgeneration, luxury estate with the emphasis on sustainable living and a unique, organic way of life. Residents are able to reconnect with nature and even pick their own fruit and vegetables from the estate’s private farms and yet are located only 15 minutes to King Shaka International Airport. In the Ballito market there is huge growth with several other new developments on offer along the coast in Sheffield, Zululami and Elaleni – all top-quality estate offerings at great value-for-money pricing. Estate living is on the increase in Port Alfred, notably the Royal Alfred marina, Misty Waves private Estate and the new development, The Reeds, where prices range from R1.4 million to R17 million. Pam Golding Properties recently sold a six-bedroom property in the Marina for R8.5 million – the second highest price ever achieved on the estate. Knysna on the Garden 58

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Route retains its high appeal with a number of highly sought-after estates such as Simola and Pezula. Lightstone estimates that there are just over 450 000 properties located within approximately 8 600 estates across South Africa, 80.9% of which are freehold. There are also an estimated 214 retirement developments located in estates. While total estate sales have slowed in recent years in line with the overall slowdown in the national housing market, estates have retained market share, accounting for around 14.5% of total market sales, with buyers generally prepared to pay a premium to enjoy the lifestyle. In 2010 Gauteng accounted for about 55% of all estate sales, a figure which declined to under 45% by late-2016 and early 2017, but this has since risen once more, although it remains below 50% of all sales. In the Western Cape estate sales rose from just over 20% of national sales to over 30% in late-2016/early 2017 before drifting lower, and averaging at 27% during the year to date. KZN estate sales rose from around 5% of national estate sales to about 6.5% before declining back to around 5%.

Repurposing of old buildings: With an ongoing shortage of student accommodation around the country, we anticipate seeing an increasing trend towards old commercial buildings being redeveloped and repurposed to cater for this growing demand. This is already occurring in major centres. The repurposing of old buildings for mixeduse developments is seen in Cape Town’s Southern Suburbs, while parts of Johannesburg are seeing old light industrial spaces being converted into affordable housing close to transport hubs. In Fox Street in Johannesburg’s eastern CBD, a major rejuvenation project, Jewel City, comprises six city blocks, which are being redeveloped into office and retail space along with residential accommodation. Other amenities – including a school, gym

and clinic – will also ultimately form part of the development.

Sustainable homes: The sudden recurrence of loadshedding, coupled with rapidly escalating costs of electricity and water shortages, has seen homeowners and tenants increasingly turning towards homes with ‘green’ features. This is a trend which we anticipate will continue to gather momentum and become more widespread across all areas and price bands. Pam Golding Properties recently sold a luxury home in Glencairn, made from seven shipping containers welded together to create an elevated, double-volume structure with 180-degree views of the sea and mountain for R4.85 million.

Student accommodation: The shortage of accommodation for students near universities and colleges continues unabated – a trend we believe will continue and strengthen in 2020. During the past year Pam Golding Properties sold close to R1 billion in student apartment blocks. Last year the student apartments in Stellenbosch were 99% fully let for the entire year. One of the new student developments in Stellenbosch that presents an appealing investment opportunity is The Niche, a 51-unit development with bachelor, one, two and threebedroom units from R1.5 million and ideally suited to student needs. Also catering for this demand in this university town is Beau Vie on Stellenbosch University’s Green Route (which offers additional security for students), with bachelor units priced at R1.995 million and one-bedroom units from R2.37million. Properties on this route are highly sought after and can command prices of around R66 000 per square metre. With ongoing demand for student accommodation in Pretoria, we are

Property market overview Property market overview seeing more tertiary students looking for private housing with good security and located close to places of learning. There's been a steady increase in investor interest in the student market, because of the rental returns of between 13% and 15%. One such development is iQ Brooklyn, the new upmarket student accommodation with apartments priced below R1 million and presents an attractive investment opportunity for buy-let-investors. iQ Brooklyn provides an array of amenities including Wi-Fi, central DSTV services, pre-paid electricity metering, swimming pool and sun deck, lounge and cafeteria facilities, laundry services, 24-hour security with biometric access as well as study and assignment rooms for groups. Apart from the major centres, demand for student accommodation extends to other areas such as Port Alfred, home to Stenden University and the 43 Airschool, which contribute towards the demand for sectional title properties as student accommodation or property investment with a strong rental return. Current sectional title units in Port Alfred sell between R500 000 and R4 million, while Summerstrand in Port Elizabeth enjoys a strong demand for student accommodation, with apartments going for R45 000 for one or two bedrooms to over R2 million for a front row block with sea views.

Increasing demand for offshore property According to our International Division, Pam Golding International, increased demand for international property is being fuelled by a desire to diversify investment portfolios with a rand hedge. The need to diversify, coupled with demand for offshore citizenship, has seen increased uptake by buyers investing in residential property in Portugal via the Golden Visa Programme as well as a surge in interest in the US EB-5 Programme for access to a Green Card and the Grenada

Citizenship-by-investment programme. Notwithstanding this, property in Mauritius and the UK remain firm favourites with SA investors. It’s not surprising that Lisbon features strongly on the radar of such investors, as according to the Emerging Trends in Europe 2019 report, it is currently the top-rated city in Europe for overall investment and development prospects in 2019, having leapfrogged 10 places to number one. In Portugal buyers invest mainly for EU Residency, while in Mauritius – which has retained its pole position as 1st on the African continent in The World Bank ‘Doing Business 2020 report, it’s a combination of residency and leisure or second home acquisitions. In the UK it is purely for investment in hard currency, a hedge against political instability and diversification. In Portugal, the €350 000 Golden Visa developments in Lisbon, Porto and Cascais remain the most popular. Since May 2019, Mauritius has experienced a noticeable ramp-up in property purchases that offer South Africans permanent residency, as well as those buying for pure investment. The Mauritian economy and currency continue to perform very well in the global arena with a buoyant real estate market driven by those relocating for work opportunities as well as holiday and retirement. Mauritius remains an attractive destination for South Africans due to proximity and the easy ability for expats to oversee their business interests and investments in SA. Mont Choisy Le Parc Golf and Beach Estate continue to attract attention from high net worth individuals looking for an exclusive lifestyle in Grand Baie, with Phase 1 and 2 completed and numerous resales concluded. Phase 3 - called Mont Choisy La Reserve - has just been launched with 30 apartments and 25 villas. Ki Resort Apartments with SOUTH AFRICAN PROPERTY REVIEW

Property market overview Phase 1 comprising 70 units in Grand Baie close to sold out has attracted buyers looking for a pure investment purchase as well as those looking to spend US$500 000 to gain permanent residency plus access to the developer’s private beach club facility. On Eden Island in the Seychelles, over 500 or 95% of homes are already completed and 550 sold in this vibrant, cosmopolitan community. Underscoring the investment returns is the fact that 25% of homeowners own more than one home on Eden Island. Prices of units currently start at US$455 000 and all owners qualify to apply for Seychelles Residency. On the African continent, a standout country is Kenya, which is experiencing a generally positive outlook for its economy and housing market, particularly rentals, and with a large number of investment type buyers. Key growth hubs are mostly in Kiambu and Movoko due to affordability and also growth in infrastructure, mostly roads, schools and hospitals that are making these nodes more accessible and desirable. An interesting project marketed by Pam Golding Properties Kenya is Garden City, developed by Actis, a well-known private equity fund. This is a mixed-use development with a fully fledge mall, plus 159 two- and threebedroom apartments and 56 semidetached four-bedroom townhouses, residents’ gym, pool, clubhouse and children’s play area. Prices of the residential units are KSHS 17million for two bedrooms, KSHS 24 million for three-bedroom apartments and KSHS 35 million for the townhouses. In Mozambique, we are currently marketing three- and four-bedroom beach villas in the exclusive San Martinho Beach Club Resort in Bilene in the north of Maputo, with a protected natural lagoon surrounded by pearly white sandy beaches and set on 43ha of lush, tropical gardens and 1.3km of pristine private beaches. Prices are from MZN 16 million. This kind of project appeals 60

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to locals and international buyers including South Africans who want to own a property and experience regular holidays in Mozambique. For an additional about MZN 1.8 million for furniture, properties can be included in the rental pool. In Zambia, where residential property development is a relatively new concept, an increase in road infrastructure in Lusaka and the Copperbelt has seen a number of emerging residential areas becoming sought after areas for home owners. Other key hubs are Roma, Kabulong and Ibex Hill, which are well established residential areas in close proximity to amenities such as schools and shopping centres. The main residential trends in Zambia are for cluster developments, very similar to those we see here in South Africa. Currently we are involved in leasing out office space in the new Standard Chartered Head Office development an 8 000sqm office block, of which they will occupy 6 000sqm. Office space from 250-1 000sqm is let at US$30 per square metre. Key is its prime location in the financial hub of Lusaka with Citibank, Liquid Telcom and Barclays Bank nearby.

