Workshop on Actual Regulatory Cost of Property Development in South Africa

The Consultative Workshop with Municipalities in South Africa on the Actual Regulatory Cost of Property Development aimed to assess the costs and limitations related to property investment in select municipalities. The project covered project brief, study areas, methodology, cost comparison findings, municipal challenges, developer surveys, recommendations, and the way forward. Municipalities were selected for sampling based on specific criteria, and the overall methodology included municipal cost assessment, capacity surveys, and developer experience surveys to provide key insights and recommendations.

• Property Development
• South Africa
• Municipalities
• Regulatory Costs
• Consultative Workshop

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1. Actual Regulatory Cost of Property Development on Selected Municipalities in South Africa Consultative Workshop with Municipalities 30 April 2013 Southern Sun Hotel, OR Tambo Airport 1

2. Presentation Outline 1. Project Brief 2. Study Areas 3. Limitations of the Study 4. Project Approach and Methodology 5. Cost Comparison : Findings 6. Municipal Challenges and Constraints 7. Property Developer Surveys 8. Summary of the Study 9. Recommendations 10. Way Forward 2

3. ProjectBrief To development cost of property-related projects in select municipalities in which SAPOA members are most active. comparatively investigate the municipal To determine both the costs of doing property- related investment; as well as to assess possible limitations posed by municipalities that impact development progress and feasibility. 3

4. Sampling/Municipal Selection 18 Municipalities was selected (please see map on next slide). Objective to study tworepresentative municipalities for each province ideally the largest cities. Mandate from GGDA to include all Gauteng Metro s. Selection is regarded as a pilot project for a future larger sample which will be included. Wish list of larger sample for future analysis included in the report. Budget and capacity limitations. 4

5. Sampling/Municipal Selection 5

6. Overall Methodology Study comprised of three components: A. Municipal Cost Assessment B. Municipal Capacity Surveys C. Developer Surveys A. Municipal Cost Assessment B. Municipal Capacity Surveys C. Developer Experience Surveys Findings Observations Recommendations 6

7. A. Municipal Service Cost 1. Finalise Reference Framework a) Identify cost indicators to be studied b) Develop appropriate & standardised scenarios 2. Review Rates and Tax Policies of individual municipalities 4. Consult Municipal Departments to fill data/information gaps and ensure correct interpretation of calculation methods 3. Identify information gaps and uncertainties Main Respondent Groups Town planning departments Budget department Call centre Engineering departments 5. Data capture, information review and critical analysis 6. Investigate outliers 7. Consult with Municipalities to analyse and understand outliers 8. Comparative Analysis and Results 7

8. Development Scenarios Type of Development Description of the Development 20 unit townhouse sectional title duplex (100m each) on a 0.8ha site Medium Density Residential Developments Retail Centre Regional Retail Centre (GLA of 40 000m ) on a 10ha site 8 floor high-rise office tower block (1 000m per floor) on a 3200m site Commercial Office Large industrial factory (10 000m ) on a 2.5ha site Industrial Development Cost Components 1. Environmental Impact Assessment Fees 2. Zoning and Re-Zoning Fees 3. Township Establishment Fees 4. Subdivision Fees 5. Building Plan Fees 6. Sewerage Connection Fees 7. Electricity Connection Fees 8. Water Consumption Charges 9. Sewerage Consumption Charges 10. Refuse Consumption Charges 11. Electricity Consumption Charges 12. Vacant Land Rates 13. Property Rates 14. Property Rebates 15. Surcharges 8

9. B. Municipal Capacity Surveys 1. Finalise Reference Framework b) Identify representative departments and contact person for each Municipality a) Develop focussed questionnaires 2. Telephonic and questionnaire email interviews with target sample Main Respondent Groups Head Engineers Head Town Planners 3. Identify information gaps and limitations 4. Second round interviews to fill data/information gaps and ensure accurate interpretation of responses *or respondents designated by department heads. 5. Relate responses to cost calculations 6. Comparative Analysis and Results 9

10. C. Developer Surveys 1. Finalise Reference Framework a) Develop focussed questionnaires b) Develop online survey platform 2. Questionnaire Submission to Database (First Round) 4. Second round submission to increase responses 3. Review first round responses Main Respondent Groups Property Owners Developers Lease Brokers Property Management Companies 5. Relate responses to cost calculations 6. Highlight most important responses 7. Comparative Analysis and Results 10

