South African Property Review Feb/March 2020 by SAPOA

PROPERTY SOUTH AFRICAN

REVIEW

February/March 2020

The voice for the industry

Western Cape Overview A hub for prosperity

PROPreneurX

Property Entrepreneur Accelerator Programme

Inclusionary Housing A regulatory perspective

LED

Rethinking economic development in cities

legal update

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from the CEO

Registration for the 2020 SAPOA Convention and Property Networking is Now Open I am very excited about this annual property event of the year, which brings with it some many eagerly awaited enhancements. The most notable is the inclusion of Nicole Baumgarten as the new committee chair. Bringing with her a wealth of marketing experience, fresh ideas and new perspective, she has already been a huge asset to the committee.

A A

SAPOA CEO, Neil Gopal

fter a hiatus of seven years, the property event of the year returns to the internationally acclaimed Sun City in the North-West Province. The recently renovated Resort is unlike anything in the world, offering mountain views, a key national park and an iconic golf course all under one roof. In addition to this, the property conference will now commence on Wednesday afternoon, and will conclude on Friday midday. The committee has negotiated special accommodation rates allowing you the option of taking a little extra time with your family over the weekend to enjoy the spectacular views and unique beauty and activities that the Resort has to offer. You will note that the name has been revised from a property exhibition to a property networking. We are proud to announce the introduction of networking lounges, a more cost-effective way to connect, chat with friends, colleagues and new connects and to network and have meetings to maximise business opportunities. The theme of the 2020 Convention is #Tomorrow. Over the last decade, our economy has barely grown, investment has dwindled, and the rate of unemployment has increased. The past year has been

equally challenging. Today, we are still feeling the effects of several years of corruption, the erosion of important public institutions and the resultant policy malaise. The property sector has felt the effects at an alarming rate in the form of a weakening economy, decreasing investor confidence, rising municipal costs, water and electricity crises, high tenant vacancies and the like. But, even in the face of such great challenges, hope continues to spring eternal in the hearts of South Africans who are determined that they will not yield to despair, to undertake the detailed work required to turn our tomorrow around. The industry looks to the leaders for answers on what is in store for the property sector, exploring the opportunities, disruptors and technology heading our way. The Convention’s programme addresses these and other issues to ensure that the sector continues to inspire further development and productivity through achieving specific outcomes. Highlights of the event include keynote addresses by various local and international speakers, golf at the 18-hole desert-style Lost City Golf Course, the Pilanesberg National Park Game Drive, a themed Convention dinner on Thursday evening, ending off with a Women’s Luncheon on Friday afternoon.

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

from the CEO

As part of the Convention, the SAPOA executive and sponsors, Attacq, Dipula Income Fund, Eris Property Group, Excellerate, Growthpoint Properties, Liberty Two Degrees, Pareto, Remote Metering Solutions and Resilient, are delighted to bring together a host of industry stakeholders ranging from owners and managers of commercial property to stakeholders who provide the sector with support functions, such as members of the media. I am grateful to these listedsector organisations for their financial support in making this conference a success. Stakeholders will be recognised and awarded through the annual SAPOA Property Development Awards for Innovative Excellence and the SAPOA Journalism Awards for Excellence. These awards recognise excellence and the role played by winners, in elevating the South African commercial property sector to exceptional status through their contribution. The 2020 SAPOA Annual Convention & Property Networking, aims to empower stakeholders with novel points of view to consider in their upcoming projects, and a host of new acquaintances to do business with or merely form long-lasting business relationships based on a mutual commitment to improving our country’s commercial property landscape. It promises to remain true to its history of encouraging engaging conversation and deliberation on issues of pertinence within the commercial property sector. Registration opened a little later than usual, but this allowed us enough time to finalise and showcase all the social activities and ensured that you can now register to attend the conference and social events, all at once. Please visit www.sapoa.org.za/convention We look forward to hosting you.

legal update

3 Editor in Chief Neil Gopal Editorial Adviser Jane Padayachee Editor Mark Pettipher Copy Editor Ania Rokita Taylor Public Relations Officer Maud Nale Production Manager Dalene van Niekerk Designer Fanie van Niekerk Sales Pieter Schoeman: pieter@mpdps.com Finance Susan du Toit

From the CEO Registration for the 2020 SAPOA Convention and Property Networking is Now Open

Contributors Ben Strauss,Justine Krige and Georgia Speechly, Marcelle Johnson, Shaheen Adams, Wesgro, Nicole Chamberlin, David Steynberg, Maud Nale, JLL, South African Cities Network, Juan Carlos, Tshepo Tshabalala FOR EDITORIAL ENQUIRIES email mark@mpdps.com Published by SAPOA, Paddock View, Hunt’s End Office Park, 36 Wierda Road West, Wierda Valley, Sandton PO Box 78544, Sandton 2146 t: +27 (0)11 883 0679 f: +27 (0)11 883 0684

22 Industry Overview Amdec Group expands its Western Cape property portfolio

PROPreneurX Launch Property Entrepreneur Accelerator Programme launched

Best regards, Neil Gopal, CEO

Designed, written and produced for SAPOA by MPDPS (PTY) Ltd e: mark@mpdps.com

contents

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

contents

legal update

PROPERTY SOUTH AFRICAN

REVIEW

ON THE COVER When people think of the Western Cape one immediately thinks of Cape Town – the Mother City – but the Western Cape has so much more to offer

Cover Story —»»»

FEATURED STORIES 16 Western Cape Overview Western Cape, a hub for economic growth 52 Off the wall On your bike or is it in your bike? 3

1 BCX Head Office. Architects: SVA International 2 Akwa Hotel. Architects: SAOTA 3 Menlyn Learning Hub. Architects: Boogertman + Partners 4 West Hills Mall in Ghana. Architects: ARC Architects

GENERAL STORIES 3

From the CEO

From the Editor’s desk

8 Legal update

➀ Lease renewal clauses: Landlords and tenants beware

➁ The Property Practitioners Act: What is it all about?

➂ Changes to the Procedure to be followed to obtain

certified copies of Deeds effective from 8 January 2020

14 Inclusionary Housing The regulatory prespective for a secondary market system 26 Western Cape Seminar First URERU Seminar of 2020 28 Entrepreneur one on one Driving environmental standards 36 Insight 5 big questions real estate will be asking in 2020 38 Rethinking LED LED in intermediate cities 50 Howmuch.net Importance of Services in the World's Economy DISCLAIMER:

The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright South African Property Owners’ Association (SAPOA). All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from SAPOA. The publishers are not responsible for any unsolicited material.

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

editor's desk

Welcome to our first edition of 2020 Having gone bi-monthly, our main theme for each edition will now be based on regional overviews. So, without further ado, we begin with the Western Cape

Editor and Publisher Mark Pettipher

rom a regional perspective, I spoke to SAPOA Western Cape committee member Lara Schenk about the exciting things they have planned to entice SAPOA’s Western Cape members to network and be better informed about some of the trends and topical subjects within the commercial property industry. “While the plans are still a work in progress, we are putting together ideas to express a 2020 vision with a series of forward-looking seminars and networking events,” she says. In this spirit, we kicked off 2020 with more than 110 SAPOA members, property practitioners and students attending the first Urban Real Estate Research Unit (URERU) seminar of the year, sponsored by Quoin Online. François Viruly focused on the property industry’s international trends in the commercial sector, while Dave Russell, a veteran of the industry for more than 37 years (and a SAPOA member for 17 years) followed with an overview of the state of affairs in Cape Town, drawn from seven commercial property nodes. Schenk has also told us about the planned post-Budget breakfast; a session with author Crispian Olver, who published A House Divided, on the topic of “paving the way forward”; plans to take a more thorough look at the Property Practitioners Bill in a seminar titled “Property Practitioners of the Future”; an examination of the Western Cape’s transportation woes in a session titled “A Route to Growth”; and a seminar on tall buildings, “Taking You to New Heights”. I, for one, am looking forward to attending all of these, and giving you feedback. As this is a Western Cape-focused issue of Property Review, I had the good fortune

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY / MARCH 2020

of attending the launch of Wesgro’s report on the province, and would like to extend my thanks to Tim Harris for allowing me to extract some of the report’s salient points for the magazine. It’s interesting to note that the residential areas around Somerset West are fast becoming highly sought-after – and more expensive as a result. In terms of industrial development, the area behind Bellville, near Stellenbosch, has been making great strides, and seemingly can’t keep up with demand. The extracted article, which links to the full Wesgro report, ties in with what Dave Russell of Baker Street Properties outlined in the URERU seminar. In an entrepreneur-development story, the exciting PROPreneurX programme, a property entrepreneur accelerator initiative designed to provide the support needed to grow a business, gain visibility and traction for business growth, and access advice from mentors on matters related to taking the business to the next level. Going forward, we will be encouraging new voices to contribute to the magazine – and thanks to Shaheen Adams, in this issue we have a great article on inclusionary housing, a topic close to SAPOA’s heart. Thanks also goes to Cliffe Dekker Hofmeyr and Norton Rose Fulbright for allowing us to republish some of their topical material. Property Point has once again supported the magazine by facilitating a one-onone interview with an entrepreneur in the wider property sphere. In this issue, we feature Munyadziwa Rikhotso of Nsovo Environmental Consulting. I hope that this month’s read will keep you riveted – and I look forward to visiting each region to gain a deeper insight into the issues of the day. If there’s a specific regional topic that’s important to you, please get in touch at mark@mpdps.com.

howmuch.net

SPARKLE AT THE ANNUAL SAPOA CONVENTION DINNER 2020 A LITTLE GLITTER NEVER HURT. BRING YOUR SPARKLE DATE: 04TH JUNE 2020 TIME: 19H00 – 19H30 VENUE: SUN PARK, SUN CITY TO REGISTER GO TO

www.sapoa.org.za/convention/registration/delegate-registration YOUR HOST

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

legal update

Lease renewal clauses: Landlords and tenants beware The drafting of renewal clauses in leases continues to cause problems for landlords and tenants By Ben Strauss, Director at Cliffe Dekker Hofmeyr

SS Ben Strauss is a Director in CDH’s Tax and Exchange Control and Corporate and Commercial practice areas. He focuses on corporate tax, capital transfer taxes, corporate restructuring, exchange control, employee incentive schemes, public benefit organisations, venture capital, commercial real estate and general commercial work, including mid-tier mergers and acquisitions. His clients range from start-ups to multinational companies across a variety of sectors, including information technology, mining and minerals, oil and gas, financial services and private equity. e: ben.strauss@cdhlegal.com t: +27 (0)21 405 6063 f: +27 (0)21 481 5204

uch a clause was again the subject The lease also contained matter of a recent case in the an arbitration clause Supreme Court of Appeal (SCA), The tenant validly exercised the option Shepherd Real Estate Investments (Pty) during the initial term, and the lease was Ltd v Roux Le Roux Motors CC (1318/2018) renewed for a further five-year term. [2019] ZASCA 178 (2 December 2019). However, when the tenant tried to The facts of the case were that the exercise the second option to renew for a parties had entered into a lease in relation third five-year term, the landlord said that it to petrol station premises in Paarl. The was amenable to the proposed renewal at lease started on 1 December 2007 and an agreed rental of R150 000 per month, was to endure for an initial term of five plus value-added tax. In response, the tenant years, with a renewal period of “5 plus contended that a fair rental was an 8% per 5 years”. year escalation on the then-prevailing rental. The rental at commencement The tenant also proposed that the was R18 000 per month, matter be referred to arbitration. escalating at 8% per The landlord rejected that year over the initial contention and proposal, “[A]lthough the position in relation term. As to the clause and proceeded with an to ‘agreements to negotiate in good faith’ remains a complex one in Australia dealing with the application to evict the in the light of Coal Cliff Collieries, courts determination of the tenant as it considered there, like other comparable jurisdictions, terms that would the lease to have will not enforce ‘an agreement to apply on renewal of expired due to the agree’. That accords as well with the lease agreement, effluxion of time. the position in our law.” it is worthwhile quoting The landlord argued the relevant text as that the rental amount for provisions along the same the renewal period was neither lines are contained in many leases: determined nor determinable; that “[The] renewal for the second lease the relevant provision of the renewal clause renewal period shall be on terms and was“an agreement to agree”and, accordingly, conditions in compliance with the was void for vagueness; and that there was Landlord’s then-standard letting policy, no obligation on the parties to negotiate in except that there shall be no right of further good faith or to reach an agreement on a renewal and that the rental and costs shall rental amount that is objectively reasonable. be mutually agreed upon in writing The tenant argued that the renewal between the Landlord and the Tenant provision did not reflect the intention of when the right of renewal is exercised.” the parties and that the provision should

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

legal update be rectified to reflect the correct intention or, alternatively, that there was a tacit term in the lease agreement that the rental would be reasonable rental which could be established and determined objectively. The tenant also contended that the parties had agreed to arbitration. The High Court dismissed the landlord’s application. The landlord appealed to the SCA. The SCA ruled in favour of the landlord and upheld the appeal. Judge Ponnan considered the essential legal propositions in cases such as these on the basis of the judgments in South African, English and Australian court cases. The judge concluded as follows at pages 11 and 12 of the ruling: “[A]lthough the position in relation to ‘agreements to negotiate in good faith’ remains a complex one in Australia in the light of Coal Cliff Collieries, courts there, like other comparable jurisdictions, will not enforce ‘an agreement to agree’. That accords as well with the position in our law.”

