South Africa’s biggest landlords, the owners of commercial properties, were appalled to hear what Minister of Finance Pravin Gordhan had to say about them in South Africa’s national budget speech. Yes, there is some dodgy dealing going on in rental agreements – but Mr Gordhan should not assume every owner is in on the corruption.
That is the message delivered by Neil Gopal, head of the South African Property Owners Association (SAPOA), to government ministers in response to the accusations. Neil highlights, in this article, how government officials have not done their bit to ensure that they are paying market value rentals or are paying for property that is occupied. He outlines many vulnerabilities in the way government manages its properties.
South Africa’s big landlords would like to see those who are involved in these arrangements named and shamed – from the private and public sector. Publish the details of the auditors report on the leasing scandal, SAPOA urges the Minister of Public Works. – JC
Pravin Gordhan’s attack on property industry is unjustified: SA’s big property owners
By Neil Gopal
The commercial property sector is dismayed at comments made by Finance Minister Pravin Gordhan about the property industry during his budget speech last Wednesday, when he asked “Why aren’t you honest in the deals you make with government?”
This attack on the entire property industry is unwarranted and unfortunate. In fact, many of the issues he raised stem from Government’s own inefficiency and mismanagement.
Minister Gordhan is quoted in the official published speech as saying: “Improving the quality of public services and cutting waste, Mister Speaker, this is a Budget in which circumstances dictate that we cannot add resources to the overall spending envelope. The emphasis falls therefore on ensuring that expenditure is allocated efficiently, enhancing management, cutting waste and eliminating corruption.”
Gordhan reported than an initiative was undertaken in 2012 jointly with Minister Nxesi and the Department of Public Works (DPW) to review the validity and cost effectiveness of all government property leases. The exercise had exposed several deficiencies.
These included government paying for accommodation which is unoccupied or occupied by non-governmental entities, marked divergences from market rates per square metre, inappropriate non-competitive procurement procedures, missing or invalid lease agreements and unsubstantiated payments to landlords. The intervention apparently also identified a backlog of more than half of the lease portfolio reviewed.
These alleged high rentals may well come from collusion between some landlords and civil servants, exacerbated by the National Department of Public Works’ Property Management Strategy a BEE, Job Creation and Poverty Alleviation Policy that has limited fair market competition. The Department of Public Works’ (DPW) unwillingness to engage with large listed and institutional property owners also adds to this problem.
The commercial property sector approves and applauds National Treasury and other authorities’ investigation into these suspicious leases. Over the past six years, SAPOA has strongly advocated against the precise DPW leasing practices that have resulted in these leases with inflated rentals being concluded.
SAPOA calls on the Minister of Public Works to make public the external auditors report on the leasing scandal and expose those involved, both from the private and public sector.
However, there is easily-available information on market rentals in specific locations across South Africa, and referencing it should be part of the DPW’s internal processes. Further, the DPW’s willingness to sign leases at rentals in excess of market values has a wider impact for business, such as driving up rentals in the Pretoria CBD.
The 2009 Property Management BEE Strategy and the most recent National Treasury Proclamation are futile attempts to plug corruption by overriding market forces. Corrupt officials and landlords will find a way of overriding these mechanisms making the situation even worse. Since the mid-90s, every DPW Minister has encountered this problem, yet the issue still remains unresolved. Simple, basic lease management systems seem absent in the department.
The continued change of leadership at Ministerial and Director General level over the last decade have resolved little in the fight against corruption, perhaps even exacerbating the situation.
It is frustrating when the government attacks our industry and fails to engage with our industry representative body to resolve some of these issues. National Treasury’s procurement division has issued a policy document on leasing that has never been discussed with the industry and this will lead to further problems in regulating their leasing portfolio.
Neil Gopal is CEO of the South African Property Owners Association (SAPOA).
SAPOA represents about 1200 companies and organisations (including ABSA, Standard Bank Properties, Stanlib, Investec Property Group, PARETO Ltd, Old Mutual Properties, Liberty Properties, Eskom, Transnet, East London IDZ, Growthpoint Properties, ACSA, Redefine Properties, Resilient Property Income Fund). Neil has a BSc in Town Planning (Wits). He currently serves as Vice Chair of the BOMA International Committee in Washington DC and is a founding member and director on the board of the Green Building Council of South Africa (GBCSA).
