South African Property Review September 2019 by SAPOA

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East London roundup So much potential

State of City Finances Localising taxation

Networking SAPOA’s Women’s Day celebrations

Entrepreneur one -on -one

SEDA supporting SMME's

PDP

50th anniversary intake

September 2019

The voice for the industry

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from the CEO

The new valuation roll, and the fact that municipalities cannot charge rates on valuations that are under dispute On 22 March 2018, after obtaining a legal opinion, SAPOA wrote to the City of Johannesburg (COJ) to raise its members’ concerns with regards to aspects of the GV2018 process pertaining to objections and appeals. SAPOA advises the following legal position: ● Ratepayers are not liable to pay disputed rates pending objections or appeals. ● The COJ is not entitled to cut off services such as electricity if ratepayers fail to pay disputed rates, nor to threaten to do so. ● The COJ is not entitled to claim interest on any shortfall on rates payable by ratepayers on finalisation of objections or appeals

APOA sought confirmation from the COJ that the city would ensure its practices pertaining to the GV2018 will align with the above conclusions, and with the legal rights of our members. In response to SAPOA, the Executive Mayor issued a statement on 16 April 2018, stating he has taken steps to ensure that property owners who have objected to their property valuations in the 2018 General Valuation Roll (GV2018) will receive further support from the city. This support will take the form of ensuring that those who have objected to their property valuations will continue paying what they have been paying historically until the objection process is finalised. On 16 October 2018, the COJ placed a notice on its Facebook page, which read as follows: “Objectors whose accounts are in arrears: If you objected to the value of your property through the normal objection process as per the GV2018, but your account was in arrears as at 30 June 2018, you should note that the account is now in the credit control queue, and if you do not pay immediately or enter into an arrangement plan with the city, you will be disconnected.” A notice was sent to all our members informing them of their rights, with a directive to inform SAPOA should the city disconnect services or threaten to do so. SAPOA was alerted to the fact that this is not an issue peculiar to the COJ, and that there are similar challenges with the City of Ekurhuleni (COE) and the City of Cape Town (COCT).

Our external attorney did in fact do so in connection with his own property, and was told that he must rather communicate with “Valuations”. Thus we suggest that you do both, and keep a record of both such communications between you and the city. ●● Does the above apply to appeals? Our external attorney is of the view that it does, but we have not yet been successful in getting the city to confirm this.

What is the position regarding interest?

On 16 August 2019, SAPOA sent a communiqué to members with properties in the COCT, which summarised the position as follows:

On what valuations should you pay rates pending the resolution of your objection? ●● As from 1 July, the city calculates your rates based on its proposed municipal valuation, and will bill you accordingly. However, the city has confirmed that you may pay rates based on your previous valuation pending the resolution of your objection. See paragraph 26 of the FAQ and paragraph 1 of letter from the city. ●● You will note that the city has requested that you visit one of its walk-in centres in order to make a payment arrangement to pay lower rates than invoiced.

●● If you pay lower rates than invoiced, the city will bill you with interest – despite the fact that it states in paragraph 28 of its FAQ that it will not do so if you have made a payment arrangement. However, if you are successful and the city reduces the valuation of the property on its valuation roll, the city will reverse such interest charges. ●● If you decide to pay the full rates as invoiced and you succeed in having the property value reduced, the city will refund you any surplus rates paid with interest. See paragraphs 2 to 6 of the letter from the city for more details, as well as paragraphs 26, 28 and 29. To get further clarity, SAPOA (through its attorney) wrote to the COCT. On 19 August 2019, the COCT responded as follows: The Valuation Department will arrange for “locks” to be placed on all accounts SOUTH AFRICAN PROPERTY REVIEW

from the CEO

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

Leaders in Quantity Surveying and Property Valuation OUR SERVICES:

●● Property owners who have submitted disputes are obliged to continue to make payments, at least similar to their previous valuations, until the outcome of the disputes is known. ●● In cases where rates payments are less than the amount based on the valuation under dispute, these municipal accounts will fall into arrears. ●● It is proposed that payment arrangements be made at the city’s walk-in centres pertaining to the payment of the arrears. This will circumvent interest to be charged on the outstanding amounts. These arrangements can only be made once the municipal accounts are in arrears. ●● As soon as the outcome of the objection has been concluded, a reconciliation of the municipal account will take place, and the full amount will be payable based on the new valuation (should it be higher than the disputed valuation).

• Quantity Surveying • Management • Dispute Resolution • Property Valuation

The good news is that reviews and appeals have now been included as the disputes.

●● Should the outcome of the new valuation be lower than the disputed valuation, the property owner will be credited with the “overpaid” amount with effect from the implementation date, including the payment of interest. The GV2018 implementation date is 1 July 2019.

Johannesburg: +27 (11) 642 8751 Pretoria: +27 (12) 460 3304 WWW.DELQS.CO.ZA

that are subject to disputes (reviews, objections and appeals). This will ensure that the revenue department will not take any debt management actions on the rates portion of the municipal accounts until the disputes have been resolved. This is an automatic process for property owners who have submitted formal disputes during the prescribed periods, and no separate applications have to be made for the “locks” to be instituted.

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Best regards, Neil Gopal, CEO

contents

September 2019

PROPERTY SOUTH AFRICAN

REVIEW

South African Property Review

PROPERTY SOUTH AFRICAN PROPERTY REVIEW - LogoTreatment.pdf

2016/08/25

11:31 AM

REVIEW

September 2019

The voice for the industry

East London roundup So much potential

Regional Roundup

The voice for the industry

This month’s East London roundup feature emphasises the importance of private sector contribution to skills development and artisan training in the economic success of Buffalo City. City and beach clean-ups also play a major part in attracting tourism to the metro. We spoke to the Border-Kei Chamber of Business about

State of City Finances Localising taxation

the continued success of the “Call2Action” initiative.

Networking SAPOA’s Women’s Day celebrations

Entrepreneur one -on -one

SEDA supporting SMME's

PDP September 2019

50th anniversary intake

3 From the CEO 6 From the Editor’s desk 10 Legal update 12 Legal update A legal remedy to combat the rise of the construction mafia 16 PDP 2019 Green Place: activating the urban edge 22 Planning and development SAPOA hosts International Precinct Management Symposium 24 Planning and development Integrated Development Planning in Nelson Mandela Bay municipality: Is it time to constructively review the IDP process and its effectiveness in local government? 28 Broker opinion It’s a buyer’s market 30 Entrepreneurship one-on-one Supporting entrepreneurs and SMMEs 32 East London roundup Skills development, education, property development: so much potential! 41 Howmuch.net The importance of agriculture in the world’s economy 42 State of City Finances Localising taxation 52 Networking Weimar on the economy 54 Social 58 Off the wall Ways in which buildings of the future will use biotech to become living things 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 Advocate Wayne Pocock, Martin Jonker, Martyn Dade-Robertson/thhp.co.za, Maud Nale, Muntaz Moola, Raul Amoros/howmuch.net, World Bank/worldbank.org Photography Amy Barkow/www.barkowphoto.com, Andre Oosthuizen, Twitter.com/DrThandi, 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.

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from the editor’s desk

Heading to the final quarter Just when we thought we could take a bit of a breather, it turned out there was no time to stop. August was a busy month for us – we headed out to the Eastern Cape for our annual visit, and to gather the material for the Buffalo City roundup

he build-up to the month of August was busy for the Property Review team. We attended several events that will remain in our memory for some time. Straight after the SAPOA Annual Convention & Property Exhibition, we headed into the 50th PDP. This year’s course convener Henry Chitsulo is the PDP Vice-Chairman, and a member of the committee and the judging panel. Because of the usual shenanigans the PDP delegates got up to, their forfeiture benefited the GROW with Educare Centres initiative to the tune of R31 000 – a record-setting amount. Then we jetted off to East London for the annual roundup. Because education and upliftment are very much on the agenda, we decided to see just how the private sector is contributing to artisan development. The Mercedes-Benz Learning Academy is, as one would expect, a world-class facility, and it takes learners – who include Mercedes-Benz employees, the employees of Mercedes-Benz’s suppliers and a number of graduates – through their paces. It’s no wonder young wouldbe apprentices are vying for places, and for the bursaries available. Still on the artisan apprentice tack, we paid a visit to East London’s Master Artisan Academy South Africa (MAASA). Unlike the Mercedes-Benz Academy, MAASA trains students who are unemployed, and gets them job-ready. Boston City Campus & Business College also takes students straight form school, in some cases teaching them English before enrolling them in the various diplomas and graduate programmes it offers. On average, 400 students go through Boston’s doors in a year. East London certainly has a lot of potential, and it’s a pleasure to give a positive overview of a metro that will see some major changes in the next 10 to 15 years. 6

SOUTH AFRICAN PROPERTY REVIEW

We were fortunate once again to spend time with Andrew Murray, who is possibly the most knowledgeable and aware of the goings-on in the city, and about its future prospects. If the powers that be listen to his ideas and take heed of his proposals, prosperity will come to Buffalo City. On the commercial property front, we spoke to Trueprop’s Shaun Cooper. According to him it seems that things are in a holding pattern; then again, that appears to be the trend throughout the country. We’re all waiting to see what the government of the day does about providing us with policy clarity. Three years after the Call2Action campaign was initiated by the BorderKei Chamber of Business, some positive results can already be seen. The pilot areas of the campaign are visibly cleaner, which is very obvious as you drive through the CBD. Another three-year-old – the Buffalo City Metropolitan Development Agency – is also getting its projects under way. According to Eldrid Uithaler, BCMDA’s Executive Manager: Development Facilitation, “It takes time to get things in place: starting from scratch means that all plans and approvals have to be finalised, and the mandate given has to be fully understood as well as staffed.”

I met some interesting people when I attended SAPOA Western Cape’s Women’s Day High Tea, where 140 women enjoyed an afternoon of networking. I also heard about two initiatives that go a long way towards addressing gender-equality issues – from Vheneka’s founder Marilyn Murugweni (who is helping women who have fallen victim to abuse and prostitution), and from Tiara Pathon (whose Dress For Success initiative empowers women to achieve economic independence). I’m looking forward to chatting to these two ladies further. Finally, just as we were going to press with this issue, we attended a “lesson in economics” – this time in the form of a networking post-election breakfast. The breakfast was sponsored by Growthpoint, and the guest speaker was Nedbank’s senior economist Nicky Weimar. As difficult as it might be to believe, South Africa is experiencing a certain amount of growth. According to Weimar, the second quarter showed growth of 2,8%, but this is still below the contraction point of 3,7%, which the country experienced in the first quarter. Despite being slow – and coming from a very low base – the growth is positive. But Weimar is predicting a Moody’s downgrade, expulsion from the Citibank World Bank’s bond index, a downturn in the rand’s value, inclusion in the Frontier Index, a slow turnaround on the rand, and a return to cash flow (even though it will mean more expensive borrowing). With this in mind, we wait for the latest figures, which will be out this month. I’ll soon be speaking to some of our members who have positive suggestions for what the government can do to help the economy along – apart from fixing the behemoths in the room, that is. Enjoy the read! Mark Pettipher, Editor and Publisher

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legal update 31 July 2019 The Acting Director General Department of Rural Development and Land Reform Private Bag X 833 Pretoria 0001 Email: rajesh.makan@drdlr.gov.za Dear Sir/Madam COMMENTS BY THE SOUTH AFRICAN PROPERTY OWNERS ASSOCIATION (SAPOA) ON GENERAL NOTICE OF AN APPLICATION FOR EXEMPTION IN TERMS OF SECTION 55 OF THE SPATIAL PLANNING AND LAND USE MANAGEMENT ACT NO. 16 OF 2013 – DEPARTMENT OF RURAL DEVELOPMENT AND LAND REFORM NOTICE 311 of 2019 1. SAPOA is a non-profit organisation that represents almost 90% of the commercial property owners in South Africa. SAPOA was established in 1966, and is a member-driven organisation that aims to represent, protect and advance its members’ commercial and industrial property interests within the property industry in terms of ownership, management and development. 2. SAPOA’s members own and control approximately 90% of all commercial, retail, office and industrial properties in South Africa to the value of approximately R1-trillion. Our members include some of the largest rate- and taxpayers in South Africa. 3. SAPOA’s members consist of more than 1 000 companies, including Absa, Nedbank, Investec Property Group, Old Mutual Properties, Liberty2Degrees, Eskom, Transnet, East London IDZ, Growthpoint Properties, the V&A Waterfront Company, ACSA, Eris Property Group, Encha Properties, Zenprop, Redefine Properties, Hyprop and Resilient Properties. 4. SAPOA’s members also include various smaller entities, black-owned entities, property managers, property developers, property brokers, and varied professionals in the commercial, retail and industrial property sector, including Adendorff Architects and Interiors CC, Mandela Bay Development Agency, North Point Commercial and Sterling and Young Property Group. 5. SAPOA is supported by a network of prestigious affiliates such as the 10

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6. 7.

Women’s Property Network, the South African Council of Shopping Centres, the Green Building Council South Africa, the South African Institute of Black Property Practitioners, the South African Institute of Valuers, the Property Charter Council and the African Real Estate Society. SAPOA welcomes the opportunity to comment on the proposed exemption, which it strongly supports. It is important to understand that the essence of the town planning schemes was to facilitate and direct the implementation of development proposals, whether these be new townships, rezoning of older property, subdivision of erven, or applying for other related consents. Such controls also form the basis upon which building plans are considered and approved. Town planning schemes have never acted as “planning documents” at all in the past. Planning for future land use patterns was done in the realms of, inter alia, “development plans”, “precinct plans”, “master plans”, “structure plans”, “urban development frameworks” and other similarly described plans or policies. These documents amount to policy plans that depict a desired land use outcome for the area for which they are compiled. The government’s involvement in development rights, the product of various statutory processes, are (together with the provision of appropriate civil and electrical services capacities)

legal update some of the most important influencers on the development industry’s ability to deliver both public and private sector fixed capital investment in South Africa. 10. The complexity and time-consuming nature of obtaining development rights impact directly on the delivery of capital projects, both for the public and private sectors alike. 11. Multi-phased, complex projects tend to run for a long period of time, which more than likely will exceed the fiveyear time frames for which approvals are being granted in terms of the Spatial Planning Land Use Management Act (SPLUMA), and related provincial and municipal land use legislation, as well as per other types of statutory approvals. 12. Complex capital investment projects tend to require higher levels of infrastructure planning and implementation within the context of the total envisaged project. This implies that capital investment in infrastructure, by default, must consider development parameters beyond the five-year period for which development rights are typically approved. The threat of the lapsing of development rights directly negates such investment. 13. Typical examples of such multi-phase projects in the Western Cape include the V&A Waterfront, Century City, the Somerset Mall Triangle and the Conradie Hospital Project. These projects are typically the largest investment catalysts and job creators that the development industry provides. 14. The current norm in legislation – that of the entrenched lapsing of approvals after a period of time – forces the development industry to move away from such large-scale, multi-year investment opportunities, with the resulting loss of economic benefits to society, due to the risk of the inevitable lapsing of rights. This norm is not compatible with the government’s constitutional obligation to promote justifiable economic and social development (Section 24(b)(iii) of the Constitution) and to be development-oriented (Section 195(1)(c) of the Constitution).