Outlook: cautiously optimistic A key positive for South Africa’s housing market is the country’s young population – which ensures a steady increase in potential new homeowners entering the housing market each year, providing a solid underpinning for ongoing demand for homes. The impact of these first-time home buyers will primarily be felt in the more affordable, sectional title market – a sector of the market typically favoured by first-time buyers. With consumer confidence recovering slightly, inflation and interest rates relatively subdued and the economy set to strengthen modestly in 2020, it seems likely that the recent period of price adjustment has seen a measure of affordability return to much of the national housing market – making it a good time to buy.

While the market is showing tentative signs of stabilising and with some recovery in house price inflation evident in the Western Cape in particular and in the Tshwane to a lesser extent, the market is unlikely to experience a robust recovery until there is a marked improvement in economic growth prospects and employment – because the housing market is not only driven by the willingness of residents to buy but also their ability – which requires growth and employment (as well as financial institutions willing to extend credit). Market consensus forecasts are for slightly stronger economic growth in 2020 and beyond. While inflation may be somewhat higher than this year, it is not expected to force the Reserve Bank to raise interest rates during the next 12-18 months. Add to this the ongoing appetite among financial institutions to extend credit, and there are a number of factors underpinning the market next year. Given that any recovery in the housing market is likely to be modest, now more than ever it is advisable for homeowners to focus on location and minimal overheads (security, maintenance and utilities). With household incomes under pressure and growing congestion, welllocated growth nodes are increasingly appealing for convenience, reduced transport costs and future return on investment, when selling or renting out. Coupled with this, as water and energy remain an issue (both in terms of availability and cost, homes with energy and water efficiency - green features), or located within a development or estate with green amenities are likely to become increasingly attractive to buyers and add value on future resale. The outlook for 2020 is for a better housing market but only moderately better than 2019 – unless economic growth surprises on the upside, however, with professional advice and considered options, savvy investment and selling decisions are definitely achievable.

Cost report

Operating Cost Report As at the end of June 2019, total operating costs equated to 35.2% of gross income on an All Property level. This is 50bps down from December 2018 and 50bps above its long term average of 34.7%. Operating costs flat as a % of income As at the end of June 2019, total operating costs equated to 35.2% of gross income on an All Property level. This is 50bps down from December 2018 and 50bps above its long term average of 34.7%. The improvement in the gross cost to income ratio came about as a result of total operating cost growing at a slower rate than gross income during the 6 months. Gross income growth of

KEY FINDINGS ●● The improvement in the gross cost to income ratio came about as a result of total operating cost growing at a slower rate than gross income during the 6 months. Gross income growth of 5.1% was driven by recoveries (fixed & variable) which grew by 5.8% - faster than base rental which increased by 4.7%. Meanwhile operating costs grew by 3.6% during the six months translating to an annualised growth of 7.2%. ●● All four property sectors saw their gross cost to income ratio improve during the period with the office sector recording the biggest improvement of 100bps to end at 32.8%. ●● The office sector's improving cost ratio needs to be viewed in context as the difficult operating environment is resulting in several "false savings" such as declining letting commissions, electricity usage and cleaning cost - all a result of a decline in the level of occupied area. ●● Meanwhile, the overall net operating cost to income ratio improved during the year given the increase in variable cost recoveries (i.e. metered consumption not 'fixed' according to the lease) as well as the improved recovery rate thereof. ●● On an All Property level, the net income to cost ratio from 22.5% as at December 2018 to 21.9% as a t the end of June 2019. ●● On a net basis, cost to income ratios were down for the residential, office and industrial sectors. In contrast, the retail sector saw an increase of 40bps in its net cost ratio as variable tenant recoveries grew at a slower rate than total operating cost ●● Overall operating costs increased by R2.15/sqm per month for the six months ended June 2019 (3.8% up on a square meter basis). The biggest driver of the increase was Municipal Charges (R0.74/sqm). ●● Of the three main property sectors, Retail's cost to income ratio remains the highest on a gross and net basis. As at June 2019, the sector's gross cost to income was measured at 37.4% while its net cost to income ratio stood at 23.5%. ●● The office sector's gross cost to income ratio was 32.8% as at June 2019 with Prime Offices at 33.5% and Secondary Offices at 29.2%. The industrial sector's gross and net cost to income ratios are the lowest among the three traditional property sectors. ●● The residential sector, in many ways still in its infancy in a South African context, has a higher cost to income ratio compared to the three traditional sectors. The makeup of its basket of costs are also different with a lower weighting in the Municipal Charges category and a higher allocation towards Property & facilities Management and Letting Fees and commissions.

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Cost report 5.1% was driven by recoveries (fixed & variable) which grew by 5.8% - faster than base rental which increased by 4.7%. Meanwhile operating costs grew by 3.6% during the six months - translating to an annualised growth of 7.2%. All four property sectors saw their gross cost to income ratio improve during the period with the office sector recording the biggest improvement of 100bps to end at 32.8%. The office sector's improving cost ratio needs to be viewed in context as the difficult operating environment is resulting in several "false savings" such as declining letting commissions, electricity usage and cleaning cost - all a result of a decline in the level of occupied area.

RATES RECOVERY POTENTIALLY NEARINGA CEILING? Meanwhile, the overall net operating cost to income ratio improved during the year given the increase in variable cost recoveries (i.e. metered consumption not 'fixed' according to the lease) as well as the improved recovery rate thereof. On an All Property level, the net income to cost ratio from 22.5% as at December 2018 to 21.9% as at the end of June 2019. On a net basis, cost to income ratios were down for the residential, office and industrial sectors. In contrast, the retail sector saw an increase of 40bps in its net cost ratio as variable tenant recoveries grew at a slower rate than total operating cost. This perhaps suggests that some landlords in the retail space may be approaching a ceiling in the level of costs it can recover from tenants. The graphic below shows the electricity and rates recovery ratios for the Retail sector. While the electricity recovery ratio can be expected to remain high given that tenants are typically individually metered, a slide in the Rates recovery ratio could be an indication that - on average- retailer cost of occupancy may be becoming unsustainable. 62

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MUNICIPAL CHARGES STILL THE LARGEST COST CATEGORY Among the major property operating cost categories, municipal charges continues to make up the largest percentage of overall operating cost. Municipal charges comprises rates & taxes, electricity & other metered utility charges such as water and CID charges. On a per square meter basis, municipal charges are up 2.1% for the size months ended June 2019. At the end of the period, municipal charges accounted for 62% of total operating costs and 22.0% of Gross Income. From 2010 to 2019, municipal charges grew faster than any other operating cost category- becoming a bigger slice of a bigger pie. During this time, it effectively double in going from R18.16 in 2010 to R36.97 in June 2019 (CAGR of 7.8%).

On a sector level, industrial property's municipal charges make up the largest percentage of total costs at 69.8% - followed by Retail & Office with 64.0% and 59.4% respectively. The office sector continues to have a higher weighting in Repairs/ Maintenance/Tenant Installation with a contribution of 12.5% to the overall cost line. This is significantly higher than the retail and industrial sectors underlining the importance office landlords are attaching to both tenant retention and incentives for new tenants in the current environment. Slightly worrying is the continued growth in the level of bad debts written off- not for Offices but across all sectors. In the first half of 2019, Bad debt write offs across all property sectors increased to multiyear highs and in the case of industrial property, to an all-time high of 78cents/sqm.