11. Study Limitations 1. Insufficient financial capacity and timeframe to cover all municipalities in South Africa 2. Different municipal structures and thus approach for each municipality had to be adjusted. 3. Standardisation limitations due to many influential factors as well as complicated and unique nature of individual developments 4. Respondents were unable to provide rationale for budgets as respondents were officials responsible for implementation and not necessarily the decision-makers. 5. Vast number of municipalities and range of components to compare led to a difficulty in determining affordable and expensive 6. Municipalities of various sizes (Metros and LM) are not all identically comparable 11

12. Summary: Observations The municipal service costs of municipalities vary extensively Variations are mainly due to different calculation techniques Costs for indicators such as connection fees can not be generalised as it is reliant on unknown variables (e.g. distance to existing connections, availability of bulk services). Each municipality in their local context face their own unique challenges and problems Frequently highlighted challenge include: capacity and financial resources practical experience backlog on infrastructure maintenance developers taking advantage of system limitations Negative perceptions towards municipal performance is currently evident from the majority of developers 12

13. Zoning & Re-zoning tariffs 13

14. Zoning & Re-zoning tariffs 14

15. Zoning & Re-zoning tariffs 15

16. Rebated Property Rates Residential Retail Commercial Industrial Johannesburg 445840 13,653.500 1,029.864 5363875 Tshwane 879660 18,956.000 1,429.824 7447000 Ekurhuleni 740000 10,430.000 786720 5142500 Cape Town 606200 8,486.800 640147 3334100 Msunduzi 1110000 14,140.000 1,066.560 5555000 Nelson Mandela Bay 744100 10,417.400 785770 5115825 Buffalo City 735000 12,862.500 970200 5053125 Mangaung 779288 27,034.000 2,039.136 10620500 Ethekwini 912903 14,504.000 1,094.016 7353500 16

17. Rebated Property Rates Residential Retail Commercial Industrial Mogale City 633946 14798000 1116192 5813500 Emfuleni 594108 11900000 897600 5830000 George 401054 4214700 317909 1655775 Mbombela 519824 9349816 774808 Emalahleni 576087 7321125 552222 2876156 Polokwane 475929 4305000 389664 1691250 Sol Plaatjie 911863 19159000 1445136 10661750 Khara Hais 1261832 13255200 999821 5207400 Rustenburg 529947 12880000 971520 5197500 17

18. Property Rates Residential Retail Commercial Industrial Johannesburg 557300 13653500 1029864 5363875 Tshwane 1354000 18956000 1429824 7447000 Ekurhuleni 740000 10430000 786720 5142500 Cape Town 606200 8486800 640147 3334100 Msunduzi 1110000 14140000 1066560 5555000 Nelson Mandela Bay 744100 10417400 785770 5115825 Buffalo City 735000 12862500 970200 5053125 Mangaung 779600 27034000 2039136 10620500 Ethekwini 914000 14504000 1094016 7353500 18

19. Property Rates Residential Retail CommercialIndustrial Mogale City 1057000 14798000 1116192 5813500 Emfuleni 850000 11900000 897600 5830000 George 501400 4214700 317909 1655775 Mbombela 743200 13005300 980971 Emalahleni 768500 9761500 736296 3834875 Polokwane 476000 5740000 432960 2255000 Sol Plaatjie 912000 19159000 1445136 10661750 Khara Hais 1262400 13255200 999821 5207400 Rustenburg 530000 12880000 971520 5197500 19

20. Subdivision Residential 9000 8009 8000 7000 6000 5000 3659 3590 4000 23942880 3000 1783 2000 1205 790 554 1000 Residential 0 20

21. Building Fees Residential Retail Commercial Industrial Johannesburg 25000 405000 85000 105000 Tshwane 22440 440440 88440 110440 Ekurhuleni 22600 201390 66675 80115 Cape Town 55232 1104640 220928 208016 Msunduzi 19345 109769 32224 40240 Nelson Mandela Bay 52417 120840 120840 120840 Buffalo City 53330 945000 202000 177600 Mangaung 150000 4760000 952000 1190000 Ethekwini 29150 397750 87350 106750 21

22. Building Fees Residential Retail Commercial Industrial Mogale City 24200 575200 115040 143800 Emfuleni 5581 187565 39021 48305 George 88920 1007076 204516 254676 Mbombela 6250 120250 24250 30250 Emalahleni 32262 64321 120498 149910 Polokwane 41040 820800 164160 205200 Sol Plaatjie 25080 501600 100320 125400 Khara Hais 8230 110830 24430 29830 Rustenburg 22

23. Township establishment Residential Retail Commercial Industrial Johannesburg 4209 4209 4209 4209 Tshwane 7267 16350 11770 11770 Ekurhuleni Cape Town 5375 5375 5375 5375 n/a n/a n/a n/a Msunduzi Nelson Mandela Bay n/a n/a n/a n/a 2280 2280 2280 2280 Buffalo City n/a n/a n/a n/a Mangaung 340 2000000 64000 42500 Ethekwini 342 4212 4212 4212 23

