Mbombela overview Mpumalanga’s capital has huge potential

Mpumalanga’s capital has huge potential

In March last year, we visited Mbombela to get an idea of what is happening in terms of opportunities in the city and the region. A year on, Property Review attended a SAPOA Post-Budget Breakfast sponsored by Halls Properties, Nedbank and WDT Attorneys. The networking breakfast afforded us the opportunity to talk to some of SAPOA’s regional council members to get an overview of what is happening in the city

By Mark Pettipher To read last year’s roundup, go to bit.ly/2w5xlDY

This year I decided to drive up to Mbombela – not because of the coronavirus but because the prices of flights from OR Tambo to Kruger Mpumalanga International Airport are extortionate. I’ve not driven to Mbombela before, and I’d heard the roads were good.

The resulting drive was pretty straightforward. You can see that getting produce to market from Nelspruit (as it was previously known) is not an issue, and the road further to the Mozambique border is equally good.

I left Johannesburg on the N12, which eventually took me to the N4. The 345km drive took me a little over three-and-a-half hours. On entering the city, I could see by the cleanliness of the streets that the City Improvement Districts (CIDs) are working well. It’s important for a first impression to be positive, and thanks to the three CIDs operating in Mbombela, visitors are encouraged to believe that the city has great potential.

After the Post-Budget Breakfast, members of SAPOA’s Mbombela Regional Council joined me in a conversation. I would like to thank outgoing Chairman and Kellaprince Property Group Managing Director Derek Todd, Kellaprince founder Keith Kellar, Bennie van der Merwe of Umsebe Development Planners, Leon Doyer of WDT Attorneys, incoming Chairperson Craig McFadyen of Oriprops and Sabine Walker, Halls Properties Development Manager, for their valuable insight.

Little has changed On the whole, little has changed from a year ago. Leon Doyer started the conversation, saying that commercial banks are actively supporting home loans of between R750 000 and R1.3-million, which is an indicator of demand for affordable housing in Mbombela. He also raised concerns that a number of the bigger construction companies in the area have gone out of business. He mentioned that there are few new developments taking place, adding strain to an already compromised private sector.

Sabine Walker added that the market has slowed down in terms of the commercial property sector – but that the residential market is the one that will be showing growth in the coming years. She supports Doyer’s observation of the R750 000 to R1.3-million price range, and believes that the local economy can support that level of lending.

From a developer’s perspective, there is scope for mixed-use developments, in particular in the Riverside Park area. “It is part of a well-established CID,” said Walker. “At Halls Properties, we believe that people are looking for the live-work-educateshop-play lifestyle, with the assurance of being in a well-managed precinct such as Riverside. A Curro school has recently been established in the Riverside node, and there has been some interest from hotel and hospital developers.”

Fiscal concerns Economically speaking, Mbombela – while en route to the Kruger National Park – doesn’t get much tourist business. It survives on business tourism. Mbombela’s largest employer is the government, and a large part of the city’s economic spend is based on government salaries. Agriculture is another significant contributor to the local economy.

The city could, however, be under threat from Maputo as the Mozambican capital improves its retail offering and business services, potentially reducing business tourism from the Mozambican market.

What came out of our conversation was a common concern about the municipality struggling to pay its bills. This is hardly surprising, given the Auditor-General’s report for the year ending June 2019, in which he states that “the financial statements indicate that the municipality incurred a net loss of R199 583 167 during the year ended 30 June 2019 and, as of that date, the municipality’s current liabilities exceeded its current assets by R1 513 885 585. These events or conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on the financial sustainability of the municipality.”

From a developer’s perspective, there is scope for mixed-use developments, in particular in the Riverside Park area. “It is part of a wellestablished CID.”

Development being hamstrung Putting a damper on development in Mbombela is the prohibitive cost of bulk service contributions (BSC). SAPOA has engaged with the municipality on this matter, and has had several meetings.

Another concern raised was the impact on town planning processes of a circular issued in 2018 by the Department of Water and Sanitation (DWS), which instructed officials to change the manner in which Section 25(1) and (2) of the National Water Act is interpreted. Township developers in Mbombela are required to transfer water rights equivalent to the demand of the township to the local authority, and the aforementioned circular complicates that process. Walker mentioned that Halls Properties, together with other local developers, has been engaging with DWS (at a national and local level) and with the local authority on this matter, to mitigate the impact on town planning processes – but this remains a concern.

