Construction and developer insight
A recent conference motivated for a process change that could ease property development blockages, throw a lifeline to the building industry and stimulate employment
ostly delays caused by red tape approval processes at local municipalities are halting SA’s mixed-use and residential property development and harming a struggling construction sector. The knockon effect is hampered economic growth.
At last month’s Western Cape Property Development Forum annual conference in Cape Town, feedback from the banking community, developers, architects and urban planners was that if residential or mixed-use projects are not cancelled outright due to approvalrelated delays, the costs are passed on to property investors’ pockets. The industry wants to see measurable targets.
UCT’s Department of Construction Economics and Management senior lecturer Rob McGaffin said it now takes an average of four to eight years to complete a development in Cape Town – double the time it took a few years ago. McGaffin and industry colleagues are part of UCT’s Nedbank Urban Real Estate Research Unit (Ureru), which is working on a property development
Cprocess model to identify blockages curtailing the development of private and public infrastructure and the construction industry.
VIABILITY
“A two-year delay creates a massive increase in the gap between capital cost and income generated by that project, causing a decline in return on investment for the parties concerned,” said McGaffin. This affects project viability, where property development then requires additional capital injection.
Developers are also hit by market factors and may have to wait out low property cycle swings until rentals can increase again. “When local returns are not feasible, more South African property investments are being taken offshore. This is not good for regenerating the local economy,” he said.
LOSSES
Ureru research shows that a 30-day delay to a 1,000m2 development results in a R530,000 total income loss or a loss of more than R17,000 a day. Developmental delays are common throughout SA.
Western Cape Property Development Forum chairperson Deon van
Zyl said companies on the ground working with property developers reported that it typically takes between 54 to 90 weeks to award a building tender. This against a backdrop of “new property sales rates dropping and second-hand residential sales slowing considerably” and also of “commercial rental pushbacks”.
Van Zyl said that property and the real estate industry fall within the largest sector contributing to the local economy, namely finance and business services. So it is “only a matter of time” before these figures register the knock-on effect of the industry crisis.
BUREAUCRACY
Western Cape Government provincial minister of economic opportunities Beverley Schäfer acknowledged that the amount of red tape and bureaucracy faced by businesses and investors dealing with government is a major constraint restricting business development.
“I know the property sector continues to encounter a number of red tape issues that cause unnecessary delays in planning and construction,” she said. She explained that the Western Cape Government introduced a Red Tape Reduction
Unit to track where the bureaucratic blockages lie after “research showed that red tape cost SA R79bn in 2004, the equivalent to 6.5% of GDP and 16.5% of the total wage bill”.
Schäfer said the construction sector needs support as it contributes more than R23bn to provincial GDP in the Western Cape, employing 220,000 people. “Recent Stats SA data for building plans passed in the province shows there are still obstructions. The number and value of building plans passed in the Western Cape in January and February this year showed a decline – the total of building plans passed was 20% lower than last year.”
She acknowledged that some of the decline is a result of slow processes and a lack of speedy, efficient decision making by government.
BUILDING
On a national level, Absa Home Loans property
“Research showed that red tape cost SA R79bn in 2004, the equivalent to 6.5% of GDP and 16.5% of the total wage bill” Beverley Schäfer, Western Cape Government provincial minister of economic opportunities
analyst Jacques du Toit said Stats SA data for the country’s private-sectorfinanced residential building activity in Q1 2019 showed the number of building plans approved for new housing was down by 19.3% year on year in the three months to March. Yet the volume of new housing units completed for this period was up 47.9% year on year.
In 2018, the Western
Cape led the country in terms of building plans approved per square metre, Schäfer said, with R130bn in new developments in the province since 2009. Van
Zyl pointed out that statistics from the City of Cape Town show building occupancy certificates dropped 49% year on year from 2017 to 2018. Square metres of building work completed dropped by 60% for the same period.
Rabie Property Group director John Chapman said the company went from typically selling 25 to 30 homes a month to only five or six a month during 2018. “In Cape Town the taps didn’t run dry but the market dried up,” he said, adding that a downward sales trend last year affected not only the Western Cape but also developers throughout SA.
He said blockages in approval processes of new projects worsened the situation. As an example, he offered Rabie’s plans to build a R1.5bn City Park urban mixed-use building development in Cape
Town, where the challenge became “trying to control costs because the timing shifted out”. Rabie cancelled the project after numerous approval delays.
Mitchell Du Plessis Associates was involved in the building of the Cape Town Stadium, the V&A Waterfront and the MyCiTi integrated rapid transit system. The company initiates and takes projects to completion. “The red tape is incredible,” said project manager Jedd Grimbeek. “Our frustration is in the initiation phase, in getting the green light to proceed. That timeline is too long.
The risk is being transferred from government and the financial institutions to the developers, consultants and contractors. [We need] real change and not just talk.”
McGaffin said delays hurt the big players in construction and property development a lot, but have a greater impact on smaller entities who don’t have the resources to ride them out. “We’re undermining the entry of new players into this market,” he said. “We need many players to keep it competitive.”