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News Release

Cape Town

JLL SA Notes from SAPOA Convention

Grant Kirchmann attends the SAPOA convention and shares his perspectives

SAPOA's annual convention and property exhibition for 2014 took place in the beautiful city of Cape Town and with a line-up of speakers well versed in each of their presentation topics, it was sure to be not only an informative convention, but one that challenged the South African government and its contribution or lack thereof to the growth in the property sector.  SAPOA lobbies with government on behalf of its owners, in an attempt to create a real estate environment which is conducive to property owners expanding their portfolios through organic growth in both green (New developments) and brown (existing building refurbishments) field sites and where government sees the rewards of increased rates and taxes as a result of a growing sector.

The theme of the convention was "Making a difference" and the touch points were education, government legislation and its impact on the real estate sector, infrastructure, sustainability, foreign investment and Africa north of our borders.  As a quick overview of the South African property industry in relation to our economy,  non-residential real estate contributed approximately R174 billion to economic activity, or 5.15% of all economic activity in South Africa during 2013.  This translates into an R81 billion or 2.14% contribution towards total GDP in South Africa and the sector supports approximately 212,000 permanent jobs or 1.5% of all employment in the country as at the end of 2013.  The South African Revenue Service (SARS) received R6.5 billion in taxes from the non-residential sector in 2013.  It is therefore important to realise that the South African government can cripple the industry should they not align themselves with its players and their strategic principles to ensure sustainability through education, infrastructural spend and maintenance and ultimately sustainability which brings long term foreign investment. 

The common thread in each of the speaker's notes was the South African government's lack of attention to education, up skilling employees and service delivery within the property industry and South Africa.  Estienne De Klerk, the outgoing president of SAPOA, pointed out the government is constantly developing new legislation which directly affects the real estate sector, some having direct financial impact on the industry.  In particular the rates and taxes bill established in 2004 and implemented in 2006 for the first time, was to fairly impose rates levies on properties based on the value of each property in its location and the funds were to be utilised in improving and maintaining the infrastructure including services to ensure long term sustainability.  However, 10 years hence, this bill is destroying the value of property because in some cases the property values are coming down and the rates continue to increase.  As a percentage of property cost, rates made up approximately 17% and now make up 20%, with the services in return for such levied rates paid to government (local councils), is still to be seen. 

In relation to other markets in Europe and the US, South African property prices are still relatively low and growth within the sector is positive, however, with 80% of our roads being more than 20 years old and requiring extensive maintenance and governments delay in delivering services to the industry, foreign investors are not taking up the opportunity of investing in South Africa.  SAPOA, as the voice of property in South Africa, is progressing negotiations with both national and local government, particularly Department of Trade and Industry, on the improvement of education and efficiencies within the sector which in the long term will, to a certain extent, alleviate the current challenges within government.   SAPOA has also created an e-learning platform to enable members and non-members alike to access information and courses online.  The e-learning platform will make a difference by building capacity, bring a hope of change and provide skills to people who under normal circumstances would not have the opportunity to develop their knowledge and skills.  It is important that the private sector is making a difference proving how education can uplift communities, create jobs and better efficiencies in the workplace.

According to Kevin Lings of Stanlib, business confidence is weak in South Africa largely due to government policies, which is a driver in the real estate sector.   In addition, South Africa should be exporting more and taking advantage of the weakening rand yet manufacture has diminished in size from 24% of the GDP in 1990 to 10% in 2013.  Some good news is that the trade balance with other key regions in Africa is healthy and exports to the rest of Africa could be our next best opportunity.   

Kees Hage, PWC global leader for real estate and a member of the Asset Management leadership team pointed out that infrastructural development, maintenance and sustainability is vital to the survival of our global economy.  The reason is, by 2030, we will need;

  • 50% more energy
  • 40% more water
  • 35% more food.

Furthermore technology together with sustainability, are the key drivers for success and because technology will never fully replace people, we need to create specialist expertise, place the right people in the right jobs for the right reasons and be mindful of managing costs.  The success of the property sector is based on a healthy collaboration between the South African government and the property market  to create a sustainable environment through education, correct infrastructural spend, sustainability and last but not least, to eliminate corruption, particularly through the tender processes. 

In closing and although the information we gleaned from this conference was both concerning and uplifting, it is evident that South Africa remains the springboard for global clients into Africa and the market is maturing with better access to research, education, introduction of a green star building ratings, city improvement districts and collaboration with government.  South Africa is in the spotlight and the next 5 years will be critical to ensure we remain the springboard into Africa and create an environment for sustainable growth and foreign investment.