Jul, 2011

Comments On The Spatial Planning And Land Use Management Bill, 2011 Of South Africa

By on Jul 21, 2011

The one problem I have with the wording of the Bill relates to the whole aspect of dealing with the value of property. Investors in property, which include banks through mortgage bonds, rely on property’s inherent value.  The Bill instructs that when Councils are required to make decisions, they should not allow themselves to be constrainted by the consideration that such decisions will impact negatively on the values of surrounding properties.  To me that sounds like a value-eroding instruction.

The South African economy is classified as being as being developmental in nature. In so saying, it is only logical that politicians could be expected to pursue policies that further the interest of rapid development. Property development is a highly risky endeavour in which significant sums of capital and time need to be injected in one fell swoop. Once the money is in the ground, there is no going back, as opposed to say equities, wherein investors can sell their shares or even invest small sums at a time . The exit strategy of property development is rather long term in nature. Therefore, the risk of value-erosion is a variable that needs to be managed very delicately.

The benefits that arise out of the concept of value in property assets are many and varied. Firstly, the tax base of any city based on the concept of value. Municipal rates and taxes are levied using calculations which have property value as the starting point. Government agencies such as the Revenue Services generate capital gains tax on the basis of value that has accrued to property assets over the years. Before the Treasury Department can approve a Public Private Partnership project, it is guided by value accruing to Government as one of the three, perhaps the most fundamental of considerations. Banks use the value accruing in property as collateral to extend credit to consumers. Without the confidence that value in the properties on which credit is being extended, bankers would be hard pressed to approve property loans. Very few people are wealthy enough to be able to purchase property for cash. Most people buy property on the knowledge that property is guaranteed to appreciate in value over time. An entire statutory body, called the Valuation Council is in existence, precisely for the purpose of regulating the value of property. Section 25 of the Constitution of The Republic of South Africa protects the market value of property. Even under conditions of expropriation, the State is still required by the Constitution to take value into account.

The Drafters of the Spatial Planning And Land Use Management Bill, 2011 Of South Africa should perhaps review their thinking with regards to property values and reconsider.

The Legacy Of The Development Facilitation Act 67 of 1995

By on Jul 3, 2011

The Department of Rural Development and Land Reform has marked the Development Facilitation Act No. 67 of 1995 (DFA) for repeal. This particular piece of legislation had as its main objective the acceleration of the delivery of housing to the poor of South Africa, post the first democratic elections of 1994. The DFA became necessary because the process of approving land use applications, under the control of municipal authorities across all property types, was painfully slow. Despite the promulgation of the DFA, housing delivery has not caught up with the growing population numbers of the targeted population sector. In the meantime, however commercial and high value residential developments accelerated at an unprecedented pace in one of the largest property booms in South Africa, to the dissatisfaction of the municipal managers.

During the period 1998 to 2007, South Africa experienced an unprecedented property boom. This anti-poor property boom brought about the current conflict between the DFA and the legacy legislation, this being the Townships Ordinance 15 of 1986 – anti poor because it did not assist in the provision of housing for them while diverting bulk services to these luxury developments. It did create some temporary job opportunities in the construction sector though.

When the DFA was enacted the Ordinance was not repealed. The drafters at the time hoped that for the sake of meeting the promises made to the electorate, the two pieces would co-exist harmoniously side by side. The other reason for not repealing the Ordinance was that the target areas where the accelerated development was required did not have town planning schemes, which the established suburbs had. On the other hand DFA had time frames were incorporated in its provisions within which the municipalities were forced to have reached certain milestones in the application assessment process.

The DFA however ended up being used by commercial and luxury residential developers to circumvent the townships ordinance to get approval for their developments. Clearly, the target population could not benefit from the latter’s developments. Even worse, these developments were perceived to be creating urban sprawl and bulk utility services were being rapidly depleted, to the detriment of the target communities. Such a state of affairs is not how the politicians wanted things to go, so the DFA had to go.

The municipal planners and the politicians were now of one mind in that the DFA did not meet their needs. The municipal authorities went to the law courts where they lost some major cases and the DFA stayed, if only for a while. This Act is about to be replaced by the Spatial Development Act of 2011, currently in the Draft Bill stage. Only time will tell whether this new piece of legislation will go the full distance to becoming an Act of Parliament. A very important Bill was also put through Parliament some five years ago, by the name of the Government Immovable Asset Management Act, but it was never enacted. Another important government initiative which was started but never seen through is the Urban Renewal Project in the Tshwane Central Business District.

Municipal planners and developers will always be positioned on opposite poles of human behaviour. While developers have traditionally been seen as the evildoers who have excessive profits as their only motive, at the expense of the public, municipal planners and environmentalists have been seen as the defenders of the public good. Certainly with the last property boom most developers did make superprofits, however, the ancillary costs, such as land holding costs during a lengthy low activity period, were also very high. Consumer behaviour is something very difficult, if not impossible to plan for. Developers are people who have chosen a career path of studying consumer behaviour and then planning for meeting people needs well in advance. For this, they are often required to take extreme risks, for which it is only fair that they are rewarded accordingly.  Authorities and planners can never dictate the direction of development. Their duty should be the guidance of the development process in order to create a harmonious environment for the benefit of all society, be it the end-user or the supplier. If the municipal planners were truly dynamic, then there would not have been a need for the DFA after all.

The DFA is a very effective piece of legislation. It has helped to facilitate one of the strongest property booms in South Africa. It did a good of exposing the weaknesses inherent in the Ordinance. It remains to be seen how the new Bill will consolidate the strengths of and minimise the weaknesses of the DFA and the Ordinance to take advantage of worthwhile development opportunities.