More black property developers would transform SA’s landscape
• Underserviced rural communities would be uplifted and sector would become more equitable
The property sector needs to speed up transformation, particularly in rural and peri-urban areas, where there are opportunities to uplift communities by promoting infrastructure development and service delivery.
The amended Property Sector Code, setting a black ownership target of 27% for companies that own property, came into effect on June 28 and is binding on entities and organisations operating in the sector.
It is higher than the 25% black ownership target of the generic codes and has also set a target for established companies to financially support those that are at least 51% black-owned.
This measure has been introduced to make capital available in the sector to enable blackowned companies to develop and acquire properties.
The critical issue is that property development is capitalintensive and it takes time to accumulate the necessary capital. This does not work in favour of black property developers.
For example, if you’re looking to raise R100m from the banks for a commercial development, you need to have a minimum deposit of 30%. It’s that R30m that makes the barrier to entry impossibly high.
With a finance market that is fairly well developed, there are ways in which SA’s private sector could, and should, structure more favourable deals to help drive black commercial property development.
Sector representatives need to call on the Department of Public Works to reinstate the 10-year lease agreements introduced in 2010 to help black property developers raise funding. After a moratorium was placed on those deals, thanks to a leasing scandal, transformation of the R5.8-trillion sector has been slow.
We have seen few black entrants into the market and there is no doubt that longerterm leases would help to create a more supportive environment for black players, allowing for the lease profile to be matched to the loan profile.
It’s simply impossible to secure a 10-year loan with a five-year lease, as the developer is unlikely to have the balance sheet to pay off the debt when the lease ends. With a long-term lease in place, newer entrants would have the opportunity to build capital more quickly and up the pace of transformation more meaningfully.
The country and its citizens would stand to benefit significantly from such a move. Typically, property developers tend to undertake projects in areas where they are most comfortable. The Johannesburg office market has more than 9,600,000m² of office accommodation, with stock having grown by more than 15% in the past five years in the main nodes of Sandton, Rosebank and Waterfall Business Estate, according to a 2016 report by Jones Lang Lasalle.
The average price of property on the Atlantic Seaboard in Cape Town has more than doubled since 2012 and continues to accelerate, with growth of 22.9% in the fourth quarter of 2016, according to First National Bank household and property sector strategist John Loos.
Imagine redirecting some of these projects and creating opportunities for growth and development in rural areas. Economic growth is the foundation of successful development, and that growth is driven mainly by private sector business in a market environment.
One example of a successful commercial development that has had a significant socioeconomic effect on the surrounding community is Twin City in Bushbuckridge, Mpumalanga. At 22,000m², it is anchored by Super Spar, Boxer and A1 Fisheries. Prior to the construction of this centre, people in the area had little access to suitable shopping and banking facilities.
The project provided employment for local labourers and, subsequently, for those working in the stores and branches that operate from the centre. This is about local economic empowerment in a safe and friendly environment.
Moreover, thousands of rural development jobs have come about through initiatives such as these, which have been undertaken in our country’s rural and underserviced areas.
The reality is that black property developers are comfortable working on projects in rural areas such as Mthatha, White River and Elukwatini, where the need for infrastructure is massive, because they are familiar with them. It’s where they come from. They understand the dynamic of the communities and the way land rights have been set up.
Importantly, economic hardship feeds social unrest. It is necessary for ordinary citizens to start feeling that they are active participants in the economy. They need to identify role models from their communities who have risen up and played a part in helping to revamp our economy. They need to believe they too have a role to play.
ECONOMIC GROWTH IS THE FOUNDATION OF SUCCESSFUL DEVELOPMENT, AND THAT GROWTH IS DRIVEN BY BUSINESS