15. The principle of lapsing of rights, without the stated ability to extend such approvals, is furthermore argued to be in direct conflict with the President’s stated vision for the creation of an investment-friendly legal framework. The lapsing of rights increases direct risk to investment and undermines multi-year investment projects. 16. SAPOA supports the initiative of the Western Cape Department of Environmental Affairs and Development Planning in applying for exemption of Section 43(2) of SPLUMA. 17. SAPOA proposes that all development rights-related legislation that do not make provision for the extension of development approvals, be reviewed and updated in context of the necessity to create an investment-friendly statutory environment in South Africa. 18. We therefore request that the impact of the lapsing of all development rights be raised with the Presidency as one of the potential risks to the successful roll-out of the vision of the National Development Plan. 19. This discussion on the lapsing of development rights should extend beyond SPLUMA Section 43(2) and include the National Environmental Management Act, National Heritage Resources Act, Water Act relating to water use licences, the Subdivision of Agricultural Land Act, and any other legislation that is currently inhibiting large scale fixed capital investment in South Africa. SAPOA welcomes the opportunity to interact with the department in advising on suitable legislative incentives towards investment and job creation. Thanking you Yours sincerely

M Moola Legal Consultant Copy: Director-General in the Presidency, Dr CR Lubisi – nokukhanya@presidency.gov.za Head of Department: WC:DEADP, Mr P van Zyl – pieter.vanZyl@westerncape.gov.za SOUTH AFRICAN PROPERTY REVIEW

legal update

A legal remedy to combat the rise of the construction mafia By Advocate Wayne Pocock

1. The construction industry in South Africa is under siege. Companies throughout Gauteng are engulfed in wave after wave of illegal protest action, often marred by violence, physical harm and the destruction of property. One needs look no further than the rise of the socalled “construction mafia” that, after many years of terrorising construction firms all over KZN, has now infiltrated Gauteng and laid siege on sites all over the province, including mines in the surrounding areas. The financial impact of these protests is catastrophic: no business can sustain the continuous onslaught of work stoppages and delays, escalating costs, and the persistent threats and acts of harm to management and employees who live in constant fear of their lives. 2. The strategy of the “construction mafia” is very simple: a mob of protesters is deployed outside a construction site to remonstrate on concocted grievances and accusing the construction firm of various made-up complaints, mostly along the lines of labour abuses such as employing foreigners without work permits. The mob representatives pass themselves off as the elected leaders of a so-called “business forum” that purports to act on behalf of small, black-owned businesses from the local community. The “business forum” sets about demanding that the construction company spend 30% of its contract sum on the local community by employing members of the “business forum”. The demands are usually accompanied by threats and acts of physical harm, violence, work stoppages and destruction of property. 12

SOUTH AFRICAN PROPERTY REVIEW

3. Naturally, the risk and exposure to the construction firm is enormous: no enforceable contract, no tender process, no market-related prices, no quality of goods and services, no contractual remedies or formal dispute-resolution processes, and certainly no recourse for damages. It is what one would literally define as negotiations at gunpoint. 4. In essence, the “construction mafia” is the ugly cousin of state capture. Behind the bluster and bullying lies the true stratagem of the “construction mafia”: to force the construction company to spend millions of rand through the “business forum”, and not in the local community. In other words, the “business forum” does not represent the local community, and does not seek to advance the interests of the local community. Instead, the true motive is to capture 30% of the contract sum for itself in return for the supply of workers, sub-contractors, building materials and the like to the project. It is nothing more than extortion and racketeering in its most rudimentary form. 5. The mafia’s modus is based on the recently revised regulations to the Preferential Procurement Policy Framework Act No. 5 of 2000 (“the PPPFA”). These revisions require construction projects valued at R30-million or more to sub-contract at least 30% of the value of the contract to Exempted Micro Enterprises (EMEs) or Qualifying Small Business Enterprises (QSEs), or a small business as defined in the National Small Business Act. In other words, 30% of the project sum must be spent on small black-owned businesses in the community where the

project is located. In virtually all cases, the “construction mafia” demands are based on these revised PPPFA regulations as justification to capture 30% of the construction firm’s business. 6. However, the mafia’s stratagem is fundamentally flawed: the PPPFA and its regulations apply to construction projects in the public sector only, and not to construction projects in the private sector. As such, there is no legal basis underpinning the mafia’s demands, and a private construction company is under no statutory (or any other) obligation to entertain, let alone accept, the extortion demands. In truth, the entire strategy is to capture and sacrifice private enterprise on the altar of greed and extortion by advancing a false and distorted narrative of the PPPFA under the auspices and perverted mantra of radical economic transformation. 7. The overarching question is this: what steps can a private construction business take to combat the relentless onslaught of protest action, and to protect its commercial interests, including the safety of its employees? The strongest, and possibly the only, legal remedy lies in approaching the High Court for urgent interdictory relief. However, there are several challenges in bringing such an application, the most obvious being satisfying the court that the matter is sufficiently urgent; citing numerous unidentified protesters as respondents to the urgent application; proving that the application was properly served on the protesters; satisfying the requirements of an interdict; and framing the appropriate legal relief.

legal update 8. It is a well-established principle in our law that a litigant is not entitled to an order against which no cause of action is being made, and calling upon that person to desist from some “unlawful” action (see ex parte Consolidated Fine Spinners and Weavers Ltd v Govender (1987) 8 ILJ 97 (D); Durban University of Technology v Zulu and Others 1693/16 P 2016 ZAZPHC 58). The inability of the construction firm to identify the particular perpetrators does not afford any justification for granting an order against a number of people, including persons against whom no cause of action has been established. 9. This article seeks to demystify the “construction mafia”, and provide a step-by-step legal remedy in combating the rise of racketeering and extortion in the industry. 10. First, the construction firm should immediately go on the offensive and engage with the protesters by requesting that they select a small number of representatives to participate in formal discussions. The meeting must be recorded by way of a minute. The minute not only serves to gather information for future legal processes (i.e. an urgent application) but also to bolster the legal rights of the construction firm and expose the ulterior motives of the protesters. It is imperative that the minute be accompanied by a signed attendance register, recording inter alia the following: i. The names of all the parties present, including recording the personal contact details of the appointed leaders such as ID numbers, cellphone numbers, work or home addresses and email addresses. ii. The name and details of the “business forum”, such as its registration number, place of business, address,

directors, constitution, years of trading, etc; iii. The identity of the members and/or local communities that are represented by the “business forum”, including details of the mandate given to the “forum”; iv. The nature of the “business forum’s” grievances, along with details of its demands on the construction firm; v. A record of all threats of intimidation, destruction of property, physical harm, etc; vi. An undertaking that the “business forum” will cease all unlawful conduct. 11. The construction firm must obtain proof of the unlawful conduct on site. This would include evidence of the number of protesters gathered at the site, proof of vandalism, proof of physical harm or assault (medical records, etc), blockage of access to the site and the like. Colour photographs or video footage would suffice. 12. All threats or acts of violence must be immediately reported to a local police station. A case number should be obtained, and the station commander must be requested to attend the site to take control over the protest action. It is important to record the names and ranks of all police officers engaged, including their responses and actions. 13. The construction company must obtain statements and confirmatory affidavits from witnesses present at the protest (including from any workers or contractors assaulted by the protesters), including copies of medical reports or treatment. The names of these individuals can be redacted from the papers in order to protect them from reprisal, although an unredacted copy ought

to be made available to the court at the hearing. 14. An urgent application must be brought at the first available opportunity once the above steps have been completed. It is critical that the construction firm act without delay by bringing the urgent application with due haste and expedition. Urgency usually entails a deviation from the forms, time limits and procedures prescribed by the rules, or a departure from the established sitting times of the court (see Luna Meubel Vervaardigers (Edms) Bpk v Makin and Another (t/a Makin’s Furniture Manufacturers) 1977(4) SA 135 (W) at 136 H). The factors that are usually taken into account by the court in the exercise of its discretion to grant urgent relief are: a) any prejudice that an applicant might suffer if the application had to be dealt with in the ordinary course; b) any prejudice other parties awaiting the hearing of their matters might suffer if the particular application were to be given preference; and c) any prejudice that the respondent might suffer as a result of any deviation from the prescribed forms and procedures, the abridgement of any prescribed time limits and an acceleration of the hearing (see IL & B Marcow Caterers (Pty) Ltd v Greatermans SA Ltd and Another; Aroma Inn (Pty) Ltd v Hypermarkets (Pty) Ltd and Another 1981(4) SA 108 (C) at 112 H – 113 A and 114 A – B). Self-created urgency or litigation in luxury would be fatal in these circumstances. 15. The applicant must satisfy the requirement for interim relief (Joubert NO and Others v Maranda Mining Company (Pty) Ltd and Others [2010] 2 All SA 67 (GNP) at para 26; Johannesburg Municipal Pension Fund and Others v City of Johannesburg SOUTH AFRICAN PROPERTY REVIEW

legal update 16. and Others 2005 (6) SA 273 at para 8), which usually includes the following:i. The construction firm must establish its real alternatively prima facie right to the interdictory relief sought, and that there has been an infringement of this right. The private construction company has the legal right to conduct its business affairs without interference or intimidation, including without harm to its employees and contractors. It also has the legal right to use and enjoy the construction site. ii. In contrast, the protesters’ rights are governed inter alia by the freedom of assembly, demonstration, picket and petition as provided for in Section 17 of the Constitution. Any vandalism, intimidation, destruction of property or physical harm to employees will result in the immediate forfeiture of the protesters’ constitutional right to protest (see South Africa Transport and Allied Workers Union and Another v Garvas and Others 2013 (1) SA 83 (CC) at para 68 & 84). In addition, the protesters’ gathering must be sanctioned by local authority in terms of the Gatherings Act, No. 205 of 1993. Of course, there is also the overarching factor that the protesters have no right to capture 30% of the construction firm’s turnover on the basis of their misconstrued and perverted interpretation of the PPPFA. iii. Where the construction firm’s real alternatively prima facie right is weak or open to doubt, the other requirements of an interdict become a relevant consideration for the Court, such as whether the balance of convenience favours the 14

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granting of the interdict; whether the construction firm will suffer irreparable harm if the interdict is not granted; and whether the construction firm has any other satisfactory legal remedy available to it. Naturally, each case will be determined on its own merits. 17. It is important to frame a powerful notice of motion. There is nothing more frustrating than succeeding with a strong case but faltering in the execution because of a toothless court order. The notice of motion must identify the correct categories of respondents, comprehensively define the unlawful conduct to be interdicted, provide for suitable means of service and, more importantly, empower the relevant law enforcement departments to give effect to the court order. Ideally, the notice of motion is framed in such a manner that it caters for a number of scenarios in order to adequately restrain the protesters. 18. The SAPS and the authorised security providers must be ordered and directed to intervene and take control of all eventualities on the site. This relief should be extended to include the construction firm’s own private security. Any contemptuous conduct in breach of the court order is deemed inherently urgent, and the company would be entitled to re-approach the court (on an urgent basis) to enforce the original order and commit the wrongdoers to imprisonment for contempt of court (see Uncedo Taxi Service Association v Maninjwa and Others 1998 (3) SA 417 (E)). 19. The legal costs of bringing an urgent application are steep,

and usually tricky to quantify or contain upfront. Generally the costs are dependent upon a number of factors, such as whether the protesters oppose the urgent application; whether a rule nisi is granted; whether the applicant returns to court for contemptuous conduct; the seniority of counsel deployed; the sets of papers filed (usually three sets of affidavits, two sets of heads of argument, practice notes, bundle of authorities); and the number of court appearances required. The costs of an urgent application can range from approximately R100 000 to R300 000 or more depending on these factors. A portion of these costs can be recouped from the “business forum” or its leaders, should they have realisable and executable assets to satisfy an adverse cost order. 20. We are living in tumultuous and uncertain times. There is a real danger that the construction industry in South Africa will face financial ruin because of the growing number of racketeers acting as a law unto their own, with little or no government intervention. The battle against these racketeers and ruffians is best fought in a court of law, rather than on site, where the extortionist tactics of the “construction mafia” can be exposed and brought to account. After all, and in the partially borrowed and altered words of the notorious mafia boss Al Capone, “A smile can get you far – but a smile and a court order can get you further.” Advocate Wayne Pocock is an independent advocate practising at the Maisels Group of Advocates. The contents of this article are provided for general information purposes only, and do not constitute legal or other professional advice.

legal update

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PDP 2019

Green Place: activating the urban edge As PDP turns 50, this year’s intake of candidates was taken through a technical base, which covers property principles and the practices of property investment, economics, development, marketing and property management. It takes those principle and builds on them with strategic thinking and developing negotiation skills, and culminates in a presentation to a panel of judges By Mark Pettipher

his year’s course convener Henry Chitsulo is the PDP Vice-Chairman, and a member of the committee and of the judging panel. SAPOA and course partner the UCT Graduate School of Business would like to thank all lecturers: Barry Standish, Clifford Hayim, Catherine Stone, Dr Helgo Schomer, Clive Shepherd, Dave Duarte, Dorah Modise, Guy Nicolson, Kgomotso Nakene, Lynette Finlay, Nicola Robins, Phil Barttram, Pieter Engelbrecht, Pieter Venter, Portia Tau-Sekati, Professor François Viruly, Professor Phillip Haupt, Refqah Yo-hee, Rudolf Pienaar, Sanett Uys, Shevira Bissessor, Solly Mboweni, Steven Sutcliffe, Tony Gebhardt and Willie Vos. Each of them played an invaluable part, providing insight into their particular area of expertise in the property sector. 16

SOUTH AFRICAN PROPERTY REVIEW

The brief Fifty-two delegates participated this year. They were split into nine-member teams, and each team was given the same brief. The brief was to take a 7 265m2 site in Granger Bay, situated beside the Cape Town Stadium, and develop it to include affordable housing and commercial use, with the aim of bringing lower-income people closer to work opportunities. The instruction was to ensure that 20% of the housing units would fall within the affordable housing sector. The development would also need to be able to create sustained economic development with investment and developmental potential, which would create employment opportunities and enable the physical manifestation of

the City of Cape Town’s Transit-Oriented Development Strategic Framework. Furthermore, the brief required delegates to incorporate proposals that push the boundaries of densification and intensification. Proposals had to capture and complement the culture, natural heritage and uniqueness of Cape Town. The development represented an opportunity for a measure of redress. As such, the residential and commercial components of all proposals had to provide for a diverse cross-section of income groups. The city preferred the developments on the site to secure at least a 4-star Green Star ratings, and for TOD principles to be applied to facilitate an integrated residential and commercial mix.

PDP 2019 The land would be available on a leasehold basis. The delegates were expected to suggest an optimal lease period for the development proposal. The proposal was not to include any housing that required any form of state subsidy.

The winning proposal Group 6 – Sithembiso Gumede, Jacques Jordaan, Mohaila Malefane, Gemma Moore, Gareth Rees, S’mangaliso Dlamini, Fitzgerald Ramaboea, Simphiwe Dzengwa and Fadheelat Noor Mohamed – came up with a project called Green Place: Live, Work, Play for All. The erf was to be divided into four elements, which would include creating third place spaces that would activate urban edges and spill out into a public square. There would be two blocks with ground-floor retail and restaurants, over which would rise two levels of office suites, topped with four levels of residential space, and a rooftop utilities space, including a helicopter landing area to service a proposed medical facility. The group’s vision included:

●● Breakeven rentals range from R6 700 to R23 750p/m with affordable/miniunit studio apartments commanding rentals of R6 700 to R9 700p/m.

●● Efficient, in-sourced housing option. ●● Affordable sector is defined as those with an average monthly household income of R25 000 to R30 000.

Commercial market analysis

Green Star-rated, with a minimum 4-star rating ●● Greywater ●● Solar ●● Low-flow water aerators ●● Alternative building materials ●● Indigenous landscaping

Office ●● Office demand exists for e-commerce, contact centres, and co-working/ serviced offices. ●● It does not compete with corporates or large institutional tenants. P-grade

A-grade

B-grade

200-7 000

100-4 000

50-4 000

185-245

135-175

100-130

Gross achieved Rent (R/m²/month)

185-245

135-175

100-130

Rent escalation (%)

7-9%

Typical lease period (years)

5-10

1-5

Space in demand (m²) Gross asking rent (R/m²/month)

Retail ●● Retail centres include the V&A Waterfront (1,2km away), convenience

Ownership

100% black-owned

Management control

50:50

Employment equity

Fully compliant

Skills development

2% skills development levy

Socioeconomic development

2% CSI budget

Economic development

30% sub-contractor

Overall score

Level 1

The group came up with some rather interesting statistics:

Residential market analysis ●● The population of Table Bay District Plan has shown an average growth of 21,1% from 2001 to 2011. ●● Most of the population (33%) is concentrated in the 25-35 age group, an with employment rate of 83% – 10% above national average. ●● Except for Foreshore Place and Zero2One, all pipeline residential developments to be completed in the next year within a 10km radius of the proposed development comprise luxury residential units.

retail on Somerset Road (500m away), and high-end entertainment and dining options on Beach and Regent Roads. ●● It’s a preferred location for convenience stores and luxury food offerings. Social and sustainable ●● Seeks to overcome segregation through transport and mobility, better connecting people’s homes to employment opportunities. ●● Offers higher-density residential affordable housing for middleincome young professionals. ●● Addresses major issues of exclusion for those who desire to live in this development.

Initiatives and future-proofing of Green Place ●● E-bikes ●● Encouragement of entrepreneurial programmes ●● Exhibition space in the centre of the square ●● Roof ready for Uber Air

The gala dinner Professor François Viruly outlined the proceedings for the evening, and invited SAPOA’s President David Green to the podium. Green then briefly addressed the dinner guests, saying that the course is close to his heart as well as SAPOA’s. He spoke of how special the course is, and that this is the 50th anniversary of bringing property professionals together. He said he was heartened by the quality of South Africa’s property professionals, commenting that you will find many South Africans in property throughout Africa and the world. Our professionals are active all over the world. Green also mentioned the importance of relationships in the property industry. PDP delegates become friends over an intense two-week period of long days and equally long nights; a true emulation of life practices. SOUTH AFRICAN PROPERTY REVIEW

PDP 2019 Henry Chitsulo reflected on the course and its progress, from the arrival and registration of the delegates on 14 July to various anecdotes related to the delegates “networking” at the Mitchells Waterfront Brewery. Kumeshnee West, the Director of Executive Education at UCT’s Graduate School of Business, conveyed SAPOA PDP Committee Chairperson Leanne Sowray’s apologies, and highlighted some of her comments. “Celebrating its 50th year, PDP is respected for its high standard of instruction, which is matched to the high calibre of its participants and in-depth insight related to national and international standards. It has earned a proud reputation as an executive-management programme for property professionals on the continent. “Executive Education is specifically designed to help you, the delegates, at every stage of your leadership journey. It is meant to enable you to navigate your particular business context with more impact. We know that each leadership stage requires not only a different skills set, but also a different

SAPOA President David Green addresses the PDP class of 2019

mind-set, and a matching value set that will help you transition with clarity and confidence. “I trust that each of you has had an enriching experience and a journey of learning, and have built new and lasting relationships. I hope that the PDP networking opportunity will stay with you for your entire career in the property industry.” Every year, the PDP course runs a forfeit system. Fines are collected, and at the end of the programme, money collected is given to a worthy charity. This year was no exception – in fact, a record amount was raised, and about

R31 000 was given over to Tracey Collins, the Head of Business Sustainability at GROW with Educare Centres. “GROW with Educare Centres is a nonprofit organisation that provides women living in low-income communities with an opportunity to run excellent private, fee-paying early learning centres,” said Collins. “These learning centres are also viable businesses based on the broad principles of social enterprise and micro-franchising. “One of the most fundamental challenges in South Africa’s development is access to early childhood development (ECD) education in marginalised communities. Our inequality crisis is exacerbated by the lack of education – particularly quality ECD education – in low-income communities. It has been proven that children who are well educated and stimulated between before the age of five have a higher chance of being successful in life – socially, emotionally and financially. “We achieve our goals through the implementation of a simple, replicable business model that uses an ‘Education in a Box’ and ‘Business in a Box’ solution.