As with all development, one has to ask: is the current infrastructure able to cope with demand? In the short to medium term, it would appear that the City of Mbombela’s water resources are able to sustain the current rate of development. However, former Halls Properties MD James Aling agrees with Walker’s observation that the issue of transferability of water rights for developers to have the ability to transfer water rights to Mbombela municipality is critical. Other towns in Mbombela – such as White River and Barberton – are in a precarious situation when it comes to the availability and supply of bulk water.

Mbombela’s main sources of water are the Crocodile River and the Kwena Dam, a combined gravity- and arch-type dam on the Crocodile River near Lydenburg. The dam was developed in 1984 and has a catchment area of 954km 2 ; it serves mainly as a source of drinking water and water for irrigation purposes. At the time of this issue going live, the dam level stood at 46.3%.

Putting a damper on development in Mbombela is the prohibitive cost of bulk service contributions (BSC). SAPOA has engaged with the municipality on this matter, and has had several meetings.

Concerns have been voiced that the revival of agriculture in the area –mainly the farming of avocados , macadamia nuts and soft citrus, all of which use large quantities of water – together with the high population growth over the past 20 years and the fact that there hasn’t been a significant upgrade to the bulk water infrastructure, will create problems in the future. Alongside these concerns, there is also the significant number of buildings that fall outside of the municipal boundaries. These buildings tap into services – both electricity and water – illegally, further exacerbating the municipality’s ability to increase its tax and ratepayer base, and to collect its dues.

Property not delivering on yield “It was not that long ago that yields on property were in the region of 16%,” Keith Kellar pointed out. “Today, we’d be happy to get 7% or 8%. For a developer to start to think about breaking ground, they have to consider the BSC carefully. They have to ask whether the potential tenant can afford the cost being passed onto them – and the short answer is no.”

It is clear that rental rates haven’t caught up with land rates. Where the average ask is in the region of R75/m 2 , industrial rentals are not getting anywhere near that. So while there is land available, the high rate requirements are keeping investors and developers out of the market.

Another issue holding back growth, according to Craig McFadyen, is a change in thinking. “Tenants are pushing back on rentals and escalations, and many landlords are lowering their commissions,” he said. “Add that to the lower 7% yields, and it’s no wonder that the property industry is slowing. But instead of developing new properties, we are seeing some movement in buildings being refurbished.”

Another issue holding back growth back, according to Craig McFadyen, is a change in thinking. “Tenants are pushing back on rentals and escalations, and many landlords are lowering their commissions. Add that to the lower 7% yields, and it’s no wonder that the property industry is slowing.

Great lifestyle On a positive note, Mbombela has an attractive lifestyle offering, and Walker believes that there is scope for higher-density, gated residential complexes. However, affordability is key. With the development of the Regional High Court and an expansion of medical facilities, a number of professionals have relocated to the city – which means that the service offering in Mbombela is expanding, and there’s no longer a need to seek those services in neighbouring Gauteng.

CIDs: a way to safeguard tax and rate bases In a Zoom meeting, Aling, who is now the Managing Director of Spaces Places & Partnerships (SP&P), told us that Mbombela’s three CIDs – the Nelspruit Central City Improvement District (a 13-hectare CBD under the leadership of TJ Marais), and the two Riverside Park and Riverside Industrial CIDs managed by SP&P – are trying to work with the municipality to ensure sustainable operation and growth in the city and broader municipal area.

“We need to get the municipality to update the CID bylaw,” he said. “In so doing, we as the Mbombela CID Forum have completed the first review of the by-law, and have set out a number of best-practice guidelines.

“Generally, people who buy into the CIDs appreciate the value of well-managed precincts and public spaces. We are also getting traction and increased awareness of CIDs, since starting discussions with folks in Barberton, Hazyview, Malelane and Komatipoort.

“Each community is different. Even though legislation says you need 50+1% to establish a CID, we aim for two-thirds majority, so that we can build trust and respect. This is extremely important, given the collective and collaborative nature

“Not to be controversial, but broken municipalities can really benefit from this kind of partnership with the private sector – something that President Ramaphosa alluded to in his recent State of the Nation address.”

of CIDs and the partnership with the city, which protect and enhance land values and thus protect and enhance the rates base of the city and/or town.

“Not to be controversial, but broken municipalities can really benefit from this kind of partnership with the private sector – something that President Ramaphosa alluded to in his recent State of the Nation address.

“Municipalities need to be asking how they can increase their rates base. CIDs help by protecting that base. By having well-managed city areas, a successfully operating CID will see the value of properties within its precincts appreciate.”

