Infrastructure

Black property players cry foul over slow pace of BEE

Nkuli Bogopa, president of SAIBPP, says government must stop doing business with property companies that exclude blacks from participating in the economy. Picture: Supplied

A lobby group has pleaded with the government to open up the R5.8 trillion property sector to its members, who are struggling to gain a foothold in the market.

The South African Institute of Black Property Practitioners says the Department of Public Works is one of the major stumbling blocks to black property entrepreneurs’ prosperity. The institute represents black landlords and property developers, who are looking to government’s black economic empowerment (BEE) policy to break into the lucrative industry.

The institute’s president, Nkuli Bogopa, asked why the government had not used its influence as the country’s biggest buyer of goods and services to bring black-owned companies into the mainstream of the economy.

The Department of Public Works has spent about R220 billion on sourcing rental space for the government from property companies, while municipalities have leased office space worth R69 billion and state-owned enterprises (SOEs) are occupying space valued at R66 billion.

 “The government is letting us down. The Department of Public Works spends 80% of its budget for sourcing rental space on 20 companies, which are untransformed,” Bogopa says.

“We believe this skewed spending that favours untransformed companies is unacceptable. The government must stop doing business with these companies.”

Bogopa believes that SOEs and municipalities could assist by using their financial clout to push for commercial inclusion of black people in the property industry, but they too have not come to the party.

The private sector is also guilty of marginalising black players. Commercial and retail leases worth R1.3 trillion remain the preserve mostly of white landlords and a few black operators. Bogopa recommended that the Department of Public Works reinstated the 10-year lease agreements introduced in 2010 to help black landlords raise funding.

However, BEE has almost ground to a halt in the property sector ever since the department placed a moratorium on the 10-year lease agreements about five years ago, following the property lease scandal involving businessman Roux Shabangu and former national police commissioner Bheki Cele.

In May 2010, the South African police awarded a R500 million lease contract to a Pretoria building owned by Shabangu, but in 2011 Public Protector Thuli Madonsela probed the deal and found that the acquisition of the office space for the police’s headquarters was “improper, unlawful and amounted to maladministration”.

“We believe this skewed spending that favours untransformed companies is unacceptable. The government must stop doing business with these companies.”

Cele’s involvement led to his dismissal as police chief in June 2012. The department cancelled Shabangu’s lease agreement and the department subsequently launched an investigation into 3 867 lease contracts worth R300bn that it had entered into with property companies.

“The department must reinstate the 10-year lease policy and award these long-term leases to black-owned property companies to drive transformation. We believe that the investigation was concluded and that most of our members were not involved in fraudulent transactions,” Bogopa argues.

“The department has not been issuing new leases, it has been giving three-year lease extensions to existing landlords, who are mainly BEE non-compliant white-owned companies. There are a few black landlords who have managed to sustain themselves, but we have not seen new black entrants in the market since the 10-year lease policy was suspended.”

At the time of going to press, the Department of Public Works had not responded to questions about the future of the 10-year lease policy.

SAIBPP will host an annual convention in early November, where the slow pace of transformation in the property industry will be discussed.

Property ownership and development is a capital-intensive game. The high cost and scarcity of investment capital results in barriers to entry that are much too high for many entrepreneurs who are interested in buying buildings or developing new rental stock to lease to corporate and government tenants.

Black entrepreneurs also run into a brick wall when looking to access land to develop. The lenders are more interested in funding buildings that have long-term leases and shy away from financing properties with short-term leases, hence the South African Institute of Black Property Practitioners is frowning upon the moratorium on 10-year leases.

Long-term leases are attractive to commercial banks because they guarantee rental payments from tenants, enabling borrowers and property owners to cover loan and interest payments for the duration of the loan and lease.

“That’s why it is important that the 10-year lease policy is brought back because property owners start seeing profits after five or six years into the lease contract,” said Bogopa.

 There were pockets within the property industry’s value chain that had low barriers to entry, she said. Unlike property ownership and development, these pockets required entrepreneurial experience and skills, rather than investment capital, to enter and make money.

For example, within the property sectors, the field of facilities management is a big money-spinner, but does not require huge capital investment to participate.

"It (facilities management) is very lucrative and there are service providers that offer services ranging from cleaning, landscaping, security, and technical services related to maintenance of escalators, elevators, and air-conditioning systems. However, corporate clients are increasingly looking for one-stop shops that provide these services under one roof," says Bogopa.

 

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