BACK ROW Franre Swanepoel, Jacques Jordaan, Cameron Bird, Simon Chemaly, Greg Jenkins, Themba Mahlaba, Gemma Moore, Jean Roux, Preggie Pillay, Wonga James, Gareth Rees FIFTH ROW Lopang Rapodile, Atish Khusal, Gareth Sanders, Mohaila Malefane, Leandre Phillips, Tanita Rodrigues, Simon Gouweloos, Thembeka Lewis, Ben Jooste, Lerato Simelane FOURTH ROW Brian Mashora, Boikarabelo Motsogi, Sithembiso Gumede, Vanessa Blevins, Kobus Blom, Fefe Mzamane, Damien Kafoketa, Siamisang Ramakbana, Nicholas Zondi THIRD ROW Manya Mooya, Tryfina Kgokong, S’mangaliso Dlamini, Sazir Yusuf, Cebo Nikelo, Nhlanhla Mtobi, Kwanele Mhlanga, Ondela Mabusela SECOND ROW Lee-Ann Pillay, Maveshnee Govender, Yusuf Dada, Deshnee Sukdeo, Freddie Muvhulawa, Lieketseng Bhengu, Fadheelat Noor Mohammed, Simphiwe Dzengwa FRONT ROW Dane Pentecost, Nsuku Ramagwede, Wilhelm Nauta, Deslyn Faure (GSB), Mafonti Morobi, Henry Chitsulo, Tracy Kimberly (GSB), Manqoba Mdunge, Fitzgerald Ramaboea, Musah Makhonga

SOUTH AFRICAN PROPERTY REVIEW

PDP 2019

social

“The GROW franchisee (the school principal) gets everything she needs to operate a successful, sustainable ECD Centre, from resources (such as curriculum and equipment) and intensive teacher training, to business mentoring, financial management and operational procedures. It is a holistic model that develops the franchisee to be able to manage an excellent, highquality preschool facility that is also a viable, sustainable business.”

Head of Business Sustainability at GROW with Educare Centres Tracey Collins, PDP course convener and Vice-Chairman Henry Chitsulo, and Director of Executive Education at UCT’s Graduate School of Business Kumeshnee West

social

THANK YOU, SAPOA PDP CLASS OF 2019! Your donation of R31 000 is more valuable than you may realise. With your support we empower women to run successful, high-quality ECD (Early Childhood Development) centres in underresourced communities so that children can thrive and teachers can have sustainable, quality jobs. Thank you for chosing to partner with us. 1st Place winners, (Use Hamlyn Gebhardt logo) Henry Chitsulo, Gareth Rees, Senyeki Ramaboea, Tony Gebhardt (1st place sponsor Hamlyn Gebhardt), Mohaila Malefane, SAPOA president, David Green, Gemma Moore, Fadheelat Noor Mohamed, Simphiwe Dzengwa, Smangaliso Dlamini, Sithembiso Gumede, SAPOA CEO Neil Gopal and Jacques Jordaan

Poor quality early learning is a life sentence.

The truth is that many ECD (Early Childhood Development) Centres in disadvantaged South African communities are simply not sufficiently equipped, well-trained, adequately resourced, professionally managed or supported to ensure that the children in their care are ready for school; ready for life.

Professional educare Managing an ECD centre is a complex business, and that is why we have developed a recipe for success that ensures quality learning outcomes for children AND develops and supports women to run their ECD professionally and sustainably. Each educare centre we partner with is fully equipped to ensure that every aspect of the business is managed professionally. We call it our Education-in-a-box and Business-in-a-box solution. We are building a recognised and aspirational brand of centres, expanding nationally through our socialfranchising model. Empower women to run excellent educare centres One teacher can grow a generation of learners 2nd Place winners (Use SVA international logo) Henry Chitsulo, Ondela Mabusela, SAPOA Prsident, David Green, Deshneee Sukdeo, Adriaan Mentz (2nd place sponsor SVA), Wonga James, Atish Khusal, Wilhelm Nauta, Tanita Rodriguess, Manya Mooya, SAPOA CEO, Neil Gopal, Vhonani Fred Muvhulawa and Jean Roux

Quick Facts about GROW Educare Centres

Thuma Mina

Thank you for taking a stand, sacrificing your time and energy for others, and GROWing a country we can all be proud of. Warm wishes and yours gratefully,

3rd Place winners (Use SAPOA logo) Henry Chitsulo, SAPOA President, David Green, Dane Pentecost, Cameron Bird, Greg Jenkins, Fefe Mzamane, Cebo Nikelo, Lieketseng Bhengu, Tryfina Kgokong and SAPOA CEO, Neil Gopal

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Heléne Brand Marketing & Fundraising Manager Mobile: +27 (0)82 671 1441 Email: helene@growecd.org.za SOUTH AFRICAN PROPERTY REVIEW

SOUTH AFRICAN PROPERTY REVIEW

PDP 2019

1ST PLACE WINNERS Henry Chitsulo, Gareth Rees, Fitzgerald Ramaboea, Tony Gebhardt (of 1st Place sponsor Hamlyn Gebhardt), Mohaila Malefane, SAPOA President David Green, Gemma Moore, Fadheelat Noor Mohamed, Simphiwe Dzengwa, Sâ&#x20AC;&#x2122;mangaliso Dlamini, Sithembiso Gumede, SAPOA CEO Neil Gopal and Jacques Jordaan

2ND PLACE WINNERS Henry Chitsulo, Ondela Mabusela, SAPOA President David Green, Deshnee Sukdeo, Adriaan Mentz (of 2nd Place sponsor SVA), Wonga James, Atish Khusal, Wilhelm Nauta, Tanita Rodrigues, Manya Mooya, SAPOA CEO Neil Gopal, Vhonani Fred Muvhulawa and Jean Roux

3RD PLACE WINNERS Henry Chitsulo, SAPOA President David Green, Dane Pentecost, Cameron Bird, Musah Makhonga, Greg Jenkins, Fefe Mzamane, Cebo Nikelo, Lieketseng Bhengu, Tryfina Kgokong and SAPOA CEO Neil

SOUTH AFRICAN PROPERTY REVIEW

2018-2019

AVAILABLE ONLINE

One of SAPOA’s services to its members, is the “Dissemination of Information”. SAPOA is pleased to inform you that the

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2016/

REGIS TER SAPO

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08/25

11:31

2018-2019 REGISTER is now available.

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2018-2

As part of SAPOA’s effort in decreasing the carbon footprint,

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all of our publications will be available on the online platform. This includes the 2018-2019 REGISTER. Note that we have added your companies web address as part of your contact details. This is an “added-benefit. Online business directories have immense benefits such as: ● Amplify Your Online Presence ● Improve Your Local Visibility ● Get Discovered More ● Use Word of Mouth ● Strengthen Your Business Reputation ● Increase Brand Awareness ● Boost Your SEO ● Show Up on Google To access the Register visit: https://bit.ly/31zl3i2 df

2016/08/25

11:31 AM

EACH YEAR WE ACCEPT a large number of listings and advertisements REGISTER from professionals and service providers across the entire spectrum of property activities. Don’t miss out on this well-used, popular industry resource. SAPOA aims to provide added value by offering the basic listings free of charge to all members. In this respect, we hope that we are assisting you in your marketing endeavours to some extent. We thank you for your support in previous years. In an effort to improve the look and ease of usage, we have redesigned the directory layout to a four-column grid and have made available certain entries that will stand out from the norm. - LogoTreatment.p PROPERTY REVIEW

EIGN FOR S TOP FIRM LAW

top tier firm

team of the year

top foreign law

top tier firm

firm

2016

elite law firm

client service

recommended

firm

OPERTY SAPOA PR

NORTON ROSE

2017-2018

FULBRIGHT

SMITH TABATA BUCHANAN BOYES P.O. Box 23355, Claremont, 7735, Western Cape t: +27(0)21 673 4700 f: +27(0)21 673 4701 www.stbb.co.za

15 Alice Lane, Sandton, 2196 P.O. Box 784903, Sandton, 2196,

Association -

Norton Rose House,

Property Register

Private Bag X10,

8 Riebeek

Roggebaai,

T: +27 (0)21 405 1200 F: +27 (0)21 418 6900

Durban 3 Pencarrow Crescent, Ridge, KwaZulu-Natal, La Lucia 4051 P.O. Box 5003, Pencarrow Park, 4019, South Africa

T: +27 (0)31 582 5600 F: +27 (0)31 582 5700

Law around the world nortonrosefulbrigh t.com/za

SCHNETLER'S INC P.O. Box 433, Century City, 7446, Western Cape t: +27(0)21 552 4844 f: +27(0)21 552 4549

STRAUSS SCHER INCORPORATED P.O. Box 786473, Sandton, 2146, Gauteng t: +27(0)11 883 9798 f: +27(0)11 883 6661 www.straussscherattorneys.co.za VZLR INC 1st Floor/ Block 3, Monument Office Park, 71 Steenbok Avenue, Monument Park, Pretoria, 0105 Gauteng t: +27(0)13 752 2065 t: +27(0)12 435 9444 www.vzlr.co.za

WERKSMANS ATTORNEYS Private Bag 10015, Sandton, 2146,

Gauteng t: +27(0)11 535 8000 f: +27(0)11 535 8600 www.werksmans.com

AUCTIONEERS

2017

top tier firm

ICA L FUNDS AFR GLOBA Awards

ESS BUSINNAL INDIA JOUR LAW 2017

ng Managi tual Intellec y Propert TM

PARTNERS

Property Owners

AND

South African

GLOBbers cham

ACG ARCHITECTS CC P.O. Box 70, Woodstock, Saltriver, Cape Town, 7915, Western Cape t: +27(0)21 448 6615 f: +27(0)21 448 6621 a www.acgarchitects.co.z

& ADENDORFF ARCHITECTS INTERIORS CC P.O. Box 40301, Walmer, Port Elizabeth, 6065, Eastern Cape t: +27(0)41 581 4765 f: +27(0)86 618 2183 www.adendorffarchitects.co.za LTD AEVITAS GROUP (PTY) 16 Holt Street, Parkmore, Johannessburg, 2196, Gauteng t: +27(0)82 496 6983 a www.aevitasgroup.co.z

WHITE & CASE LLP P.O. Box 784440, Sandton, 2146, Gauteng t: +27(0)11 341 4000 www.whitecase.com

SHANDU ATTORNEYS INCORPARTED Ground Floor, Building 3, Commerce Square, 39 Rivonia Road, Sandhurst, Sandton, 2196, Gauteng t: +27(0)10 035 2142 www.shanduattorneys.co.za

AMA ARCHITECTS (PTY) P.O. Box 1299, Gallo Manor, 2052, Gauteng t: +27(0)11 807 7505 f: +27(0)11 807 7509 www.amagroup.co.za

SHEPSTONE & WYLIE ATTORNEYS P.O. Box 7452, Roggebaai, 8001, Western Cape t: +27(0)12 362 8872/4688 f: +27(0)12 362 8709 www.wylie.co.za

’s largest law firm

www.amagro

2017 - 2018

For advertising opportunities and rates contact Pieter Schoeman t: +27 (0) 21 856 1276 c: +27 (0) 82 790 6909 e: pieter@mpdps.com

up.co.za

ARCHITECTURAL DESIGN ASSOCIATES P.O. Box 87076, Houghton, 2041, Gauteng t: +27(0)11 880 0600 f: +27(0)11 880 0603 www.ada.co.za CHANGE ARCHITECTURE FOR A 22 Davy Road, Industria North, Johannesburg, 1719, Gauteng t: +27(0)11 477 8738 www.a4ac.co.za

Rivonia, Sandton 131 12th Avenue, 5 1 807 750 tel: +27 1 amagroup.co.za email: adrian@

ARP ARCHITECTS & INTERIORS 74 Shortmarket St, Cape Town City Centre, Cape Town, 8001, Western Cape t: +27(0)21 423 5884 eriors. www.arp-architects-int

2017 - 2018 SAPOA Proper t y Register

SAPOA Proper t y Register 2017 - 2018

ENSafrica.com

PRETORIA: Johan de Bruin Cell: +27 82 820 6669 Tel: +27 11 283 1500 E-Mail: mlcjhb@mlc.co.za CAPE TOWN: Graham Haldane Cell: +27 82 880 7377 Tel: +27 21 673 5800 E-Mail: info@mlcct.co.za DURBAN: Romano Valenti Cell: +27 82 553 1927 Tel: +27 31 940 7783 E-Mail: mlc@mlckzn.co.za

ARCA ARCHITECTS & DESIGNERS P.O. Box 12975, Hatfield, 0028, Gauteng t: +27(0)12 346 4061 f: +27(0)86 689 9235 .za www.arca-architects.co

LTD

Quantity Surveyors

www.mlcqs.com JOHANNESBURG: Charl van Wyk Cell: +27 83 272 1923 Tel: +27 11 283 1500 E-Mail: mlcjhb@mlc.co.za

ACTIVATE ARCHITECTURE (PTY) LTD P.O. Box 321, Saxonwold, 2132, Gauteng t: +27(0)11 788 8095 f: +27(0)11 788 8097 www.activate.co.za

SHEPPERSON ATTORNEYS P.O. Box 14289, Hatfield, 0028, Gauteng t: +27(0)12 362 8872/4688 f: +27(0)12 3627829

ENSafrica | Africa

Architects

ARC ARCHITECTURAL (PTY) LTD CONSULTANTS PRETORIA P.O. Box 13399, Hatfield, 0028, Gauteng t: +27(0)12 362 7350 f: +27(0)12 362 7349 www.arc.co.za

AA PAPAGEORGIOU ARCHITECT & ASSOC INCORPORATED P.O. Box 11288, Randhart, 1457, Gauteng t: +27(0)11 907 2015 f: +27(0)11 907 2020

business.site

SWAZILAND: Gavin McEwan Cell: +27 72 632 4024 Tel: +268 7 834 9806 E-Mail: mlcswd@realnet.co.sz

BOTSWANA: Len Holder Cell: +267 7 120 3743 Tel: +267 395 1310 E-Mail: mlc@mlcqs.co.bw MAURITIUS: Yusuf Nabeemeeah Cell: +230 5 497 9997 Tel: +230 452 9106 E-Mail: admin@mlcmauritius.com DUBAI: Paul Miller Cell: +971 50 558 2057 Tel: +971 4 341 8843 E-Mail: information@mlcqs.com ABU DHABI: Gerhard van Rooyen Cell: +971 50 398 1277 Tel: +971 2 418 9100 E-Mail: information@mlcqs.com

MAKHOBA VOLBRECHT ASSOCIATES P.O. Box 38100, Eshowe, 3894, KwaZulu-Natal t: +27(0)35 474 4545 f: +27(0)35 474 2443 MANZI QUANTITY SURVEYORS P.O. Box 474, Cape Town, 8000, Western Cape t: +27(0)21 418 1809 f: +27(0)86 677 3885 MASEGELA QUANTITY SURVEYORS P.O. Box 435, Thornhill Plaza, 0882, Limpopo t: +27(0)15 223 6808 f: +27(0)15 223 3994 MMPA QUANTITY SURVEYORS PROJECT MANAGERS (PTY) & LTD P.O. Box 19325, Tecoma, 5214, Eastern Cape t: +27(0)43 721 0077 f: +27(0)43 721 0082 www.mmpaqs.co.za

MULTI QUANTITY SURVEYORS (PTY) LTD

Unit AG01, Block A, Grosvenor Square, Park Lane, Century City, Cape Town, The Western Cape, 7441 Suite 407, 4th Floor, The Point, 76 Regent Rd, Sea Point, Cape Town, The Western Cape, 8005

t: +27 (0)87 740 5270 f: +27 (0)86 596 7554 e: info@multiqs.co.za

w w w. m u l t i q s. co

.za

NONKU NTSHONA & ASSOCIATES P.O. Box 669, Rivonia, 2128, Gauteng t: +27(0)11 803 2291 f: +27(0)11 234 2078 www.nnaqs.co.za

MBATHA WALTERS & SIMPSON P.O. Box 211, Gallo Manor, 2052, Gauteng NORVAL WENTZEL STEINBERG t: +27(0)11 802 1525 QS P.O. Box 55048, Northlands, f: +27(0)11 802 3626 2116, Gauteng www.mbathawaltersand simpson.com t: +27(0)11 804 6122 f: +27(0)11 804 4038 MLC QUANTITY SURVEYORS SA www.nws.co.za (PTY) LTD P.O. Box 41111, Craighall Park, O'MAHONY PEEL ROWNEY 2024, CONSULTING QUANTITY Gauteng SURVEYORS t: +27(0)11 283 1500 P.O. Box 41199, Craighall, f: +27(0)11 788 9015 2024, Gauteng www.mlc.co.za t: +27(0)11 325 0610 LESEDI QUANTITY SURVEYORS f: +27(0)11 325 0743 MULTI QUANTITY SURVEYORS P.O. Box 712, Mondeor, www.opr.co.za (PTY) LTD 2110, P.O. Box 471, Century City, Gauteng PENTAD QUANTITY SURVEYORS Cape Town, 7446, t: +27(0)11 025 4817 (PTY) LTD T/A RIDER LEVETT Western Cape f: +27(0)86 510 3425 BUCKNALL ZA (PTY) LTD t: +27(0)87 740 5270 www.lemay.co.za KOOR DINDAR MOTHEI P.O. Box 67922, Bryanston, f: +27(0)86 596 7554 QUANTITY SURVEYING 2090, Gauteng www.multiqs.co.za LETCHMIAH DAYA MANDINDI P.O. Box 42044, Fordsburg, T/A t: +27(0)11 548 4000 LDM HOLDINGS (PTY) Johannesburg, 2033, LTD f: +27(0)11 465 1439 NARKER POUGNET KRIEL P.O. Box 19233, Gauteng T/A www.rlb.com ETHIQS QUANTITY SURVEYORS Dormerton, 4015, t: +27(0)11 689 5400 Private Bag X115, KwaZulu-Natal f: +27(0)11 689 5401 PLM QUANTITY SURVEYORS Bryanston, 2021, t: +27(0)31 207 1340 www.kdm.co.za AND VALUERS CC Gauteng f: +27(0)31 209 9441 20 Bonza Bay Rd, Beacon t: +27(0)11 463 1100 www.ldm.co.za LAKHANYA QUANTITY East London, 5205, EasternBay, f: +27(0)11 463 3728 SURVEYORS Cape t: +27(0)437482710 MAHLATI QUANTITY SURVEYORS P.O. Box 13532, www.plmqs.co.za NDIDALI QUANTITY SURVEYORS (PTY) LTD Humewood, Port Elizabeth, 6013, Voortrekker P.O. Box Street, Eastern Cape 12456, PULANA BAXTER & ASSOCIATES Polokwane Central, Mill Street, 8010, t: +27(0)41 373 6659 CC P.O. Box 19694, Tecoma, Polokwane, 0699, Western Cape f: +27(0)41 373 9351 East London, 5214, Eastern Cape Limpopo t: +27(0)21 4619 5656 www.lakhanyaqs.co.za t: +27(0)43 721 0984 t: +27(0)15 297 0103 f: +27(0)21 461 5644 f: +27(0)43 721 0984 www.ndidaliqs.co.za SAPOA Proper t y Register www.pba.co.za 2017 - 2018 KEEVE SPRONG CC T/A QUANTICOST 10 Fourways Golf Park, 1016 Roos Street, Sandton, P.O. Box 71312, Bryanston, 2068, 2021, Gauteng t: +27(0)11 705 2505 f: +27(0)11 705 2508 KGA QUANTITY SURVEYORS P.O. Box 84602, Greenside, 2034, Gauteng t: +27(0)11 486 0853 f: +27(0)86 551 9468