University brings opportunities “The University of Mpumalanga is growing significantly,” said Aling. “Not only has it expanded its curriculum offering, it has also invested significantly in infrastructure and buildings as the campus gets developed. I believe it is a real economic driver, bringing its own energy to the city. Students bring life and capital, and the university provides employment.”

There are studies and research that validate this, the latest being a paper by Dyason, Rossouw and Kleynhans on the “Economic Impact of a University Campus”, published in the South African Journal of Economic and Management Sciences in 2019. Student accommodation is a potential area for growth. The university has been operational for about six years, and has invested close to R3-billion in developing its infrastructure and facilities. It is aiming to accommodate up to 60% of its students on campus. At the moment, 3 500 students are enrolled; the university wants to grow this number to between 15 000 and 20 000. Walker mentioned that students who are reliant on NSFAS funding typically do not receive sufficient funds to make the development of large-scale student accommodation facilities feasible. The opportunities for development of student accommodation will most likely unlock as the university grows its numbers, with a mix of private and NSFAS funded students.

To overcome the immediate shortage of student accommodation, the municipality has created a student accommodation policy that allows for houses and flats to be modified to accommodate students. However, there are concerns about health and social problems that may arise from such living conditions if not closely monitored.

Halls Properties: Keeping a finger on Mbombela’s pulse Halls Properties Development Manager Sabine Walker gave us a landowner’s perspective. In terms of commercial property, Halls Properties – in line with national trends – has seen a slowdown in development. “This is hardly surprising,” said Walker, “and it was expected in the context of the current economic climate, as well as the maturing of the Riverside Precinct.

“While there has been a commercial slowdown, it is affording us an opportunity for residential development. Urbanisation is happening, and will continue at a rapid pace.

“We have seen a significant shift in demand from typical standalone residential homes to smaller, more affordable residences. The housing typography is changing, with greater demand for higher-density apartment living in the R750 000 to R1.3-million range. In Riverside Precinct, we have seen the Curro Group adapt its criteria to accommodate this, with a Curro Academy opening directly across from a significant residential development opportunity. Halls Properties is in the fortunate position of having prime land opposite the school that has already been zoned for 80 dwelling units per hectare. We believe the way forward in Mbombela at this time is largely in the residential space.

“Apart from the residential development opportunities that have been created in the precinct, we have land earmarked for health and hospital development and warehouse and value-retail development, as well as ongoing mixed-use development opportunities for specialised retail and hotel development – which, when it comes to market, will bring a significant contribution to the city’s economy.

“Halls Properties has a diverse portfolio and a depth of knowledge when it comes to the property sector. Because we have a long and solid foundation with the municipality, we are able work in partnership with them to achieve prosperity for the city. At Halls Properties we don’t undertake top-structure development. Our role is one of land manufacturing, whereby we secure the necessary town planning approvals, and service land to facilitate development by developers in the residential and commercial space, ensuring that we ourselves never compete with developers in the precinct.

“We’ve been fortunate that developers who have taken up development opportunities in the precinct have a sound understanding of the advantages of being part of a managed CID. They appreciate the benefits. The success of the Riverside Precinct is testament to the foresight of Halls’ leadership, a quarter of a century ago, who understood the importance of mixed-use developments and precincts that are properly managed.” The City of Mbombela Local Municipality was established by the amalgamation of Mbombela Local Municipality and Umjindi Local Municipality on 3 August 2016. It is part of Ehlanzeni District Municipality.

Mbombela (previously Nelspruit) is the capital of Mpumalanga. Loosely translated, the Siswati word means “a lot of people together in a small space”. The city serves as a gateway to some of the best eco- and adventure activities in southern Africa and, with its moderate climate, is a preferred tourist destination all year round. Its subtropical fruit – mangoes, avocados, oranges, lemons, litchis and bananas – as well as macadamia nuts are a huge drawcard for visitors. In springtime, the blossoms of the orange trees can be smelt from kilometres away.

For shopping enthusiasts, the city offers world-class shopping malls, casinos and entertainment venues, with many travellers from Mozambique making Mbombela an essential destination. This creates excellent opportunities for prospective investors and businesses to establish themselves in the area, and to take advantage of economic sectors such as finance and business services, manufacturing, government services, community services, trade, transport and communications, agriculture, construction, mining and tourism. Covering an area of 7 141km², the province is home to Barberton, Emoyeni, Entokozweni, Hazyview, Kaapschehoop, Kabokweni, Kanyamazane, Luphisi, Matsulu, Mbombela, Mpakeni, Msogwaba, Ngodwana, Skukuza, Tekwane and White River.