Developers interviewed for this study unanimously agreed that the development application process was an obstacle in the development process. Many articulated that, rather than responding to City policies, they would benefit more from an efficient building plan application process for instance (Nyoni 2016). There was an overall positive response to this new approach being taken, which appears to be a very compelling incentive. Yet the point in the development cycle at which this will be implemented is fairly far along. It is unclear whether this would specifically attract developers to the Corridors or whether it would instead be considered a bonus for developers already interested in investing in the Corridors. These incentives should be offered with clear attention paid to the long-term consequence of overly permissive development rights.
4.1.3. Permissive development rights As a supplementary practice to support faster development applications, the City has initiated a process to support densification by approving: • Additional dwelling units through changing non-residential uses into residential use • Subdivisions • Consolidation and redevelopment • Increased land rights • Higher density infill (CoJ 2014: 60-61) One of the main incentives for development in the Corridors is the process of rezoning. The rezoning of the Corridors means that developers are able to access higher density rights without going through the rezoning process. An exercise is underway in the Land Use Management Department to test the densities laid out in the frameworks, from a financial feasibility angle as well as a viability perspective (interview with Linah Dube, 21 July 2016). Savage argues that the City should use development rights strategically in order to boost its finances (through selling or auctioning the rights), and expresses caution at giving developers blanket rights for development (interview with David Savage, 2 August 2016). He explains that thinking through the leverage that development rights might yield could strengthen it as an instrument. For instance, setting development time limits could mitigate against developers banking
Transit corridors & the private sector
land for long periods of time without developing it. It would be equally worthwhile to determine the possibility of the City setting time limits on development rights to ensure these are exercised within a time frame. Allowing greater densities has the potential to make development more attractive. The shortcomings of these incentives hinge upon the fact that much of the private sector does not follow City strategy and neither do financiers. Amending density requirements and relaxing parking rights was favoured by new developers on the Corridors, who felt that lower parking ratios made their developments more viable (although it is unclear if this benefit will be passed on to the end user). Parking restrictions are also a critical part of ensuring that public transport is utilised and successful. Todes’ research in 2012 shows that the development bonuses granted at the time of the GMS were not taken up by developers. This was in part because there was no confidence in the City’s ability to meet infrastructure requirements associated with the densities (Todes 2012: 163). Knowing that the City has provided sufficient bulk infrastructure to support densities in advance will address these concerns, but it is too soon to quantify the effects. While the City incentivises higher densities, densification is prevalent in the informal housing market with the use of commercial buildings and even industrial buildings as residential buildings. In some areas, the infrastructure will be unable to cope with the strain and this needs to be proactively addressed as an element of the TOD process. Further, as the City grapples with informality this provides an opportunity for determining ways in which informal densification can be regularised to the benefit of existing residents.
4.1.4. Rates In addition to development rights, the City has also approved a rates policy which provides rates benefits to developers on the Corridors. The Land Use Management Department is charged with ensuring that the rebates are happening correctly, after receiving developers’ applications. Section 7(12) of the City of Johannesburg’s Rates Policy 2016/2017 states the following with regard to COF rebates:
(12) Corridors of Freedom Incentive The rebate will apply as follows: 12.1 During Construction Rebate
01 The rebate will apply to new building developments that would take place within the identified COF in line with the approved Strategic Area Frameworks, including Soweto TOD nodes (Jabulani, Orlando, Nancefield Station, Kliptown).
02 The property owner will pay 25% of the
rate as per the category of land for a period not exceeding two years during the construction phase.
12.2 Post Construction Rebate
The property owner will pay half the rate for the first year of operation as per the category of land.
01 The property owner will pay full rates
as per the category of property from the second year of operation onwards.
12.3 Requirements for the rebates
01 The detailed requirement criteria will
be determined by the Department of Development Planning in line with the policy for the Corridors of Freedom as approved by Council.
02 The development must be in line with
the development requirements set out by the City.
03 The proposed development must follow all planning by-laws
04 The developer must apply to the
Department of Development Planning for approval of the project.
05 Once the property is approved by the Department of Development Planning,
property unit will process the rebate in SAP. (CoJ 2016: 30-31)
Aside from the direct incentive provided though investment in the COF, there is also a rates rebate for densification. In terms of Section 5 of the Rates Policy pertaining to residential sectional title units, a rebate of 5% of current monthly rebates will apply if you have densities of 80 dwelling units per hectare and above (CoJ 2016: 25). In discussions with developers there was a mixed response to the efficacy of a rates rebate. While for smaller new property developers this was enthusiastically received, larger more established developers seemed more ambivalent and even resigned to never receiving the rebate. This is a consequence of their experiences with the City in trying to access rebates, rather than any opposition to the subsidy benefit itself. Instead of a ‘one stop shop’ to assist investors enquiring about rebates, property developers are required to directly access the Rates Department in order to apply for the rebate (interview with Property Developer A, 19 July 2016). The lack of enthusiasm for the rates policy amongst established developers seems to be a consequence of a lack of faith in City processes. In an interview with a new developer in the Corridors, he expressed frustration in his lack of ability to access the promised rates rebate (interview with Property Developer A, 19 July 2016). This is noteworthy because rates are a significant cost for developers and investors.A SAPOA report from 2016 highlights that the escalation in property rates over the past decade is a growing expense in the commercial property industry, with rates and taxes having grown at a higher rate than inflation (SAPOA 2016b: 4). The report states that rates currently comprise 20% of operating cost, while rates as a percentage of total costs were calculated as follows for December 2015: 20.7% (retail), 18.5% (office), and 20.1% (industrial) (SAPOA 2016b: 3, 6). SAPOA maintains that in the early 2000s property rates were in line with increases in property values but after the recession property rates have increased at a higher rate than capital values (SAPOA 2016b: 7). The Vukile Property Fund Annual Report also makes reference to the dramatic rise in utilities and property rates (2016: 40). This dynamic is also referred to in the ICHIP programme, where rising inner city property prices have exponentially increased property rates too.20 The success of the City’s rates initiative is therefore contingent on the ability of the City to follow through on its offering, and to build confidence amongst property developers that the institution will support the development. 20 It is worth differentiating here between the price elasticity in residential properties and commercial properties by determining which sectors are able to best absorb the increases.
Transit corridors & the private sector
Published on Aug 2, 2017
Part of the Spatial Transformation through Transit-Oriented Development in Johannesburg research series. Published by the South African Rese...