For example, in the alternative arrangement, the parties could include a provision along the following lines: “The monthly rental payable during the renewal period shall be a market-related rental escalating at a market-related rate as agreed in writing between the parties, failing which agreement, the rental and rate determined by an independent expert who shall be appointed by written agreement between the parties and, failing which agreement, by [some determined qualified person, e.g. a named registered valuer]. The independent expert shall act as an expert and not as an arbitrator, and his or her decision shall be final and binding on the parties. “If the rental and rate has not been determined by the start of the renewal period then the following rental shall be paid until such time as the new rental and rate has been finally determined, when suitable adjustments in rental shall be made with retrospective effect: the rental payable in respect of the month immediately prior to the termination date escalated by [X]%, and thereafter escalating annually on each anniversary of the start date of the renewal period at a rate of [X]% per year.”

that, because the lease agreement had terminated by effluxion of time, the tenant could in any event no longer invoke the arbitration clause. The court made short shrift of the tenant’s arguments for the rectification of the provisions or the introduction of a tacit term. As to the former, the judge Judge Ponnan proceeded as follows found that the tenant’s obligations were at page 12 of his judgment: The proper approach in an enquiry far-fetched or untenable and, essentially, such as the present depends upon the that the tenant had only itself to blame construction of the particular agreement. for signing an unfavourable contract. As Accordingly, it becomes necessary to to the introduction of a tacit term, it was analyse the relevant paragraph to decide essentially held that the parties had applied whether its proper characterisation is their minds to the lease agreement and had expressly agreed on the terms of merely an agreement to agree or the renewal clause, and that, whether it contained legally accordingly, there was no enforceable obligations. [The] renewal for the second scope for introducing a The court essentially lease renewal period shall be on tacit term. held (at page 13) that terms and conditions in compliance with the Landlord’s then-standard letting What the judgment the renewal clause was policy, except that there shall be no right highlights is that it too “illusory or too of further renewal and that the rental and is absolutely critical vague and uncertain to costs shall be mutually agreed upon be enforceable “. that renewal clauses in writing between the Landlord in leases be drafted As to the notion that and the Tenant when the right with great care. The the matter should have of renewal is exercised. parties must either provide been referred to an arbitrator, for an agreed and fixed the court found that an arbitrator “could not give effect to arrangements amount of rental that will apply on that the parties themselves had not renewal or, alternatively, if they do leave concluded and then require the party, the rental to be determined at the time who is resisting, to continue with the of the renewal, they should provide for ongoing relationship”. The court also held a deadlock-breaking mechanism.

CORPORATE & COMMERCIAL 15 JANUARY 2020

CORPORATE & COMMERCIAL

ALERT

IN THIS

Lease renewal clauses: Landlords and tenants beware

ISSUE

Should regulated companies approach the TRP for share buy-backs of more than 5%?

The Property Practitioners Act: What is it all about?

CLICK HERE 1 | CORPORATE & COMMERCIAL ALERT 15 January 2020

For more insight into our expertise and services

cliffedekkerhofmeyr.com

Ben Strauss

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

legal update

The Property Practitioners Act: What is it all about? The President has recently signed into the law the Property Practitioners Act 22 of 2019 (the Act). The date of commencement of the Act is still to be determined. However, those in the property industry ought to start getting to grips with the provisions of the Act as soon as possible By Justine Krige and Georgia Speechly, Cliffe Dekker Hofmeyr

he Act has repealed the Estate Agency Affairs Act 112 of 1976 (EAA Act) in its entirety. It did so to achieve three primary objectives: 1. Address the slow transformation in the property sector; 2. Integrate and consolidate all role-players within the property sector under a single umbrella statute; and 3. Address the deficiencies in what has been a largely ineffective system of monitoring estate agency matters, and protecting consumers and their trust funds.

Who is a “Property Practitioner”? In order to achieve its objectives, the Act uses the phrase “property practitioner”, which is much broader than an “estate agent” under the EAA Act. A property practitioner is any person who, for the acquisition of gain, directly or indirectly, on the instructions or on behalf of another: 1. Sells, purchases, manages or publicly exhibits for sale any property or business undertaking; 2. Leases or hires or publicly exhibits for hire any property or business undertaking; 3. Collects or receives money payable for a lease; 4. Provides, procures, facilitates, secures or otherwise obtains or markets financing for or in connection with the management, sale or lease of a property or business undertaking; and/or 5. Renders services as an intermediary to effect the conclusion of an agreement to sell or let a property or business undertaking (except where this is not done in the ordinary course of the person’s business; where it is done by a natural person in their personal capacity; or where the person is an attorney, candidate attorney or sheriff ). 10

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

Thus the definition (and, therefore, the application of the Act) extends well beyond estate agents. It notionally also includes auctioneers, property developers, property managers, franchisees, providers of bridging finance and bond brokers (aside from financial institutions) and, for the purposes of certain provisions, all directors, trustees and/or employees of property practitioners. Anyone who falls within the ambit of the definition of a “property practitioner” is required under the Act to obtain a certificate issued by the Fidelity Fund on an annual basis. Without a valid certificate, a property practitioner may not render services or receive fees. In fact, conveyancers are prohibited from paying any money to a property practitioner without receiving a copy of that property practitioner’s valid Fidelity Fund certificate. The Fidelity Fund’s primary purpose is to reimburse persons who suffer pecuniary loss by virtue of: 1. Theft of trust money by property practitioners; or 2. Failure by property practitioners to comply with the provisions of the Act requiring a separate trust account and proper accounting records. Property practitioners are also required to maintain indemnity insurance (to the extent required by the Minister of Human Settlements); comply with a property practitioners’ code of conduct (to be prescribed by the Minister of Human Settlements); and to provide certain mandatory disclosures to potential purchasers and lessees. These obligations are all designed in order to ensure that consumers are protected. Any property practitioner in contravention of the Act will be required to repay any fees received for a property transaction and may be issued with a fine. Furthermore, any person convicted of an offence in terms of the Act is liable to pay a fine, or to imprisonment for up to 10 years.

legal update The Property Practitioners Regulatory Authority The Act has established the Property Practitioners Regulatory Authority (the Authority). The intention is for the Authority to replace the Estate Agency Affairs Board. The Authority is required, among other things, to ensure compliance with the Act; to regulate the conduct of property practitioners; to implement measures to transform the property sector, and to conduct campaigns to educate property practitioners and consumers. In terms of the Act, the Authority is given far-reaching enforcement powers. It is entitled to appoint inspectors who are authorised to enter, inspect and search any property practitioner’s business premises without notice (aside from private residences, for which a warrant is required), and to request any document from a property practitioner. In the event of a contravention of the Act, the Authority is entitled to issue a compliance notice and a fine to the relevant property practitioner. It is also envisaged that the Authority will serve a dispute resolution function, by receiving complaints against property practitioners, referring disputes for mediation, and/or appointing independent adjudicators to adjudicate any complaints. To achieve its objective of being a consumer-focused piece of legislation designed to protect consumers in the property industry, the Act obliges property practitioners to deliver a “disclosure form” to a seller/lessor before concluding a mandate, and to a purchaser/lessee before making an offer. The disclosure form must be signed by all parties and attached to the sale or lease agreement. If no disclosure form is signed and attached, the Act provides that the agreement must be interpreted as though no defects or deficiencies of the property were disclosed to the purchaser. The Act also provides that the relevant lease or sale agreement must be in the official South African language requested by the purchaser or lessee, and obliges the Authority to “conduct campaigns to educate and inform the general public of their rights in respect of property transactions, and property practitioners of their functions, duties and obligations”. The Act has as one of its objectives the transformation of the property sector. The Authority is mandated in terms of the Act to implement and assess measures to progressively promote an inclusive and integrated property sector. It is required to establish a Property Sector Transformation Fund, which applies to all property practitioners, and which must be used by the Authority for transformation and empowerment programmes, including programmes to promote black-owned firms; to encourage the participation and work-readiness of historically disadvantaged persons

in the property sector; and to promote consumer awareness of property transactions and business undertakings. The Act further provides that the government must use the services of property practitioners who comply with BBBEE and employment equity legislation. Any person may apply to the Authority to be exempted from any provision of the Act, by submitting an explanation of the reasons for the application and any supporting documents. Although the Act does not stipulate the grounds for the granting of exemptions, it does provide certain relevant considerations. For example, the Authority may consider whether the granting of an exemption is likely to negatively impact the general public, competition in the property sector, consumers’ rights or the objectives of the Act.

Recommendation The Act is significantly stricter and more far-reaching than its predecessor, the EAA Act. In light of the serious consequences of non-compliance with the Act, any person who may fall under the broad definition of “property practitioner” would be well advised to seek guidance from a legal practitioner, and to ensure strict compliance with the provisions of the Act.

CORPORATE & COMMERCIAL 15 JANUARY 2020

CORPORATE & COMMERCIAL

ALERT

IN THIS

Lease renewal clauses: Landlords and tenants beware

ISSUE

Should regulated companies approach the TRP for share buy-backs of more than 5%?

The Property Practitioners Act: What is it all about?

CLICK HERE 1 | CORPORATE & COMMERCIAL ALERT 15 January 2020

For more insight into our expertise and services

cliffedekkerhofmeyr.com

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

legal update

Changes to the procedure to be followed to obtain certified copies of deeds, effective from 8 January 2020 The procedures to be followed with regards to the issuing of certified copies of deeds in a relevant deeds registry by a registered owner of property in terms of the amended Regulation 68 of the Deeds Registries Act 47 of 1937 By Marcelle Johnson, Senior Associate for Real Estate at Norton Rose Fulbright

n terms of Chief Registrar’s Circular No 5 of 2019, effective from 2 January 2020, the amendment of Regulation 68 contained in Regulation 68(1E)(a) provides that when an application and affidavit is made by a registered owner of a property for the issuing of a certified copy of a deed (“application and affidavit as per Regulation 68(1)”), the applicant must also issue a notice of intention to apply for such copy in a newspaper circulating in the area where the property is situated. This also applies in the case of a notarial bond, where notice of intention must be issued in a newspaper circulating in the area of every deeds registry in which such notarial bond is registered. Practically, this means that a registered owner must not only submit an application and affidavit as per Regulation 68(1), but such application and affidavit must be accompanied by proof that the required notice of intention to apply for such copy was published in the relevant newspaper (“proof of publication as per Regulation 68(1E)(a)”). In terms of Registrar’s Circular No 1 of 2020, effective from 8 January 2020, the applicant must in addition to the above notice of intention also serve the relevant deeds registry with a copy of the notice of intention to apply for the issue of certified copies. Practically this means that a registered owner must submit both the application and affidavit as per Regulation 68(1) and proof of publication as per Regulation 68(1E)(a) to the relevant deeds registry, and such additional notice of intention will be open for inspection in the relevant deeds registry by any interested person for a period of two weeks from the date of serving the relevant deeds registry, during which period any interested person may object to the issuing of the certified copies. Furthermore, the relevant deeds registry will note a caveat against the property stating that a “VA is pending, no further

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

dealing with the deeds” from the date of serving the notice of intention until the certified copies are issued. Lastly, if no objection is made during the two-week period, the applicant will be in the position to submit the original application and affidavit as per Regulation 68(1) and proof of publication as per Regulation 68(1E)(a) for examination purposes, so that the relevant deeds registry can issue the certified copies.

nortonrosefulbright.com

Marcelle Johnson

Commercial Lease Agreements

SAPOA offers this workshop as in-house on request. For more information: SAPOA EDUCATION OFFICER Manager: Mafonti Morobi Tel: +27 (0)11 883 0679 Email: eduofficer@sapoa.org.za Website: www.sapoa.org.za

This interactive course is aimed at brokers, administrators, property managers and junior attorneys who regularly negotiate, review or otherwise deal with commercial lease agreements. Those looking to move into a career in property brokerage, administration or management will also benefit from this course.