MONTENEGRO: Simon Bezuidenhout Cell: +382 6 717 6001 Tel: +382 3 135 5300 E-Mail: simonb@mlcqs.com

LENHLE QUANTITY SURVEYORS (PTY) LTD Postnet Suite 585, Private Bag X43, Sunninghill, 2157, Gauteng t: +27(0)11 023 9900

planning and development

SAPOA hosts International Precinct Management Symposium SAPOA recognises the role and importance of precinct management in the commercial property sector, and has incorporated it into the Memorandum of Understanding (MOU) with the National Treasury as a key focus area to work together on

FROM LEFT SAPOA President David Green, Professor Gary Warnaby (Institute of Place Management), Catherine Mitton (BID Foundation), David Downey (International Downtown Association) and SAPOA CEO Neil Gopal

iven this focus area, SAPOA, in conjunction with several precinct management bodies, worked on a national precinct management initiative aimed at establishing national enabling policy and legislation and formalising the precinct management sector in the country. This collaborative initiative began in 2016, when SAPOA and the Johannesburg CID Forum entered into a MOU to jointly fund and undertake research into the current situation regarding urban and precinct management in South Africa, evaluate the policies and legislation and 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 several private and public sector bodies involved in precinct management in the country, and resulted in a plan being agreed upon to establish a national initiative between the private and public sector to look into national policy and legislation, knowledge management and best practice. This gave rise to the formation of the South African Precinct Management Initiative (SAPMI) being formalised between SAPOA and several CID Forums from the private sector and

SOUTH AFRICAN PROPERTY REVIEW

the National Treasury, COGTA and SALGA from the public sector. The Consultative Forum for SAPMI consisting of six private sector and six public sector representatives, have made significant progress in finalising the terms of references for the Consultative Forum and the two work streams – the policy and legislation stream and the knowledge management and best-practice stream. During this process, SAPOA and the precinct management sector in the country recognised the need and importance of establishing a national association to formalise the sector’s representation at SAPMI, and start developing capacity that can provide meaningful input into the process and provide the sector with a collaborative voice. SAPOA, the Johannesburg CID Forum and the Mbombela CID Forum entered into a MOU to jointly raise funding from members and associates for the appointment of a consultant to facilitate the establishment of a National Association, in conjunction with the precinct management bodies in the country. The discussions culminated in an International Precinct Management Symposium in Johannesburg on 25 July 2019, put together by consulting firm Places for People.

The event was aimed at: ●● Identifying precinct management good practices from the UK, the US, Canada and local case studies. ●● Exploring the value proposition for the establishment of a new national precinct management association ●● Establishing research, training and education needs for South African precinct management practitioners Speakers who discussed international best practices included Catherine Mitton of the BID Foundation in the UK, David Downey of the International Downtown Association in North America, Professors Gary Warnaby and Simon Quin from the Institute of Place Management, and Tim Tompkins of the Times Square Alliance. Local speakers included the City of Cape Town’s Eddie Scott, James Aling of the Mbombela CID Forum, Andrew Layman of KZN Precinct Management and Anne Steffny of the Johannesburg CID Forum. The event also served as the launch of the national association formation process. It was attended by SAPOA President David Green and CEO Neil Gopal. To access the speakers’ presentations, visit https://bit.ly/2L1AjMY.

planning and development

Some of the delegates who attended the International Precinct Management Symposium in Johannesburg

SOUTH AFRICAN PROPERTY REVIEW

planning and development

Integrated Development Planning in Nelson Mandela Bay municipality: Is it time to constructively review the IDP process and its effectiveness in local government? By Martin Jonker

he Local Government Municipal Systems Act No. 32 of 2000 requires a complete overhaul of a municipality’s Integrated Development Plan (IDP) every five years and an annual review to be completed and approved with the municipal budget before the start of the new financial year on 1 July. The third edition of the Nelson Mandela Bay Municipality’s (NMBM) five-year IDP was adopted by the council on 19 June 2019. This approval was approximately a month later than the previous year, mainly as a result of the national elections held on 8 May 2019. During the latest IDP review cycle, the NMBM also had a change of leadership when a new coalition between the UDM, the ANC, the United Front Eastern Cape and the African Independent Congress took power in August 2018. The city’s Strategic Planning Steering Committee, which oversees the planning and implementation of the IDP, approved a revised public participation programme shortly after the leadership change in August 2018. The first set of public meetings was held between 4 September 2018 and 15 October 2018, with the final round held between 25 April 2019 and 20 May 2019. The NMBM’s draft IDP was approved and made available in April 2019 for public comment.

Communication initiatives Public participation in the planning of cities has been a priority for government since the mid- to late 1990s. Arranging and holding public meetings at various venues in a town or city was one of the most obvious mechanisms to enable residents to engage with municipal representatives. The IDP Representative Forum was another legislative measure put in place; it provides an opportunity to monitor progress, and to raise questions and issues on a quarterly basis. The NMBM acknowledged that community engagement should be more than a mere legal-compliance exercise. Continued improvement should be sought in the manner in which stakeholders and communities are consulted. In its pursuit to improve the public participation process, the NMBM implemented various communication initiatives in addition to the standard public participation meetings. These initiatives included, among others, the introduction of an IDP app and IDP Input Forms. The IDP Input Forms were distributed during the public meetings, and were also made available on the municipality’s website. A total of 3 337 IDP Input Forms were submitted by residents during the participation process. The NMBM’s IDP app was introduced in 2018, with 78 441 visits up until the approval of the latest IDP. Although only 78 people submitted their inputs during the current 24

SOUTH AFRICAN PROPERTY REVIEW

IDP and budget review cycle, using technology in this manner provides a convenient platform for residents to communicate with the municipality. According to the latest IDP, only 4 534 people attended the public participation meetings, which represents only about 0,4% of the NMBM’s population of approximately 1,2-million people. With the introduction of the IDP App, the NMBM thus hopes to reach and involve more of its residents in the IDP and budget processes.

SAPOA’s participation in the NMBM’s 2019/2020 IDP As part of its mission to represent, protect and advance the interests of its members in the commercial and industrial property sectors, SAPOA actively participated in the annual review of the NMBM’s IDP over the past three years. But the value of participating in the IDP process becomes questionable and, in some instances, disheartening when a trend can be seen that many of the same or similar needs and priorities are raised and submitted every year. This might be a reason why it became more difficult over the past three years to get feedback from SAPOA members on their needs, issues and problems. Some of these repeat items relate mostly to infrastructure maintenance (including road maintenance, fixing streetlights, keeping sidewalks clean), response times to service call-outs, illegal dumping, insufficient parking in key business areas and by-law enforcement in the city. SAPOA submitted its comments and inputs by the participation deadline of 10 May 2019. Although many of the issues raised by SAPOA’s members have indeed been included in the latest IDP, progress and feedback on implementation and actual performance have been slow.

Highlights of the latest IDP The structure of the IDP report has remained largely the same over the past three years, but the changes do reflect the NMBM’s commitment to not only improve its process but also its product (i.e. the IDP report). What stands out in this latest IDP is Chapter 5, which focuses on the inputs received from the sector departments and state-owned enterprises (SOEs) in the other spheres of government. It starts off by showing the participation commitment (or, in most cases, lack of commitment) of each department and SOE in the NMBM’s IDP process over this three-year period. The NMBM’s key challenges and commitments have not changed much since the current five-year IDP’s first edition was approved on 26 May 2017. The Executive Mayor

planning and development highlighted the delivery of basic services to all communities, revival and growth of the economy and the creation of jobs, increasing the city’s revenue base, empowering SMMEs, and dealing with fraud and corruption as some of the most important areas that need to be addressed. Although all these are indeed important issues to address, perhaps the biggest challenge the city faces is an operational challenge, reflected in the speed of service delivery and project implementation.

The IDP implementation challenge The first day of July is not only the start of the municipality’s new financial year, it also marks the start of the next annual IDP review cycle. The approval of the municipal budget and the IDP give the green light for officials to start implementing (on 1 July) the priorities that were identified in the approved IDP and budget. This is where things become more challenging – because the implementation timelines and the IDP annual review timelines generally do not align, meet or complement one another. Projects that need to be put out on tender in terms of the municipality’s supply chain policies can be used as an example here. It can take anything from three to six months just to appoint a consultant or contractor to start executing or implementing a project. If you started the procurement process on the first day of a new financial year, it means that the appointed consultant or contractor might only be able to start work between October and January, if everything in the tender evaluation period goes smoothly. By the time the first public meetings are held in the new IDP review cycle (usually around September or October), many priority projects might not even have started yet. This is one of the key reasons why many of the same issues, needs and priorities are identified in the next IDP review cycle, with little or no certainty regarding when they will be implemented. As this trend continues to repeat itself, people tend to lose interest in actively participating in the IDP process. This raises a question: isn’t it perhaps time to critically but constructively review the effectiveness of the IDP process and its alignment with other key operational processes within a municipality, such as the procurement process? For local government to deliver on its mandate successfully, it needs to reflect on the operational effectiveness of its internal policies, processes and procedures, and not only on its human resources and financial and capital resources capacity.

Operational efficiency and effectiveness Schroeder et al (2013: 5) define operations management in the following manner: “The operations function of an organisation is responsible for producing and delivering goods or services of value to customers of the organisation. Operations managers make decisions to manage the transformation SOUTH AFRICAN PROPERTY REVIEW

planning and development process that converts inputs into desired finished goods or services.” Operations management thus refers to all the internal organisational processes required to convert or transform inputs (such as energy, materials, labour, capital, information, etc) into outputs (goods or services). This definition can be applied to both private- and publicsector organisations. Thus it can be said that local government converts or transforms its inputs into a “service delivery” output, as shown in Figure 1 below. The NMBM acknowledges that one of its key challenges is its lack of human resources capacity. It was noted in the latest approved IDP that approximately 72% (243 out of 338) of posts on the municipality’s organisational structure are vacant. The departments with the most vacancies are the Infrastructure & Engineering Directorate, where approximately 91% (61 out of 67) of posts are vacant; and the Safety & Security Directorate, where approximately 73% (49 out of 67) of posts are vacant. From an operational perspective, this has dire implications for service delivery in the city – but addressing the lack of human resources capacity is only part of the solution to a more efficient and effective organisation. The real solution is multi-dimensional and multi-functional. This means that for local government to be an effective servicedelivery agent, it needs to give careful attention to the efficiency of its internal operations and not just to the capacity of its inputs or supply side. For example, can tender evaluation processes and procedures be shortened? Are there certain implementation decisions that can be delegated to lower-ranking officials? How can productivity within the municipality be increased without the addition

of more personnel? A small but highly productive workforce can often be far more efficient and effective than a large unproductive workforce. Should it perhaps be recommended that legislation be amended to give municipalities more flexibility in the design and implementation of its IDP processes? Should IDP review cycles perhaps be done every two years? Questions such as these need to open the dialogue and kick-start the operational “introspection” process.

In conclusion There is certainly still much that can be done to improve the IDP review process but it depends on, among other things, “will”, “mind-set” and “attitude”. Private-sector businesses in the world today need to be flexible and embrace change in order to remain competitive and in business. The public sector needs to approach its business of service delivery with the same attitude: it also needs to be flexible and embrace change. Although public sector organisations are not profit-driven, they do mirror private sector organisations in most other aspects, such as the need to be effective and efficient. The initiatives and efforts of the NMBM to communicate with and involve its communities in the governance of the city must certainly be acknowledged. Communities and stakeholders such as SAPOA are all shareholders in this business called “Local Government (Pty) Ltd”, and they should continue to constructively participate in its planning and budget review cycles. But they should also encourage municipalities to continuously improve their own internal operational environments.

Figure 1: Operations management (adapted from Schroeder et al (2013: 14))

SOUTH AFRICAN PROPERTY REVIEW

A C A D E M Y REAL CHANGE FOR A REAL WORLD

Our Rising Stars ALL STAR ACADEMY At Vukile Academy, we take pride in empowering the next generation of thinkers to become doers by giving them REAL skills to overcome REAL challenges and achieve REAL success within the property sector. Our pioneering approach to foster career growth starts by inviting a handful of promising young black graduates studying property investment and development to be part of the internship programme at Vukile Academy. Our mission is to provide mentorship and positively develop and enhance the quality of young black professionals and entrepreneurs in South Africa. MEET THE STARS As their internships conclude at the end of the year, we sat down with two promising interns, Waseema Lombard and Mihlali Mangengelele, to discuss their experiences and the future that lies ahead.

Please tell us about yourself and what you’re passionate about. Waseema: In 2018, I completed my BSc in Property Studies in record time. I’m an ambitious go-getter who isn’t afraid to take responsibility. The real estate industry is my obsession – retail space is like a breathing, living entity which fascinates me. I have a real passion for the three Ps – People, Profit and Planet. I hope to find an employer who shares my values and vision for a better, greener future for everyone. Mihlali: I recently graduated from the University of the Witwatersrand with a BSc in Construction Studies and I am currently furthering my studies in a post-graduate Diploma in Property Management and Development, also at Wits. The construction and property industry has always been my passion and my journey towards pursuing my passion has not been an easy one. However, with perseverance, strength and desire, I have reached my goals. You both sound exceptionally qualified – what have been your greatest achievements in your careers? Waseema: I served as Vice Chair of the South African Institute of Black Property Practitioners (SAIBPP) Wits Student Chapter for two terms as well as being a founding member. In 2018, I was nominated as a finalist for SAIBPP’s Rising Star Award. In 2017, I became a Green Star Accredited Professional in New Buildings from the Green Building Council of South Africa. I currently serve as Secretary of the SAIBPP Learning and Growth Youth Subcommittee. Mihlali: Since November 2018, I’ve been the Deputy Chairperson for the Wits Student Chapter of the Women’s Property Network. The WPN is dedicated to advancing the success of women in the commercial property industry. And in 2017 I also received my Building Performance Analysis Certificate.

Waseema Lombard

lombard.waseema@gmail.com

Mihlali Mangengelele

Mihlali.Magengelele@Vukile.co.za

The Vukile Academy must be a truly inspirational experience. Can you share some of the learnings you’ve had? What made a lasting impression on you? Waseema: Being at Vukile has been a major learning curve. Throughout the year I’ve been exposed to various new facets within the property industry and have continued to gain insight into the field, especially during our monthly academy days. Working in the Asset Management team is exactly what my degree geared me towards. Within the team I found a great willingness to share and listen. There is a real sense that my input is valued at Vukile. I was fortunate enough to have Ina Lopion, former MD for Vukile Southern Africa, as my mentor. We often spoke about the challenges of being a woman in property. I feel as though the Vukile brand DNA is imprinted on me and I will carry that with me forever. Mihlali: Being an employee at Vukile has been nothing short of amazing. The workplace is so accommodating – everyone is willing to help us learn. Vukile helped me to broaden my horizons, since I have a construction background, which meant I had to learn how to adapt and do my work with the help of the entire Vukile team. As interns, we are allocated a mentor for the purpose of personal mastery and career guidance. This mentorship has been one of my favourite parts of the academy. If you’re looking for bright, energetic individuals to take your business to the next level, get in touch with Waseema or Mihlali and they’ll be delighted to share their CVs with you. We wish them both the very best in their careers and further endeavours in the property sector. For more information, contact Vukile Property Fund on 011 288 1000 or visit www.vukileacademy.co.za

t 011 288 1000 w www.vukileacademy.co.za e info@vukileacademy.co.za a 104 0xford Road | Houghton Estate | Johannesburg

SOUTH AFRICAN PROPERTY REVIEW

broker opinion

It’s a buyer’s market Property Review talks to Norman Raad, CEO of Broll Auctions and Sales, about the current real estate climate and what he sees as trends in an industry that’s feeling the pressure of South Africa’s lethargic economy By Mark Pettipher

s a commercial property broker, Broll Auctions and Sales is close to the daily transactions in the market and has a good feel for what is going on in the industry. “Our business is completely reliant on transactions,” says CEO Norman Raad. “We have to find buyers for particular properties and make sure the sellers are prepared to take the offer being presented to them. Right now, across the board, a seller will have to take less than they were taking a while ago. “If you’re lucky enough to get an offer on marginal properties, you may need to accept up to 50% less than your asking price. It may be the only offer you’ll get.” When Raad entered the industry 18 years ago, owning an untenanted property was seen as a major liability. There was an intrinsic value in the building in terms of bricks and mortar, but on the books the property would have an income value of zero. Today, the cycle has come full circle. Raad points to the increase in inflation, the cost of property management and underestimated security taxes, the rising costs of rates and taxes, and the escalating cost of electricity as factors affecting the market adversely. He also tells us there is a massive glut of office vacancies, although it is area-specific. The reality the industry is not accepting is that the economy is struggling across the board. Companies also cannot pay the annual escalation on rentals, and property owners have to do better deals with their tenants to retain them. In this regard, tenants are getting some really good prices per square metre. “As a private investor in today’s climate, you are relying on bank financing and its repayment obligations. It’s your money, not shareholders’. These factors make it necessary for you to make sure that your property works for you. If that is not the case, you’ll sell it as quickly as possible, or make a better deal to keep your yield at a reasonable level.

