Property & Wealth

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Calls for government to aggressively accelerate the pace of property transformation

Once again issues of education are at the forefront of the most strident calls for rapid-fire change in South Africa’s heavily imbalanced economy. No surprise that this very same voice of discontent is now also being heard in matters concerning real estate in the country.

During a recent interview with Tim Modise, the SA Institute of Black Property Practitioners threw its weight behind calls for a more aggressive drive on the part of government to mitigate the massive imbalances of the past. Tshepo Matlala of the SAIBPP pointed out that black-owned companies only have a 2% share of the country’s R400 billion property sector.

The problem with property, he noted wryly, is that it requires deep pockets. To be in the property business you need capital and that means going to the banks for finance. The banks in turn are loath to take risks in the commercial property market and will require the stakeholders to invest up to 50% of the deal value from their own pockets.

That leaves the budding black entrepreneur with an almost insurmountable mountain to climb.

Good news is that there are already four listed black-owned and -managed property companies. Most of them were apparently assisted by the government’s ten-year lease plan. Between 2008 and 2011 that initiative delivered about R13 billion worth of black property companies.

Lack of black individual ownership

On top of the money dilemma you also have the skewed nature of the property-owning market where the vast majority of South Africans do not own property in the formal sector.

Where they do, it is held in accordance with customary law. Consequently they are not entitled to freely deal with that property as they deem fit. As matters now stand, the state effectively owns the land on behalf of its occupants and manages those assets through the Council of Traditional Leaders.

While the property sector is governed in terms of a BEE Charter, the generally held view is that the large private property owners are slow in coming to the transformation party and the government is actually required to crack the whip to get the line moving to a desired conclusion.

Last week at the launch of a joint initiative in the Western Cape of the Free Market Foundation’s (FMF) Khaya Lam land reform initiative and the Theewaterskloof District Municipality, FMF’s executive director, Leon Louw, said: “Black land deprivation was probably the single worst element of apartheid. Ever since apartheid ended, little has changed in this regard. In South Africa today there are still between 7 million and 10 million black families living as tenants or without ownership rights in houses they have lived in for generations. There has been no systematic conversion of these ‘council owned’ and ‘traditional community’ properties to full unrestricted ownership.” 

Despite initiatives like the FMF’s Khaya Lam projects (Theewaterskloof being the third municipality in the country to sign a deal with FMF and the Department of Human Settlements) and the Banking Association of South Africa having revived a revised memorandum of understanding to tackle the backlog of low-income housing provision, progress on this front remains painfully slow.

Proposals for movement

Some voices are adamant that there is nothing to stop the government from saying that, for example, 25% of the R900 billion property market should go to black entrepreneurs.

In the process government is encouraged to become proactive on all fronts.

In the first instance they can make sure that all those who align with the Property Charter are nudged to form joint ventures with black parties to create additional wealth. Government as the largest landowner in the country must also be seen to make property available to blacks and to ensure that they have access to the appropriate finance.

Tshepo also points out that a healthy property market in SA relies on three things:

  • equity from the banks;
  • opportunity from the government; and
  • assistance and support provided by the private sector.

In that way the Property Charter will be perceived to be playing a significant role in the long-overdue overhauling and transformation of the property sector.

Wider implications

World-wide, based on numerous studies, it is accepted that homeownership plays not only an important role in supporting a stable socio-political and -economic environment. It also contributes to a healthy environment for early childhood development and neighbourhood and social stability.

Homeownership is an important point of entry for people into the formal economy, as well as for the development of a middle class.

There are also wider economic benefits to be reaped from stimulating the emerging housing market by, for instance, regularising the title deed regime on communal and other government-controlled or -owned land.

While infrastructure projects envisaged under the National Development Plan are slow in developing momentum, it must be noted that the country’s housing and human settlements sector is emerging as a key driver of the consulting engineering sector, providing around 11% of that industry’s earnings in the first half of 2015.

“I’m quite excited about the housing sector,” Elsie Snyman of Industry Insight, the construction-market intelligence firm, said during a presentation of the findings of a report commissioned by Consulting Engineers South Africa into the state of the industry in the first six months of the year.

The next urgent question is, what is needed right now to further unlock all this wealth-building potential?

(ED- In the next column we will examine what services and tools are presently available to encourage more and more first-time entrants into the free-market property sector.)

by Eve van Basten

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