Sources of the law of lease and different property rights Formalities and essentials of a lease Duties of the lessee and lessor Subletting, cession and assignment of a lease Termination of a lease including due to the insolvency of the lessee or lessor or the violation of exclusivity clauses in the context of retail leases Lease deposits, suretyships and guarantees Different types of leases (e.g. triple net vs full service) Leases concluded with government entities and with institutions of higher education for purposes of student accommodation Tripartite agreements relating to leases A synopsis of relevant legislation such as the Consumer Protection Act, Insolvency Act and Competition Act Negotiating a commercial lease Commercial lease due diligence - what to look out for

On completion of this course you will walk away with:

The ability to distinguish between different sources of the law of lease and different property rights An understanding of what constitutes a valid and enforceable lease An appreciation of the legal consequences of key clauses in a lease The ability to demonstrate a basic understanding of how the Consumer Protection Act, Insolvency Act and Competition Act may impact leases Insight into the legal nature and consequences of a deposit guarantee and personal suretyships The ability to discern when a tripartite agreement may have to be concluded in relation to a lease An understanding of the specific nuances of different types of leases including retail leases, government leases and leases concluded with institutions of higher learning The confidence to negotiate a basic commercial lease The competence and practical knowledge to conduct a commercial lease due diligence

inclusionary housing

The regulatory perspective for a secondary market system In the inclusionary housing discourse thus far, one aspect has not received adequate attention. As the City of Cape Town embarks on developing its inclusionary housing policy over the next 18 months, the aspect of the regulatory mechanism into which inclusionary housing units are taken up post-development needs deeper coverage. It is my aim that this article contributes in some way to that discourse By Shaheen Adams

M M

Both the City of Johannesburg’s uch of the focus on Inclusionary Housing Policy as this topic thus far has well as the City of Cape Town’s revolved around the Concept Note on Inclusionary impact of a proposed policy Housing speak to inclusionary on project feasibilities, and units remaining affordable in a debate around where perpetuity. This requirement along the spectrum of for perpetual affordability mandatory to voluntary immediately necessitates for participation by developers a functioning and regulated the policy should be secondary market in which placed. The debate on the management of the units whether inclusionary housing can be monitored and controlled as a social good is required against the rules placed upon that at all seems settled and is now secondary market. a given. Government is mandated to implement the Spatial Planning and Land Use Management Act Secondary market systems (SPLUMA, Act No. 16 of 2013), and Secondary markets for the renting of the development community has property are different from those for Shaheen Adams, Managing Director accepted that the need for the buying or selling of property. Within at Wingapo Property Group inclusionary housing is a reality. the South African affordable housing Whether inclusionary housing is context, the only fully regulated developed for sale or for rental, the secondary market system at present is units will form part of a secondary the social housing system. This covers market. For the purpose of this article, I am defining a the rental market exclusively. secondary market as one in which primary market pricing The Social Housing Act was promulgated in 2008, with (whether for sale or rent) is discounted by the government Regulations added in 2012. The entire secondary market of through some means or restricted by regulation in some way. social housing is regulated by the Social Housing Regulatory I am also differentiating it from an informal market, in which Authority (SHRA). An established set of Social Housing prices are set in accordance with demand and supply, but Institutions (SHIs), and the build-up of expertise within those where trade occurs outside of formal market structures. Please SHIs in the development and management of social housing, note that these definitions do not purport one type of market have resulted in the creation of a highly specialised sub-sector to be greater or lesser than the other. of the property market.

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

inclusionary housing With the exception of the Housing Act (Act No. 107 of 1997) as amended in 2001, which regulates the selling of RDP houses by beneficiaries, the work on broader affordable housing legislation to manage the buying and selling of property has not yet begun. Presuming the legislative process were to start tomorrow, it could conservatively be a wait of 10 years until full implementation of the legislation. Within the City of Johannesburg’s policy, there are thresholds of inclusionary units to be provided for both social housing units as well as for Finance Linked Individual Subsidy Programme recipients. However, in either case, there is no stated mechanism of how those inclusionary units would be managed in their respective institutional structures after development. Over the years, there has been a growing informal trade in RDP housing that necessitated the need for the Housing Amendment Act of 2001. Even within the social housing system, with its strict regulations, units are at risk of illegally changing hands when there is insufficient control, often without the knowledge of the regulator or the SHI concerned. It cautions us that unless the measures for management, monitoring and control are strongly in place beforehand, a unit (and its inherent subsidy) runs the risk of becoming a tradeable good in the informal market.

What does an inclusionary housing policy need in support of it to make it sustainable? ● The SHRA and the SHIs as partners: The SHRA needs to create a mechanism of providing capital grants to SHIs in order to buy sectionalised units from developers, and for those units to be held in ownership by the SHI. At present, the SHRA’s system of capital grant disbursement is for new greenfield social housing developments. Invite the National Association of Social Housing and the SHRA to participate in the policy discussion and provide inputs. ● It needs to be focused. Don’t implement rental and sale inclusionary options at once, because each form needs its own system of governance. We are in the 12th year of rental market social housing governance. Build on to what is there. Start with a focus on social housing, with a later implementation date for sales of inclusionary housing units. ● It needs monitoring and control: An inclusionary unit, no matter the means of financing, is a form of subsidy. The subsidy is provided to a beneficiary, and usually only assessed at the point of allocation. Without a proper regulatory mechanism to manage the subsidy, the risk of fraud and illegal trading of the subsidy start undermining the intent of the programme. Monitoring and control of the subsidy afterwards is critical to ensure it is always benefiting the people it is meant to.

● Other rebates may be required to ensure total cost of living affordability, such as rates, water and other municipal costs, so relevant departments in the city (such as Finance and Water and Sanitation) need to determine to what extent beneficiaries of inclusionary housing would be entitled to rebates to ensure affordability. ● The municipal, provincial and national departments of Human Settlements must agree on a nationwide policy, setting out the principles to regulate the buying and selling of affordable subsidised accommodation. Preferable to a policy would be national legislation governing this process.

Conclusion Until such time that the regulatory framework for the management of units can enable the secondary market system, policy should be restricted to “fees in lieu of” for the municipality to deploy to its existing inclusionary housing programmes, such as the various sites in Woodstock and elsewhere in the Cape Town CBD. Inclusionary housing implementation should not be rushed on account of either legal compliance or political expediency. If policy implementation is improved on account of having ensured the secondary market mechanism was securely in place first, then that would have been a worthwhile wait. Even so, all three spheres of government own substantial prime property assets across Cape Town – more than enough to drive the imperative of inclusionary housing in the interim, assuming the political will to do so is present. We speak of the ideal as mixed income, socio-culturally diverse developments, that are tenure-blind and foster social cohesion and a sense of community. The institutional structures enabling the consistent management of those inclusionary units will be the bedrock we need to realise this ideal. Shaheen Adams is the former Chief Director for Immovable Asset Management at Western Cape Government, as well as the former General Manager for Rental Property Management at Communicare NPC. He now consults privately in the fields of asset management, property management and property development. wingapo.co.za

Shaheen Adams

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

Western Cape overview

Western Cape: a hub for economic growth When people think of the Western Cape, they immediately think of Cape Town – the Mother City. But the province has so much more to offer. At the end of 2019, Wesgro, the official tourism, trade and investment promotion agency for Cape Town and the Western Cape, launched its first research report into the area. Thanks largely to the information contained in that report, we have compiled the following highlights in an overview of the region Extracts from Wesgro: The Western Cape Property Report 2018/19 For the full range of research and documentation produced by Wesgro, and for more information about the organisation, visit wesgro.co.za

irst, our thanks must go to Tim Harris, Chief Executive Officer at Wesgro, for giving us the green light us to republish elements of the report. Second, at the launch of the report, prominent Mayco members expressed their backing for the drive to promote Cape Town and the Western Cape as a region where things get done – a region to invest in. “It is in everyone’s interest that we successfully promote the city and the whole region as a competitive business and leisure destination globally,” said Harris. “We do this by attracting and retaining foreign direct investment, landing film and media productions, growing exports, and ensuring more business and leisure tourists visit our province. We do this by facilitating important dialogue between the private and public sector in our region and beyond.” “We also look to align the Western Cape with national priorities in terms of economic growth, trade and investment promotion initiatives, and facilitate the links between business and government decision-makers. To this end, we are often the first port of call for foreign buyers, local exporters and all investors looking towards the ever-growing potential of our region.” “The growth of the Western Cape economy and the WESGRO

THE WESTERN CAPE PROPERTY REPORT 2018/19

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all-important creation of more jobs is the engine that drives the work of the Western Cape Government,” added David Maynier, the MEC for Finance and Economic Opportunities in the Western Cape. “But that engine requires a physical space; a place to set up shop and to provide offices and factory space; a space on which to build homes for its employees. This physical space is property, and it is often the foundation, quite literally, on which investment is built.” “To help current and future investors make key decisions around the various markets and sectors in our region, we first need to fully understand the research and data on the region,” said Harris. “We believe these markets and sectors have a common denominator in the value of property – the fixed capital asset that the lion’s share of investors will require to make their investment visions a reality, whether that asset falls into commercial, retail, industrial or residential property. “Wesgro believes that property is a key driver of investment in any region, and often the first

Western Cape overview consideration investors will make when deciding on their The strategic sectors positioned for growth include locale. Just as it is true for property across the globe, location manufacturing, financial services, agri-business, tourism, film really does count, and the Western Cape offers some of the and media, digi-tech and business process outsourcing. best locations in the world.” Within these, particular nodes of growth include real The report suggests it’s a “buyer’s market”, estate, property development and construction, and while the phrase is most commonly used as well as dynamic enterprises involved to describe a point in time in a residential in boat building, clothing and textiles, electronics, renewable energy and property cycle, the general consensus is “To help current and future investors growing the green economy. that the Western Cape is a buyer’s market make key decisions around the various Cape Town experienced an across all its property nodes, making it markets and sectors in our region, we unprecedented drought in 2017 and attractive to those looking to make fixed first need to fully understand the 2018, with severe water restrictions capital investments for the first time, research and data on the region” imposed at the time. This resulted in as well as to those looking to expand on the city establishing its Water Resilience their existing investments. Strategy, which not only turned Cape Town After many years of high property price away from the brink of disaster, but also put growth, due in no small part to the desirability measures in place for the short, medium and long of the Western Cape and strong semi-gration trends from other parts of the country, property values are stabilising term to prevent the situation arising again, thus strengthening throughout the province, but particularly in and around Cape its overall resilience. Town. These are offering opportunities that will no doubt continue to appreciate in value above any others in the rest Spotlight on economic sectors of the country, albeit it at a more reasonable rate than The six largest economic sectors in Cape Town by value in experienced over the past decade. 2018 were finance, insurance, real estate and business services (contributing an estimated R115.69-billion or 27.33% of gross Cape Town: value added, or GVA); wholesale and retail trade catering and accommodation (R72.39-billion or 17.1% of GVA); making progress possible Cape Town has a diverse economy with several flourishing manufacturing (R63.34-billion or 14.96% of GVA); general sectors. It is South Africa’s second-largest economic centre government (R52.93-billion or 12.5% of GVA); and second-most-populated city after Johannesburg. It is transport, storage and communication also home to one of the busiest container ports in the (R48.24-billion or 11.4% of GVA); country, as well as the second busiest airport. and community, social and Furthermore, it is the second-most important personal services (R28.88contributor to national employment and plays billion or 6.82% of GVA). a crucial role in job creation in South Africa.

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Western Cape overview With Cape Town emerging as a key financial services hub South African gaming studios located in the city, as well as in South Africa, a large portion of private investment and a large proportion of the country’s animation studios. Cape Town’s boat-building economy is also proving its asset management services as well as insurance companies are located here, including the head offices of Old Mutual worth, with more than R1-billion in export revenue now generated annually, according to the office of the Mayor. Africa, Santam, Direct Axis, Metropolitan and Sanlam. In terms of the business services sector, business process outsourcing (BPO) and information technology were the Key factors in Cape Town’s attractiveness largest contributors to employment growth in Cape Town The City of Cape Town is involved in a number of initiatives between 2006 and 2016. A research report released in 2018, aimed at attracting investors through the expansion of commissioned by the Cape Innovation and Technology infrastructure and easing the path towards doing business. Initiative (CiTi), Wesgro and the Allan Gray Orbis Foundation, found that more than 40 000 people are now employed Cape Town International in the Cape Town tech industry – twice as many as Airport expansion in Johannesburg. Cape Town International Airport is set to Cape Town has indeed emerged as a undergo extensive upgrades and expansions significant technology and innovation hub, to the tune of R7-billion over the next four with the largest telecommunications years. Construction, which is expected Since inception in 2015, the Cape Town market and the most venture capital to commence in early 2020, is set to Air Access initiative has launched 15 new activity in South Africa, according to be completed by 2023. The planned air routes in and out of Cape Town, and Invest Cape Town. upgrades and expansions include the facilitated 21 route expansions Other economic sectors that play an building of a new runway, as well as new important role are construction (R21.99international and domestic departure billion); food, beverages and tobacco (R18.52lounges to meet the ever-growing demand billion); electricity, gas and water (R12.89on the facility. billion); petroleum products, chemicals, rubber and In parallel, new flights are continuously being plastic (R12.34-billion); and communication (R43-million). added, thanks to the phenomenal success of the Cape Of particular interest in terms of the latter is that Cape Town Air Access (CTAA) initiative – a powerful collaboration Town is also South Africa’s “new media” hub, with 57% of all and combined effort between the City of Cape Town, the Western Cape government, Airports Company South Africa, Cape Town Tourism, Wesgro, South African Tourism and the private sector. The primary mandate of the Air Access team is to promote, develop and maintain air routes in and out of Cape Town International Airport through route retention (ensuring the success of existing routes); route expansion (increasing frequency and capacity on existing routes); and new route establishment (facilitating the establishment of new routes). Since inception in 2015, the initiative has launched 15 new routes and facilitated 21 route expansions. This has doubled seat capacity at Cape Town International Airport, adding 1.5-million two-way seats to the Cape Town network, and contributing an estimated R6-billion in direct tourism spend since July 2015.