SOUTH AFRICAN PROPERTY REVIEW

Norman Raad Broll Auctions and Sales CEO Norman Raad completed his BCom legal degree at Wits University. Since 2000, he has been involved in the commercial property space as both a broker and a business owner. His experience includes tenures at McCreedy Friedlander and Auction Alliance, where he became a Director and shareholder. In 2011, Raad launched Greenday Property with a solid property and administration team in place. Greenday Property went on to hold numerous auctions, selling some strategic landmark properties. In 2015, Greenday Property entered into a joint venture with the Broll Property Group to form Broll Auctions and Sales. Raad is the CEO of the business. His strength lies in his understanding of commercial property as an asset class, and his ability to assist corporates and funds with their acquisition and disposal strategies. He is known as an astute and knowledgeable deal-maker in the industry and has worked with top institutions, assisting with the sale and acquisition of all types of property.

“A private investor as a buyer can only afford what the banks can finance, plus the equity they are prepared to put into deals. Therefore, they cannot pay a premium price for an asset, especially in the current market. Granted, quality assets will always attract good yields because they will grow over time. But right now, there are greater opportunities than buying an asset or overpriced property. “We are very fortunate that we’ve not had an interest-rates hike. We are in the middle of a second downturn cycle with a low interest rate position. If the interest rates go up, people will simply not be able to afford to hold on to their assets. And the road to recovery is not a question of one or two years. Hopefully inflation doesn’t hit us too hard because the cost

of everything will become too expensive, and the gap between building and existing stock will grow wider. It’s a buyer’s market – just don’t overpay. Pay what you perceive the value to be. “As a broker, I’m telling my team they have to work a lot harder. Although there are many opportunities out there, they are dependent on our clients understanding the reality of the market. More and more sellers are starting to accept the reality of where we are: many are selling off their assets and finding other opportunities to invest in. In some cases, they are placing their money offshore.” Raad speaks of the obstacles of going offshore. “The only thing that stopped people investing offshore in the past was interest rates,” he says. “Today, the cost of borrowing in Europe or the UK is more attractive at rates of 0,5% (or two or three percent, depending on which country you’re looking at), and with yields of up to 10%. “In today’s commercial climate, sellers need to be realistic with their reserve prices. There is an opportunity, through our live online and live auction trading platforms, to sell properties quickly – to get them onto the market and get exposure nationally. We also offer sales by private treaty. From a buyer’s perspective, I’m a firm believer that there is never a better time to buy than right now, even if you’re buying at the height of a trend. If you are paying what you perceive to be the value, don’t wait to see whether the price will bottom out. You will invariably be disappointed. “Always be cautious: don’t overpay for an asset, and be mindful of its location. Always look at the asset, know what you can do with the asset, and understand the options available. Look at the trends: properties are being rezoned and reutilised, so try to find an alternative use for the asset. Be creative with your vision and you’ll find a buyer.”

broker opinion

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entrepreneurship one-on-one

Supporting entrepreneurs and SMMEs Even though the Small Enterprise Development Agency (SEDA) was formed in December 2004 through the National Small Business Amendment Act No. 29 of 2004, not much is known about the important work the agency does or the tremendous support it facilitates By Mark Pettipher

SEDA CEO Mandisa Tshikwatamba

“

For SMMEs, the benefits of joining an incubator

programme include access to business skills development, enhanced business regulations knowledge, and access to markets, with the end goal of increased profitability and sustained growth. Long-term, the aim is to empower enterprises to enter new markets, provide cuttingedge products and services,

”

and grow their capacity to employ people

SOUTH AFRICAN PROPERTY REVIEW

n previous editions, Property Review has featured entrepreneurs who are mentored and developed through Property Point’s enterprise development initiative – an initiative that is supported by SEDA. SEDA’s mandate is to implement the government’s small business strategy, design and implement a standard and common national delivery network for small enterprise development, and integrate support from governmentfunded small enterprise support agencies across all tiers of government using its national network and partnership models. SEDA’s mission is to develop, support and promote small enterprises throughout South Africa, ensuring their growth and sustainability in collaboration and partnership with various roleplayers, including global partners, who make international best practices available to local entrepreneurs. In addition, according to its mission statement, “SEDA aims to promote entrepreneurship and develop small enterprises by providing customised, nonfinancial business support services that result in business growth and sustainability, in collaboration with other role-players.” SEDA CEO Mandisa Tshikwatamba outlines its involvement with Property Point. “Our involvement stems from our broad incubation support programme,” she says. “At the time of meeting Property Point, we were supporting more than 60 incubators, looking to develop support in specific sectors. Our portfolio included an incubator that was focused on the construction sector. We were impressed by the results of that particular incubator and its expansion (with 11 centres to date). This made us look at the value chain of this sector, and made us realise that the property sector incubation need goes beyond just bricks and mortar.

“Through its incubation programmes, Property Point has demonstrated that there was potential for greater reach, which would enable entrepreneurs to link with the greater value chain related to the property sector. We were also confident that Property Point would be able to fulfil our requirement of developing knowledge-sharing platforms, technology exposure, and access to opportunities and best business practices through its incubation facilities in major centres in South Africa. Furthermore, Property Point is also driving gender equality, which is another focus of the government.” Using Mercedes-Benz South Africa as an example, Tshikwatamba explains further: “Last year we started a discussion with Mercedes-Benz, looking to establish synergy across various sectors, including the tooling and machinery areas. There is a need for the development of digital applications and linking these to technical vocational training. The Mercedes-Benz Learning Academy is training artisans, and we want to work with the Academy to develop exit plans for artisans who may be laid off, so they can be ready to consolidate themselves in a vehicle that can take them forward in an enterprising manner. One of our Success Story Ambassadors is already working for Mercedes-Benz in East London, providing mentorship and coaching services. “The government represents just one portfolio of stakeholders (and here we’re talking mostly about local government). TVET colleges are a major part of the education portfolio. We work with the mining sector to further transformation and encourage change in the supply chain. In addition, we also work with research and development companies in the private sector. “Other examples of cooperation with the private sector are our partnerships with

entrepreneurship one-on-one the Automotive Industry Development Centre, the South African Black Automotive Chamber of Commerce & Industry, and Steel Best Manufacturing. Through these, incubators focused on automotive design tooling and bodyworks prepare SMMEs that could become accredited preferred suppliers in the vehicle-repair space. SEDA assists by taking them through the various standards and business practices required within the insurance industry. “By partnering with SEDA, companies ready to invest in enterprise development can be assured of a partner who will look after a particular portfolio. “Many companies are relatively lean, and often cannot look after their own enterprise or incubator programme development.” But Tshikwatamba is clear: SEDA does not contribute towards stipends. Its role is to be a catalytic player that manages portfolios for enterprise development and points its partners towards funds that support incubation and related programmes. In other words, SEDA is a facilitator of partnerships. The partnerships with enterprise development ecosystem partners are based on matching fund agreements. For incubators, SEDA works with private companies that can establish specialpurpose vehicles for development work. SEDA’s funds go towards capacity building: “We want to see how established incubators can launch support start-up companies, or how corporates set up incubation departments within their businesses,” says Tshikwatamba. “For the incubation programme, SEDA needs to see a developmental path with demonstrated milestones for each company. Big companies must contribute towards the training and infrastructure needs of small businesses.” An incubation programme’s objectives – as explained on seda.org.za – are set to a three-year period, designed to strengthen technology commercialisation and harness the entrepreneurship of the tech community in South Africa. The website also states that the programme is open to anyone with a viable business idea, or any registered small, micro- and medium enterprise (SMME) that is struggling to grow.

Each of the 72 SEDA-supported incubators has its own incubatee recruitment or selection process that’s unique to its sector. Applicants must contact the relevant incubator for the recruitment criteria. For SMMEs, the benefits of joining an incubator programme include access to business skills development, enhanced business regulations knowledge, and access to markets, with the end goal of increased profitability and sustained growth. Long-term, the aim is to empower enterprises to enter new markets, provide cutting-edge products and services, and grow their capacity to employ people. Quantifying success is relatively uncomplicated: with incubators, you can gauge jobs by monitoring and auditing how companies progress through the incubation programme. SEDA incubators use the Growth Wheel system, collating live data tracked in terms of the profiles of the companies in the networks, and milestones achieved against implemented interventions and set targets. “Every year, we take a sample of the companies who have taken part in the SEDA incubation programme, look at their progress, and differentiate between jobs sustained and new employment opportunities created during the period under review,” says Tshikwatamba. As CEO of SEDA for the past three years, Tshikwatamba’s passion for her work is evident: she is building tangible relationships. She lists the National Gazelles and the Basic Entrepreneurial Skills Development programme as ones that started at almost the same time as she joined SEDA. The National Gazelles is a flagship SME support programme from SEDA and the Department of Small Business Development (DSBD); it aims to assist members in growing more quickly and profitably than they would without targeted support. While the programme is open to all qualifying companies that submit an application, it emphasises black-owned businesses, in line with the national transformation agenda. The Basic Entrepreneurial Skills Development (BESD) programme is

designed to transfer basic business skills to micro-business owners during weekly two-hour one-on-one training/ coaching sessions at their business premises over a period of approximately 15 months. In South Africa, the BESD is financed by the Department of Higher Education and Training (through the National Skills Fund), and implemented by the DSBD via the Small Enterprise Development Agency. Tshikwatamba is equally passionate about the Entrepreneurship in Schools Programme (EISP). She feels that there should be more exposure around it, because it focuses on high-school learners and the development of their innovation acumen. The EISP focuses on Grade 8 to 12 educators and learners, and is aligned with the Curriculum Assessment Policy Statement. It is also supported by the Department of Education.

The programme seeks to: ●● Influence the learners’ mind-set by encouraging them to become job creators instead of just being jobseekers once they leave the schooling system; ●● Equip learners with entrepreneurial knowledge and skills needed to start and manage a businesses; ●● Improve entrepreneurial activity among learners and educators; ●● Contribute to the development of a generation of people who are creative, innovative and willing to take risks; ●● Expose learners to role-models who will enhance the development of self-respect and self-confidence as well as promote the development an internal locus of control. For more information, visit seda.org.za.

SOUTH AFRICAN PROPERTY REVIEW

regional roundup – East London

Skills development, education, property development: so much potential! In line with our focus on education, this month we engaged with some of East London’s key stakeholders and spoke to a number of education and training facilitators to gain an insight into what could be done to develop Buffalo City into a leading industrial hub and a greater contributor to South Africa’s economy By Mark Pettipher

pon my arrival at East London Airport, I was greeted by SAPOA’s East London Chair Johan Burger, who took time out of his schedule to accompany me to various appointments. Our first port of call was a meeting with Cherry Santoro, Manager of Factory Planning at the Mercedes-Benz plant. East London is part of the C-Class global production network, producing left- and right-hand-drive C-Class sedans for the export market. In March this year, the plant celebrated its 500 000th C-Class (W205) – an Obsidian Black right-handdrive automatic C200 full-roof sedan, which was exported to the UK. Gearing up for the production of the new C-Class W206 in 2021, an investment of €600-million (about R10,3-billion) has been put aside for an expansion of the East London plant. This includes construction of a new R375-million, 16 000m2 paint shop and a new 42 000m2 body shop. Demonstrating Mercedes-Benz East London’s readiness for the fourth industrial revolution, the body shop has been designed for higher capacities, and features more than 500 “Internet of Things”-ready robots. About R900million has been put aside for the body shop, an upgrade of the assembly shop and a 22 000m2 logistics warehouse. 32

SOUTH AFRICAN PROPERTY REVIEW

The new workshops will incorporate environmentally friendly, state-of-theart technologies. The paint shop will be more energy-efficient, with the overall energy consumption in the East London plant per vehicle produced set to be reduced by 25%. This is in line with Mercedes-Benz’s global aim for green production and carbon-neutral plants; the idea is for all Mercedes-Benz plants to be fully compliant by 2039. Other green features include an on-site battery storage container, rainwater harvesting on rooftops, water storage of a million litres and the creation of green corridors. Conservation is incredibly important to Santoro. The cheesewood trees that used to grow on the land rented from Buffalo City Municipality for MercedesBenz’s carpark have been relocated to protect them, and since the carpark was built, all stormwater has been piped back into riverine thickets and the forest area to run naturally into retention eco-ponds, and to be released into the forest zone later. As a result, indigenous sunbirds and mouse birds have returned to the area. In total, the new buildings will cover an area of approximately 100 000m2, an expansion by about two-thirds of

the already existing buildings for the passenger vehicle production sector of the business. In total, the plant will occupy 650 000m2, with a built area of approximately 350 000m2. Mercedes-Benz has also taken up warehousing and storage facilities in the East London Industrial Development Zone (ELIDZ), as a key partner. The ELIDZ is considered to be a strategic hub, and offers the potential of moving part of the commercial vehicle builds there. There are talks with the municipality to create a direct road link between the existing plant and the ELIDZ, which would essentially create an industrial corridor. This would tie in perfectly with Mercedes-Benz’s integrated supplier network and outsourcing of its subassembly functions. There are also plans to extend Mercedes-Benz’s relationship with the Border Motorsport Club so it can utilise the racetrack for highspeed testing. At the moment, the plant employs 3 300 people, the majority of whom will have gone through exacting training and orientation to meet the firm’s requirements. With the upcoming production of the new C-Class, training has already begun at the Mercedes-Benz Learning Academy.

regional roundup – East London

The Mercedes-Benz Learning Academy The Learning Academy website clearly outlines the institution’s development path

n 1981, Mercedes-Benz South Africa had a vision to develop skills and artisans in the Eastern Cape. In 2014, in cooperation with the National Treasury and the Jobs Fund, the Academy began expanding. In August of that year, a new world-class facility was constructed alongside the existing Technical Training Centre. The facility was also renovated to accommodate additional trades and new technologies used in apprenticeship training. In March 2016, the new facility was officially opened. This expansion has made training locally accessible not only for the manufacturing plant, but also for Mercedes-Benz’s suppliers and broader community interest groups in South Africa. The Academy’s ambition is to partner with the government, industry and the broader community to provide the skills that will build the future of the Eastern Cape. From fully qualifying new artisans to training new shop-floor recruits and up-skilling existing employees, MercedesBenz South Africa offers its expertise as a globally competitive manufacturer. This formidable combination forms the basis of the modern Mercedes-Benz Learning Academy, which is ideally situated along a main road in East London, directly opposite the MercedesBenz assembly plant.

The Mercedes-Benz Learning Academy’s vision is: ●● To be a leading technology and apprenticeship training and testing facility in South Africa;

●● To be a link between jobseekers and the industry, offering support to bridge the skills requirements needed in a modern workplace; ●● To work with the government in achieving the national skills development objectives; and ●● To offer development opportunities to the industry, from shop-floor skills to technical training and support in lean manufacturing skills. Peter Howe, Mercedes-Benz Team Leader of Specialist Technical Training and Human Resources Development, explains that while the early training centre was primarily focused internally, there have been a number of expansions. “Having performed a benchmarking excursive, we found that the facility was lagging behind the firm’s competitors,” he says. “We also found an increasing gap between what the schools were putting out and what the firm and our suppliers needed.” With increased localisation of parts and more suppliers on Mercedes-Benz’s doorstep, the strategy was to keep business in East London. A large amount of money was being spent on sending trainees overseas, so increasing the Academy’s capabilities has meant that artisan training and testing is available in East London, significantly saving costs to both the plant and its suppliers. The Mercedes-Benz Learning Academy is both an accredited training provider and a trade test centre.

Accordingly, learners get the benefits of concentrated theory and practical exposure. This includes plant/workplace rotations right through to a final qualification in the trainees’ trade of choice. Unemployed learners are paid a stipend for the duration of training to help with transport and meal costs; the necessary protective equipment, as required in the maintenance workshop environment, is also provided. Training is charged, but only to offset the costs of the Academy. “The business rationale is that, because we are in South Africa, we don’t have the same opportunities to call a German supplier to fix an issue,” says Howe. “We need to have recognised and qualified companies and personnel locally.” The centre employs 16 instructors and a number of administrators, and trains 120 to 140 Mercedes-Benz apprentices per year. (The intake comprises 30 apprentices and about 100 external apprentices from local companies.) The bar to enter the apprenticeship programmes is a Grade 12 education, as long as applicants have related subject-matter passes. The apprenticeship programmes are three to four years, and are designed for learners with an interest in a technical career. Most applicants will have attended a technical high school, or would have studied maths and technical subjects at an academic school or TVET college. The Academy offers two streams of apprenticeship. The first is automotiverelated, where learners choose between the designation of Automotive Electrician and Motor Mechanic. The second is more plant- and equipment-oriented; trade options include Millwright, Electrician or Fitter and Turner. These learners would SOUTH AFRICAN PROPERTY REVIEW

regional roundup – East London

typically be seeking an artisan career, maintaining complex machinery in a production facility or mechanised plant. In addition, there is an accredited shop-floor skills programme that lasts two months, which teaches basic shopfloor working practices as well as quality techniques and basic measuring.

