The South African Property Owners Association has expressed its dismay at comments made by Finance Minister Pravin Gordhan about the commercial property sector during his budget speech last Wednesday.
During the speech the minister asked of the property industry, “Why aren’t you honest in the deals you make with government?”
Commenting, Neil Gopal CEO of SAPOA says: “This attack on the entire property industry is unwarranted and unfortunate.”
“Many of the issues raised stem from Government’s own inefficiency and mismanagement,” says Gopal.
Minister Gordhan went on to make the following comment in the official published speech: “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.”
According to Gordhan, 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, said Gordhan.
Gopal believes that the alleged high rentals may be due to collusion between some landlords and civil servants which have been exasperated 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 adds to this problem.
“We approve and applaud 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,” Gopal says.
SAPOA called 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, Gopal points out 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. “The DPW’s willingness to sign leases at rentals in excess of market values has a wider impact for business, such us driving up rentals in the Pretoria CBD.”
Gopal adds that the 2009 Property Management BEE Strategy and the most recent National Treasure 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.”
He also notes that 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,” says Gopal.