Streamlining business InvestSA is a one-stop shop based in the heart of the Cape Town CBD at the Cape Investor Centre, which was launched in 2018. Operated by Wesgro and the Western Cape government, it is a multifaceted collaboration between national, provincial and local government to cut the “red tape” for investors wishing to set up or expand their business interests in South 18

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Western Cape overview Africa. This initiative clusters key government departments and agencies under one roof to provide investors with a single point of service with regards to aspects such as regulatory compliance, enhancing regulatory and legal processes and improving approval turnaround timeframes. It also provides information on incentives (such as tax, land, training and free-trade zones) as well as on both preapprovals (market data, costs, incentives, project approval and local partners) and post-approvals (facilitation of permit approvals, information relating to importing of equipment and raw materials, and central bank profit repatriation to investors). This collaboration follows the launch by the city of the targeted Invest Cape Town initiative in 2017.

Creating a smart city through the City of Cape Town Broadband Project The objective of the city’s Broadband Project is to create a high-speed, high-capacity municipal telecommunications network – the Metro Area Network (MAN) – which will extend throughout the greater Cape Town area. This is designed primarily to meet the needs of the city, as well as to provide services to both the general public and the private sector. A Telecoms Networks Strategy positions the MAN as the carrier for a number of networks and services. As of June 2018, core network construction had already installed 750km of fibre-optic cabling within the metro and, by completion of the project (scheduled for June 2021), 1 317km will have been installed. Of the 95 switching facilities that will ultimately be in service, 31 are already operational. The network will connect 736 city buildings and approximately 300 private buildings. Since its 2009 inception, the capital spend on the Broadband Project sits at R1.3-billion (as at June 2018), with a remaining R805-million still to be spent. According to Invest Cape Town, 848km of fibre-optic cable have been installed thus far in greater Cape Town (with 1 827km planned). A total of 475 buildings have been connected via the MAN, while free Wi-Fi has been installed at 715 access points at 225 locations.

Positioning Cape Town as the green economy hub of South Africa As the Western Cape has positioned itself as the green economy hub of South Africa, this is of particular importance and relevance to the City of Cape Town. Several renewable energy companies have already made Cape Town their home across the spectrum of solar photovoltaic manufacturing, electrical manufacturing, fuel supply, professional services and supporting bodies. Cape Town’s three universities also actively contribute towards research and development in the field of renewable

energy. In turn, the City of Cape Town has established the Atlantis Greentech Special Economic Zone (SEZ), making tracts of land available at low cost for purchase or lease by green-tech companies through an accelerated land disposal process. A number of other financial and nonfinancial incentives are also available, which include discounted electricity rates and rapid turnaround on development applications.

Reasons to invest: Cape Winelands Working towards an enabling business environment The municipalities in this district are all similarly aligned in their business processes. While land rezoning is still timeconsuming, local business chambers have commented positively on building plan approval turnarounds, particularly where electronic systems are in place. In terms of Drakenstein (into which Paarl falls), business licences take an average of 20 to 25 days and building plan approvals take 21 days – but rezoning can take between eight and 12 months. Stellenbosch (into which Franschhoek falls) reports that approvals for business licences take one day, building plans 30 days and land rezoning four months.

The importance of agri-tourism and agri-processing This district is a popular tourism destination, renowned particularly for its wine farms. In terms of agri-tourism activities and facilities, Stellenbosch boasts a collective total of 1 557 followed by 877 in the broader Drakenstein municipal area. The wine industry is serviced and promoted extensively through the non-profit company Vinpro, based in Paarl, which represents 2 500 South African wine producers, cellars and industry stakeholders. The district has a large number of agri-processing plants (705), particularly in its main wine-producing areas (including Drakenstein and Stellenbosch). The large numbers of nurseries, pack houses, tunnels and shade-net facilities also reiterate the area’s importance as a well-established fruit- and vegetableproducing region, with a well-developed value chain. SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

Western Cape overview Stellenbosch Innovation District Stellenbosch University is pioneering a non-profit entity seeking to position the town as an innovation district focused on developing entrepreneurs and enterprises. Known as the Stellenbosch Innovation District Management Organisation (SIDMO), the entity’s function is to transition Stellenbosch by 2020 into a showcase SMART and sustainable town that provides innovation support and incentives. In addition to SIDMO, a public-private partnership between the municipality and social media network MXit has been established to provide free Wi-Fi hotspots to promote learning and communication for residents.

Upgrades to Paarl CBD and proposed waterfront development

licences in Saldanha Bay takes approximately 14 days, rezoning of land three to four months, and building plan approvals between 15 and 30 days.

Ongoing upgrades to the harbour Saldanha Bay Port, which will support the growing gas and oil industry on the west coast of Africa, has been a centre of activity for the past three years as extensive development and upgrading of facilities takes place. It is envisaged that a 2015 commitment by the Transnet National Ports Authority of R9.65-billion towards infrastructure projects will improve the port’s ability to serve the offshore oil and gas industry. This will ultimately create an estimated 6 300 new direct jobs and 25 200 new indirect jobs, and contribute R4.74-billion to the GDP. It will also create opportunities for property investors, both in terms of industrial land as well as housing.

The growth of Paarl has resulted in the implementation of a project focused on upgrading its CBD to facilitate increasing economic opportunities. In addition, a Fibre rollout Cape Town is also South Africa’s project has also been identified to Through its Baobab project, Saldanha “new media” hub, with 57% of all boost its tourism sector through the Bay intends to deliver a municipal fibre South African gaming studios located creation of a waterfront development network that will be a basic service delivery in the city, as well as a large proportion of the country’s animation studios on the Berg River. This will be a mixedutility for all its residents, and enable fair used project that will include, among competition among private sector service other facilities and amenities, a hotel, providers. The project is a joint initiative, restaurants, office blocks and a sports through the Saldanha Bay Innovation Helix science institute. programme, with Stellenbosch University and the private sector.

Reasons to invest: Saldanha Bay and Vredenburg Infrastructure spend by province

Between the 2018/2019 and 2020/2021 financial years, the total provincial infrastructure allocation will amount to R829million across the Medium Term Revenue and Expenditure Framework, with the immediate focus being on health (R60.6million, including a R54.4-million upgrade to the Vredenburg Hospital) and roads (R156-million). Roads, in particular, have far-reaching benefits for the West Coast, creating infrastructure via the IDZ that could connect this municipality to others, such as to the agricultural sector in Swartland and the manufacturing sector in Bergrivier.

Favourable business environment There are a number of factors that contribute to a favourable business environment in the Saldanha Bay/Vredenburg area, including the infrastructure capacity of business and industrial areas, service charges and the relationships between the public and private sector. The processing of business

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Aquaculture development zone Aquaculture has been practised in Saldanha Bay since the 1980s, and it is one of the primary locations for the culture of key commercial cold-water species such as oysters, mussels and salmon. The proposed sea-based 884-hectare (about 10% of the bay) Aquaculture Development Zone (ADZ) will enhance and expand sustainable aquaculture in Saldanha Bay. Contributing towards the goals of the Operation Phakisa: Oceans Economy initiative, 15 of the initiative’s 35 projects are to date located in Saldanha Bay, with the majority run by SMMEs. The initiative has the potential to create 2 500 permanent jobs and increase direct revenue of about R800-million per annum into the area.

Western Cape overview Reasons to invest: George George has several initiatives aimed at expanding its functionality, efficiency and overall attractiveness for investment. These include:

Go George This is an integrated public-transport network rolling out a fleet of buses to make safe, reliable, accessible, affordable and scheduled public transport a reality for all who work and live in George. It is a partnership between the George Municipality, the Western Cape Government and the National Department of Transport, as well as local taxi and bus operators.

George Airport expansion In January 2019, Airports Company South Africa announced a R100-million upgrade to George Airport over the next five years, including an expansion of the terminal as well as more parking and better traffic flow around the airport area. The upgrades, set to commence in 2020/2021, will increase passenger capacity from 800 000 people to 1.2-million.

Growing educational resources George is home to 51 public and private schools as well as numerous tertiary education institutes. These include the George Campus of the Nelson Mandela University, which is embarking on extensive expansions to the number of degrees being offered at this satellite campus.

Financial incentives Through its #InvestGeorge initiative, George provides financial incentives, including discounts on rates and services to approved investors, on the lease or sale of council-owned land. (In March 2018, 7.5-million hectares of incentivised, municipal-owned land was available for development.) It also offers rebates on building plan approvals (50% discount for designated developments and 25% for non-designated developments), and capital contributions phased in with payment over five years.

Future planning At a Garden Route Investment Conference held in 2018, future initiatives were also announced.

Wesgro: The Western Cape Property Report 2018/2019 research The following outlines the primary sources that have been used throughout this report.

In terms of municipal data on each region Apart from data provided by Wesgro’s own research division, information has been sourced from the Municipal Economic Review and Outlook (MERO) 2018, produced by the Western Cape Provincial Government; the South African Economic Indicators Database; Quantec EasyData; and the Economic Performance Indicators for Cape Town (EPIC) 2018 (Q3 and Q4), produced by the City of Cape Town. Other secondary sources of data are credited in the publication footnotes.

In terms of property values for all commercial, retail and industrial properties The data accumulated and analysed in terms of properties for sale or to rent were as at what was available on the market at the time the research was conducted during the period January to April 2019, and as per the asking prices loaded onto the Property24 website by real estate agencies and commercial/industrial property brokers. The exception to this was in terms of commercial (office) rental and vacancy rates in the areas of Bellville, the Cape Town CBD, Century City, Claremont, Central (being Pinelands and surrounds), Rondebosch/Newlands and the V&A Waterfront – all of which fall into the City of Cape Town. For these seven nodes, the most recent quarterly Office Vacancy Report produced by SAPOA was utilised. In addition to the above, for analytical purposes, use was also made of the Rode’s Report on the South African Property Market, produced quarterly by Rode & Associates in Cape Town.

In terms of residential properties All information on the market values and analytics of sold properties (i.e. market stock, age profile of buyers, price performance and activity) has been sourced from Lightstone Property. Information on rental prices has been sourced from Property24, and the analyses of these are based on rentals being asked and stock availability as listed by real estate agencies at the time research was conducted (from January to April 2019).

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

industry overview

Shoring up development in the midst of a construction crunch While economic growth is fuelling expansion of construction and development sectors in parts of Asia and the Middle East, South Africa’s construction industry remains under pressure. This in turn is putting severe pressure on local property developers, who are being forced to reinvent themselves to survive By Nicole Chamberlin

outh Africa’s construction downturn not only mirrors the country’s floundering economy but has also had a detrimental impact on property and infrastructural development across the country. According to the Construction Education and Training Authority’s joint communiqué with the Parliamentary Monitoring Group, the construction sector’s decline stems from the 2009 construction boom in South Africa (prior to the FIFA World Cup), when the sector was valued at R300billion. Having endured ongoing contraction over the past decade, exacerbated further by contract price adjustment provision (CPAP) as a result of production cost hikes, the sector’s value has dropped to R200-billion in 2019.

Nicholas Stopforth, Managing Director at Amdec Property Developments

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industry overview National debt, together with a pronounced fall in government infrastructure projects, has also taken a significant toll. In the latter half of 2018, Basil Read was placed in business rescue, while construction giant Group Five experienced a similar fate in the first quarter of 2019, owing to mounting debt. The demise of two of South Africa’s largest construction companies plunged the local property development sector into crisis, threatening to derail the completion of several multibillion-rand projects. One such project was the Amdec Group’s high-end mixed-use development – One on Whiteley at Melrose Arch – which was due to be completed and handed over to purchasers in October 2019. “When Group Five went into business rescue, work on site ground to a halt, and it seemed highly unlikely that we’d be able to deliver the completed scheme on time,” says Nicholas Stopforth, Managing Director at Amdec Property Developments. “We realised that an immediate and rapid strategic realignment within our company was necessary if we were going to weather this storm”. With jobs, supplier contracts, reputation and its overall investment on the line, the privately owned property group opted to vertically integrate its resources and assume direct control of the construction management process. This involved changing and broadening the scope of internal employee positions, and absorbing key Group Five personnel. In so doing, the Amdec Group was able to circumvent disaster, resuming construction at One on Whiteley within just two weeks of Group Five’s collapse. “We took on about 35 Group Five employees who would otherwise have been jobless, and secured about 80 direct contracts with subcontractors,” continues Stopforth. “While several other developers have yet to recover from the events surrounding Group Five, we were able to turn a potentially catastrophic situation into an opportunity.