Cost report MUNICIPAL CHARGES UP TO 62% OF TOTAL COSTS

ARGEST PERCENTAGE INCREASE IN REPAIRS. MAINTENANCE AND TENANT INSTALLATIONS Overall operating costs increased by R2.15/sqm per month for the six months ended June 2019 (3.8% up on a square meter basis). The biggest driver of the increase was Municipal Charges (R0.74/sqm), with the rest of the operating cost categories increasing by a combined R1.41/sqm.

The largest increase on a percentage basis was the repairs, maintenance and tenant installations category which in turn was driven by the office sector as mentioned earlier in this report. With the latest double digit increase (more than 20% on an annualised basis), this category has become the second largest cost category on an All Property level as at June 2019. SOUTH AFRICAN PROPERTY REVIEW

Cost report Insurance, bad debts as well as other costs increased to R4.49/sqm/month- a 7.7% increase over the six months-driven by a higher level of bad debt write offs across all sectors. Property/Facilities & Leasing fees & commissions increased by 30 cents per square meter (or 5.1%) to R5.06/ sqm/month at the end of June 2019. Leasing and Property Management Fees remained stable during the six months indicative of the muted operating environment while Building Management (which includes on-site staff salaries) was responsible for the bulk of the growth in the broader category.

RETAIL COSTS HIGHER AS A % OF GROSS INCOME Of the three main property sectors, Retail's cost to income ratio remains the highest on a gross and net basis. As at June 2019, the sector's gross cost to income was measured at 37.4% while its net cost to income ratio stood at 23.5%. On a segment level, Super Regional (>100k sqm) & Regional centres (50k-99.9k sqm) reported the lowest gross cost to income ratio of the multi tenanted retail formats at 36.2% and 36.4% respectively

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as at June 2019. On a net basis, Super Regional centres' cost to income ratio decreased from 27.5% as at December 2018 to 27.3% as at June 2019. The office sector's gross cost to income ratio was 32.8% as at June 2019 with Prime Offices at 33.5% and Secondary Offices at 29.2%. Office Parks had a lightly higher gross cost to income ratio at 36.1%. The industrial sector's gross and net cost to income ratios are the lowest among the three traditional property sectors. However, among the underlying segments there is some

variance with Warehousing being less cost intensive than the Manufacturing and the Industrial Multiparks segments. The residential sector, in many ways still in its infancy as an investable property sector in a South African context, has a higher costww to income ratio compared to the three traditional sectors. The makeup of its basket of costs are also different with a lower weighting in the Municipal Charges category and a higher allocation towards Property & facilities Management and Letting Fees and commissions.

state of city finances

Financing climate adaptation and resilience in South African cities Southern Africa is one of the world’s regions that will be most affected by climate change (IPCC, 2014). South Africa, a signatory to the Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCCC), has set ambitious mitigation targets for curbing emissions by 34% by 2020 and 42% by 2025 (DEA, 2015). The country’s climate change position is situated in the Constitution, the National Development Plan, the National Climate Change Response Strategy (NCCRS) and the Intended Nationally Determined Contribution (INDC) We extend our thanks to the South African Cities Network for the following extracts. Click on the cover image above to download the entire report. SACN. 2018. State of City Finances Report 2018. Johannesburg: SACN ISBN: 978-0-6399215-2-5. © 2018 by the South African Cities Network. The State of South African Cities Report is made available under a Creative Commons Attribution – Non-Commercial – Share-Alike 4.0 International Licence. To view a copy of this licence, visit creativecommons.org/licenses/by-nc-sa/4.0.

he INDC contains a strong adaptation component, including the development of a National Adaptation Strategy. Climate adaptation and resilience objectives may also be integrated into agriculture, water and biodiversity sector plans and policies. At the local government level, municipalities outline climate change mitigation and adaptation strategies in their integrated development plans (IDPs), spatial development frameworks (SDFs) and climate adaptation and vulnerability assessments. Some South African cities are also signatories to local government climate change initiatives, such as the C40 and 100 Resilient Cities project. To transition to a low-carbon, climateresilient economy will require a combination of mitigation, adaptation and resilience measures. ●● Mitigation refers to reducing greenhouse gas (GHG) emissions and enhancing sinks that take up GHG (IPCC, 2014). ●● Adaptation refers to the actions taken to prevent or minimise damages from the consequences of climate impacts (ibid).

Key messages South Africa is one of the countries most affected by climate change, facing climate risks of floods, drought and heat stress, resulting in economic losses, which are amplified in cities. Investing in adaptation and resilience can potentially reduce these losses by up to 80%, but cities find it hard to access finance for this purpose. To access multilateral climate funds, cities need to partner with national and regional governments, and National Treasury should integrate climate change objectives into future infrastructure and development grants to cities. ●● Resilience is a concept within adaptation and refers to the ability to withstand the impacts of climate hazards. It allows for an asset to maintain its performance despite the potential impacts of climate change (Brugmann, 2011). Adaptation is broader than resilience and is focused on mitigating specific risks that may not be related to the overall performance of a particular asset or system. An example of a mitigation project is a solar power plant that results in avoided emissions, whereas rehabilitating coastal dune systems to protect the shoreline from storm surges would be categorised as an

adaptation initiative. The rehabilitation of wetland systems could be considered a cross-cutting project, as restoring these ecosystems increases carbon sequestration (adaptation), and reduces flood risk to communities living within the floodplains, which strengthens resilience. Addressing climate change requires significant financial resources. Despite the Paris Agreement, accessing financing for adaptation and resilience is difficult. Adaptation finance is “finance – public or private, international or domestic – that specifically targets development that reduces climate risk, thereby realising climate resilience objectives” (Pillay et al., 2017: 11). In 2017, adaptation finance accounted for US$22-billion, while SOUTH AFRICAN PROPERTY REVIEW

state of city finances mitigation finance was estimated at US$382-billion (Buchner et al., 2017). This chapter focuses on the financing of resilience and adaptation in South African cities. After looking at the climate risks facing South African cities, the chapter describes the financial landscape of adaptation. The current and potential financial instruments for stimulating resilience and adaptation finance are assessed, and an attempt is made to quantify the adaptation and resilience expenditure by cities. The investment case for greater adaptation and resilience is made using the Cape Town drought as a case study, and recommendations are suggested that could result in greater financial flows for city adaptation and resilience measures.

Physical climate risks in South African cities Most South African metros have undertaken vulnerability assessments and developed adaptation strategies. The key climate risks faced by South African cities are droughts, floods and heat stress (see table above). All cities will experience more extreme weather events, with longer droughts and more frequent flash floods and heatwaves. For instance, Tshwane is likely to see an increase in very hot days (when maximum temperature exceeds 35°C), from less than 40-60 days by midcentury to 100-180 days by the end of the century. For Gauteng cities, average annual temperatures are expected to increase by between 2,3°C (Johannesburg) and 3°C (Ekurhuleni) by 2040, while annual average precipitation will increase (by 840mm for Johannesburg). In Mangaung, temperatures will rise by 2,5°C, but rainfall will decrease by 5 to 10%. Coastal cities will have to manage additional risks, such as rising sea levels and storm surges. In eThekwini, the sea level is currently rising by 2,7mm per decade and is expected to accelerate over the next two to three decades, while in Nelson Mandela Bay sea levels are expected to rise by 58 to 75cm. 66

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Storm stress

Wind

Rising sea levels

Nelson Mandela Bay

Buffalo City

Mangaung

Msunduzi

Drought

Floods

Heat stress

Johannesburg

Cape Town

eThekwini

Tshwane Ekurhuleni

City

Economic losses due to climate hazards With the projected increase in extreme weather events, South Africa’s economic losses as a result of climate hazards will increase. In 2016, the overall losses from natural hazards in South Africa were estimated to be US$1,2-billion, but by 2030, the expected urban damage from floods in South Africa could be between US$2-billion and US$2,3-billion. Losses from climate hazards inhibit the ability of societies to maintain longterm development gains. In Madagascar, the average economic losses from climate hazards were equivalent to approximately 75% of public investment during the same period (World Bank, 2015). To maintain the development gains made by South African metros, current public budgets must prioritise adaptation and resilience. Investing in resilience and adaptation prior to a natural disaster can yield a 5:1 benefit ratio (Szoenyi & Freiner, 2016). Globally, investing US$6-billion annually in disaster risk management strategies can deliver R360-billion in risk reduction benefits (UNISDR, 2015). This is equivalent to reducing expected losses by more than 80%. The benefits of reducing risks are magnified in cities, as cities are centres for economic growth and where high-value assets are concentrated. Therefore, despite the higher initial capital costs of climate resilient and low-carbon initiatives, the benefits can be substantial, including avoiding financial losses, maintaining

development gains and growing the economy (Pillay & Clapp, 2017). Economic losses and damages incurred to sectors managed by South African metros are mainly financed off their own budgets, with possible access to disaster relief funding from national and provincial government. However, the current strain on the public fiscus means that metros cannot count on the public sector to support increasing losses under future climate scenarios. Although metros can use insurance to cover incurred losses, premiums are also financed from the public budget. The insurance will also not be able to cover all economic losses from more frequent and severe climate hazards, given the significant global protection gap (the difference between the amount insured and the economic losses from a natural hazard). Ultimately the availability of finances and political will determine whether or not South African cities can transition to a low-carbon and climate-resilient future. Metros thus need to mobilise financial flows from all sources, including public (government) and private (commercial).

