Black Association of Commercial Property Owners on sustainable ownership transformation in commercial property sector

Committee: Public Works

Chairperson: Ms M Mabuza (ANC)

Date of Meeting: 14 Nov 2011

Summary

The Black Association of Commercial Property Owners (BACPO) had been formed in September to drive ownership transformation issues in the property industry. One reason for its establishment was the need to challenge and correct the current mindset that black landlords and government officials were corrupt in their actions and practices. There was also outright ignorance of government policy on Black Economic Empowerment (BEE) and transformation in the property sector, with established players in the industry continuing to undermine transformation laws in the government lease portfolio segment.

The property industry was one of the least transformed in the local economy. Black peoples’ direct ownership of the estimated R850 billion to R1,2 trillion property market capitalisation was less than R10 billion, or 1%. Furthermore, black companies accounted for only about 3% (R4,2 billion) of the R140 billion listed commercial property sector by market capitalisation.

According to the Department of Public Works’ (DPW) 2010 Annual Report, the national government spent about R2,4 billion on 3 735 lease rentals. Only 186 of these leases (less than 5%) benefited previously disadvantaged landlords or Broad-Based Black Economic Empowerment (BBBEE) participants, who obtained less than R120 million of the R2,4 billion total. The government accounted for more than 70% of the property industry, and was therefore well positioned to play a pivotal role in its transformation. The importance of a government lease was that banks recognised that the government would always honour its payments. By far the best tool to transform the industry was through government-owned properties.

Members of BACPO were also members of the South African Property Owners Association (SAPOA). While government’s policy on transformation was clear – that historically disadvantaged individuals should be given an opportunity to participate in the property sector – the statistics showed that they were not benefiting from transformation. The black business community had been called upon to give impetus to this process, but although there was acute awareness that South Africa belonged to all who lived in it, black property owners had particular issues which affected them which could not be directly articulated in organisations such as SAPOA.

South Africans should understand that the generation of wealth was based on property ownership, and one could not ignore its impact on economic freedom and transformation. The established white companies would fight “tooth and nail” to protect their government leases and create obstacles to black companies entering this lucrative segment. BACPO wanted to enter this space because it knew how it could drive even greater transformation. That was why government intervention was imperative. The policies were there, but needed to be reviewed and implemented urgently.

The government had introduced policies which made it much easier for blacks to participate in the property sector, but if they were not implemented, there would be no transformation.. The process needed to start with government leases, with an increasing number being allocated to black-owned companies.



Minutes

Mr Joe Mathebula, Chairman of the Black Association of Commercial Property Owners (BACPO), said the organisation was formed in line with the President’s call in September for black businesses to organise themselves better in order to create sustainable black-owned and managed industries, with the objective of unifying, articulating and driving ownership transformation issues in the property industry. He acknowledged there had been a flurry of negative publicity and perceptions regarding black people’s participation and conduct in the commercial property industry, marginalising their role and effectively holding back real progress in the transformation of ownership of property assets to blacks in South Africa.

The founding members of BACPO were well established black-owned and managed property businesses, built up entirely by black entrepreneurs, and comprised Motseng Property Investments, Manaka Property Group, Billion Group, Encha Properties, Masingita Property Group, SHM Property Group and Nthwese Properties. They had more than 70 years’ combined experience in the sector. Since its foundation, the organisation had attracted attention around the country, with some 25 black property-owning companies expressing an interest in becoming members.

Mr Bruce Zungu, Secretary of BACPO, described the goals and strategies of the organisation which, apart from driving actual tangible ownership transformation, included increasing the number of black landlords who owned and operated their properties, engaging with the government on transformation issues and with the financial institutions on property finance for new black landlords. BACPO also planned to complement the efforts of the SA Institute of Black Property Practitioners (SAIBPP) and become the authoritative voice within SAPOA on behalf of SAIBPP on ownership transformation.

Property was the foundation of wealth creation, and ownership of property was the basis for control and influence in the property industry. This could be achieved without the assistance of established participants or share-based schemes, where blacks owned minority positions in established companies. Banks were ready to provide 100% funding for property transactions with long-term leases.

Mr Zungu contended that the property industry was one of the least transformed in the local economy, pointing out that black peoples’ direct ownership of the estimated R850 billion to R1,2 trillion property market capitalisation was less than R10 billion, or 1%. Furthermore, black companies accounted for only about 3% (R4,2 billion) of the R140 billion listed commercial property sector by market capitalisation..

According to the Department of Public Works’ (DPW) 2010 Annual Report, the national government spent about R2,4 billion on 3 735 lease rentals. Only 186 of these leases (less than 5%) benefited previously disadvantaged landlords or BBBEE participants, who obtained less than R120 million of the R2,4 billion total. The figures were more glaring when taking provincial and municipal leases into account as well, which would bring the total government expenditure on private leases to between R5,5 billion and R8 billion. The government accounted for more than 70% of the property industry, and was therefore well positioned to play a pivotal role in its transformation. The DPW’s strategic plans indicated their intention was to allocate half of its expenditure on private leases to black participants by 2012, but the current situation was “a far cry” from that.

BACPO’s intention was to work with government to grow the overall property pie by creating new black owners, with this transformation providing effective ownership of real assets that would economically empower all involved, but particularly women, youth and other broad-based communities. This would accelerate the creation of sustainable jobs in the sector.

Revitalising inner city areas was a government goal which was supported by BACPO because it had the effect of reversing the effects of long-term decline. Its members had acted boldly to buy derelict buildings and restore them, participating in the rejuvenation process and creating additional jobs at the same time.

Skills development was at the core of the organisation’s mission, and it was proud of its role in expanding and developing a cadre of young men and women who would form the future of the country’s property sector.