Vertical restructuring has not only bolstered the proficiency of our core teams, it has also gone a long way towards futureproofing our business model.” With the City of Cape Town’s recent approval of Harbour Arch – the Amdec Group’s R14-billion mixed-use development on the Foreshore – this restructuring came not a moment too soon. Stopforth acknowledges that sector downturns are typically cyclical, but cautions that lower volumes, additional pricing pressures and the heightened risk involved in competing for dwindling resources will see margins within the construction industry remain paper-thin, with cash flow continuing to suffer. “The construction and property development sectors are not out of the woods yet, as each directly impacts the other,” he says. “While we’re seeing favourable take-up of residential and commercial space at both Melrose Arch and Harbour Arch, it’s vital that we remain agile in times of such market volatility and economic turmoil. Given the challenges we faced, it is gratifying to see the completed development, and meet with satisfied residents who have moved in and are enjoying the convenience of living in one of South Africa’s pre-eminent new urban precincts.” Residential apartments at Melrose Arch have always been in strong demand, generating rental returns and capital growth that are among the highest in Johannesburg. A handful of late-release studio, one- and two-bedroom apartments remains available, priced from R2.15-million. “As an industry, we can’t rest on our laurels and wait for the next construction boom to be presented to us,” says Stopforth. “The current lack of foreign investment calls for lateral and innovative thinking, without which South Africa’s mediumto long-term construction outlook will continue to be grim.”

amdec.co.za

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

industry overview

Amdec Group expands its Western Cape property portfolio The Amdec Group, South Africa’s leading developer of new urban lifestyles, has recently acquired the multi-award-winning Sitari Country Estate outside Somerset West in the Western Cape. This forms part of the Amdec Group’s strategy to strengthen its portfolio in the region, and represents an exciting opportunity to leverage its more than three decades’ experience in the development of iconic mixed-use precincts, inclusionary housing communities, retirement villages and secure lifestyle estates By Nicole Chamberlin

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ccording to James Wilson, Chief Executive Officer of the Amdec Group, the Group focuses on large-scale projects within thriving metropolitan areas, so the scope and scale of Sitari Country Estate represents a compelling investment. “It provides us with a well-established lifestyle brand in an outstanding location, and adds to our prestigious portfolio of premium real

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

estate assets that include Melrose Arch in Johannesburg, the Yacht Club and Harbour Arch in Cape Town, Evergreen Lifestyle Retirement Villages, Val de Vie and Pearl Valley outside Paarl, and Westbrook in Port Elizabeth,” he says. Sitari Country Estate is located within the picturesque Helderberg basin, which is currently enjoying phenomenal growth, with exciting new residential and retail initiatives that closely mirror the growth experienced in other decentralised nodes such as Menlyn in Pretoria. The area is also a highly sought-after retirement destination. The central location means residents enjoy quick travel times to Cape Town, Paarl, Stellenbosch, Somerset West and the Overberg, as well as Cape Town International Airport. The estate spans 190 hectares and offers a range of premium and luxury apartments, village and country-style homes, as well as an Evergreen Lifestyle Retirement Village, a Curro private school, and a large neighbourhood retail centre. It also boasts orchards, vineyards, play areas and a 22hectare wetland, interspersed with highquality contemporary rural architecture. Sitari Country Estate was launched in 2014, and is already well established, with all primary infrastructure substantially

industry overview completed and operational. There are 3 150 residential opportunities within the estate, including a mix of freestanding erven and sectional title apartments. More than 1 700 units have been sold to date. The remaining 1 450 development opportunities will all be sold as completed houses or apartments, further expanding the estate. Sitari Country Estate also offers a select number of offices for rent, giving residents the option of working within walking distance of their home. The estate will feature discreet security that includes CCTV cameras, a control centre on site, movement sensors, infrared beams, and biometric access control. “This acquisition provides the Amdec Group with a variety of accommodation options in an estate that caters for a broad spectrum of the population,” says Wilson. “From young professionals and families through to empty nesters and retirees, residents will enjoy an active, convenient,

safe and secure lifestyle within a worldclass country estate. Investors can also look forward to the prospect of strong rental returns given the influx of people to the area, along with the schools, shops and other facilities on offer. The area is also home to a high concentration of hospitals and medical facilities, providing the assurance of expert medical care, irrespective of your life stage.”

amdec.co.za SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

Western Cape seminar

First URERU seminar of 2020 More than 110 SAPOA members, property practitioners and students attended the first Urban Real Estate Research Unit seminar of the year, sponsored by Quoin Online. Seminar guests were welcomed to UCT by Head of Department of Construction Economics and Management Professor Kathy Michell, before she handed over to Master of Ceremonies Rob McGaffin, who introduced Professor François Viruly and Dave Russell, Director at Baker Street Properties By Mark Pettipher

M M Source graphics: JLL

cGaffin kicked off by thanking SAPOA for helping to drive the seminars, then thanked Quoin Online for its continued patronage – the company has been sponsoring the quarterly seminars almost since inception. Quoin Online is a specialised property business encompassing the full spectrum of skills sets required to offer clients the highest level of service for property trading. Individuals with vast experience in specific disciplines joined forces to provide this unique service. Recognising a need in the market for an efficient web-based property transaction system, the partners created a state-of-the-art software that will allow buyers and sellers to transact on property anywhere in the world.

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

François Viruly covered the property industry’s international trends in the commercial sector. Alarmingly, he mentioned that South Africa is in its 73rd month of recession – the longest cyclical downturn since World War II. He further said the country is not talking about the depth of the cycle, but rather its length; and linked the downturn to the international market, saying that we seem to be trying to get out of our slump during a general global economic slowdown. He highlighted the SAPY trend, commenting that we’re currently showing growth of less that one percent, which doesn’t bode well for the country. Moving onto international trends, Viruly pointed to a number of major shifts, and showed that the best-performing sectors included logistics and residential (specifically student accommodation, affordable housing and retirement complexes). There was also a mention of healthcare and hotels, and an increase in tourism. Viruly concluded his presentation with a statement about South Africa’s property market being problematic. We’re awaiting next month’s international grading, although it is commonly thought that South Africa will once again be downgraded because we will continue to have issues with energy supply. He did reiterate that we’re trying to take corrective measures while the rest of the world is in an economic slowdown.

Western Cape seminar Dave Russell, a veteran of the industry for more than 37 years (and a SAPOA member for 17 years) followed with an overview of the state of affairs in Cape Town, drawn from seven commercial property nodes. He began with the issues the country as a whole faced last year, with two construction companies going out of business, national debt increasing and the ongoing Eskom saga, before moving on to Cape Town’s water supply woes and the area’s high unemployment rate. Here he also pointed out that Cape Town development activity is at its lowest since 2006. On a positive note, he compared Cape Town’s office vacancy rate to other business nodes in the country, honing in on the difference between Sandton’s vacancy rate at 15.9% as compared to the whole of Cape Town at 7.3%. This seems to show that Cape Town is still an attractive city in which to do business and invest in property. In fact, looking at the overall trends and statistics being published in South Africa, it’s a buyer’s market in the commercial and residential sector. What is more, it’s also proving to be a tenant’s market, because vacancies are driving rental prices. However, since the property market operates in cycles, we seem to be hitting a plateau, with office rentals being maintained at 2017 rates. Russell also spoke about the cost of getting in new tenants, and presented the following future trend predictions: ● There will be very little property development. ● What development there is, is coming on stream now, and we’ll see an increase in vacancies as a result. ● Rental income will remain flat as operating costs increase. ● There will be continued demand for office space from e-commerce BPOs, tech companies and co-working spaces. ● Space efficiency will become a tenant requirement, affecting building design. ● Green will become more important as demand grows to address high energy costs, water issues, climate change, the drive for renewable energy and a move towards zero-carbon buildings.

● Eskom will continue be create issues, and there will be a need for investment in alternative energy sources, such as wind, solar and gas. ● Office buildings will be reused and converted to hotels and residential. ● Tourism will increase. ● Tenant retention will become key for landlords. ● There will be more “Black Friday” specials.

In numbers

www.ureru.uct.ac.za

In Office

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

entrepreneur one-on-one

Driving environmental standards Established in December 2007, Nsovo Environmental Consulting is an environmental consulting firm with clients in corporate, mining, industry, private, government and emerging renewable energy spheres. Nsovo utilises the qualifications, experience and expertise of its team members across multiple disciplines to develop financially and environmentally beneficial relationships with its clients through the identification and provision of sound environmental solutions, ensuring environmental compliance and sustainability, improving process efficiency, and designing elegant, cost-effective solutions. Most importantly, the aim is to reduce its clients’ environmental impact Interview by Mark Pettipher Words by David Steynberg

W W

Munyadziwa Rikhotso, Executive Director at Nsovo Environmental Consulting

hen you know who you are and your mission is clear, life becomes more purposeful. This is one of the key lessons Munyadziwa Rikhotso’s father – the former principal and guidance teacher at Tshikevha Christian School – taught her. “He stands out as the key influence in my life,” she said, noting that knowing her academic strength as a scholar and following her passion is what led her to studying a BSc in geography and environmental management at Wits, and following it up with an honours qualification in environmental management. “It was while I was pursuing my studies that a greater focus was being placed on the environment, and the impact development had. The South African legislation became increasingly stringent, which created more work opportunities in that space. It’s ironic, because while the fashion of the day was maths and science, my love and passion for geography and earth sciences landed me in a niche market at a time when the environment and sustainability were top of the agenda in most countries, including South Africa.”

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

How many students can say that, even before they embarked on their honours studies, they were working with and consulting to businesses that required their skills, knowledge and expertise? This is exactly what happened to Rikhotso. “While I was working on my honours degree, I was already working,” she says, noting that it put her on a fast track to employment at established environmental consulting firms. “I worked as a consultant for four years before starting my own business, Nsovo Environmental Consulting, in 2007. The four years allowed me to gather experience and understand the technicalities of the work. However, to take the risk, quit my job and dive headfirst into my own business, I needed my faith to be greater than fear. When I got that point, I took the leap. “I started out by myself, flying solo until 2012, when Nsovo landed Eskom’s Kusile power station project, which required us to deploy two ECOs over a three-year period. I knew then that I needed to hire more people. Today we employ 13 professionals – six in the Midrand office, and the other seven deployed in various provinces to service clients.” The company Rikhotso has built is a multi-disciplined environmental consulting

entrepreneur one-on-one firm, which assists its clients by identifying sound environmental solutions that ensure both environmental compliance and sustainability. Nsovo’s approach to business aims to reduce its clients’ regulatory burden as far as practically possible. Rikhotso admits that when Property Point appeared on her radar two years ago, she was on the verge of “retiring” from the business and pursuing her other passion: events and hospitality. “When I met the team at Property Point, they encouraged me to keep working on what I was building, and helped me realise that my business was actually bigger than I initially believed,” she says. “Property Point has kept me on my toes. The advice it’s provided to keep on working on what I had started was a definite ‘aha moment’, and a turning point for my business. I’m grateful to this day that I carried on doing what I was doing. Despite the rather cold economic climate, we have managed to keep the business afloat and have seen notable growth.” Rikhotso says that while much of the initial value proposition in the business was based on black-ownership, the business today is reputable beyond its BEE status. “We have done well in terms of building a reputable business,” she says. “Our work culture, our faith and the quality of the services we provide set us apart in the industry. This has allowed us to build meaningful relationships with our clients” Looking ahead to the next five years, Rikhotso says that she is working on an exit strategy, noting that Property Point is advising and assisting her in the development of a succession plan. So what’s next for this entrepreneur and young mother of two? “I would love to expand my horizons and venture into hospitality,” she says. “I have always had an interest in property investment, and have invested in several properties through the years. I have already earmarked one of the properties in my portfolio for the development of

a boutique hotel to nurture my passion for hospitality.” Young as she is, she’s already a recipient of a Standard Bank Top Businesswoman Award. Her advice to up-and-coming entrepreneurs is to first get to know and understand who they are as individuals, before finding their niche and embarking on a unique business journey. “It’s easier to succeed in something if that something is passion-driven – and if you are ‘doing you’ and staying authentic,” she says. “Be patient with yourself – it takes huge amounts of time, effort and sacrifice to build anything sound. “Your faith is important because it helps you understand things and make sound decisions. Most importantly, wisdom will carry you through.”

www.nsovo.co.za

Munyadziwa Rikhotso

E-mail: admin@nsovo.co.za Phone: 071 602 2369 Fax: 086 602 8821 Tel: 011 041 3689 (Gauteng) Tel: 015 065 0884 (Polokwane)

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

PROPreneurX launch

Property Entrepreneur Accelerator Programme launched “Kagiso Trust is deeply rooted in education. Socioeconomic development is key for us, and entrepreneurship is part of that. The property industry is a R5.8-trillion business, yet it’s at the top of the least-transformed sectors. Through this programme, we want to do something about it.” It is with these words that Mankodi Moitse, CEO of the Kagiso Trust, launched the Property Entrepreneur Accelerator Programme, PROPreneurX, at the Houghton Hotel in Johannesburg Compiled by Maud Nale

A M The evening culminated in a keynote address by Dr Judy Dlamini, entrepreneur, author, philanthropist and founder and Executive Chairman of the Mbekani Group. BELOW Winners at the inaugural PROPreneurX launch, with representatives from YIEDI and SASDC, and (seated from left) Kagiso Trust Chairperson Ipeleng Mkhari, Reverend Frank Chikane and Dr Judy Dlamini

oitse went on to say, “We are giving birth to something that has been in the making for more than three years. As Kagiso Trust, we believe that we can think of solutions, and how we can get development going forward in the interest of all South Africans – in particular those who have been excluded from the economy and development of our country. Our vision is to see a South Africa that is prosperous. We cannot do so unless it is peaceful, equitable and just. “We have partnered with Motseng Investment Holdings and the South African Supplier Diversity Council (SASDC), who will help us fine-tune this model into one of excellence. Creating transformation and development for black-led businesses in the property sector, we will be collectively contributing to taking South Africa forward.”