Understanding the adaptation finance landscape Local governments can use public or private sources of finance to fund climateresilience and adaptation initiatives. Public sources include intergovernmental transfers, own revenues, international climate fund applications and donor

state of city finances financing. Local governments can also access capital directly from development finance institutions (DFIs) and commercial banks. Pension funds and insurance companies may act as institutional investors for the uptake of bonds issued by local governments, while insurance companies may offer climate insurance products. The overall adaptation funding landscape is presented the figure below. The financing of large-scale climateresilient infrastructure faces the same

Typically, infrastructure projects have been financed by long-term bond issuances, including green bonds for financing large-scale climate resilience infrastructure. Financially prudent local governments have predictable cash flows and an investment-grade credit rating, and therefore can benefit from bond financing (OECD, 2015). On the other hand, local governments with sub-investment grade credit ratings can use guarantees and insurance (Torvanger et al., 2017).

Accessing resilience and adaptation finance Accessing public or private funds for adaptation and resilience at the metro level is not easy for several reasons, including the following: ●● Adaptation funds flow top-down, making it difficult for funds to reach cities and municipalities (Terpstra, 2013). Adaptation finance is typically funnelled through national governments, international climate funds and donor financing.

International Grants

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Local governments Private finance Grants

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barriers as financing standard largescale infrastructure: high initial capital costs, high initial risks (politics, policy changes, demand uncertainty) and unexpected construction timelines (Barnard, 2015; CCFLA, 2015; Smith et al., 2014; World Bank, 2015). As climateresilient infrastructure requires higher initial capital requirements (and the benefits produced are long-term, i.e. 30+ years), it may be cut in favour of shortterm needs (DEFRA, 2011).

Insurance

Commercial banks

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Green bonds usually package some revenue-generation projects, so that sufficient costs can be recovered to make bond repayments. However, smaller adhoc resilience and adaptation projects tend to realise intangible or longerterm benefits, not generate revenue. This insufficient revenue generation exacerbates liabilities in the case of loans and bonds, while equity financing is not viable, as these projects cannot guarantee returns to investors.

Therefore, South African cities have to rely on intergovernmental transfers and their own revenue sources to finance adaptation and resilience projects. ●● The financial status of cities limits access to debt financing. The solvency and credit worthiness of certain local governments may make obtaining debt financing difficult for large-scale climate resilient infrastructure projects (Whiley, 2017). SOUTH AFRICAN PROPERTY REVIEW

state of city finances Cities need to maintain current programmes and find additional finance to fund the resilience premiums on climate-resilient infrastructure (World Bank, 2015). This may be especially difficult for cities with limited tax bases, competing (short-term) demands and unfavourable financial statuses. ●● Adaptation and resilience initiatives are seen as public goods. This makes them more aligned to public rather than private financing (Aakre & Rübbelke, 2010; Abadie et al., 2013; Persson, 2011). Certain sectors that are not managed by the public sector (e.g. agriculture) may see greater private capital flows for adaptation and resilience. ●● Tracking adaptation and resilience expenditure is difficult. South African local governments do not track funds earmarked for climate resilience and adaptation, as resilience premiums tend to be integrated within the budgets of different local government departments. For example, the widening of pipe diameters to manage greater volumes of water in the City of Cape Town would be captured under the Water and Sanitation Department’s budget line. ●● Data about risks is not available. Certain cities lack data and the knowledge for integrating risks into planning and investment mobilisation plans. A lack of standards also inhibits the benchmarking of climateproofed assets. Consequently, investors are unable to assess the risk-return ratios of investments (CCFLA, 2015; World Bank, 2015). ●● Different spheres of government manage different public goods. This institutional arrangement can result in inefficient implementation of climate-resilience initiatives. For example, the coastal zone may fall within the City of Cape Town’s jurisdiction but its management 68

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falls under the national Department of Environmental Affairs (DEA) Oceans and Coasts division. ●● Local government lacks the capacity to implement resilience and adaptation projects. The lack of capacity leads to problems in the planning, implementing and monitoring of resilience investments (Naidoo et al., 2013), limiting the pipeline of financeable resilience projects (Barnard, 2015; CCFLA, 2015; Smith et al., 2014; World Bank, 2015). ●● Financial legislation limits the ability of municipalities to raise funds. The Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) do not favour untested technologies (Naidoo et al., 2013), while local governments are by nature risk-averse. Municipalities could overcome the restrictions of the MFMA and PFMA by developing and investing in independent stateowned enterprises (SOEs) similar to municipal water utilities, such as Johannesburg Water SOC Ltd, which is an independent company with the City of Johannesburg as its sole shareholder. However, forming SOCs is time-consuming and may add further red tape, slowing down the implementation of adaptation and resilience investments on the ground.

Adaptation and resilience financing instruments This section analyses the adaptation and resilience financing instruments used by cities in South Africa, as well as other strategies and economic instruments.

Financing used by South African cities South African cities currently finance adaptation and resilience projects through public funds, climate change funds and green bonds.

1 Public funds Funding for cities mostly comes from intergovernmental transfers (local

government equitable share, fuel levy and conditional grants) and city own revenues generated through service charges and property rates (National Treasury, 2001). Conditional grants are intended to support compliance with national priorities and standards (ibid), and yet the current conditional grants do not mention climate resilience, and there is no conditional grant dedicated to climate adaptation and resilience. Certain conditional grants have delivered climate resilience benefits, such as disaster risk reduction, enhanced water security and improved livelihoods through managing ecosystems (DEA, 2017). For example, the Department of Public Works’ Expanded Public Works Programme Integrated Grant has funded many of the DEA’s programmes for managing natural resources, including Working for Water, Working for Wetlands, Working for Ecosystems, Working for the Coast, Working for Land and Working for Fire (ibid). Integrating climate change objectives into conditional grants used for infrastructure and development could reduce the amount of resilience financing needed, as the following examples illustrate: ●● The water services infrastructure grant could fund catchment management if National Treasury recognised ecological infrastructure as a form of infrastructure, instead of an environmental rehabilitation project (which is currently the case, even though catchment management enhances dams’ long-term functionality). ●● The regional bulk infrastructure grant funds the expansion of the bulk water network through the installation of new, wider pipes but is classified as an infrastructure project, and yet it meets both climate resilience and water management objectives. ●● The Urban Settlements Development Grant (USDG) inherently promotes greater climate resilience when used to deliver housing developments

state of city finances positioned away from flood plains (even if the land acquisition costs are higher). ●● The Integrated City Development Grant (ICDG) focuses on creating a more compact urban form, although climate change is explicitly mentioned as an objective (National Treasury, 2013). Resilience benefits could be integrated into elements of projects funded by the ICDG.

