THE property market has always been viewed as one of the most stable investments for property developers and investors. Public and private sector alignment and collaborations will ensure continued success in the industry, with the knock-on effect of increased investor confidence. Despite certain challenges, there are practical solutions in the pipeline and an upswing in property performance.
Broll Property Group’s ’Mantsi Moiloa, group head of: public sector, says that South Africa, including Gauteng, has been experiencing a decline in municipal services for some time. “The recent rise in inadequate service delivery and the effects of ageing infrastructure, have had a significant impact on residents and the proper functioning of the region.”
This, in turn, has raised concerns in the property market, as the unstable conditions can prejudice investors’ ability to make the long-term commitment that is required. Despite this, there are still many developments underway.
Moiloa believes that property investors are the most optimistic because they retain a measure of confidence in the government and continue to invest in the property sector.
“And they have good reason to be optimistic,” says Moiloa. “During the last two months of 2023, South African listed property saw double-digit returns. The JSE All Property Index (ALPI) became the best-performing asset class index for the year. Furthermore, real estate investment trusts (REITs) delivered total income and capital returns of 10.1% for 2023. This is a remarkable increase from 2022.
“What’s more, with interest rates potentially coming down this year, it will be good for market sentiment and share prices, as we have already seen over the last few months,” Moiloa adds.
A further vote of confidence in the property sector is that there is ongoing development planning, especially with respect to large developments where a solid pipeline exists in concept stage; however, there has been a shift in the burden to the private sector for bulk infrastructure contributions. Materially, this affects project feasibility, which can result in project pipelines being cancelled or deferred. The greatest impact of this is the loss of construction and operating jobs for building and maintaining infrastructure, and it means that rates collections are not happening as required. In addition, infrastructure planning isn’t always supported by budget planning, with a gap between budget allocation and actual execution.
Moiloa says there needs to be greater convergence of investment and facilities management to enable the long-term management of facilities and therefore the upkeep of the investment. “It is notable, though, that the government has begun to shift away from investing in new capital projects and is channelling funds into facilities management to retain the condition and value of its assets. This is a positive move that I believe needs to be adopted on a city scale,” she says.
Moiloa points to taking inspiration from the Department of Public Works’ national immovable asset maintenance management planning guideline which provides a strategic approach to tackling the issues in municipalities and dealing with budget constraints to arrive at a plan of less reactive maintenance and more preventative maintenance. “This approach is aimed at creating a stable system in which things run according to plan and become predictable. It balances the pursuit of an ideal state with the realities of the State purse. That’s what is needed to promote confidence in investment in a long-term asset like property.”
She says inadequate service delivery leads to uncertainty for the country’s citizens, SMEs and large corporates. “For businesses, the cost of production has spiked, especially when it comes to generating power – for those who have generators and solar – and companies lose their competitiveness due to a delay in the delivery of products and services.
“These challenges are not insurmountable, however. There are many private sector offerings in the way of renewable energy solutions. Public Private Partnerships (PPPs) are also increasing, but greater participation by the government is important – an example of this could be the revisiting of initiatives such as the incentivised use of solar-powered geysers, and expanding that concept beyond narrowly defined tax-incentivised installations, to renewable installations in general, as well as waste and water efficiency measures” she adds.
The generation of new sources of income should be supplemented by combating revenue leakages. She also suggests more widespread adoption of community-based micro-grid funding of public-private renewable projects through Eskom or municipal power entities. “Let the government also be a financial beneficiary in the rollout of the private sector’s ability to problem-solve-for-profit. Lastly, we need to stem low-resistance revenue leakage. Prepaid electricity and water should be the norm, and easy to opt into. This will help reduce non-payment of consumption which, in turn, will help municipalities to bring in the revenue they need to function optimally, and ultimately recapitalise infrastructure. It will also help individuals and companies become more responsible in their usage. There are only a few municipalities that have implemented prepaid water systems to date, yet in many other African countries, these prepaid systems are standard.”
“Implementing measures such as these would bolster investor confidence, as they bring stability and predictability to the system. Creating resilient sustainable cities provides security, not only around the reliability of service delivery, but also the security that investors need to make that commitment,” concludes Moiloa.