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

SAPOA Immediate Past President and Chief Executive Officer of Motseng Investment Holdings Ipeleng Mkhari echoed Moitse’s sentiments. “As we celebrate, it is a fitting tribute to the transformation imperatives of this country to initiate a programme that will empower, enable, support and grow new and upcoming commercial property practitioners in the country,” she said. “We are making strides in various fields; however, the gaping hole for economic participation is in the property sector. ”When Motseng Investment Holdings and Kagiso Trust first met to discuss our partnership for PROPreneurX, it was very clear that we needed a strong, relevant offering for prospective applicants who were interested in the programme – an offering that not only saw them taking part in the initiative but exiting the programme empowered, sustainable and ready to create jobs.” According to Mkhari, it was imperative to find the right strategic partners for the implementation of the programme. “We needed concrete implementation partners,” she said. “Our partnership with the Youth Innovation Entrepreneurship Design Institute (YIEDI) and the South African Supplier Diversity Council has helped us identify the talent in places we couldn’t reach, and enhanced the programme with resources

PROPreneurX launch and training to build successful property enterprises and future real estate magnates.” Mkhari concluded by inviting those present, co-investors and partners to collectively direct their resources and time towards the success of PROPreneurX. What followed was a showcase of all 13 founding winners – a diverse group of companies ranging from architectural and design firms, property consultants and project managers, to cabinet manufacturers and facilities management specialists. The winners include established companies with an international presence and patents, as well as newcomers into the commercial property sector.

The PROPreneurX initiative Kagiso Trust, Motseng Investment Holdings and SASDC identified the commercial property sector as a suitable platform to support entrepreneurs servicing the property sector. The nexus of the approach is the new property accelerator (PROPreneurX), as well as masterclasses that will include capacitybuilding, knowledge-sharing, innovation, technology, environmental awareness and mentoring, which will be provided by YIEDI over a six-month period. YIEDI Chief Executive Officer Jayshree Naidoo had some insights into the property industry. “The overall market size of commercial property in relation to the GDP of South Africa, and its impact on property and the value chain of property, is vast and necessitates active transformation to redress the state of the sector and improve areas of preferential procurement,” she said. “It has now become critical for businesses and industry leaders to assess appropriate mechanisms to: ● Address the Fourth Industrial Revolution in the most practical manner and ensure that it is leveraged as a tool for growth; ● Identify opportunities to re-skill existing talent and attract new talent within the sector; ● Support and encourage entrepreneurial talent to drive job creation and expand

the sector by creating access to market opportunities." The PROPreneurX programme is a property entrepreneur accelerator designed to provide the support needed to grow a business, gain visibility and traction for business growth, as well as receive advice from mentors on matters related to taking the business to the next level. Participants will also receive support services in the areas of marketing and branding, and professional media packs. The PROPreneurX Accelerator is an intense programme consisting of business development and enablement, mentoring and coaching, and investor readiness. It is not a funding programme.

Jayshree Naidoo, CEO of the Youth Innovation Entrepreneurship Design Institute (YIEDI)

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

PROPreneurX launch

Eligibility criteria Your business must be servicing the property industry in any of the following sectors: ● Business operations and maintenance ● Facilities management services ● Business and office services ● Management services In addition, the business must also meet the following criteria: ● The business is currently operational, is a going concern, and is commercially sustainable and viable. ● The business is already servicing the property industry with a service or a product.

● The business is black-owned and managed. ● The applicant is involved in the business’s daily operations and management on a full-time basis, and is not employed by any other organisation or organ of state. ● The business is registered and headquartered within the borders of South Africa. ● The business is in the early/mid stages of growth (older than one year). ● The business is not currently participating in any other enterprise development programme or business development programme. ● The business is not be an NPO (non-profit organisation). ● The business should be able to demonstrate its turnover through financial records or purchase orders for the past six to 12 months. Some of the development modules include: ● Marketing and branding ● Strategy ● Financial management ● Design thinking ● General management ● Social media ● Project management ● Legal and compliance ● Governance and ethics ● Project management ● Human resources management

About the partners Motseng Investment Holdings is a black woman-owned strategic investment and property investment business that’s been operating for 21 years. As an established commercial property developer, owner and manager, Motseng prides itself in creating sustainable business partnerships in the sector. Motseng is only too aware of the challenges and exceedingly harsh conditions faced by new entrants into the property sector. For more information, contact Chief Executive Officer Ipeleng Mkhari at ipeleng@motseng.co.za. Kagiso Trust is one of South Africa’s oldest and leading development agencies working towards a prosperous, peaceful, equitable and just society. We work to overcome poverty by developing and implementing scalable, replicable, sustainable development programme models. For more information, contact Socio-Economic Development Head Mohlolo Selala at MSelala@kagiso.co.za. The South African Supplier Diversity Council (SASDC) provides a growing business ecosystem, wherein corporate members pursue a common sense of purpose and leverage the platform to access unique benefits and services. The SASDC believes that change is a rewarding journey, one which it is eager to undertake together with corporate South Africa. For more information, contact Chief Executive Officer Gary Joseph at gary.joseph@sasdc.org.za. 32

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

PROPreneurX launch PROPreneurX launch About YIEDI The Youth Innovation Entrepreneurship Design Institute (YIEDI) is a consultancy focused on transforming South Africa through innovation and entrepreneurship. YIEDI focuses on innovation and strategy consulting, incubation design and management, entrepreneurship and supplier development, and digital and e-learning solutions. Over the years, YIEDI has played an integral part in framing and understanding the innovation and entrepreneurial ecosystem in South Africa. Having engaged with and transformed the lives of many entrepreneurs, YIEDI’s innovation and entrepreneurship model, methodology and approach have proven to be highly successful. It has also helped organisations create and embed a culture of innovation, and currently assists organisations with outsourced development programmes and accelerators. YIEDI is a Level 1 BBBEE contributor. For more information, contact Chief Executive Officer Jayshree Naidoo at jayshreen@yiedi.co.za.

Dipuo Phakathi c: +27 (0)78 287 4466 e: dipuo@denic-cabinets.co.za w: denic-cabinets.co.za

Simangaliso Xekethwane c: +27 (0)81 897 6329 e: Smanga@wekreate.co.za w: wekreate.co.za

Bonolo Gueye c: +27 (0)82 578 0357 e: Bonolo@maikae.co.za w: maikae.co.za

144 Oxford Johannesburg

Jacob Mamjate c: +27 (0)76 180 1532 e: info@bito.co.za w: bito.co.za

optimal engineering

Tebogo Shirinda c: +27 (0)84 517 4697 e: tebogo@shirinda.co.za w: shirinda.co.za

Ezekiel Lerata c: +27 (0)73 081 7038 e: ezyletuka@gmail.com

STRUCTURAL, CIVIL, MECHANICAL, ELECTRICAL, AND FAÇADE ENGINEERS. CT - JHB - DBN - NAIROBI - T YGER VALLEY sutherlandengineers.com

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

PROPreneurX launch PROPreneurX launch

IN LOVING MEMORY OF RICHARD JOHN PELWANA MAPONYA 24 December 1920 - 6 January 2020 “For as long as the Lord has given me health, I am going to work until the last day when they say ‘Lala Kahle’.” Richard Maponya was an entrepreneur and property developer best known for building a business empire despite the restrictions apartheid imposed on black South Africans. He was fiercely determined to see Soweto develop economically. In April 2007, he received the Grand Counsellor of the Baobab for distinguished service. He realised his dream of building a mall in the heart of Soweto with Maponya Mall in September of the same year. The South African Council of Shopping Centres awarded him the Pioneer Award in 2013 in recognition of his exceptional contribution to the retail real estate sector. Mr Maponya will be remembered for his innovation and forward thinking and for the substantial mark he has made on our industry. Our hearts, prayers and deepest sympathies go out to her family, friends and colleagues.

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

Mpho Nangu c: +27 (0)71 189 3078 e: Mpho@nangu.co.za w: nangufacilitiesmanagement.co.za

Sphumi Mabena c: +27 (0)73 491 1239 e: phumim28@yahoo.com

Mokgadi Letsoalo c: +27 (0)61 865 4932 e: mokgadi@buildfix.co.za w: buildfix.co.za

Malesela Peter Kumbuyo c: +27 (0)83 418 6133 e: lpair@telkomsa.net w: lpair.co.za

Paseka Lesolang c: +27 (0)76 772 4596 e: plaioemail@gmail.com

Ntokozo Coka c: +27 (0)71 540 0580 e: n.coka@kondwani.co.za w: kondwani.co.za

PROPERTY SOUTH AFRICA N PROPreneurX launch

REVIEW

The voice for the industry

Each SAPOA member is a leading player and decision-maker in the commercial property arena, they use the South African Property Review as a way to gain important peer exposure and recognition. With a South African property market value in excess of R5,7-trillion, SAPOA members control about 90% of South Africa’s private sector

commercial land and buildings stock, and manage the majority of property funds listed on the JSE. Open to all commercial property professionals, advertising in the online South African Property Review is an ideal way to reach these important decision-makers.

71 076 ● Interactive reading and rich media

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● Downloadable connected digital data links and much more ● Reader engagement through

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websites and e-mail hot links ● Interactive advertising ● Call to action opportunities ● The stories behind the stories ● One-on-One interviews ● On Show showcasing properties ● Linkedin and Facebook following

According to Google an average time spent on a website blog is 4min. South African Property Review’s average read time per month is 10min 27s, 2.5 times the average online retention rate.

May 2019 / Jan 2020 Total page views Total sessions

Average time spent (minutes)

For advertising opportunities and rates contact t: +27 (0)21 856 1276 / e: pieter@mpdps.com For editorial enquiries contact e: mark@mpdps.com SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

insight

5 big questions real estate will be asking in 2020 From flexible space to greater sustainability, this new year has a lot in store Thanks to JLL - https://www.jll.co.za/en/trends-and-insights/investor/5-big-questions-real-estate-will-be-asking-in-2020

The Jewel shopping mall near Singapore’s airport.

s 2020 kicks off, the real estate industry has more on its mind than the U.S. election or Brexit. In these transformational times, workplaces are grappling with new technology and focusing on wellness. Retail strategies are shifting toward wowfactor experiences. Investors are branching out into new countries and sectors. Amid the ongoing politics, trade tensions and tech-driven disruption, there are lots of questions about what’s in store. Here are five big ones that JLL experts think will be front of mind for real estate in 2020.

working – remains strong, given its ability to help drive collaboration and deliver costs savings. JLL believes there will be continued global growth in flexible office space over the long term. But investors and occupiers will be looking for clues about which business models, operating models and technologies will drive the burgeoning sector forward. Read about how tech is fuelling the rise of flexible space and why investors are racing to rethink their approach.

1. Will flexible space continue its meteoric rise?

Commercial real estate markets have been booming for nearly a decade, with investors pouring capital into the sector in a hunt for steady returns amid record-low interest rates. For the most part, the global economy expanded during that time. But there are signs the winds are shifting. “Although there is no such thing as an economic cycle which turns downward simply due to old age, it is generally recognized that we are in the longest period of economic expansion on record and that some correction is likely within the next 24 months,” says Christian Beaudoin, U.S. Research Director at JLL. “Across many industries, employers are struggling to find talent to fuel their expansion, and constraints on employment growth and productivity improvement may be limiting factors.” The trade tensions between the U.S. and China will be top of mind, too. “Although a temporary truce in the USChina trade war is likely, the two world powers

The rise of flexible workspace has been one of the most significant developments in commercial real estate, moving from niche to mainstream at an incredibly rapid pace. Demand for flexible space – a broad term for any type of real estate that enables agile

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

2. How could a slowing global economy impact markets?

insight are unlikely to achieve any long-term agreement over their major differences,” says Myles Huang, Research Director, JLL Asia Pacific. Find out more about why real estate remains resilient and what Christine Lagarde’s appointment as ECB chief means for investors.

3. What will draw customers to shopping malls? Online shopping continues to transform retail – and bricks-and-mortar stores and malls need to change with the times. “We’re just all trying to figure out what the new normal will be,”says James Cook, Americas Director of Research, Retail at JLL. “Each retailer is trying to figure out what the right number and location of stores should be, given that many need less space and fewer locations to be successful. They also have to determine how much capital they should devote to rolling out apps, curbside pickup, delivery and new compelling shopping experiences.” Offering interactive experiences to attract shoppers and fill the gap between simply buying goods is critical. “There is a major opportunity to introduce social services to shopping centres,” says Jacob Swan, Senior Director, Retail Investments, JLL Australia. “The latest new trend is adding childcare and expanded allied health precincts.” Owners are also incorporating co-working office space, while esports operators are moving in along with e-tailers who now want a physical presence. Find out more about how retailers have been trying out new ways to meet consumer expectations from drone delivery pilots in small U.S. towns to photogenic popup museums.