2 Climate change funds Only a tenth (US$1 in every US$10) of multilateral climate funds is allocated to urban projects (Barnard, 2015). Although different climate funds possess different requirements, they generally need accredited entities to be national, regional and multilateral stakeholders. This means that cities are not able to directly access international climate funds but have to collaborate with national governments and multilateral development banks who manage the funds (Junghans & Dorsch, 2015). For instance, regional, national and sub-national entities can access the Green Climate Fund (GCF) directly if nominated by countries (Müller, 2014). The mandates of most international climate funds support climate resilience projects that occur in cities. As of 2015, a total of US$842-million was mobilised for urban projects, financing mostly low-carbon transport systems (Barnard, 2015). All the Global Environment Facility (GEF) funds (GEF Trust Fund, the Least Developed Countries Fund and the Special Climate Change Fund) support projects in an urban setting, with US$195-million specifically for resilience projects in cities (Junghans & Dorsch, 2015). The Strategic Climate Fund under the Climate Investment Fund has also supported innovative climate resilience programmes that may focus on urban issues (ibid). Some local governments have received indirect financial support

from international climate funds. In October 2014, South Africa was awarded its very first adaptation fund project, equivalent to US$8-million over a period of five years. It was for the “Building Resilience in the Greater uMngeni Catchment” proposal (Adaptation Fund, 2014), with the South African National Botanical Institute (SANBI) as the implementing entity, and the uMgungundlovu District Municipality (which includes Msunduzi) as the executing entity. The aim of the project is to reduce the vulnerability of rural settlements and small-scale farmers to the impacts of climate change, with the specific goals of developing early warning systems and ecological infrastructure, integrating climate-resilient crops and climatesmart techniques, and disseminating adaptation lessons. Domestic climate funds are also an avenue for cities. The mandate of the South African Green Fund, which had an allocation of US$1,1-billion, is to support projects focused on developing green cities and towns. In the future, city-focused climate funds are likely to increase, with the C40 Cities Financing Facility initiative.

Philanthropic grants could be accessed to fund climate resilience and adaptation projects. For example, the Rockefeller Foundation’s 100 Resilient Cities programme seeks to build capacity by offering grants that fund Chief Resilience Officers (Junghans & Dorsch, 2015). eThekwini Municipality and the City of Cape Town are already members of the 100 Resilient Cities programme.

3 Green bonds Green bonds are traditional bonds whose proceeds are used for green initiatives (CICERO & CPI, 2015). The green bond market has grown

significantly in recent years, almost doubling between 2015 and 2016, but it still represents only 0,1% of total bonds issued. Development banks, government entities, municipalities, commercial banks and corporations can all issue green bonds (OECD, 2015). Green bonds are useful for metros because of their large issuance sizes, which can finance costly climate resilient infrastructure. They are able to attract institutional investors (insurance companies, pension funds and sovereign wealth funds) that hold large pools of capital – institutional investors possess an asset value of US$83-trillion, with bonds being the most common securities in the portfolios of pension funds (Kaminker et al., 2013). The City of Johannesburg and City of Cape Town have managed to access private capital to finance green initiatives through the issuances of green bonds. The City of Johannesburg issuance in 2014 primarily focused on mitigation, earmarked for renewable energy, energy efficiency and clean transportation, while the City of Cape Town’s issuance in 2017 focused on adaptation and resilience: 7,2% for low-carbon transport and 92,8% for water.

Other resilience and adaptation strategies Other ways of mobilising resilience and adaptation finance include developing public-private partnerships and coupling disaster risk management approaches with climate adaptation goals.

1 Public-private partnerships This type of partnership reduces the implementation costs of initiatives and increases the buy-in from interested and affected stakeholders. If they are well-managed, such partnerships are effective avenues for increasing adaptation finance flows. The City of Cape Town and the Nature Conservancy (TNC) are exploring the establishment of a water fund for Cape Town, which “aims to safeguard SOUTH AFRICAN PROPERTY REVIEW

state of city finances The City of Cape Town Green Bond Issuance

In July 2017, the City of Cape Town issued a 10-year green bond worth R1-billion, with proceeds earmarked for the transport and water sectors. The bond received overwhelming interest from the market, with 29 investors offering the equivalent of R4,3-billion. Most stock exchanges require external verification of green bonds issued, and the Climate Bonds Initiative certified the City of Cape Town’s green bond. The green bond had excellent green credentials and was awarded a “GB1” rating from Moody’s.

The City of Cape Town Green Bond Issuance

Green projects

External verification: CBI standard by KPMP Issuer: City of Cape Town Underwriter: RMB

Green Bond

City of Cape Town

Proceeds from Green Bond Issuance

JSE

Investors

Repayment of bond

water supplies and biodiversity while supporting local livelihoods”. It would take the form of a public-private partnership (PPP) – similar to the Global Water Model – and would be in partnership with the national government, the Western Cape government and the Dassenberg Coastal Catchment Partnership (DCCP), aimed at securing water quality and quantity for Atlantis through improving the ecological infrastructure. Landowners of Zorrotzaurre in Bilbao, Spain developed a PPP with the municipality in order to finance a new flood-proof district in Bilbao. The municipality paid €5,1-million for a flood-protection barrier, structural rehabilitation of the riverbank and the stormwater tanks, while residents (through financial contributions to the PPP, based on the share of land they owned) financed the elevation of the ground level of buildings and public green spaces. The PPP made sure that 70

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the municipality was able to leverage additional funding to ensure that the redevelopment would be completed (EEA, 2017).

2 Coupling disaster risk management and climate adaptation A risk-based approach to managing extreme weather – the coupling of disaster risk management and climate adaptation – may be a useful avenue to manage climate risks of different magnitudes and frequencies. The linkage between disaster risk management and climate adaptation is well established (Warner et al., 2013). Financial support aimed at preventing disasters can be considered as adaptation and resilience financing. And yet, although the Disaster Management Act (No. 57 of 2002) states that its focus is on risk reduction, prevention, mitigation and emergency preparedness, the only conditional

grants provided are for disaster relief and recovery (COGTA, 2017). The amendment of the MFMA also allows cities to access insurance products, but South African cities continue to focus on risk-retention instruments such as municipal disaster grants and own revenues to manage economic loss. For example, the City of Tshwane’s internal disaster reserve funds currently hold R50-million. Cities that focus only on risk retention (i.e. handling risk by bearing the results of risk, rather than transferring or avoiding risks) may not be sufficiently resilient to manage a future with hazards of greater frequency and magnitude. If risk-retention instruments are balanced with risk-transfer tools, all types of hazards can be covered, allowing for more comprehensive climate risk management strategies to be developed (see Figure 77 on the next page). Layering requires an understanding of the severity and frequency of different hazards, as certain financial instruments are able to manage higher economic losses (Warner et al., 2013). Risk-transfer instruments are financial instruments that allow for risk to be ceded to a third party (Pillay, 2016). Examples that may be appropriate at the city level include traditional insurance, risk pooling and cat-bonds (Arnold 2008): ●● Traditional insurance is the most well-understood risk-transfer instrument. It protects an entity against financial losses in exchange for a premium cost. When an event occurs, the third party pays out an initially agreed-upon amount (coverage) according to the contractual obligations. Traditional insurance may result in high transaction costs to contract holders but is useful in managing “high-frequency, low-severity events” (Pillay, 2016). ●● Risk pooling allow entities that are exposed to a common peril to pool their risk. The benefit is

state of city finances

Probability

FIGURE 77: Risk-layering approach to support decision-making process in climate risk management Layer 2

Layer 3

Low frequency, medium severity

Very low frequency, high severity

Risk prevention and reduction + risk transfer to insurance/ reinsurance markets

Risk prevention and reduction retention + other forms of risk transfer (such as combination of national/regional insurance pools, public financing, etc)

Layer 1

High frequency, low severity;

Risk prevention and reduction

that risk pooling allows reduced premiums and faster payouts, as the policies are based on environmental thresholds rather than on traditional loss assessments. At a sovereign level, the African Risk Capacity is a risk pool focused on managing the drought risk of 26 African countries (ARC, 2013). ●● Cat-bonds or catastrophe bonds are insurance-linked securities that deliver above-market returns. They are useful for “high-severity and low-frequency events” (Warner et al., 2013). Unlike traditional bonds, the issuer of the cat-bond is not required to pay part of the outstanding funds if a loss should occur (Durand et al. 2016). A cat-bond would be an issuance to manage an extreme weather event such as the ongoing drought in the City of Cape Town.

