Property developers in Johannesburg are in for a nervy few months after the South Gauteng High Court ruled that the development contributions policy announced by the City of Johannesburg in 2021, which the sector opposed, is lawful.
Development contributions are one-off charges levied by municipalities on landowners for approving land development applications to cover capital costs incurred by the municipality when installing or upgrading infrastructure on property.
The SA Property Owners Association (Sapoa), the country’s commercial property body, tried unsuccessfully to interdict implementation of the policy.
Sapoa CEO Neil Gopal said that, if implemented, the policy will effectively enable the city to levy charges that would compel developers to cross-subsidise developments not related to their applications.
“This is unprecedented, and Sapoa has made out a cogent case in its founding papers that the City of Johannesburg’s development contribution policy is not authorised by any national legislation and is unlawful,” Gopal told Business Day.
He said the policy introduces a new development contributions regime — sometimes referred to as “bulk services contributions” — which rescinds current procedures used to determine amounts due to the city in cases where property developers apply to the city in terms of Spatial Planning and Land Use Management Act (SPLUMA) for rezoning and ancillary property development consents.
Bulk engineering infrastructure is intended to ensure delivery of municipal engineering services for the benefit of multiple users or the community as a whole, according to court papers.
“We are reviewing the judgment, and will be in a better position to comment” once lawyers have been consulted, said Gopal.
The development contribution will apply to any pending or future land development application brought in terms the act.
The court dismissed Sapoa’s bid with costs on Wednesday, saying the development contribution policy is not unlawful, irrational or unreasonable.
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.
This charge has been levied by municipalities countrywide for more than 50 years, including in Cape Town and Nelson Mandela Bay. The City of Johannesburg approved the policy on October 7 2021.
Sapoa told the court that in applying the development contribution policy the city will require applicants — in this case property developers — to pay money not aimed at compensating the city for the provision of external engineering services for the particular development related to the application.
“Rather, it could relate to an existing or future infrastructural work by the city entirely unrelated to that proposed development. The implementation of development contribution policy would be unlawful as the SPLUMA does not authorise this,” Sapoa said in court papers.
A development contribution is a charge levied by a municipal planning tribunal or authorised official in the SPLUMA, according to the court papers. The charge must contribute towards the cost of capital infrastructure assets needed to meet increased demand for existing and planned external engineering services.
The city said it accepts that in terms of the act, the development charges must relate to the particular development.
“What is in dispute, is whether the SPLUMA requires the development charge to relate to physical infrastructure for the particular development, or whether it can consist of the provision of access to existing or future infrastructure,” the city said in court papers.
The city argued that a new development demands a share of the capacity of the pipeline, and this increased demand can be described as an impact on the capacity of the existing infrastructure.
The existing infrastructure of a particular service is a complex and integrated structure starting at an original source, which has a limited capacity.
“A new land development area will make an impact on all the components of the infrastructure of the particular bulk engineering service,” said the city in court papers.
For that service, the city argues, a contribution can be levied, based on the new development’s effect on the capacity of the whole integrated infrastructure.
SA’s biggest commercial property owner, Growthpoint, last month decried the breakdown of relations between local government and property barons, saying objections to high municipal rate increases when services deteriorate are disregarded and service requests get ignored.
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