24. Township establishment Residential Retail 6676 5295 n/a 9985 Commercial Industrial 6676 5295 n/a 9985 Mogale City Emfuleni George Mbombela 6676 5295 6676 5295 n/a n/a 9985 9985 Emalahleni Polokwane Sol Plaatjie 4218 6794 4218 6794 4218 6794 4218 6794 n/a n/a n/a n/a Khara Hais Rustenburg 2060 6050 1030 6050 1030 6050 1030 6050 24

25. Water connection Residential Retail Commercial Industrial Johannesburg 34284 35482 35482 35482 Tshwane 16110 23610 23610 23610 Ekurhuleni 37348 45906 45906 45906 Cape Town 5580 6962 6962 6962 Msunduzi 19597 27605 27605 27605 Nelson Mandela Bay 30000 35000 35000 35000 Buffalo City 28482 38664 38664 73045 Mangaung quotation quotation quotation quotation Ethekwini quotation quotation quotation quotation 25

26. Water connection Residential Retail Commercial Industrial Mogale City quotation quotation quotation quotation Emfuleni 28050 30200 30200 30200 George 13584 0quotation quotation Mbombela 28000 34000 34000 34000 Emalahleni 2537 2537 2537 2537 Polokwane 8948quotation quotation quotation Sol Plaatjie Khara Hais 14100 17800 17800 17800 Rustenburg 28280 27131 27131 27131 26

27. Vacant Land Residential Retail Commercial Industrial 445840 1202800 596000 242480 404000 Johannesburg Tshwane Ekurhuleni Cape Town Msunduzi Nelson Mandela Bay Buffalo City Mangaung Ethekwini 445840 1202800 596000 242480 404000 5573000 15035000 7450000 3031000 5050000 557300 1503500 745000 303100 505000 446460 441000 155920 875200 5580750 5512500 1949000 10940000 446460 441000 155920 875200 558075 551250 194900 1094000 27

28. Vacant Land Residential Retail Commercial Industrial Mogale City 845600 10570000 845600 1057000 Emfuleni 340000 6375000 510000 742500 George 100280 1253500 100280 125350 Mbombela 445900 5573750 445900 557375 Emalahleni 278900 3486250 278900 348625 Polokwane 455820 2050000 164000 205000 Sol Plaatjie 39880 747725 59818 184435 Khara Hais 63120 789000 63120 78900 Rustenburg 150000 1875000 150000 187500 28

29. Electricity Consumption Residential Retail Commercial Industrial Johannesburg 1.21 0.56 0.8 0.8 Tshwane 1.03 0.32 0.36 0.36 Ekurhuleni Cape Town 1.09 1.4 0.95 0.55 0.99 0.54 0.99 0.54 Msunduzi 0.59 0.65 0.59 0.59 Nelson Mandela Bay 1.07 0.62 0.65 0.65 Buffalo City 0.54 0.9 0.97 0.97 Mangaung 0.94 0.87 0.87 0.87 Ethekwini 0.75 0.9 0.9 0.51 29

30. Electricity Consumption Residential Retail Commercial Industrial 0.8 0.36 0.99 0.54 0.59 Johannesburg Tshwane Ekurhuleni Cape Town Msunduzi Nelson Mandela Bay Buffalo City Mangaung Ethekwini 1.21 1.03 1.09 1.4 0.59 0.56 0.32 0.95 0.55 0.65 0.8 0.36 0.99 0.54 0.59 1.07 0.54 0.94 0.75 0.62 0.9 0.87 0.9 0.65 0.97 0.87 0.9 0.65 0.97 0.87 0.51 30

31. Recommendations Standardised and transparent costing and calculation approaches. Customer care and liaison to disseminate information and communicate w.r.t. backlogs and system delays. Development consulting services provided in-house by municipalities as a value added development promoting service and additional income generator for the municipality. Mutual understanding of both parties (Municipality and Developers) of the processes its limitations, time constraints and costs incurred. Utilisation of information technology to streamline and track development processes 31

32. Way Forward To ensure the continued relevance of the research, it is suggested the cost analysis be reviewed annually due to new tariff policies released by municipalities in July of every year. 5. Develop an online calculator tool to calculate specific costs 4. The potential the development and introduction of an Information Technology administrative system 3. Broaden the study areas to a more representative national sample 2. Create an Index on development costs to be available to the public 1. A detailed manual outlining the standardised approach to tariff setting to be investigated and developed 32