Economic instruments Environmental taxes, development charges and user fees are some of the economic instruments that can be useful in generating adaptation finance – for example, revised property taxes for any developments in flood-risk zones under different climate scenarios; road surface taxes for roads that may melt in extreme heat (e.g. in Australia); and development charges that generate revenue for adaptation and resilience measures (Junghans & Dorsch, 2015). Incentives can shift the financing of adaptation to individuals by driving the

demand for certain initiatives. Cities have used rebates on installations such as solar home systems to stimulate the uptake of renewable energy, thereby providing climate mitigation benefits. For example, the Hamburg Ministry for Environment and Energy gives owners subsidies that cover up to 60% of the cost of installing green roofs on their buildings. Building owners can receive these subsidies up until 2020 (EEA, 2017), after which the City of Hamburg may require green roofs to be compulsory. The City of Hamburg decided that installing green roofs was economically more feasible than expanding the sewerage network to cope with excess storm water (ibid). Green roofs have lower maintenance costs (because of their longer lifespan), lower energy costs (because of improved building insulation) and 50% reductions in water fees (because of their rainwater retention capabilities).

Quantifying adaptation and resilience expenditure by cities South African cities do not track climate-related expenditure, in part because of a lack of capacity to use (or the unavailability of) methodologies such as climate budget tagging. And, regardless of whether or not the methodologies are available, climate resilience counts for only a small portion of infrastructure expenditure, which makes extracting this expenditure from public budgets difficult. The marginal cost of ensuring that new buildings

are climate resilient is equivalent to one percent of the baseline cost of infrastructure (Hughes et al., 2010). This additional cost is the result of making small changes to the project design, so the cost is not made explicit and cannot be identified in project budgets. Furthermore, tracking expenditure is not easy because costs will vary depending on the type of project. The metric of one percent of the baseline cost of infrastructure was used to generate the expenditures presented in Figures 78 and 79. Figure 78 illustrates an attempt to estimate current spend by the cities on climate resilience and adaptation through expenditure on environmental protection as well as on water/ wastewater management. According to the Municipal Standard Chart of Accounts, the environmental protection budget line item includes expenditure on biodiversity and landscape, coastal protection, pollution control, indigenous forests, nature conservation, pollution control and soil conservation. Apart from pollution control, categories that bring climate resilience and adaptation benefits include disaster-risk reduction, water security and food security through enhanced ecosystem services. While it is not possible to determine what funds are allocated to these categories from the cities’ annual financial statements, based on the assumption that each environmental protection category receives an equal share of expenditure, 83% of these expenditures could be considered as resilience and adaptationrelated financial flows (Figure 78). Certain municipal sectors are already undertaking climate-proofing initiatives. For example, in the City of Cape Town, pipe diameters of bulk water infrastructure were increased in anticipation of extreme precipitation events. The City of Cape Town allocates approximately 20% of the total water and wastewater budget to new water and waste water infrastructure build. To calculate the climate resilience SOUTH AFRICAN PROPERTY REVIEW

state of city finances FIGURE 78: Estimated current spend for climate resilience and adaptation in South African metros

Delayed climate adaptation action can result in rushed decision-making in response to climate threats, and investments that may not be the most cost-effective option, as the case study of Cape Town shows.

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Investing in resilience and adaptation to avoid future costs According to the DEA’s long-term adaptation scenarios (LTAS), climate change will lead to increased intensity and frequency of extreme weather events, which is likely to lead to increased economic losses (DEA, 2013). The past five years have seen a noticeable increase in extreme weather in South Africa, including flash floods in Johannesburg and Ekurhuleni in November 2016, flash floods in eThekwini in October 2017 and the ongoing drought in the City of Cape Town in the past few years. 72

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Proactive, consistent adaptation and resilience investment can reduce the financial losses in the long term and be cost effective in the short term (Shreve & Kelman, 2014). Under a moderate climate change scenario, floods are expected to result in national losses of approximately US$2.3-billion per annum by 2030. An early warning system can reduce the risk and costs arising from these events. South Africa currently possesses several early warning systems for different sectors and a flash flood guidance system to detect flood risk (DEA, 2016b). National government has identified funding for maintaining early warning systems and has noted integrating improved data from future climate models as a barrier (ibid). Maintaining and enhancing national early warning systems addressing flood risk management would yield significant benefits: the cost-benefit ratio is estimated to be 3:30. In other words, for every rand invested, the implementing entity would gain benefits worth R3,30 (Pillay, 2017).

FIGURE 79: Projected spend on climate resilience and adaptation if initiatives are implemented in all sectors Potential spend on climate resilience (R-millions)

component of new infrastructure costs, the metric of one percent of baseline cost of infrastructure (to ensure the new build is resilient) was applied to 20% of the water and wastewater spend for the 2016/2017 financial (Figure 78). To estimate the resilience and adaptation finance needs, the onepercent increase in baseline cost of new infrastructure was applied to other sectors (Figure 79). It is important to note that these costs are meant to be indicative only, particularly given the differing costs that depend on resilience and adaptation project types. Climate resilience and adaptation spend was calculated to be between 0,04 and 0,1% of total spend from all South African metros. If climate resilience and adaptation initiatives were applied in all sectors under local government control, it would equate to between 0,2% and 0,3% of the total spend per municipality.

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Environmental protection

Water and wastewater management

This case study illustrates the complexity of making urgent decisions about adaptation investments under uncertain conditions and pressures from the public. It reinforces the importance of internalising adaptation practices and investments into public budgets as a matter of urgency. Since 2015, Cape Town had been experiencing drought-like conditions, but the drought was only declared a disaster in May 2017. Severe multi-year droughts are infrequent, with the May 2017 drought being described as a “1 in 628 years” event. By February 2018, dam levels were dangerously low at 24,9%, and the city introduced Level 6B water restrictions that restricted individuals to 50 litres of water per day. The water restrictions are estimated to have resulted in water sales decreasing by half. Water sales make up 10% of the City of Cape Town’s revenue, and as of January 2018, the losses incurred during the 2017/2018 financial year were estimated to be R1,6billion rand. In addition to the reduced water revenues, indirect financial impacts could include:

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state of city finances ● ● Reduced revenue from tourists who have decided against visiting the Western Cape owing to the drought. Approximately 1,6-million people visit the province annually, spending approximately R40-billion. ●● Reduced credit rating, which is currently Baa3 (the lowest of the investment-grade bond ratings). Rating agencies such as Moody’s have indicated that the drought poses a threat to this credit rating. ●● Losses in the agricultural sector, which are close to R14-billion following water restrictions that cut the supply of water by between 60 and 87%. The agriculture sector contributes 23% of the Western Cape GDP. ●● Increased disaster riskmanagement costs, e.g. the severe flash floods in February 2018 may have been influenced by the drought. ●● Greater healthcare costs, should reduced water supply result in less hygienic practices, leading to increases in diseases that cause diarrhoea, vomiting or dysentery (enteroviruses, salmonella, shigella, or E. coli).

The City of Cape Town initially received transfers from the National Disaster Management Centre (NDMC) of R20,8million for boreholes, pipeline installations and pumps, and redirected R2,6-billion from its own budget to finance seven water projects, including desalination plants, recycling and aquifer initiatives. The City of Cape Town’s decision to invest in desalination demonstrates that cities could be forced into “last-resort” investments – where an investment case is difficult to determine but the shortterm needs require that the investment be made. Desalination plants are energy intensive and have extremely high standby costs. For example, in Victoria, Australia, the desalination plant costs per day on stand-by mode are estimated to be AUS$1,8-million. The City of Cape Town opted for temporary desalination plants for a period of 24 months, after which the infrastructure will be removed. Temporary desalination plants are useful because they avoid high stand-by costs in the future when there is enough water supply again. It is possible that droughts as severe as the May 2017 drought will be more common in the future, but it is not possible to predict when a drought of a similar magnitude will occur and thus when desalination will be needed again. The difficulty of making a “last-resort”

investment decision, such as temporary desalination plants as a response to the drought, is illustrated in Figure 80. As Figure 80 shows, the investment decision is good if the May 2017 drought continues, as the desalination plants will contribute to maintaining water security. But if winter rainfall is normal or above average after June 2018, the decision to construct temporary desalination plants would be questionable, as the initial capital investment to construct the plant would be wasted expenditure. Temporary desalination plants would also become a bad investment decision if a high-severity drought occurs (such as the May 2017 event) after the temporary desalinations plants have been removed, especially as most of the Western Cape province is expected to experience warmer and drier climatic conditions in coming years. The lesson for other cities is that they can avoid last-resort adaptation investment by being proactive and implementing cost-effective solutions such as rainwater harvesting, increased bulk water storage and early demandside management. Cities need to focus on proactive continuous climate change adaptation, and not risk reduction in response to a particular extreme weather event.