4. How will companies put sustainability into action? Investors and occupiers are paying greater attention to being more sustainable and socially responsible, says Tom Carroll, Head of Corporate Research and Strategy, EMEA. He believes 2020 will be the year “when companies make a closer connection between their

objectives and their real estate strategy and investment.” “We will see greater emphasis on impact investing, creating strong ties with communities and significantly reducing carbon footprints on the journey to net zero,” he says. One way this is expected to happen is through sustainability technologies, which reduce environmental impact through energy efficiency improvements and savings. “Firms focused on corporate social responsibility and green initiatives are benefitting from new technologies,” says Andrea Jang, Growth Lead, Americas, JLL Spark. “These can be integrated into building operations systems to automate management of heating, cooling, and HVAC and also detect system malfunction.” Read more about what companies are doing, from retrofitting older buildings and tackling climate change.

A multifamily residential building under construction in the U.S.

5. How will new urban housing solutions develop? Housing models are adapting to the soaring costs of urban living and lifestyle preferences for city-center locations. “Rising accommodation costs are driving demand for shared housing,” says Huang. “Many students and young workers find conventional apartments out of their reach because of high rents, deposits and furnishing costs. "Although the prices of co-living space are quite diverse, they are generally more affordable." Investors are taking note as they look for a home for high levels of unspent capital. A new wave of purpose-built multifamily developments catering to modern renters are attracting attention in Europe, while in the US, competition for multifamily assets remains fierce.

www.jll.co.za

JLL SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

rethinking LED

LED in intermediate cities Rethinking LED: “Local Economic Development” in Intermediate Cities is the latest volume in a series of exploratory studies on the “differentiated approach to governance” focusing on intermediate cities, by the South African Cities Network (SACN). The first four volumes were a data-driven study seeking to define “secondary cities” (2012); a qualitative study into six intermediate cities exploring possible differences or uniqueness compared to metros (2014); a deeper study into apartheid’s displaced settlements examining the need for a more nuanced articulation of differentiation, drilling down to a sub-municipal level (2016); and a study assessing the interpretation of “spatial transformation” contained in the national urban policy in intermediate cities compared to metros (2017). The series has become an important and consistent reference point for building national attention and understanding around intermediate cities We extend our thanks to the South African Cities Network for the following extracts. SACN 2019. Rethinking LED: “Local Economic Development” in Intermediate Cities. Johannesburg: South African Cities Network. Available online at sacities.net. ISBN: 978-0-6399215-6-3 © 2019 by South African Cities Network. Rethinking LED: “Local Economic Development” in Intermediate Cities is made available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International Licence. To view a copy of this licence, visit creativecommons.org/licenses/by-nc-sa/4.0/.

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

rethinking LED

ntermediate cities have an important role to play in regional and rural development, and contribute to the national economy. However, their economic growth is generally slower than in metropolitan areas, because their economies are significantly more vulnerable. And, unlike metropolitan cities, few (if any) of South Africa’s intermediate cities have managed to change their economic trajectory. This research explored local economic development (LED) within intermediate cities, using a combination of desktop research, participatory action research (to garner the views and experience of municipal practitioners), and case studies of Mangaung, Rustenburg and Sol Plaatje. These three cities represent common LED characteristics of intermediate cities: ● Their economies tend to be “old” and depend on a single sector, and are thus vulnerable to national decisions.

● They play an important regional role within their rural hinterlands, and have links to larger urban areas. ● Their infrastructure is ageing, and their municipal financial standing is weak. The study found that LED is an ambiguous concept that includes both pro-poor and pro-development economic development approaches. Within municipalities, there is confusion about the LED department’s role, and LED is not considered a high priority. As a result, LED departments lack capacity and resources, and produce strategic plans that are rarely updated. The plans tend to be disconnected from reality, lack strong economic rationale or make simplistic assumptions about the economic value chains, and assume that funding will come from other spheres of government. The private sector is also not aligned with the municipality, and economic analysis and intelligence are lacking.

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

rethinking LED

The Integrated Urban Development Framework (DCOG, 2016) and research by the South African Cities Network (SACN) and the South African Local Government Association (SALGA) recognise that the economic development function at local level needs to be re-imagined.

Furthermore, the municipalities depend heavily on national grants but have little or no say in the plans developed and policy decisions taken by national (and provincial) government, although these plans and decisions affect their local economies. The dependency on national grants means that municipalities are not compelled to think about or utilise their infrastructure in economic terms, and it also reduces local accountability. The Integrated Urban Development Framework (DCOG, 2016) and research by the South African Cities Network (SACN) and the South African Local Government Association (SALGA) recognise that the economic development function at local level needs to be re-imagined. This study recommends that the LED function be reimagined, based on four principles and six strategic issues.

Four institutional principles for LED 1. A functional economic development directorate can exist on a small budget. 2. A functional economic development directorate needs to be involved in both pro-growth and pro-poor projects. 3. LED needs to occupy centre stage within a municipality, and economic thinking must be integrated into the other functions performed by a municipality. 4. A functional economic development directorate should furnish the rest of the municipality with robust economic intelligence.

Six strategic issues in re-imagining LED 1. Local governments should mainstream economic considerations into their sectoral departments and also into the accompanying strategies of those departments. 2. Local governments need to use municipal levers, such as land-use planning, to support their economies. 40

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

3. Municipalities should do more to build economic intelligence, with the assistance of other spheres of government. 4. Local governments should strengthen economic strategies that are appropriate for their specific economic context and based on solid economic intelligence. 5. Local governments should develop economic partnerships, as municipalities need to facilitate, not drive, economic development. 6. Local governments should create appropriate institutional arrangements that support economic development. The six strategic issues do not represent a new approach, but rather reinforce the main ideas contained in the key policy documents that aim to reposition LED in South Africa. To aid in advancing the practical implementation of these ideas, a diagnostic screening tool was developed through this study, which provides municipalities and supporting actors with a framework for assessing a municipality’s current LED plan and institutional framework. A municipality can use this framework to get an indicative “health check” on its relative LED strengths and weaknesses, and use this knowledge as a basis for designing responses for strengthening their LED role.

FRAMING LOCAL ECONOMIC DEVELOPMENT After discussing the history of LED in South Africa, current and future government thinking on LED, and the international context, this section examines LED within intermediate cities in South Africa.

South Africa and LED The history of LED in South Africa can be divided into six phases, as described in Table 1.

rethinking LED

Current and future government thinking around LED

The draft National Framework for Local Economic Development

The draft National Framework for Local Economic Development and the Intermediate City Support Programme (ICSP) are the most recent responses from the government.

The draft Framework contains a vision for LED: â&#x20AC;&#x153;Innovative, competitive, sustainable, inclusive local economies that maximise local opportunities, address local needs and contribute to national development SOUTH AFRICAN PROPERTY REVIEW â&#x20AC;&#x201C; FEBRUARY/MARCH 2020

rethinking LED objectives”, including the following strategic objectives: ● To launch a radical fight against poverty, inequality and unemployment, and enhance the quality of life for all by developing innovative, inclusive and competitive local economies. ● To support the potential of local economies to grow and develop the national economy. ● To raise awareness of the significance of regions, metropolitan municipalities and localities as focal points for generating national prosperity. ● To intensify the support for local economies to realise and build their economic potential, diversity, levels of employment and the creation of decent work for their communities. ● To strengthen intergovernmental coordination for the planning of inclusive economic development between government and nongovernmental sectors. The draft National Framework is built on six core pillars and five enabling pillars that drive the implementation of the core pillars. Despite some pockets of excellence, much work lies ahead, especially given the institutional shortcomings revealed through a review of the framework for the period 2006 to 2011: ● A lack of a shared conceptual understanding of what LED is.

● A lack of integration of sectoral plans as part of LED planning and implementation. ● Limited funding and financing for municipal LED programmes. ● A lack of a differentiated approach as regards LED implementation. ● The project approach to developing local economies. ● A skills deficit and general human resources challenges. The draft National Framework has acknowledged that municipalities allocate insufficient funding to LED activities, do not see the value of improved local economies in relation to their municipal income, and have not fully recognised the potential role of science and technology in promoting LED. It contains several proposals, including. ● The reintroduction of LED finance through some supporting systems: the Technical Assistance Fund (to improve the quality of LED plans and support knowledge creation around LED), a growth fund (to support the funding of catalytic projects) and a business-enabling fund. ● A more prominent role for district municipalities in respect of LED.

Intermediate City Support Programme Much of the research cited above laid a foundation for the ongoing development of the ICSP by the Ministry of Cooperative Governance and Traditional Affairs (COGTA). The relative underperformance of the economies of the intermediate-city municipalities in question (when compared with metropolitan municipalities) provides adequate justification for the programme, which is aimed at providing municipalities with more flexibility as well as at facilitating long-term planning.

Framing local economic development The process of developing the programme initiated a new discussion on the definition 42

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rethinking LED of intermediate cities. The programme first adopted a list of 21 B1 municipalities determined by the National Treasury, but the list was later expanded to 33. This extension was premised on size (for example, population size) and the assumption that existing measures incorrectly calculate economic size in South Africa. Previous research has shown that in defining ICMs, it is important to understand both the function and the interrelationship between function, size and location. Size characteristics were also the main justification for expanding the number of cities categorised as Category A (metropolitan). As limited additional funds are available, existing funding streams will need to be restructured for the programme. However, the developing ICSP will likely require interventions that go beyond merely realigning the funding mechanism, as the ICSP will have to bring together aspects that include the economic importance of these cities, their functional roles, their vulnerabilities, as well as the need to stabilise municipal finances and to strengthen municipal governance.

International “LED” thinking The role of “place” and elements unique to a particular context – social, economic, political, resources, infrastructure – has long been recognised as critical in shaping the development “path” of any given local place (Harvey, 2014). In the north, countries have tended to adopt “place-neutral” and “spatially neutral” approaches, which leave development opportunities exposed to the vagaries of market forces. However, placebased approaches and the notion of spatial targeting of support have become much more widely accepted. Both themes have a critical bearing on how intermediate cities and their roles are understood, and on the parallel recognition of the need for targeted support strategies. The OECD and others have recognised that “lagging places” (i.e. places, cities and regions secondary to the mainstream) have a valuable role to play in national development.

Shift to “place-based” thinking The challenges of intractable development backlogs and the failure of comprehensive programmes, such as the EU’s Regional Development Fund, to reduce regional disparities have resulted in a significant rethink of how to implement development interventions. These challenges have also led to calls to move from spatially neutral interventions to place-based interventions in order to address unique challenges and to capitalise on unique local advantages. Place-based strategies have particular relevance for intermediate cities that struggle to compete with larger cities and rarely receive targeted support from national institutions. The place-based approach assumes that geographical context really matters, whereby context here is understood in terms of its social, cultural and institutional characteristics – and that in terms of interventions, support needs to focus on “issues of knowledge and policy intervention” (Barca et al., 2012: 139). The anchors for this policy shift include the Barca Report to the European Commission (Barca et al., 2012) and the two OECD reports: How Regions Grow and Regions Matter (OECD, 2009a; 2009b). The Barca Report argues for place-based policies as the most effective way to tackle persistent poverty and the underutilisation SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

rethinking LED

“The role of “place” and elements unique to a particular context – social, economic, political, resources, infrastructure – has long been recognised as critical in shaping the development “path” of any given local place (Harvey, 2014).

of resources, while the OECD reports argue that all regions and places have growth potential and require uniquely targeted interventions to mobilise local assets and draw on local synergies.

National support Intermediate-city development cannot be viewed in isolation, and requires national support. The first step is to have a clearly defined national urban policy that supports intermediate cities in legal, policy, financial and governance terms. City development also requires national government to devolve responsibilities, as well as sufficient resources and funds to function effectively (Parkinson et al., 2015). However, globally, intermediate cities struggle because of the absence of supporting national strategies. And even when such strategies do exist, the support is often inadequate, and only limited power and resources are devolved. Most national policies are also biased in favour of larger centres and seldom involve smaller centres, which often have a narrow economic base that makes diversified and sustained growth difficult. In addition, resource and capacity constraints affect local policy choice, visioning and governance (UNCHS, 1984; Hardoy & Satterthwaite, 1986; Otiso, 2005; Marais et al., 2016a). The Cities Alliance argues for clearer and more defined support for intermediate cities (Roberts, 2014) because these cities are the fastest-growing cohort in the urban hierarchy, playing a key role in national economic and rural development – and yet are struggling to attain their potential as a result of poverty, lack of policy support and guidance, and inadequate resources, among others. What does appear to be critical is to acknowledge the fact that the cities’ networked governance groups have a right to self-determination when designing locally appropriate strategies: “There is no single path to economic success […] smaller cities have followed dramatically individual approaches to enhancing their economic competitiveness and vitality” (Kresl & Ietri, 2016: 128).

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

Regional (or local) development agencies These types of agencies are routinely used to implement economic development in intermediate cities. The agencies collaborate and engage with key partners, oversee strategy choice and implementation, and serve the needs of key role-players and communities. Although a local authority could fulfil these activities, independent agencies that act on behalf of local councils generally enjoy greater support from a wider range of stakeholders, as they are considered more politically neutral and able to operate with greater legal and policy flexibility. Smaller cities need to embrace the new “urban competitiveness” that exists in an increasingly interconnected world, and to realise that “success is linked with being proactive and future-orientated, and accepting of changes and assumption of risk” (ibid: 26). The European experience shows that the development process needs to be locally led and must embrace all local roleplayers (business, the community, social groups and government). The experience of intermediate cities in Spain, Ireland, France, Poland and Germany identified some key determinants of strategic thinking in intermediate cities (ibid: 96): ● Reaching agreement on common goals and philosophies. ● Creating a network of supporting agencies and intermediate actors in public-private partnerships (PPPs). ● Fostering inward investment.

