David Green Public partnerships, the answer?

Are public partnerships the answer?

SAPOA President David Green

No 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

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

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

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

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.”

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.

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 6% 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 6% 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 and used for public service purposes 0,01152 0,01085 -5.8% H; HII Municipal properties 0,01152 Exempted I Public service infrastructure 0,00144 0,00135 -6,3% Mining 0,01152 0,01085 -5,8% J Private open space 0,00576 0,00543 -5,7% Q Properties owned by public benefit organisations and used for specified public benefit activities 0,00144 0,00135 -6,3% POW Places of worship Exempted Exempted AV; R Non-permitted use 0,04608 0,04344 -5,7%

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

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.”

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.”