Figure 80: Decision-making under uncertainty in response to the May 2017 drought

Winter rainfall 2018

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24 months after Day Zero; temporary desalination plants

24 months after Day Zero: removal of desalination plants

The decision to use temporary desalination is vindicated. Desalination is obsolete as winter rainfall in 2018 is higher than normal.

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Desalination is able to provide water if the May 2017 drought continues Below average rainfall returns after desalination plants have been removed.

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Poor investment Good investment SOUTH AFRICAN PROPERTY REVIEW

howmuch.net

Visualise the entire world’s wealth inequality Wealth inequality shows up in a variety of ways. You can see it in the uneven distribution of millionaires around the world, and find it in the series of maps we published this time last year, which showed the average wealth per adult in each country. And it’s the same story when you look at median wealth per adult around the world Sourced from howmuch.net/articles/wealth-per-adult-world-2019

much money, and 50% have less. Our map visualises the median total net worth per adult living in each country according to a new report by Credit Suisse.

Top 10 countries by median wealth per adult 1. Switzerland: US$227 891 2. Australia: US$181 361 3. Iceland: US$165 961 4. Hong Kong: US$146 887 5. Luxembourg: US$139 789 6. Belgium: US$117 093

ealth inequality is most often measured by the share of wealth owned by top wealth groups, or by the Gini coefficient, an index that reflects differences at all parts of the distribution, and which has a minimum value of zero (representing complete equality) and usually an upper bound of one. These indices usually follow a similar time path, but not always. When that happens, a more nuanced interpretation of the prevailing trends is required. The evolution of wealth inequality this century for the world as a whole is a case in point. Estimates indicate that the share of the top 1% declined until the global financial crisis, then trended upwards until 2016, when it stabilised. The top 1% currently own 45% of global net assets, down slightly from the 46,9% share in 2000. The Gini coefficient and the shares of the top 5% and 10% also declined between 2000 and 2008. But the trends have diverged from the top 1% pattern in 74

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the post-crisis era. The share of the top 5%, for example, hardly changed, going from 70,6% in 2008 to 70,2% in 2019. This is 5,4 percentage points lower than the value in 2000. And the top 10% and Gini coefficient have continued to trend downwards. The conclusion to be drawn is that – according to the latest data – global wealth gaps have generally narrowed over the past 20 years. The only group countering this trend is the upper tail, accounting for no more than 5% of the world’s population. The suggestion that most people have improved their relative wealth position is reinforced by the observation that the share of the bottom 90% of global wealth holders (portrayed in the graph as the gap between the top 10% share and the 100% upper line) rose from 11,5% in the year 2000 to 18,3% in 2019. The best way to compare levels of wealth is by looking at median figures. A median number simply indicates that 50% of all people have more than that

7. New Zealand: US$116 437 8. Japan: US$110 408 9. Canada: US$107 004 10. Ireland: US$104 842

1. People living in developed countries remain the wealthiest in the world. 2. The Swiss are the richest, with median wealth per adult at US$227 891. 3. Haiti is the poorest country in the world, with an estimated median wealth of only US$214 per adult. 4. Venezuela might be in worse shape, but given the economic instability, researchers could not provide an accurate estimate. 5. There’s no country on the African continent where median wealth exceeds US$10 000 per adult.

Networking

SAPOA Western Cape’s end-ofyear get-together, hosted by Rabie SAPOA Western Cape Chairman Simon Nicks welcomed guests to the final networking event of the year, which was held at Century City Square on 14 November and hosted by Rabie Property Group Words and photographs by Mark Pettipher

SAPOA Western Cape Chairman Simon Nicks

FROM LEFT: Natalie Du Preez (Rabie), Rabie CEO Colin Anderson, Engela de Villiers (Abland) and Lara Schenk (Improvon)

imon Nicks outlined that it had been a tough year, both for the property industry and for South Africa as a country, and acknowledged the team that keeps SAPOA going. He reiterated that SAPOA’s role is to be a facilitator between the industry and the local government. He mentioned that the Mayoral Committee was finding it more difficult to meet, and that SAPOA would need to be more innovative in finding ways of engaging with Cape Town’s city council. Looking forward to 2020, SAPOA will be holding a Budget Breakfast with Brian Kantor in February, where the question of transport and the challenges of dealing with the city council will be hashed out. Nicks then handed over to Rabie CEO Colin Anderson, who also welcomed the guests. He told us that the Century City

FROM LEFT: Natalie Du Preez (Rabie), Rabie CEO Colin Anderson, Christiaan Barnard (Spear REIT Limited) and Lara Schenk (Improvon)

development is not only a place to work, but also a place with opportunities to live and play. He highlighted that Rabie has opened its “Long March to Freedom” – a hundred bronze statues depicting and paying homage to icons of South Africa over the past 350 years. It is one of the largest collections of statues in the world.

There followed a lucky prize draw, which was won by Christiaan Barnard of Spear REIT Limited and Engela de Villiers of Abland. Sponsored by

SOUTH AFRICAN PROPERTY REVIEW

Networking

Limpopo Breakfast Seminar The country’s economy is showing signs of improvement, and if educated and employable people are produced by the system, conﬁdence in government institutions is restored and jobs are created, there is no reason why the economy cannot grow to a sustainable level. This was the opinion expressed by Nedbank economist Isaac Matshego, when he addressed guests at the Limpopo Breakfast Seminar at the Pietersburg Club on 15 October 2019. He also said the ball is now in the hands of the people, and that the government cannot be the only entity expected to provide job opportunities Words and photographs by Barry Viljoen/Polokwane Observer

FROM LEFT The two speakers – SAPOA-appointed town planner Jaco du Plessis and Nedbank economist Isaac Matshego – with SAPOA CEO Neil Gopal and SAPOA Limpopo Chair Paul Altenroxel

own-planning expert Jaco du Plessis, appointed by SAPOA as an adviser, said property owners and prospective investors can only be attracted if the city’s long-term water challenges are addressed adequately. He urged Polokwane Municipality to do all it can to resolve the short- and long-term water challenges. Du Plessis said that despite the current water challenges, there are some exciting developments coming to Polokwane in the near future – such as the 488bed academic hospital that is to be constructed at a cost of R3,9-billion during the 2019/2020 ﬁnancial year. “The funds will come from the national budget, and the estimated operational expenditure will be R1,3 billion, creating 2 917 job opportunities,” Du Plessis said, adding that the project could add R2,3billion in new business sales and R900million in gross geographical product. 76

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Other projects that will also have a positive impact on the city’s economy include the Leeto la Polokwane public transport system. “Construction of SANRAL’s N1 bypass road, which resumed in September, will also create many local jobs and spin-offs,” said Du Plessis.

SAPOA is participating in, among other projects, the municipality’s annual review of the Integrated Development Plan (IDP), the Spatial Development Framework, the Local Economic Development Strategy and the review of municipal policies.

