The City of Joburg will start charging a one-off levy on property developers to fund increased infrastructure demands that arise from new developments.
But the SA Property Owners Association (Sapoa) body say the move is illegal and could result in its members paying double for the same service.
The levy has been in existence for more than 50 years in municipalities all over the country. The City of Cape Town, Nelson Mandela Bay and others have implemented this charge.
Municipalities with large capital reserves and strong revenue streams can finance bulk infrastructure costs upfront. If not, they can take loans or look to development contributions to fund the capital gap.
Cash-strapped municipalities have found the development contribution to be an alternative source to fund bulk infrastructure to support economic growth.
The charge referred to as the development contribution is a one-off capital charge to recover the cost of external infrastructure required for new developments, or to pay off loans taken to provide for that infrastructure.
It is crafted in such a way that the developer carries the cost rather than the cost being passed on to ratepayers. Charges for land use or development types are based on how developments affect the city’s bulk infrastructure.
For instance, a development with five residential units per hectare will not incur the same charge as one with 50 units per hectare.
“The policy gives investors certainty and ensures that the increased burden on infrastructure of new developments does not fall upon general ratepayers,” said Joburg MMC for development planning Belinda Echeozonjoku.
“The multiparty government is steadfast in its commitment to address the infrastructure demands that come with new developments, and make it easy to do business with the city with clarity, which the policy seeks to address,” she said.
The council approved the policy on October 7 2021, and says a public statement on the effective date of the charge will be issued.
Echeozonjoku insisted that contributions of this nature are an important component of a sustainable municipal infrastructure financing model and will enable municipalities to drive the urban transformation and economic agenda.
“Developers must contribute their fair portion without unduly burdening the city’s ratepayers. If any developer does not contribute their fair portion, the city cannot be duty bound to approve that development or provide necessary clearance certificates,” she said.
However, Sapoa, the industry body representing property owners, says developers already pay bulk fees for new developments and this adds another layer of payment.
Commercial and residential property developers are already paying towards installing internal engineering services, such as roads, storm water drainage, water, sewer and electricity.
The municipality is responsible for providing bulk external engineering infrastructure services that provide water, sewerage, electricity, municipal roads, storm water drainage, gas, solid water collection and removal required for the purpose of land development.
Sapoa CEO Neil Gopal says the policy document is self-contradictory as it states that the development contribution must be used on existing or planned infrastructure affected by that development. It can also be used on infrastructure anywhere else in the municipality, and states that there cannot be duplicated cost recovery, but it also provides for a development contribution where capacity exists in infrastructure that’s already paid for.
Gopal says while municipalities may charge developers the cost of installing or upgrading external services, they cannot force developers to contribute to infrastructure that 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 at all.
“We are of the view that the policy is overall investor unfriendly and thus defeats its intended purpose. Consultation with our members has revealed their concern that the city has endowed itself with an ability, by withholding various consents, to force developers into paying the development contribution, and this represents nothing less than a form of extortion,” he said.
Gopal says that in January Sapoa wrote to the city stating that the council didn’t have the power to implement a development charge.
The city responded last month, saying it intends proceeding with the implementation of the policy regardless of the fact that the Fiscal Powers Amendment Bill has not been enacted. The bill regulates the power of municipalities to levy development charges, and to establish an entitlement on the part of municipalities to withhold other approvals or clearances due to nonpayment of development charges, among other functions.
“In the light of the city’s ongoing antagonistic approach towards business, Sapoa cautions investors and developers to reconsider any further investments in the City of Johannesburg as the financial implications will be significant. Sapoa intends legally challenging the matter,” says Gopal.
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