Discussion
Mr P Mnguni (ANC) asked why it was necessary for the organisation to be the “Black” Association of Commercial Property Owners, rather than simply the “South African” Association of Commercial Property Owners, as he felt transformation should not have a “black” or “white” connotation.

Mr Mathebula said members of BACPO were also members of the South African Property Owners Association (SAPOA). While government’s policy on transformation was clear – that historically disadvantaged individuals should be given an opportunity to participate in the property sector – the statistics showed that they were not benefiting from transformation. The black business community had been called upon to give impetus to this process, but although there was acute awareness that South Africa belonged to all who lived in it, black property owners had particular issues which affected them which could not be directly articulated in organisations such as SAPOA.

Mr J Steenhuizen (DA) described the lack of transformation in the property sector as “remarkable,” and asked what the different roles were for BACPO, SAPOA and SAIBPP.

Dr Sedise Moseneke, a founder member of BACPO and President-elect of SAPOA, said that the property industry was one of the least transformed in the local economy, pointing out that black peoples’ direct ownership of the estimated R850 billion to R1,2 trillion property market capitalisation was less than R10 billion, or 1%. Furthermore, black companies accounted for only about 3% (R4,2 billion) of the R140 billion listed commercial property sector by market capitalisation..

According to the Department of Public Works’ (DPW) 2010 Annual Report, the national government spent about R2,4 billion on 3 735 lease rentals. Only 186 of these leases (less than 5%) benefited previously disadvantaged landlords or BBBEE participants, who obtained less than R120 million of the R2,4 billion total. The figures were more glaring when taking provincial and municipal leases into account as well, which would bring the total government expenditure on private leases to between R5,5 billion and R8 billion. The government accounted for more than 70% of the property industry, and was therefore well positioned to play a pivotal role in its transformation. It was also intended to take away the perception that black people were corrupt, and that that was the only way they obtained leases.

Mr Steenhuizen asked whether membership of BACPO was restricted on the basis of skin colour, while Mr Mnguni was also concerned that Indians and Coloureds could be excluded.

Mr Mike Nkuna, Chairman of BACPO, gave an assurance that there were Coloured and Indian members.

Mr N Magubane (ANC) said he was surprised to hear that banks were ready to fund long-lease property transactions, as so far they had been reluctant to do so. He asked if banks were really ready to relax their lending criteria.

Mr Moseneke said a Government lease was the most sovereign type of instrument one could use to get funding from a bank, to the extent that one could leverage up to 100% of funding. A government lease did not mean that one was corrupt, but one transaction in recent months had tarnished the whole transformation sector, with the result that banks were now holding back and looking at all transactions more closely. The importance of a government lease was that banks recognised that the government would always honour its payments. By far the best tool to transform the industry was through government-owned properties.

Ms C Madlopha (ANC) asked about the geographic spread of BACPO’s membership.

Mr Mathebula said the 25 members were spread throughout the country, and the objective was to reach as many people as possible to ensure that all property-owned black companies were part of BACPO.

Mr L Gaehler (UDM) asked whether the organisation had a constitution and board members.

Mr Moseneke said BACPO was in the process of creating a constitution which would guide and govern its relationships as an organisation, and a committee had recently been elected.

Mr Gaehler asked what BACPO could do about helping black civil servants, such as teachers, purchase affordable properties in urban areas, as prices had become too high.

Mr Moseneke agreed that prices were high, primarily as a result of the boom in 2003-04. The average price of a house was just over R1 million, and although the index was declining slowly, it was driven by market forces and it would be very difficult for it to reach affordable levels.

Ms N Ngcengwane (ANC) said revitalisation of the inner cities was vital, and asked what BACPO’s role in the process would be.

Mr Mathebula said that a black company which bought a building for, say, R40 million would expect to have to spend R50 million on refurbishing it before it could be leased in a usable condition. This would mean a higher rental would have to be charged, but in the process of engaging other players, such as construction and security companies, there would be a huge multiplier effect involving the creation of new jobs.

Mr K Sithole (IFP) asked what was meant by asserting that blacks could gain control and influence in the property industry without the assistance of share-based schemes.

Mr Zungu explained that property was an asset, and bank funding was determined by the buyer’s income, with the property as collateral. Once black people had obtained control of a property, they could determine who would install the air conditioning and lifts, who would look after the gardens and who would do the cleaning. This was the transformation which BACPO was aiming for, and was a process which started with the owner being independent of anyone other than the funder.

The Chairperson referred to a recent article in City Press, in which the Chairman of BACPO had accused his counterparts of “trying to spook banks,” and asked for an explanation.

Mr Mathebula said that in recent months, when presenting a deal to banks, black-owned property companies had undergone a different scrutiny to that experienced by “previously advantaged” owners of property companies. This inherently implied that some underhand dealing was involved. These issues needed to be addressed on a business-like basis of honesty and transparency.

Mr Zungu said South Africans should understand that the generation of wealth was based on property ownership, and one could not ignore its impact on economic freedom and transformation. The established white companies would fight “tooth and nail” to protect their government leases and create obstacles to black companies entering this lucrative segment. BACPO wanted to enter this space because it knew how it could drive even greater transformation. That was why government intervention was imperative. The policies were there, but needed to be reviewed and implemented urgently.

Mr Nkunu concluded the presentation by saying that since 1994, the government had tried its level best to transform most of the country’s industries, but property had proved the most difficult area to transform. Looking back at the CODESA negotiations, the only thorny issue had been property. This had resulted in the “willing buyer, willing seller” compromise which did not take the country anywhere. The government had introduced policies which made it much easier for blacks to participate in the property sector, but if they were not implemented, there would be no transformation.. The process needed to start with government leases, with an increasing number being allocated to black-owned companies.

The Chairperson closed the meeting, saying that the Portfolio Committee would deliberate on the information presented to them by the delegation.