SAPOA Limpopo Council Member Schalk van der Merwe (D3 Prism Architects) with SAPOA Limpopo’s past Chair Professor Jo Nel

Networking

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Networking

Planning for optimal impact in KwaZulu-Natal At the Dube Tradeport breakfast seminar and networking event on 23 October, SAPOA KwaZulu-Natal delegates were privileged to listen to the highly entertaining and informative Frikkie Brooks of Brooks Facilitation Services, a valued member of the KZN Provincial Planning Commission Frikkie Brooks of Brooks Facilitation Services

Words by Anne Schauffer Photographs by Val Adamson

Dube Tradeport CEO Hamish Erskine

SAPOA KZN’s Regional Councillor, Bernadette Khumalo

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obody would argue that the great breakfast enjoyed by delegates at the Mount Edgecombe Country Club was a mere entrée to Frikkie Brooks’s brilliant presentation and commentary on “Planning for Optimal Impact”. His lively, shoot-from-the-hip delivery, extensively researched presentation and willingness to share his deep knowledge and experience after 40 years in government planning structures had everybody deep in discussion long after they should have been back at their own grindstone. The morning kicked off with Hamish Erskine, CEO of the sponsor Dube Tradeport, who provided good insight into the progress and vast opportunities that the Durban Aerotropolis offers, and stressed the potential that this project offers not only to Durban but to the entire province. It was officially launched a few weeks ago to senior ministers and, more recently, to the president. Erskine pointed out that Durban is the fifth wealthiest city on the continent, and the primary access point to the SADC market. Referring to the recent visit by the president, he said that the Chamber of Commerce worked very hard to get the port of Durban working properly again.

The Aerotropolis’s comprehensive booklet details key elements of its 50year masterplan, and the new app allows users to scan across the main pages and bring out augmented reality elements, providing more detail of the zones. Erskine also spoke about Dube Tradeport’s new visitors’ centre with its full scale model of the Aerotropolis and similar augmented reality elements. Connectivity was a solid theme, and he highlighted its importance to the world on every level, as the only way a city can grow. “Tourism is the lowest-hanging fruit,” he said. “Greece used it during its financial crisis, to claw its way back. KZN has this opportunity to make Durban the entry point – we have the most amazing product, but it needs a central point from where that product is served.” He urged the property industry to engage more extensively with the city and its new management, and to be part of the creation of these catalytic zones. Frikkie Brooks had everybody laughing from the outset. “One thing I can brag about is that I’ve survived eight different premiers in KZN!” That aside, he’s very pleased to have been invited to serve as a member of the

Networking planning commission – and he certainly has a wealth of experience to contribute. As somebody deeply involved in planning over the past four decades, he says that the thing that’s distinguished KZN from all others is the silver thread that has cut through everything – the provincial growth and development strategy plan. After all those years of planning the theory, he said, “I’m equally glad to be involved in a number of catalytic projects, like the Cato Ridge project. Now I can apply all that planning at project level – because nothing will come to fruition if we don’t get the strategies and plans on the ground through meaningful projects.” He began his presentation with a slide entitled ”In an Ideal World”, which listed some ideal scenarios: that of government collaborating with the private sectorand NGOs/ NPOs through reliable and effective stakeholder engagement structures; budget allocations that have optimal impact; intergovernmental relations that are fully functional; and all government and non-government agencies having the capacity to meet their obligations, and striving to achieve a common vision. Wishful thinking? He wasn’t so sure. “We’re not there, but how close are we?” he said, acknowledging that we’d most probably never get there – but that many governments don’t. “Still, that’s what we need to strive for,” he said. Brooks also focused on the Provincial Spatial Development Framework, the progress made with implementation, and then, importantly, catalytic projects. “Those are the ones that are starting to get us where we want to be, but we won’t get there without the infrastructure,” he said. “We are a major gateway into Africa, but will we be able to retain that into the future?” He sees two major disruptive factors as potential obstacles to our goals. “One is the Fourth Industrial Revolution,

which could sink us if we get it wrong,” he said. “And it is coming, like it or not. The second is climate change. If we can’t manage the changes, we may lose our competitive advantage.” His presentation delved into all the factors – good, bad and ugly – that form part of the current KZN landscape. But he’s an optimist. “Are we getting there? We are not just getting there, we are excelling at the moment,” he said.“ We get so embroiled in the negativity that we start to believe everything’s bad, because we don’t get to see things that are beyond our line of sight.”

It was a successful networking morning. Brooks’s presentation elicited a raft of probing questions and extensive answers. From the massive complexities of the Ingonyama Trust Board lands to alternative funding models, mechanisms and responsibilities for bulk services for developments like Cato Ridge, the Q&A session was stimulating and informative. As SAPOA KZN’s Regional Councillor, Bernadette Khumalo said, in wrapping up and giving thanks to both Brooks and Erskine, that it had been a worthwhile and very fruitful morning.

SOUTH AFRICAN PROPERTY REVIEW

Networking

Gauteng Brokers’ Forum On 24 October 2019, the Johannesburg Land Company (JLC) hosted the Gauteng Brokers’ Networking Forum at the Bryte Insurance Building in Marshall Street, Johannesburg Compiled by Jenny Rose/SAPOA Gauteng Brokers Committee

Councillor Graham de Kock, sitting Councillor at the City of Johannesburg, Chair of the Section 79 Oversight Committee on Development Planning and the Johannesburg Development Agency, and Deputy Chief Whip of Council

Anne Steffny, Director of the Johannesburg Inner City Partnership

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ounded in Johannesburg in 2002, the JLC is one of Johannesburg’s leading property investment, management and development groups. The group owns and manages 160 000m2 of prime commercial space in the heart of the Johannesburg CBD – or Inner City, as it has become known – and has rights to develop approximately 220 000m2 of additional premises. JLC is a specialist in, and a committed promoter of, the Inner City. It was instrumental in the formation of Main Street Mall, which has won several awards. There were two guest speakers who presented to all in attendance. Anne Steffny, Director of the Johannesburg Inner City Partnership, is passionate about working with the public and the private sector towards the development of “Special Places”, and the sustainable urban management thereof. She shared

some insights on Johannesburg with the delegates present. Councillor Graham de Kock, sitting Councillor at the City of Johannesburg, Chair of the Section 79 Oversight Committee on Development Planning and the Johannesburg Development Agency, and Deputy Chief Whip of Council, was the second speaker. He highlighted the value of public-private partnerships, and shared the vision of the Council and the 2040 Spatial Development Framework. After the presentations, all 60 brokers in attendance headed up to the building’s rooftop for a bird’s-eye view of the city. This was followed by beer tasting and networking at the Mad Giant Brewery. We would like to express gratitude to Johannesburg Land Company for their generous contribution to making the event possible.

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off the wall

Holograms You Can See, Hear, and Feel We’ve seen holograms of human organs, circus elephants, and even long-dead musicians. But now, researchers from the University of Sussex have found a way to create cutting-edge holograms that you can not only see but also hear and even feel — and they pulled it off by drawing on some vintage tech. By Kristin Houser, first published on futurism.com

he researchers published a paper on their device, which they call the Multimodal Acoustic Trap Display (MATD), in the journal Nature on Wednesday. The device works by using ultrasound waves to trap and move a two millimeterwide polystyrene bead around in midair. The bead traces out an object’s shape in three dimensions while LEDs shine red, green, and blue light on it. Because the bead is moving so fast, the human eye sees only the completed shape — a compelling illusion not entirely unlike the way a rapid series of still frames looks like a moving image. “Our new technology takes inspiration from old TVs which use a single color beam scanning along the screen so quickly that your brain registers it as a single image,” researcher Ryuji Hirayama said in a press release. “Our prototype does the same using a colored particle that can move so quickly anywhere in 3D space that the naked eye sees a volumetric image in mid-air.” The use of ultrasound waves allows the device to produce audible noise as well as a physical sensation. 82

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“Even if not audible to us, ultrasound is still a mechanical wave and it carries energy through the air,” researcher Diego Martinez Plasencia said in the press release. “Our prototype directs and focuses this energy, which can then stimulate your ears for audio, or stimulate your skin to feel content.” The researchers envision future versions of the device making use of multiple beads to create even more detailed holograms.

And perhaps even more exciting than the prototype itself is the fact that, unlike many cutting-edge technologies, this one might not have too much difficulty making the leap to consumer product. “The MATD was created using low-cost and commercially available components,” Hirayama said in the press release. “We believe there is plenty of room to increase its capacity and potential.”

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

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

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

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Articles inside

Howmuch.net Visualise the entire world’s wealth inequality

Networking

Off the wall Holograms You Can See, Hear, and Feel

State of city finances Financing climate adaptation

CSI Abcon Group Foundation driving transformation`

Eskom The roadmap for Eskom 2019

Property market overiew Residential property market

Cost report Operating Cost Report

Legal update A brief overview of the Property Practitioners Bill

From the Editor’s desk

David Green Public partnerships, the answer?

From the CEO