The qualification on leaving is at the level of NQF 4 or 5 diploma. Mercedes-Benz offers bursary programmes, which can be applied for online at Daimler.com/career. To qualify for a Mercedes-Benz bursary, applicants must satisfy the following minimum entry criteria before applying:

MSC Artisan Academy In February 2011, the MSC Artisan Academy opened its doors in East London. The Academy’s Director: Operations Willie Gresse tells us that its aim is to contribute significantly towards increasing the general standard of artisanship in South Africa

he training offered is based on traditional apprenticeship principles, with emphasis on excellence in skills and discipline/attitude development. The trades covered are carried out in facilities that consist of instruction rooms, a fitting-and-turning and handskills engineering workshop, a welding workshop, electrical engineering workshops, a solar thermal laboratory and a photovoltaic and wind power laboratory in the early stages of development, and are accredited with QCTO, NAMNB and various SETAs. Typically, the skills training programmes at MAASA are carried out by qualified and experienced artisans, and vary in length from fiveday specialised courses to eight-week 34

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trade modular courses, and up to three years of apprenticeship training. Those traditional apprenticeship principles are strengthened by an amalgamated integrated learning experience in which theory is dovetailed with solid and practical projects, practical exercises and exposure to reallife workplace participation. The majority of MAASA’s learners are unemployed. MAASA’s focus is to get them not only skilled but workready. They join the Academy straight from school. The annual intake is between 30 and 60 candidates per trade area (mechanical, electrical, welding and plumbing) – and each candidate goes through three training components, from school to knowledge

●● South African citizen OR South African permanent resident ●● Completed matric ●● Studying or intend on studying full time within the disciplines of industrial engineering, mechanical engineering, electrical/electronics engineering, mechatronics engineering, human resources, IT, accounting or finance ●● Studying or intend on studying at a recognised South African university ●● Achieved a minimum overall average of 70% in matric, if not yet at tertiary level ●● Achieved a minimum overall average of 65%, if currently at tertiary level ●● Engineering students must have achieved distinctions for mathematics and physical science in matric ●● NOT an employee of the MercedesBenz South Africa group of companies Preference will be given to students from the Eastern Cape, and those currently enrolled or studying in their first or second year of academic studies.

of a trade, and the transfer of knowledge and workplace training. All programmes link with a number of mentor companies, who host the students over a three-year period and expose them to all aspects of the workplace environment. Training is mostly financed through private and public sector bursary and skills development projects, so all candidates are fully financially supported. In most cases, a stipend is provided to assist candidates. MAASA manages the funds and the learners from the first day to being work-ready. Gresse believes there are always employment opportunities for the people who complete the MAASA programmes and walk away with a specialised qualification. Qualifications range from NQF level 2, 3 and 4 learnership qualifications to apprenticeships that lead to trade tests as electricians (both industrial and construction), fitters and turners, millwrights and welders.

regional roundup – East London More recently, accreditation for renewable energy solutions through Solarteur Austria has also enabled young learners to find jobs in that specific sector. MAASA also runs self-employment programmes, working with organisations

such as SEDA and with people who have the aptitude to succeed, as well as up-skilling programmes in conjunction with the East London Industrial Development Zone (ELIDZ) for the training of technicians and electricians specifically for the ELIDZ’s tenants (with

Boston City Campus & Business College Penny Whitfield runs the East London branch of the Boston City Campus & Business College, which she describes as “an award-winning tertiary institution that has been around for more than 25 years, and has acquired a reputation not only for educating students in their chosen career path but for educating them for life”

oston offers more than 80 study options, including a unique Postgraduate Diploma in Management, which is ideal for the development of managerial candidates in business irrespective of the their undergraduate degree specialisation. It also offers degrees, diplomas, higher certificates, and occupational and short programmes, ensuring there are options in almost every field. Boston provides personalised support to its student body through a network of 45 support centres in South Africa. The college’s holistic approach to education values the importance of “real-world experience”, making life great for its students by opening up possibilities beyond their qualifications.

Boston believes in a balanced approach, and recognises the value of creating a space for students to combine their learning, energy and enthusiasm for entering the workplace with a network of lifelong relationships established while studying in the pursuit of their dreams. Whitfield highlights a new initiative, Graduate+, which is the first of its kind in South Africa. The college is so confident about the quality of its qualifications, it offers degree and diploma graduates a guarantee: if they are not employed within six months of graduating, the college will either help them find a job, or offer them a post-graduate bursary or R50 000. There are, of course, terms and conditions; see Boston.co.za.

a focus on renewable energy). By far the greatest challenge is finding ongoing mentor companies. The academy is part of the MSC Education Holdings group, which has campuses in Modderfontein (Gauteng) and in Frame Park (East London). New programmes being offered include Higher Certificates in Logistics and Supply Chain Management, Accounting, Tourism and Travel and Hospitality Management; a Bachelor of Commerce in Law; a unique Bachelor of Social Science, ideal for those wanting to explore both business and humanities; and a Bachelor of Accounting, specifically meant for those who are serious about a profession that deals with numbers. Boston is accredited by the British Accreditation Council, and has direct and indirect articulation agreements with various institutions in the UK, New Zealand, Australia, the US and Canada, which results in global opportunities for Boston graduates. The key advantages of choosing Boston as your preferred study partner are the inclusion of prescribed textbooks within the tuition fees, digital learning experiences, and the user-friendly online learning management system, which ensures a seamless study journey for success.

SOUTH AFRICAN PROPERTY REVIEW

regional roundup – East London

Development opportunities in Buffalo City Last year we spoke to Treasury seconded Andrew Murray about Buffalo City’s road to renewal and transformation. This year we again got his input about the developments that are under way

he city has its spatial plan and a Built Environment Performance Plan. Its main focus has been on what is known as the MELD corridor along the N2, which is the main spine from the inner city up to Zingxandoreni, along the railway and the national highway. The focus has been on human settlements and densification. Murray says the city’s focus should shift towards getting primary economic land fully functional, with emphasis on the port, the Mercedes-Benz plant, ELIDZ and the airport. The entire area is an industrial zone that still has some government facilities, a military base, a prison and nature reserves in the mix. “In about 18 months, we should see an underwater internet data cable coming into the ELIDZ, which will create potential for us to establish a smart port, a smart airport, a racetrack for testing and a data centre,” says Murray. “The port and the airport, together with the ELIDZ and Mercedes-Benz, could become a serious and major export hub.” He points out that the key players to getting this vision moving are the city, the ports authority, Mercedes-Benz and the ELIDZ, and warns of the potential chaos that may ensue in 2021 when Mercedes-

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Benz starts rolling out 400 trucks a day, all moving along the ELIDZ and Settlers Way. This could result in an inconceivable four-hour journey to the airport. Buffalo City has performed a feasibility study on widening Settlers Way (N27) from two lanes to three, with a dedicated lane for heavy vehicles. A cost estimate of R300-million has been put forward. The widened N27 would run from the airport into the city across the Buffalo River. There is a time constraint as the project needs to be completed by April 2021 – but the N27 is a Buffalo City municipal road and would need to go through a special procurement model. Development of the port is being considered. Murray predicts a deepening and a widening, which will result in the container terminal moving to the West Bank, leaving the East Bank for recreational purposes. Discussions are also on the table to create a secondary direct sevenkilometre link road between the port and the ELIDZ, which would also include upgrading Military Road. The building of the road in under a year could show residents that Buffalo City is committed to improving business opportunities and encouraging investment in the region.

Further development of the industrial zone would encompass the military base and the prison as well as ELIDZ expansion, which will also including the existing neighbouring golf course. According to Murray, all development here would have to be branded as a single economic project, which could then be endorsed by a presidential decree in a similar way to the SIP2 Cato Ridge project in KwaZulu-Natal. This would reinforce Business Process Enabling South Africa (BPESA) labelling East London as a major business hub in South Africa. BPESA has a number of strategic partners, including the Department of Trade and Industry, Harambee, Business Unity South Africa, the South African Chamber of Commerce UK, the IAOP, Trade & Investment KZN, Invest Durban, the City of Johannesburg, the Gauteng Growth Development Agency and the Gauteng Department of Economic Development. He believes that for the project to get under way, there needs to be an appetite to fund it in a slightly different way. He suggests the emphasis should be on encouraging PPPs. Private companies need to be encouraged to invest with assurances of a stake in returns. Buffalo City is aware that the private sector has capital that needs to be unlocked. In order to fast-track the project, Murray proposes a seminar to discuss the requirements and proposals. From a property development perspective, the city is looking at adjusting rates to encourage development in certain areas that correlate with various city sectors. Murray is planning to run research in areas such as agri, manufacturing, logistics and education. With the right data, action on projects can be championed, bringing the National Treasury into the picture, and enabling the release of funds and grants for possible catalytic and progressive initiatives. As if to back up what Murray is suggesting, John Harvey of East London’s Daily Dispatch has penned an article about Deputy Finance Minister Mcebisi Jonas, who recently launched his book After Dawn: Hope After State Capture. In it, Jonas urges the Eastern Cape to look for big-hitting initiatives to turn the ship of

regional roundup – East London de-industrialisation and socioeconomic depression around and reap great rewards. These initiatives include: ●● Widening and deepening East London’s port, and developing a fully fledged container terminal; ●● Capitalising on the undersea cable connecting the ELIDZ to Mauritius and India; ●● Grabbing the tax breaks available to Special Economic Zones; and ●● Renaming East London’s historic Formula 1 racetrack as the Jody Scheckter Grand Prix Circuit. Jonas is under no illusion that the battle to revive the Buffalo City metro will be anything but epic, but says he is baffled by official inertia and lack of genuine economic innovation. “There is no reason for prime back-of-port industrial land in East London to house a military base and a prison,” he says by way of example. “This land should have long ago been given to the IDZ to attract a second automotive manufacturer and make Buffalo City a genuine automotive export hub.” One of his main observations is that East London has been “de-industrialised”. A drive through East London’s run-down Wilsonia industrial area confirms the fact. He also points out a lack of government integration between different levels, and the high cost and poor quality of local services, from potholed roads to electricity and waste management. He speaks of the difficulty of access via the port and the high expense of moving containers from Coega, the red tape involved, the lack of responsiveness in government, and the disjuncture between macro-level economic policy and micro-level actions. But it’s not all doom and gloom. East London has many selling points: beautiful beaches, good medical facilities and schools, and the untapped appeal of the tourism market. Then there is the fact that the ELIDZ is a designated Special Economic Zone, one of eight in the country – and like the others, it offers a discounted corporate tax rate of 15% (well under the normal rate of 28%). Proof of the ELIDZ’s success is in 2017, when it attracted 38 new investors worth approximately R44-billion.

Property development For an overview of the commercial sector, we spoke to Trueprop’s Head of Leasing and Relationship Management: Eastern Cape and SAPOA Committee member Shaun Cooper

rueprop is a privately owned property development company with origins in the Eastern Cape, and with an established track record in various property sectors. A portfolio of approximately 76 properties in the Eastern Cape makes up about 50% of the group’s income. The head office was recently relocated to Stellenbosch to diversify and grow the company portfolio in the Western Cape. Regional offices are located in East London and Johannesburg. Trueprop’s corporate strategy is to drive sustained growth, but Cooper says this involves a fine balancing act between freeing up capital to purchase attractive properties at the right price and selling off of smaller or underperforming assets that don’t meet the corporate growth strategy. He believes that the commercial and retail sectors are in a holding position from a leasing perspective. Big nationals are still enquiring about space, but they are generally not willing to commit to long-term leases. The company is finding that there is a lot of uncertainty in the market, and prospective tenants are adopting a “wait and see” approach, with hopes that the economy is at the bottom of the curve. This has resulted in the weighted average lease terms continuing on a downward trend.

The company is experiencing pressure on rental rates, and is embarking on quarterly reviews of market rental rates in the area to try to keep rates realistic. Several of its nationals have taken rental reversions in the last year, especially in the retail environment, which has been a broad trend throughout the market. Sadly, this has been the trend over the past three years, and it’s likely that market rates will remain relatively flat for the next budgeted year. The industrial sector seems relatively stable and is quite buoyant. A number of initiatives in and around East London, the vibrant automotive sector and talks of the fourth industrial revolution have resulted in good demand for industrial space. Build costs, however, remain high, which means new industrial development (outside of the IDZ) is still fairly flat. On a final positive note, Trueprop is in the final stages of development planning for a new hospital park in Beacon Bay to complement its Infinity Place Business Park. It will consist of a day hospital, a medical professionals’ consulting tower, a small hotel to cater for families who are coming to use the facilities, as well as a specialist practitioners’ centre for use by physiotherapists, biokineticists and the like. Cooper confirms Trueprop remains committed to the Eastern Cape, its tenants and the community in general.

SOUTH AFRICAN PROPERTY REVIEW

regional roundup – East London

Latimer’s Landing The long-awaited revitalisation of the Port of East London’s Latimer’s Landing quayside leisure development has taken a leap forward, with approval granted to Transnet National Ports Authority (TNPA) to proceed with demolishing the existing historic structure and replacing it with a modern fit-for-purpose structure

he historic Latimer’s Landing precinct is situated on the East Bank of the Buffalo River, within South Africa’s only river port. It measures approximately 2 400m² and is ideally located on the R72 at the western gateway into the city. Latimer’s Landing was described on contemporary drawings as the New Fishing Wharf in the 1930s, where trawlers landed their catch. The site is named after the very first curator of the East London Museum, Dr Marjorie Courtenay-Latimer (19072004), who made headlines around the world when she facilitated the identification of a “living fossil” – the prehistoric coelacanth. Built in the early 1900s using karri wood, the jetty on the Buffalo River was closed in 2009 as a result of the negative impact the sea water had had on its structural integrity. TNPA had to apply to the Eastern Cape Provincial Heritage Resource Authority (ECPHRA) for a permit to demolish the structure, because it is older than 60 years and protected under the National Heritage Resources Act No. 25 of 1999. his application has now been approved, which paves the way for TNPA to proceed with Phase 1 of the project. This will entail demolition and reconstruction. 38

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The site is world-renowned as the place where the prehistoric coelacanth fish was brought to shore, dispelling the previously accepted belief that it had become extinct. “Latimer’s Landing is a unique and valuable asset to our city, but one that has not been optimally utilised in recent years,” says East London Port Manager Sharon Sijako. “With the support of our strategic stakeholders and the East London community, we are committed to changing this by redeveloping the jetty and giving the city’s existing basket of tourism and leisure attractions an exciting and extensive makeover.” Sijako acknowledges that Latimer’s Landing, as the only waterfront and leisure development of its kind in the region, should be a premier tourist attraction that operates for the benefit of the entire region. In line with its vision of transforming its ports into “people’s ports”, TNPA envisages an array of exciting waterfront activities, waterbased attractions and quayside restaurants and coffee shops that will enliven and revitalise the area, drawing steady traffic into the precinct. TNPA has already commenced with updating the design of the jetty as per ECPHRA permit requirements. The final design and feasibility study are expected

by October 2019; thereafter, the tender process will get under way. Once a contractor is appointed, the construction phase is expected to take 12 months. Phase 2 of the Latimer’s Landing development will focus on escalating the project into a fully-fledged waterfront development that contributes positively to the growth of the city’s tourism and leisure industry. This will involve efforts to revive the prime site as a bustling leisure and entertainment hub, complete with different restaurants and familyfriendly water-related leisure activities. The focus will be on the quayside, the adjacent areas, as well as upriver on both the East and West Bank sides of the Buffalo River. A more extensive proposal detailing the implementation and management of this exciting project is currently being developed and will be made public soon. In order for leisure craft to continue operating in front of the main restaurant area, TNPA has installed a cam-dock floating jetty as an interim measure. A private charter company currwently offers boat rides and whale-watching excursions from this jetty. “We are very pleased to report that the proposed revitalisation of Latimer’s Landing enjoys the full and enthusiastic support of numerous stakeholders in the city with whom we will continue to work closely towards the overall development of the city,” says Sijako. “These include the Buffalo City Metropolitan Municipality and its various agencies, as well as the ELIDZ; we recently signed an MOU to this effect with both.”

regional roundup – East London

Border-Kei Chamber of Business We have previously spoken to Drayton Brown about the “Call2Action” initiative, which was launched three years ago. We had an opportunity to speak to him again

s he explains, “Call2Action” ran on private funding in its first year, and on state funding in the second year. Now the initiative is in an interim period, but the Department of Environmental Affairs has provided funding to the Buffalo City Metropolitan Development Agency (BCMDA) to enable it to carry out grass cutting and clean-up. After the President launched the Good Green Deeds Programme in March 2019 at the Sisa Dukashe Stadium in Mdantsane, a number of companies indicated their interest to the Chamber. One of those is Polyco – a not-for-profit industry body

established in 2011 to focus on reducing the amount of polyolefin waste going to landfill by increasing sustainable collection, recycling, recovery and beneficiation of polyolefin plastics. The company wants to pilot an initiative in East London, and has purchased assets for the Chamber to use, including four sites and a buy-back centre, where waste is collected, weighed and packaged. The BCMDA will provide the labour to operate the collections. Polyco will be providing 24 cages and scales and the PackA-Ching system, as well as 250 bins that will be placed in Oxford Street to form part of an initiative

Group Good Deed Campaign The campaign seeks to change people’s behaviour and attitude towards responsible waste management, and influence them to be environmentally conscious and make use of available recycling bins. The government has challenged every citizen of South Africa to continue with the spirit of “Thuma Mina”, and stop littering and illegal dumping. We can all do our part to promote the use of recycling bins, and “reduce, re-use, recycle and recover” waste to make South Africa a cleaner place to live. The objective of the Good Green Deeds Programme is to create a drive towards a clean South Africa. The nationwide environmental campaign challenges all citizens to take a stand against littering and start initiatives to clean up their neighbourhood. It also aims to expand productive capacity and enhance service delivery in key green economy sectors, including investment in bio-waste resources, using best practices in food-waste composting, and urban food production initiatives that result in meaningful employment creation in green economy sectors.

aimed at cleaning up and beautifying certain areas of the city. This infrastructure can eventually become part of a City Improvement District model. Once it is in place, the Chamber can start working with communities to educate them in what can be recycled. Phase 1 of the project only worked in two of the pilot areas; now the waste management and clean-up campaign can be rolled out across all four of the originally identified areas. Phase 2 involves working with the municipality on a High Performance Culture Programme, which would first be initiated in the waste department, and later expanded to the rest of the municipality. This is under the auspices of a number of MOUs, one of which has been signed between Mercedes-Benz and the municipality. The Border-Kei Chamber of Business is part of several action committees, including tourism, Invest Buffalo City, Call2Action and the Infrastructure Committee. Call2Action is one of three projects that are currently under way, with the others being the Enterprise Europe Network and an agricultural initiative. Brown is also driving the Eastern Cape’s Business Process Enabling South Africa membership, to join the Nelson Mandela Bay Municipality, Buffalo City Municipality, Border-Kei Chamber of Business, ELIDZ and Coega. They see potential for job creation in coming together as a consolidated group.

