Business Day

More black property developers would transform SA’s landscape

• Underservi­ced rural communitie­s would be uplifted and sector would become more equitable

- Thabo Ntseare Ntseare is chief operating officer at Nthwese Developmen­ts.

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.


 ?? /Kevin Sutherland ?? Home ground: The private sector should structure more favourable deals to help drive capitalint­ensive black commercial property developmen­t, the writer says.
/Kevin Sutherland Home ground: The private sector should structure more favourable deals to help drive capitalint­ensive black commercial property developmen­t, the writer says.

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