WATCHFUL EYE ON STATE PROPERTY
The state’s management and appropriate utilisation of its property remains under scrutiny
By Anna-Marie Smith
Historically, the value of South Africa’s state properties was never readily available. Knowledge of high value properties was out of bounds to the greater public, especially of holiday homes of state officials located on exclusive game farms, pristine nature reserves and coastal areas, in one case on the same property as a missile range.
Notwithstanding the many sins of the previous regime, tax payers then hardly felt the same pinch compared to currently; the result of personal enrichment of politicians. What was, however, evident in the treatment of large state-owned buildings then was a different degree of regard for property belonging to the state, not necessarily all of impeccable location and orientation nor design or construction. Also evident was a different approach to the upholding of higher standards of management and utilisation of such properties, from rental leases to maintenance and historic preservation.
South Africa’s state-owned property, the total valued at R570-billion, represents a considerable portion of the country’s overall property sector, currently standing at R4.9-trillion. This was disclosed in a study, the first of its kind to be commissioned by the Property Sector Charter Council, and released in November last year. The Charter’s chief executive officer, Portia Tau-Sekati, said as part of the detailed breakdown across different categories of property that this value relates to the public property sectors across national, provincial and local government and state-owned enterprise.
She says readily available information was incorporated into the study to illustrate the breakdown of publicly-owned property, with provincial government holding R342-billion, national government R188-billion, local government R37-billion and state-owned enterprises holding R6-billion. The report also showed the value of the country’s commercial property, estimated at R780-billion, with property zoned for development but not yet developed valued at R520-billion.
Understandable then is the issue of accountability remaining at the top of agendas of listed property funds, commercial property owners and private industry. Appropriate expenditure by the state, be it on its own properties or the leasing of private property, particularly in view of the sorely needed housing, health and education sectors, is overshadowed by massive overspending – the profits of which are continuously shared among wealthy state officials as well as members of the private sector. Not that irregular spending, supposedly for the underpinning of economic growth such as public-sector infrastructure, should be underestimated. What matters is that private industry helps feed corruption.
Heartening then is that irregular expenditure on government properties now has the attention of Public Works Minister Thulas Nxesi. He referred to the overturning and exposure of greed and corruption, both in the public and private sector, in his statement last month, saying: “Special Investigations Unit investigations, together with recent findings of the Competition Commission, tell the same story: Overpricing and collusion between some officials and sections of the construction industry and that corruption and greed in the private and public sectors are mutually reinforcing each other.”
With government leases one of the sorest points in the property industry, greater balance between current expenditure on state leases versus long-term investment and maintenance value has to be prioritised. Treasury’s deputy director general for public finance, Andrew Donaldson told parliament’s Appropriations Committee in May: “State spending on leases had grown rapidly, a trend we would like to reverse. We would like a situation where we are spending more on investment and maintenance of government accommodation. We want to see this balance improved.”
In addition was the Industrial Development Corporation’s audit of underutilised state properties, showing how appropriate development could fill a gap in the tourism attractions market. In reference to this at the recent Indaba, South Africa’s Tourism Minister Marthinus van Schalkwyk said domestic tourists show a preference for self-catering accommodation. As a result, he said, this also gives economic purpose and political imperative to the development of the lower-spending domestic market.
By optimising function and utility of state properties in central locations in and around city centres, many purposes would be served; one being an improved platform from which to increase heritage and cultural tourism. Close proximity of state properties to historic venues and central to parliamentary buildings, both in Pretoria and Cape Town, courts of law and tertiary institutions in Bloemfontein and Braamfontein facilitates the process while depicting the country’s rich cultural heritage.
When looking at the repeated successes related to the conversion of inner city properties for residential use by listed property group Octodec Investments, profits await those willing to convert and manage state properties effectively, not to mention what the upgrading of buildings in a poor state of repair would do to uplift heritage areas as well as potential commercial nodes.
Growing demand for rentals within close proximity to tertiary institutions makes for a scarce commodity as universities are resorting to self funding to feed demand, in particular from African neighbouring countries. In addition, leasing opportunities in locations within close proximity to state buildings are increasingly attracting investment by South Arica’s corporate financiers. Investor confidence across different cities is seen in new property developments, such as at Tiny Town, a revived heritage site in Church Street on the doorstep of the Union Buildings. This development by listed property group Octodec Investments is one of many of the group’s projects financed by Nedbank Corporate Property Finance.
Market activity during May also saw the welcoming of acquisitions of state properties made by black-managed listed property companies, set to increase the Black Economic Empowerment charter’s estimated 5% holding of government-rented properties toward its target of 25%.
The sale of non strategic government properties to black-owned JSE-listed property companies was also welcomed by Estienne de Klerk of the South African Property Owners Association. De Klerk referred to strong focus on government-tenanted properties by black-managed companies, including Delta Property Fund, Rebosis Property Fund and Dipula Income Fund, as well as substantial progress made in transforming this sector as most of the existing listed property companies had significant black shareholding.
De Klerk said: “However, among the challenges facing the industry was the Department of Public Works’ struggle to attract and retain skilled staff. The department has also contributed to the weak office sector, not to speak of the current account deficit, by adopting a flawed leasing strategy over the past few years.”
Regarding continued transformation of the country’s property sector, Thomas Matlala, president of the South African Institute of Black Property Practitioners, says that government’s opportunity through leasing is best accompanied by a focus on implementation to avoid corrupt processes of the past. The institute offered the assistance to the department of some of its team of skilled property practitioners to put together the necessary systems.
In order to make the unlocking of potential in state properties more likely than before is growing investor confidence through accountability and discipline.