SOUTH AFRICAN PROPERTY REVIEW

regional roundup – East London

Buffalo City Metropolitan Development Agency The Buffalo City Metropolitan Development Agency is a municipal entity wholly owned by the Buffalo City Metropolitan Municipality.

et up three years ago, the Buffalo City Metropolitan Development Agency (BCMDA) is mandated to be instrumental in economic and social development by conceptualising, planning and executing catalytic socioeconomic projects. It is also to serve as a tourism agency of the Buffalo City Municipality, and is charged with property management and commercialisation, which includes acquiring, owning and managing land and buildings or rights to land and buildings to achieve its objectives. Eldrid Uithaler, the BCMDA’s Executive Manager responsible for development facilitation, takes us through the agency’s development plans. “The agency went out to tender on two flagship projects: an interactive park at Port Crescent and an upgrade and expansion of the Water World Fun Park,” he says. “The BCMDA was looking for construction services, and to be able to be on site during October. Thirty percent of the work will be set aside for SMMEs, with the aim of 70% of the labour being set aside for locals.” BCMDA Programme Manager Athi Ntshokoma explains that the first priority is to give jobs to local communities. To this end, the BCMDA is engaging with the community to ensure that everyone is kept informed and to mitigate against complaints of favouring outsiders.

SOUTH AFRICAN PROPERTY REVIEW

The BCMDA is a risk-averse company, so every construction project comes with a workshop aimed at informing the relevant communities. Each project is outlined in full, and it is made clear that there are parameters that each tender company has to comply with. The construction part is also clearly explained, with entities interested in the projects attending a compulsory briefing session. The tenders are open and advertised in the local press. The agency team is hands-on, present on site to manage each project and engage with ward councillors. Delays are unacceptable, so community liaison is essential. The BCMDA has also completed an assessment through an Integrated Beachfront Programme. East London’s beaches are its biggest asset, but the amenities are simply not up to standard. The agency aims to look at several small contractors on whom it can call to maintain and clean up the beaches, clear trees and undergrowth, and generally beautify the areas and make them more attractive to the public. The BCMDA has also appointed fund originators, where a consortium of consultants is appointed to raise and manage funds or find investors for projects. Fund originators must be consortiums, and must be able to

show their FIAS requirements. Funding could come from the banks or from government agencies such as the Public Investment Corporation. At the moment, there are five land parcels out on offer to be developed. These parcels include Marina Glen A, part of the Sleeper Site, Seaview Terrace, Water World (which may include a threestar hotel development and a campsite), as well as Victoria Grounds in King William’s Town. Property practitioners in East London will be familiar with the Sleeper Site. The BCMDA’s involvement here will include overseeing a part of the site that can be used as a lever to reduce vehicular and pedestrian traffic through Oxford, Cambridge and Buffalo streets. One parcel will be used for student accommodation; the biggest parcel has been set aside for a municipal precinct with mixed-use retail and municipal and other government sector offices. The Victoria Grounds parcel in King William’s Town would be targeting municipal land to be leased for a minimum of 30 years (with an option to renew) for the purposes of government, municipal and private development. The private developers would be responsible for the infrastructure. The BCMDA believes that the government cannot develop the country alone – and so its finance models look at turnkey processes of building, operating and maintaining the leased land for a proposed 30 years. This creates the platform for sustained employment and return on investment.

howmuch.net

The importance of agriculture in the world’s economy One of the things that everyone on Earth has in common is the need for food. As a result, agricultural production plays a pivotal role in the world economy. Factors such as climate, arable land, access to technology and amount of human labour affect agricultural production in different parts of the world By Raul – howmuch.net/articles/role-agriculture-around-the-world / World Bank – worldbank.org

he information in this visualisation comes from the World Bank, which publishes a database for each country’s output (GDP) as well as the breakdown by agriculture, industry, manufacturing and services. In the global visualisation map, the countries are shaded based on the percentage of GDP that agriculture represents in each country. Lighter shades indicate a smaller share of GDP and darker shades represent a larger share of GDP. Using additional information from the World Bank’s World Development Indicators, we can also determine how agricultural production and employment vary by country. The African visualisations list each country’s GDP earned from agriculture, and indicate agricultural employment by the different shades of green. In addition, the countries appear bigger if their agricultural output is larger, and the countries appear smaller if their agricultural output is smaller.

ROLE OF AGRICULTURE IN AFRICA

Top 3 countries in Africa by agricultural output 1. Nigeria: US$83,4-billion – 36,62% employed in agriculture 2. Kenya: US$29,9-billion – 57,45% employed in agriculture 3. Egypt: US$27,6-billion – 24,87% employed in agriculture

ROLE OF AGRICULTURE IN THE WORLD ECONOMY

Much of the African economy relies on agricultural production. In eight African countries, including Sierra Leone, Mali and Guinea-Bissau, more than a third of GDP comes from agricultural output. Similarly, in seven African countries, including Niger, Chad and Uganda, more than 70% of the population is employed in agriculture. ●● As of 2018, agriculture represents three percent of the world’s GDP, down from four percent in 2010. ●● Even though agriculture represents a small share of the world’s economic output, this industry employs almost 30% of all workers. ●● Developing countries are more likely than developed countries to rely on agriculture as a larger percentage of GDP. ●● Overall, agriculture as a share of total GDP is highest in countries in Africa and South Asia.

SOUTH AFRICAN PROPERTY REVIEW

state of city finances

Localising taxation City revenues appear to be quite resilient, growing at an average annual rate of about eight percent and with collection rates of about 95% – although most cities have increased their provisions for debt impairment. The rapid increase in bulk tariffs is squeezing out the surplus that cities have historically used to cross-subsidise other services, while cities are underspending on both repairs and maintenance and their capital budgets. Only with the 2017/2018 financial statements and audit reports will it be possible to assess the impact of the new administrations elected in the 2016 local government elections 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.

onstant evolution has characterised the local government sphere since 2000, the year that South Africa formally adopted a democratic local government system with the first local government elections. This evolution has been driven by social, political and economic pressures that are most profound at the local government level. Unlike rural and semi-urban municipalities, which face service delivery and social development challenges, South Africa’s cities are required to balance these developmental and social needs with the demands of being the country’s engines of economic growth. The local government fiscal framework enables municipalities to respond to service delivery needs within different contexts and an evolving local government sphere. Sections 227 and 229 of the Constitution of South Africa guarantee local government an equitable share of nationally raised

Key messages Cities need to be sustainably financed in order to meet the National Development Plan objectives and the sustainable development goals. Under the current local government fiscal framework, metros are allocated a lower per-household equitable share and conditional grants than other municipalities. An assessment of five possible revenue options found that cities should pursue a tourism levy in the short term and business tax in the long term.

revenue, and empower municipalities to impose various taxes and levies. The funding model assumes that metropolitan municipalities (metros) have a greater revenue-raising potential than other municipalities because they have higher levels of economic activity (National Treasury, 2018). Therefore, intergovernmental fiscal transfers (via the equitable share and other grants), which are used to minimise the fiscal gap between expenditure needs and

Figure 41: Average equitable share and conditional grant per household by municipal type 2018/2019 (R’000)

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own revenues, are relatively biased towards smaller rural municipalities that have a limited tax base. Figure 41 illustrates the distributive nature of the local government fiscal framework. It shows that the equitable share and conditional grant per-household allocations are higher in the non-city (large town, smaller town and rural) municipalities than in metros. With rapid urbanisation and the growing economic role of cities, the mandates of metros and secondary cities have increased, placing pressure on city budgets. Cities are faced with a growing demand for services and economic opportunities; they need to provide infrastructure and economic services, as well as manage climate change and the green economy. Cities are a key factor for the achievement of South Africa’s sustainable developmental agenda and the goals set out in the National Development Plan (NDP). To deliver on their social and economic responsibilities, cities need to be well-managed, sustainable and

state of city finances appropriately financed. A concern is the general revenue management and debt collection of local government, although cities collect more revenues owed to them than other municipalities do (SALGA, 2015). Yet even if cities collected all revenues owed to them, they would have a funding shortfall. This structural funding gap makes cities financially vulnerable, and compromises their longterm sustainability and their ability to meet their mandates. A solution is to assign greater powers to metros and secondary cities, which would give them greater autonomy to manage their affairs and to fund their additional mandates, leaving national grants to focus on municipalities with lower revenueraising potential. The Alternative Metro Financing Models (AMFM) process, driven by the South African Cities Network (SACN) and the City of Tshwane, has explored potential revenue options for local government to bridge the current structural fiscal gap (Table 37).

After briefly discussing the evolution of the local government fiscal framework, the chapter presents principles for assessing potential revenue sources in a decentralised system of government. The revenue assessment matrix is then described and applied to the AMFM instruments. The chapter concludes with a summary of the key findings and a set of recommendations.

The evolution of local government taxation A comprehensive legal framework underpins the local government fiscal framework, starting with the Constitution. Chapter 7 of the Constitution defines local government’s powers and functions within South Africa’s three-sphere intergovernmental fiscal system. Schedules 4B and 5B of the Constitution list the functional areas of local government. Chapter 13 of the Constitution assigns the revenue powers required to fund these services. In most cases, revenue assignments are linked

Table 37: Revenue options identified in the AMFM process

This chapter assesses the practicality of the AMFM revenue options using a revenue assessment matrix, which comprises: ●● The municipal revenue assessment matrix that assesses the potential revenue and administrative impacts on city governments of the AMFM revenue sources; and ●● The macro revenue assessment matrix that measures the economic rationale for AMFM revenue sources, and the ease of implementation in the current legal and policy framework of the country.

closely to expenditure assignments, as the local government revenue source or base is within the functional area of the municipality. ●● Section 229 covers municipal revenue sources: municipalities are allowed to impose a tax on property, surcharges on fees for services provided, as well as taxes, levies and duties authorised by national legislation. They cannot impose income tax, value added tax, general sales tax and customs

duties. (Surcharges on these taxes are revenue powers assigned to provincial government, as per Section 228.) The constitutional restrictions placed on local government revenues have consequences for some of the options proposed in the AMFM process. ●● Sections 214 and 227 allow for an equitable sharing of nationally raised revenues across the three spheres of government, which gives effect to the local government equitable share grant and conditional grants. In addition, various pieces of legislation enable and regulate municipal own revenue sources: the Municipal Systems Act (No. 32 of 2000), with other sector legislation, regulates municipal tariffs; the Division of Revenue Act regulates transfers to local government; and the Municipal Finance Management Act (No. 56 of 2003) deals with municipal debt financing and public private partnerships. From 2004, three events resulted in major changes in the municipal fiscal framework: 1. The enactment of the Municipal Property Rates Act (MPRA): The MPRA (Act No. 6 of 2004) introduced changes to the way municipalities impose property rates, including different ratios for rateable property and potential upper limits to rates increases, as determined by the legislation. 2. The enactment of Municipal Fiscal Powers and Functions Act (MFPFA) The MFPFA (Act No. 832 of 2007) regulates the imposition of municipal taxes (excluding property rates) and surcharges, and includes a provision for municipalities to apply for additional taxes to the Minister of Finance. Section 8 allows the Minister of Finance to regulate the imposition of surcharges by declaring norms and standards on various aspects, including maximum surcharge rates. This section has yet to be implemented because of institutional issues. Until these issues are resolved, Section 8 of the MFPFA remains a challenge and represents a potential revenue loss for municipalities. 3. The abolition of the Regional Services Council (RSC) and Joint Services Board (JSB) This was perhaps one of the most SOUTH AFRICAN PROPERTY REVIEW

state of city finances significant changes, as the RSC and JSB levies were an important revenue source for metropolitan and district municipalities, and used to support the provision of basic services infrastructure. The levies were phased out on 30 June 2006 because their design contradicted sound taxation principles (National Treasury, 2005). As an interim measure, to protect the revenue of municipalities, an RSA Levy Replacement Grant was introduced, until a replacement for the RSC levies could be found. In 2009, a share of the general fuel levy officially replaced the RSC levy grants for metropolitan municipalities. Although promoted as revenues to support transport infrastructure, these funds contribute to the municipal revenue fund and constitute general revenues (National Treasury, 2009). Similar to an unconditional grant, the fuel levy is distributed to each metro as a share of a fixed sum. Although the RSC levies were abolished for possibly the correct economic reasons, metros have limited control and flexibility over the replacement revenue (a share of the fuel levy). There is still no replacement for the RSC levies in district municipalities. As the former RSC levies were similar to a local business tax, the possibility of applying for the local business tax via Section 5 of the MFPFA has been proposed in many circles. eThekwini and the South African Local Government Association (SALGA) have made separate applications to the Minister of Finance for a local business tax, but the applications were not successful. The Minister of Finance cited an adverse economic environment as the reason for rejecting the applications. Yet discussions regarding a local business tax continue; such a tax was a key recommendation to emerge from the AMFM process. This chapter includes a local business tax as an AMFM option but does not go into detail about its design. Any additional revenue sources must work within the legal framework that underpins the local government fiscal framework and ensures that municipal fiscal powers are well regulated and mostly aligned with their constitutional mandates. While constitutional and legislative amendments are possible, they are prolonged and difficult to implement. 44

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Guiding principles In a system of fiscal decentralisation, finance following a function is the usual principle that underpins revenue assignment, i.e. it is best practice to assign expenditure to a sphere of government before assigning revenue instruments (Martinez-Vazquez, 2007). Assigning expenditure mandates and revenue powers across different spheres of government is both an economic and a political decision, and such decisions can change over time as a country’s social, economic and political contexts change. The three general functions that should guide the assignment of expenditure functions and revenue powers are macroeconomic stabilisation, income redistribution and resource allocation (Musgrave, 1959). In general, policy decisions that are related to macroeconomic stabilisation and income redistribution are best assigned to national government, while policy decisions about using resources to provide optimal goods and services that meet the preferences of different local communities are best assigned to subnational governments (Ajam, 2015). Two principles are used to assess the fairness of a revenue instrument or tax on society: 1. The benefit principle: What people pay should mirror what they receive in the form of services. 2. The ability-to-pay principle: People should pay in terms of what they can afford. Therefore, individuals who earn a higher income should contribute more to local government taxes or other revenue sources than lower-income individuals. With regards to the ability-to-pay principle, local government revenue instruments can be either progressive or regressive. “Progressive” means that people who earn more contribute more to the tax or revenue source. “Regressive” means that people earning less contribute relatively more of their income to the tax or revenue source. Regressive revenue sources are not ideal in countries such as South Africa, which drive a policy agenda of redistribution.

Another aspect to consider for taxes imposed by municipalities is that people and capital are relatively more mobile across municipalities than across countries or regions. Therefore, municipal taxes should not encourage the unnecessary mobility of resources across jurisdictions, i.e. people or companies should have incentives to move from one municipality to another to avoid higher taxation. Usual best practice for local government is to impose non-benefit (ability to pay) revenue instruments on relatively immobile bases and benefit revenue instruments on mobile economic units. The ideal is that mobile taxpayers (such as people or companies) see the benefit from a tax that they are paying, and so have no incentive to move to other locations.

Types of local revenue This section describes the different types of local revenue, and assesses them in relation to the benefit and ability-topay principles.

1 Local taxes A tax can be defined as “a compulsory extraction from a taxpayer paid in cash or in kind to the government to provide for the public services of common interest” (Peeters et al, 2005: 7). Taxes usually have four primary characteristics that distinguish them from other local revenue sources. A tax is: ●● a compulsory payment; ●● a payment to government or a state organ; ●● unrequited, i.e. a taxpayer may not receive a direct benefit equal to the tax amount paid (taxes collectivise the cost of a service and spread the benefits to the wider population); ●● imposed for public purposes, i.e. to buy public goods or as an intervention to limit negative externalities (e.g. pollution created when someone drives a car). Taxes usually hold up better to the ability-to-pay principle than to the benefit principle. In South Africa, the main local government tax is the property tax, or property rates. Property taxes are levied

state of city finances as a percentage of the assessed value of all (residential, commercial, industrial) properties and parcels of land located within a municipal jurisdiction. Property rates take the true meaning of a tax, as the proceeds form part of a municipality’s general revenue fund that is used to provide general services and meet its mandates. In other words, revenues from property rates are not earmarked for specific expenditure items, and taxpayers receive no direct benefits relative to what they pay (although there are indirect benefits that can accrue to higher-paying individuals).

