South African commercial property suffering under mismanagement

Mismanagement attributed by lack of skills and dysfunctional local authorities are holding back much-needed infrastructure and property developments frustrating investors as they seek certainty.

These issues, together with rising rates and electricity costs, were among the biggest concerns facing the commercial property industry, according to Neil Gopal, CEO of the South African Property Owners Association (SAPOA).

Speaking ahead of the 44th Annual SAPOA Convention and Property Exhibition held in Durban last week, Gopal said poorly performing municipalities needed to up their game or face losing investors to other areas.

Some municipalities are crumbling and the problem of lack of capacity, skills and service delivery is very real issues for business. This is exacerbated by the high vacancy rates in some municipalities.

“For the property industry and SAPOA members this translates into day-to-day experiences that leave a lot to be desired. I know of cases where developers of billion-rand projects end up waiting for two years just to get a simple rates clearance certificate from municipal authorities,” he said.
“It has got so bad in some municipalities that getting a rates clearance certificate or having land rezoned takes years.” said Gopal.

Property group Redefine has decided not to invest further in areas where experience has shown the local authorities are dysfunctional, inefficient or adopt dubious business practices.
“We are fed up with the rates and taxes of properties increasing at astronomical rates, while service delivery deteriorates, or is non-existent, so Redefine has opted to vote with its cheque book and will not, under any circumstances, invest in these regions,” says Marc Wainer Redefine Properties CEO.

Cities were edged to pull out the stops in order to attract investors, improving their ability to approve rezoning and other development applications on time.

Despite these challenges, SAPOA did not condone “cowboy developers” who constructed illegal or unapproved buildings, and its members were bound by a code of conduct.

The property industry is facing increased operating costs owing to spiralling electricity costs and municipal rates and other service charges. Operating costs increased by about 17% in 2011. This has seen operating costs now account for up to 40% of the sector’s expenditure.
“We understand that municipalities need to increase rates, but we also call for a concerted effort by municipalities to better manage their finances,” he said.

“The City of Joburg increased their rates by 28% in 2009 and we took them to court. The case did not go in our favour, but we are appealing and the case will be heard in the Supreme Court of Appeal in August.

“eThekwini municipality also tried illegally to increase development charges and impose an additional tax on our members. They dropped this charge after we threatened to go to court over the matter,” he said.

SAPOA was vocal about unjustified hikes in municipal rates and other costs, as the organisation representing the interests of the commercial property sector in SA.

SA property industry was well recognised by its peers globally and was performing comparatively better than some counterparts. Gopal cited the growth and performance of property sectors including listed, unlisted and retail.

Global economic environment as a result of the woes in Europe and a possible double-dip recession was a concern for SA because five of its top trading partners were from that region.
SAPOA is taking black economic empowerment (BEE) policy seriously and this was signatory to the Property Charter which initiated the process in 2003.

“We are glad to say that the Property Charter was finally gazetted as of April 2012 and the industry will continue to make concerted efforts to address transformation on all the pillars of BEE,” he said.

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