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SAPOA cautions developers on the City of Joburg’s Development Contributions Policy

On the 8th of October 2021, the City of Johannesburg released its Policy ‘Development Contributions’ which introduces, according to the municipality, a “once-off charge levied by municipalities on the landowner, as a condition for approving a land development application, to cover the capital costs incurred by the municipality when installing new infrastructure or the upgrade to existing infrastructure”.

According to then Municipal Councillor, Thapelo Amad, the Policy will provide “greater clarity around existing funding instruments that allow for the timely provision of essential bulk infrastructure required to service the needs of new developments”.  

The South African Property Owners Association (SAPOA) found aspects of this Policy to be “objectionable” and submitted their comments to the City of Johannesburg which have yet to be addressed.

We found the underpinnings of the Policy self-contradictory”, says Neil Gopal, CEO of SAPOA. “On the one hand, the Policy states that its principle is that the Development Contribution (DC) must be used on existing or planned infrastructure impacted by the development yet, at the same time, provides that a DC can be used on infrastructure anywhere else in the municipality. In addition, it states that there cannot be duplicated cost recovery, but it also provides for a DC when capacity exists in infrastructure already paid for”.

We note a fundamental disconnect between the legislated framework for DCs, which the Policy acknowledges, and a statement that the DCs 2 will be implemented as soon as the Policy is in effect. Although reference is made to the draft Fiscal Powers Amendment Bill, the Policy fails to recognise that until the Bill is enacted any DC regime is ‘ultra vires’ i.e., done beyond one’s legal power or authority”.

SAPOA is of the view that the Policy is investor unfriendly and defeats its intended purpose. Consultation with its members revealed concern that the City of Johannesburg has endowed itself with an ability, by withholding various consents, to force developers into paying the DC. “This represents nothing less than a form of extortion”, says Gopal.

The Policy cannot, on any basis, be implemented unless – and until – the Fiscal Powers Amendment Bill is passed. The Bill sets the limits on a municipality’s power to raise these charges in all disputed categories”.

SAPOA has made representation to National Treasury with regards to the areas in the Bill that demands regulatory clarity. “These areas relate to the fact that while municipalities may permissibly charge developers the cost of installing or upgrading external forces, they cannot force developers to contribute to infrastructure which has already been paid for from other sources of revenue”.

Doing so would constitute an impermissible tax, which is illegal and not a service recovery charge”.

SAPOA cautions investors and developers, and we suggest that they monitor this situation carefully as the financial implications on investments may be significant. We will engage with the newly elected municipal government to resolve this matter, recommending that this Policy not be supported”, concluded Gopal.