Figure 42: Linking revenue instruments to service delivery

2 Fees The difference between fees and taxes is that the individual paying the fee derives a benefit proportionate to the fee paid. In other words, an individual pays fees for a specific benefit or privilege gained from the use of goods or a service, whereas a tax is a payment without a direct exchange of goods or a service. Like taxes, fees are an important revenue source for government. An additional benefit of charging fees is that, by quantifying the benefit placed on providing the goods or services, they function as a “price” for the local goods or services (Martinez-Vasquez, 2007). This in turn leads to resources being allocated appropriately for the delivery of the goods or services by the public sector. Fees can be divided into regulatory fees (e.g. inspection fees); user charges for consuming a service provided by government (e.g. electricity tariffs, refuse removal); and licence fees. User charges, fees and taxes that are related closely to benefits received by the payer are all appropriate for goods and services that are characteristic of private goods. User charges are often used to cover the costs of providing the goods or services, not for general governmental needs, and can vary depending on the customer’s location, the type of service provided or other variables that differentiate customers. In South Africa, the main fees charged by local government are user charges for services rendered. User charges allow (i) municipalities to recover the costs of service delivery, and (ii) customers to

benefit directly from the service they are paying for. Therefore, fees adhere better to the benefit principle than to the ability-to-pay principle. It can be argued that user charges are regressive, as poor households tend to pay more for services relative to their income than richer households. South Africa’s free basic services (FBS) policies are intended to minimise the apparent regressive nature of user charges. This suggests that South Africa applies the ability-to-pay principle to both taxes and user charges, although the theory suggests that this principle applies more to taxes than to fees.

3 Levies Unlike fees, a levy is usually a temporary measure to raise revenue for a specific social or economic purpose, or to mitigate crises (e.g. environmental), or where a municipality incurs a temporary cost, such as in the case of development charges/ levies. Temporary levies have a tendency to become permanent. (The fuel levy in South Africa has been in existence since 2006.) This suggests that the distinctions between levies, fees and even taxes are becoming blurred. The literature also shows that society is often more willing to pay levies than taxes because of the belief that levies are temporary and are imposed to fulfil an established social/public need.

Linking revenue instruments to service types There are some generally accepted norms of how to use the revenue instruments

explained in the previous section to fund different local government services. Figure 42 provides an overview of how each of the goods or services should ideally be funded (Slack, 2009). ●● User charges are preferable for services that are excludable (private goods) such as water, electricity and refuse removal, because the fee attaches a price to the benefit received by the customer and does not promote unnecessary movement of people and businesses. ●● Taxes are applicable for public goods, such as fire-fighting, street cleaning or streetlights, because these goods provide a communal benefit, i.e. the entire community benefits. ●● Transfers are preferable for goods/ services with either redistributive or spill-over effects.

Criteria for a good local revenue instrument In addition to the theoretical principles that should guide the assignment of revenue powers across spheres in a decentralised governmental system, other principles and criteria are used to assess whether a revenue source can be considered a good local revenue source. A good revenue source, specifically a good tax, should be fair and effective in the sense that it raises the revenue needed for governments to carry out their mandate, and it is efficient, minimising the burden on citizens (Bird, 2001; Swianiewitz, 2003). SOUTH AFRICAN PROPERTY REVIEW

state of city finances Table 38: Characteristics on an ideal revenue source/tax instrument

Table 38 summarises 12 characteristics of a good local revenue source/tax. The characteristics described in Table 38 are not exhaustive, and several criteria are similar in their measurement or interpretation. In practice, it is extremely unlikely for any revenue instrument to adhere to all of these criteria. There are likely to be trade-offs when determining the appropriateness of a revenue instrument for local government, and subjective views when prioritising the characteristics (resulting from a country’s unique economic, social and political stance in a given period). Therefore, developing a revenue assessment matrix using some of the criteria above provides a quasi-quantitative method by which new revenue instruments can be assessed for their practicality and ease of implementation.

The argument for localising taxation In South Africa, national government collects most of the country’s revenue and accounts for just over half of total government spending, followed by 46

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provincial government and local government. (Approximately 20% takes place at local level.) Faced with rising debt-servicing costs and an increasing debt-to-gross-domestic-product (GDP) ratio, national government is under pressure to consolidate the national budget. In this macroeconomic environment, it is difficult to argue for additional taxation or revenue powers for local government – the proposed local business tax in terms of Section 5 of the MFPFA was rejected because of concerns that additional local taxes would depress the economy. Yet South Africa’s Constitution explicitly recognises the role of local government in service delivery and local economic and social development. While the bulk of revenue collection lies with national government, local governments (especially cities) face the immediate pressure of rapid urbanisation, growing unemployment, climate change and other social needs. Although faced by cities, these pressures are of national priority and thus require an immediate fiscal response.

This is not taken into account appropriately in the current assignment of revenue powers and functions and the design of intergovernmental fiscal transfers. In fact, the equitable share and conditional grants to metropolitan municipalities and secondary cities can be considered as blunt instruments to deal with the pressures faced by modern cities. Over time, the assignment of revenue powers shifts to reflect changes in expenditure responsibilities and to address challenges specific to a certain sector of government. In this regard, the differentiation of municipalities (recognising the unique situation of cities) becomes paramount. Differentiation should be applied not only to the design of intergovernmental transfers, but also to the assignment of revenue powers and functions. City governments have the economic base and a relatively better institutional capacity to take on more revenue sources that will allow them to tackle challenges, which other municipalities – and even national government – do not face. Assigning additional revenue sources to city governments will empower them to deal with certain pressures that are unique to them but are issues of nationalpolicy priority. Therefore, the country should prioritise localising some revenue sources that meet key design and implementation criteria, as this will assist in dealing with various national issues.

Assessment of the AMFM revenue options To assess the impact of some of the AMFM options in Table 37, a two-pronged Excel-based Revenue Assessment Matrix was developed, comprising: ●● A municipal revenue assessment matrix that assesses the impact of the new revenue source on the city’s finances and the ease of administering it. In other words, the matrix describes the “internal” impact of a new revenue source. ●● A macro revenue assessment model that assesses whether the new revenue source is a “good” revenue source, i.e. it adheres to the economic principles in Table 38,

state of city finances and the ease of implementing it in the current legal, policy and economic environment. In other words, the matrix looks at the macroeconomic and legal implications of a new revenue source. The Annexures provide details of the sub-factors used to measure the primary factors described above, and the assumptions placed on filtering the revenue options through the two matrices. Only the first five options are assessed using the municipal and macro revenue assessment matrices. More in-depth analysis is needed to make an informed judgment on the criteria. This section provides a brief analysis of the impact of each AMFM revenue option on a cityâ&#x20AC;&#x2122;s finances and administration (municipal revenue assessment matrix) and the legal and macroeconomic implications (macro revenue assessment model).

revenues from PIT are considerable, through both a surcharge to benefit local government and a sharing mechanism. A surcharge of 10% would generate R40-billion, while 59% of revenues would go to the metros if the sharing mechanism were based on the number of individual taxpayers or contribution to income tax revenues (Figure 44). The PIT option would be a strong municipal revenue source and fairly easy to administer. If the South African

Revenue Service (SARS) continues collecting the tax or collects on behalf of the municipality, implementing this tax would not result in additional costs. It would be difficult to implement because a constitutional change would be required for local government to levy a surcharge, as currently this is a provincial government right. It could also have a negative economic impact if different surcharges existed in different cities, as individuals (mobile tax bases) might move to avoid tax.

Figure 44: Share of assessed taxpayers by metro (2016)

Personal income tax Personal income tax (PIT) is one of the most important taxes for the national fiscus, contributing 37% of total tax revenues in 2016/2017 (SARS, 2017). Over the past five years, PIT revenues have grown consistently, reaching R424billion in 2016/2017 (Figure 43). PIT is constitutionally assigned to national government, but provinces are allowed to apply a surcharge to the national tax rate (yet this right has never been exercised). The potential

Figure 45: Municipal revenue assessment â&#x20AC;&#x201C; PIT

Figure 43: Growth in PIT revenues (2012/2013-2016/2017) Corporate income tax Corporate income tax (CIT) is also an important national government tax, contributing about 18% of total tax revenues in 2016/2017 (SARS, 2017). Over the past five years, CIT has grown by about 28%, exceeding R200-billion in 2016/2017 (Figure 47). Although not as high as PIT, the CIT option can still contribute significantly to city budgets. A 10% surcharge applied to local government would contribute more than R20-billion in revenue. SOUTH AFRICAN PROPERTY REVIEW

state of city finances Figure 47: Growth in CIT revenues (2012/2012-2016/2017)

Figure 48: Municipal revenue assessment â&#x20AC;&#x201C; CIT

Tourism levies/occupancy tax

Figure 49: Macro revenue assessment matrix â&#x20AC;&#x201C; CIT

The CIT option generates substantial revenue, is easier to administer than the PIT option and (assuming SARS collects the revenue) will not result in extra costs. A surcharge would afford greater control over the tax rate than a taxsharing arrangement. But it would be difficult to implement in the short/medium term because of the need for a constitutional change (as with PIT), and could have a negative economic impact, as individuals (mobile tax bases) might move to avoid tax if cities have different surcharges.

Transfer duties Transfer duties are taxes paid when property is transferred during a sale, and are collected by national government. 48

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It would be easier to implement than the CIT/PIT options, as it would only require a legislative change (e.g. to the Tax Amendment Bill). Fiscal constraints mean it is unlikely that this tax would be assigned to local government, especially in the short/ medium term. This is a good local tax, as transfer duties are linked to an immobile tax base.

Over the past five years, revenues from transfer duties have almost doubled, from R4,2-billion to R8,2-billion in 2016/ 2017 (Figure 50). Compared to the CIT or PIT options, a sharing or surcharge arrangement on transfer duties would not generate a substantial amount of revenue. To have a substantial impact on city budgets, all transfer duties would have to be assigned to local government. Given that municipalities also levy property rates, the administration and infrastructure would be in place to take over the tax. This would not generate substantial revenues (average score), but the ease of administration is high because arrangements are likely to be similar to those for the CIT and PIT options.

Tourism levies are a potential revenue source for cities, either through a surcharge or a share of the levies. While tourism levies remain a viable option, the occupancy tax option was assessed for the purposes of this chapter. An occupancy tax (hotel or transient occupancy tax) is charged to guests temporarily occupying a room in a hotel, bed-and-breakfast, boarding house or Airbnb, and in some instances camping sites. It is a tax because taxpayers experience no direct benefit from the municipality, and it can be used to fund municipal general revenues. Most cities in the US have this tax â&#x20AC;&#x201C; in New York, the tax is based on the rental amount of the room, and is paid by the person occupying the room and collected by the person providing the service of the room. To properly assess the revenue potential of an occupancy tax would require estimating the revenues that could be generated and comparing these to municipal budgets and the fiscal gap requirements. However, as the data available is insufficient to be able to make any major assumptions about the potential revenues, the comparison is limited to the other taxes analysed in the chapter. Compared to the PIT and CIT options, revenues would not be substantial but could be an important revenue source for cities. Furthermore, existing systems could be used to implement the tax. It would be easily implementable and would have an average economic impact. This suggests that, of all the taxes, the occupancy tax would be the most viable option based on the macro revenue assessment.

state of city finances Figure 50: Growth in transfer duties (2012/2013-2016/2017)

Figure 57: Municipal revenue assessment – summary

easy tax to implement immediately in local government from a municipal perspective. Assuming that the revenues from the local business tax would not be too dissimilar to that of the RSC levies, the local business tax would have a medium revenue impact. The local business tax is also a good option for local government. It would be an easy tax to implement immediately in cities and, assuming that the revenues would be similar to the RSC levels, it would have a medium revenue impact. Therefore, a local business tax is a good option for cities. The tax is quite implementable in the current political and legal environment. However, given the current state of the economy, a local business tax could depress economic activity, affecting economic growth. This impact remains an obstacle to the tax, as general economic growth is required in the short-to-medium term.

Summary of revenue options

Figure 58: Macro revenue assessment – summary

Figures 57 and 58 summarise the scores from both the matrices of all the revenue instruments assessed. Most of the taxes will have an important impact on city revenues and will be easy to administer. The PIT and CIT options will have the highest impact on revenue. The PIT and CIT options would be difficult to implement in the short term because of constitutional constraints and would have a negative impact on the economy (because of tax mobility). The occupancy tax would not have a negative economic impact and would be the most easily implementable option.

Conclusion

Local business tax A local business tax has been proposed several times as the ideal replacement for the abolished RSC levies because it would mirror the design of the RSC levies by linking revenues to business

turnover and payroll. The chapter will not go into extensive detail about such a tax’s design and implementation. As with all the other revenue instruments discussed thus far, the local business tax remains a very

Cities are the country’s engines of economic growth, but they are under pressure from rapid urbanisation and the increased demand for services. Because of their higher levels of economic activity, under the local government fiscal framework, metros are allocated a lower per-household equitable share and conditional grants SOUTH AFRICAN PROPERTY REVIEW

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state of city finances

Table 39: Primary factors and sub-factors of municipal revenue matrix

than other municipalities. However, despite having better revenue management and debt collection than other municipalities, metros have a funding shortfall (as is explained in greater detail in Chapter 4 of the 2018 State of City Finances report). This structural funding gap, which would exist even if metros collected all revenues owed to them, compromises their sustainability and ability to fulfil their mandates. One solution is to assign greater powers to metros, giving them greater autonomy to manage their affairs and fund additional mandates. The AMFM process, driven by the SACN and the City of Tshwane, has explored potential revenue options for government. Before assessing the practicality of various AMFMs, this chapter explained the evolution of local government taxation in South Africa, and described the underlying principles that have to be borne in mind when devising a city-based taxation system. The principle that underpins revenue assignment in a fiscal decentralisation system is “finance following a function”, i.e. it is best practice to assign expenditure to a sphere of government before assigning revenue instruments. The two principles used to assess the fairness of a revenue instrument or tax on society are the benefit principle and the ability-to-pay principle. These two principles were used to assess the different local revenue instruments (i.e. local taxes, fees and levies), which were matched to the type of goods/services to be delivered. Five of the seven revenue options identified in the AMFM process were then assessed using a municipal revenue matrix (in order to assess the potential revenue and administrative impacts on city governments) and a macro revenue matrix (in order to assess the economic rationale and

ease of implementation within the current legal and policy framework). Municipalities can use the results of these assessments when considering imposing new revenue sources or when applying for a new tax instrument via the MFPFA. The analysis found the following: ●● PIT and CIT would be strong municipal revenue sources and fairly easy to administer. However, they would be difficult to implement because they would require a constitutional change and would have a negative economic impact. ●● Transfer duties (property taxes) would not bring in substantial revenue but would be easy to administer. While easier to implement than the PIT/CIT, this tax is unlikely to be assigned to local government because of national fiscal constraints. ●● Occupancy tax would also not bring in substantial revenue but could be an important revenue source for cities. It would be easily implementable and would have an average economic impact. Off all the options, the occupancy tax would be the most viable one based on the macro revenue assessment. ●● A local business tax would be easy to implement and is a good option for cities. However, the obstacle to such a tax is its potential negative impact on economic growth. In brief, to generate more revenue, cities should consider introducing an occupancy tax in the short term, while continuing with their research on a local business tax for implementation in the medium term. SOUTH AFRICAN PROPERTY REVIEW

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Weimar on the economy On 22 August, SAPOA Western Cape hosted a Growthpoint Properties-sponsored post-election breakfast at The River Club, with Nicky Weimar as the guest speaker By Mark Pettipher

Nicky Weimar giving predictions for the rest of the year

icky Weimar, who is a senior economist at Nedbank, was largely optimistic at the networking event, telling the attendees that South Africa is experiencing a small growth period. It’s a fragile rise off a very low base, but bearing in mind that the economy contracted by 3,2% in the first quarter, the second-quarter figures can be seen as positive. Retail and vehicle sales have begun a gradual recovery as well, and Weimar is predicting growth of 2,7% or 2,8%. However, we are still behind the first quarter’s contraction. What followed was a reiteration of South Africa’s performance as presented in her address to the delegates at the SAPOA Annual Convention & Property Exhibition. Weimar pointed out that no one is investing, and that there is little fixed investment being attracted.

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The government’s largest spend at present is on the public sector, which is not sustainable. The private sector doesn’t have the luxury of employing people for

employment’s sake, so it has not been increasing employment. The government has had to increase its debit, borrowing to pay its bills. This too is unsustainable: there are not enough taxpayers to offset this borrowing. Weimar is predicting that Moodys, the only rating agency that is still favouring South Africa, will soon downgrade the country’s investment status to junk. She also believes South Africa will be kicked out of the Citibank’s World Bank bond index, and the sovereign risk will simply be transferred to the Frontier Index. As a result, capital will still continue to flow to South Africa, but at a higher interest cost. So what can we anticipate this year, exactly? Mild, gradual growth. Weimar is not overly concerned by the NHI or the land debate; she does not believe that they will affect the economy this year. She is, however, asking for policy certainty, reduced red tape, and a solution to the Eskom and SAA debacles. Her biggest concern, she says, is continued policy uncertainty, and the ripple effect it will have on the country. To listen to the entire presentation, visit Southafricanpropertyreview.co.za – or if you’re already online, click here. To see the slide presentation, click here.

Nedbank senior economist Nicky Weimar with SAPOA Western Cape Chair Simon Nicks

networking