Strategic approaches followed by intermediate cities From the literature, certain common, global strategic approaches followed by intermediate cities were identified. These approaches are not unique to intermediate cities, and are very often also used by larger cities. ● Smart growth and place-making: The concept of smart growth implies investments in human and social assets that promote sustainable economic

rethinking LED

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

rethinking LED

The challenges of intractable development backlogs and the failure of comprehensive programmes, such as the EU’s Regional Development Fund, to reduce regional disparities have resulted in a significant rethink of how to implement development interventions

growth, human and social capital development, high quality of life and environmental sustainability (Panagopoulos & Barreira, 2012). Specific strategies designed to enhance the quality of life and, by implication, encourage both endogenous development and the attraction of new in-migrants include promoting compact and mixed land use, encouraging community development and a sense of place, strengthening local development capacity, and preserving open space. The key argument for place-making is that talented people are essential for growing a local economy, and so strategies that attract new talent or develop local talent are critical. Therefore, an enhanced quality of life and amenity value are crucial for improving the perception and attraction of a place (Kelly, 2012). ● Smart specialisation: Smart specialisation seeks to synthesise three development priorities: pursuing growth that is smart, sustainable and inclusive. EU support for research and innovation ties place-based support and strategies to local innovation and entrepreneurial endeavour (Gheotghiu et al., 2016). Investments focus on unique and targeted interventions to support and develop local entrepreneurial capacity. The process is anchored on local advantage, local skill, capacity and innovation, the potential for local spin-offs and growth (Rusu, 2013), as well as the belief that finding and supporting the growth of innovative entrepreneurial activities will catalyse structural change and develop new capabilities (Radosevic, 2017). ● Promotion of innovation: Related to the preceding point is the acknowledged importance of encouraging “innovation ecosystems” that enable structural economic transformation from traditional

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

to new/IT-based economic activities. Evidence from Finland, and in particular the centre of Tampere, is instructive in this regard. Developing an “innovation ecosystem” calls for the following (Kostianen & Sotarauku, 2003; Oksanen & Hautamaki, 2014): 1. The development of technical university capacity and research linkages that both allow for and encourage technology transfer. 2. The establishment of links between university/industry/government. 3. Local control and a futuredirected orientation. 4. Institutional development to support transformation/new path development. ● Rural development: In the context of a developing country, intermediate cities have an ongoing role to play regarding the service and economic functions relative to their rural hinterlands. ● Pipeline versus cluster development: Analysts increasingly warn against too much inward thinking. The alternative for intermediate cities is to build links (or pipelines) to the global economy. However, none of these approaches will work without the appropriate institutional arrangements.

“LED” characteristics of intermediate cities A definition of intermediate cities should take into account not only size (population, economy, density, municipal budget), but also function and location (Van der Merwe, 1992). While indicators of size are easily quantifiable and thus comparable, the criteria for function and location are often open to various interpretations. For instance, some cities may not fully comply with the size criterion, but their central location within a specific region or subregion makes it possible to classify them as intermediate, as in the case of many border towns. Nevertheless, ICMs in South Africa share some common factors.

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rethinking LED Economies often dependent on a single sector Single sectors tend to dominate the economies of intermediate cities, and are linked to the global economy – especially in the case of mining (e.g. Matlosana, Lephalale, Matjhabeng, Rustenburg and Sol Plaatje) and manufacturing (e.g. Emfuleni, the uMhlathuze). They also sometimes involve tourism activities (e.g. George, Polokwane, Mbombela) or trade (e.g. Polokwane, Mbombela). Such monoeconomic links render these places more vulnerable to global economic crises than metropolitan areas, which generally have multiple global links. For example, Rustenburg’s economy is dependent on the international price of platinum, which is beyond a municipality’s control. Workshop respondents also highlighted the perceived “problems” of foreign-owned enterprises seen as “killing our economy”, evading taxes, providing products of poor quality, and being guilty of misappropriation of business spaces and dubious lease arrangements with landlords.

“Old” economies

Single Single sectors sectors often often dominate dominate the the intermediate cities and economies of of intermediate cities and are are linked linked to to the the global global economy, economy, especially especially mining mining

These cities have economies that are “old” (Marais et al., 2016a), such as mining and specifically coal mining in eMalahleni and Lephalale (Campbell et al., 2016), and the iron-and-steel industry in Emfuleni and Newcastle (Marais et al., 2016b). This makes addressing the spatial and economic inequalities more difficult. South Africa is one of the most unequal countries in the world, with “inequalities in earnings between black and white, and inequalities in terms of white noble suburbia (where you have middle-income groups) and the tucked-away townships (workshop participant)”. In the past, during times of high economic growth and before the economies became “old”, large-scale expansion (“sprawl”) occurred. However, once decline sets in, cities find it difficult to adjust and maintain their infrastructure. A good example is Matjhabeng, which was originally planned to be a garden city within the apartheid ideology of

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

fragmentation and separation. This created sprawl. Once decline set in, the municipality found it difficult to adjust: its rates base came under pressure, and infrastructure maintenance exceeded municipal income (Marais, 2013; Marais and Nel, 2016).

Economies vulnerable to national decisions Intermediate cities are vulnerable to policy and programme decisions taken by the national government. These policies are often designed (with good reason) for large metropolitan areas, but do not necessarily consider the implications of policy changes on intermediate cities. In addition, smaller intermediate cities find it more difficult to diversify their economies. Examples include: ● The expansion of the Durban harbour and the slow process of expanding Richards Bay harbour and the rail link with Mpumalanga to serve more than just coal exports demonstrate the powerful role played by metros (Wessels and Rani, 2016). ● A Transnet decision not to transport steel by rail between Gauteng and Durban adversely affected steel exports by rendering them uncompetitive. ● In the 1990s, the decision by the national government to open up South African markets had a negative impact on the textile industry in Mangaung, an important sub-sector of the manufacturing sector. ● When Transnet decided to outsource the manufacture of rolling stock to foreign countries, Mangaung (which had a long history of (and proven capability in) manufacturing rolling stock lost local capabilities. Breaking these historical pathways has proven difficult for intermediate cities. Despite many attempts, Emfuleni (the iron and steel mecca of South Africa) has not been able to expand its economy to include engineering services, an industry that historically developed on the East

rethinking LED Rand (Ekurhuleni). Similarly, Matjhabeng has not been able to diversify its economy and remains dependent on mining.

Important regional role within their rural hinterlands

businesses often locate their regional offices in intermediate cities, and in many cases allow their regional offices to make decentralised decisions.

Ageing infrastructure and poor municipal finances

Intermediate cities often act as regional service centres, providing services that Generally, intermediate cities have tend to stretch beyond their demarcated managed urbanisation and provided boundaries to the rural hinterlands. adequate infrastructure in line with In many instances, rural the growth of their populations linkages include the and similar to progress provision of services in metropolitan areas within a regional (Marais & Cloete, 2017). context. Private The levels of service “Success is linked with being proactive boarding schools, delivery are sufficient and future-orientated, and accepting regional offices of to support economic of changes and assumption of risk” banks and insurance development (SACN & companies, and private SALGA, 2017). and public hospitals in However, although the the City of Matlosana, levels of access to services eMalahleni, Emfuleni, George are relatively high, the quality and uMhlathuze are all examples of services in intermediate cities is (Marais et al., 2016a). poor. Major problems are an ageing “Our medical fraternity does draw municipal infrastructure and the inability people from the Eastern Cape, from the of many municipalities to maintain this mining areas in the Northern Cape, from infrastructure. Research in Emfuleni has Kuruman and [as] far as Springbok,” indicated that some businesses stock spare according to a Mangaung official. parts to deal with the maintenance of the Large shopping centres – for example electricity network (Marais et al., 2016b). George, Emfuleni and the City of Matlosana In eMalahleni, mining companies purify – also serve a regional function, and are water and sell it to the municipality often located outside the original central (Campbell et al., 2016). business districts (CBDs) to attract and The decline of the dominant economic accommodate this wider regional demand. sector, combined with the general state of Other assets include sports facilities, the national economy, affects municipal educational facilities (schools and finances, making intermediate cities universities) and game farming. vulnerable to proposals from private “Farmers are bringing fresh produce developers that are not aligned to to the market from all over the country” the municipal spatial development to sell to “clients from the Free State and framework (SDF). Lesotho,” according to a Mangaung official.

Links with the larger urban areas The term “intermediate” refers to the cities’ role of mediating between rural hinterlands (including small towns) and the main urban areas in a country. These linkages with large cities are regularly established through the delivery of financial services. Large financial-services SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

howmuch.net

Importance of services in the world’s economy Most of the world’s economic production comes from the agriculture, industry and services sectors. The services sector, in particular, plays a much larger role in the world economy than you might think. To illustrate the impact of the services sector on the world economy, we created a collection of visualisations that show us services as a percentage of the GDP in countries across the globe By Juan Carlos – howmuch.net/articles/role-services-around-the-world

Top 3 countries in Asia by services output

1. China: US$6.3-trillion, 44.61% employment 2. Japan: US$3.4-trillion, 72.09% employment 3. India: US$1.3-trillion, 31.45% employment

Top 3 countries in Africa by services output

1. South Africa: US$214.9-billion, 71.60% employment 2. Nigeria: US$209.7-billion, 51.83% employment 3. Egypt: US$128.9-billion, 48.55% employment

ervices account for at least 50% of the GDP in more than half of the world’s countries, and about 65% of the world’s GDP. While the world economy and job growth in the US have slowed down, the services sector is still doing well. But some believe that, while the sector is doing well for now, the international trade of services will slow down. To create the visualisations, HowMuch pulled data from the World Bank, which shows us services as a percentage of GDP, value added by services in US dollars, and employment in services as a percentage of total employment. Countries on the map are colour-coded based on the percentage of each country’s GDP represented by services. Darker shades indicate higher percentages, and lighter shades indicate lower percentages. By analysing this data, we can see how the services sector impacts the world economy as well as economies in countries around the world. Only countries with data from 2017 or earlier were considered for this analysis. China, Japan and India lead all other Asian countries in terms of value added by services. However, while China and India are two of the top three Asian countries in this sector, they are two of the few countries

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

with under 50% of their population employed in the services sector. Meanwhile, most other Asian countries have 50% or more employment in this sector. In general, Africa seems to be less reliant on services than other regions around the world. South Africa is a notable exception, with 71.6% of all employees working in the services sector. In most African countries, the economy is dominated by the agriculture and services sectors. In the Americas, the US leads all other countries in terms of value added by services, and percentage of population employed in the services sector. In general, the services sector is the main sector for employment in the Americas. Like the Americas, most countries in Europe are heavily reliant on the services sector. For example, more than 80% of all employees in the UK work in the services sector. At least 40% of every country’s population in this region is employed in services. In most cases, employment in this sector is over 50% of each country’s population. In Oceania, data was only available for three countries: Australia, Fiji, and Timor-Leste. Of these countries, Australia is by far the most reliant on services, with 78% of its population employed in this sector. Fiji and TimorLeste, while less reliant on services than

howmuch.net Australia, still depend on services more than agricultural or industrial production. As demonstrated by this data, the services sector is one of the most

important markets in the world in terms of its impact on the world economy. About 49% of the worldâ&#x20AC;&#x2122;s population is employed in this sector.

Top 3 countries in the Americas by services output 1. United States: US$15.1-trillion, 79.14% employment 2. Brazil: US$1.3-trillion, 70.18% employment 3. Mexico: US$700.8-billion, 61.05% employment

Top 3 countries in Europe by services output

1. Germany: US$2.3-trillion, 71.60% employment 2. United Kingdom: US$1.9trillion, 80.75% employment 3. France: US$1.8-trillion, 77.08% employment

Top 3 countries in Oceania by services output

1. Australia: US$886.3-billion, 78.05% employment 2. Fiji: US$3-billion, 47.47% employment 3. Timor-Leste: US$1.1-billion, 40.54% employment

See our previous articles: December 2019/January 2020 November 2019

October 2019

howmuch.net

SOUTH AFRICAN PROPERTY REVIEW â&#x20AC;&#x201C; FEBRUARY/MARCH 2020

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SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020

MARCH 2020

FEBRUARY 2020

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APRIL 2020

SOUTH AFRICAN PROPERTY REVIEW – FEBRUARY/MARCH 2020 53

South African Property Review Feb/March 2020

Articles inside

Rethinking LED LED in intermediate cities

Off the wall On your bike or is it in your bike?

Howmuch.net Importance of Services in the World's Economy

Legal update

Inclusionary Housing The regulatory prespective for

From the CEO

Western Cape Seminar First URERU Seminar of 2020

Western Cape Overview Western Cape, a hub for economic growth

From the Editor’s desk

Entrepreneur one on one Driving environmental standards

Insight 5 big questions real estate will be asking in 2020