Neil Gopal, CEO of the South African Property Owners Association (Sapoa), says the decision by the City of Johannesburg to slap an extra infrastructure levy on property developers is a sign of growing panic in municipalities because their coffers have run dry.
“I think there's a lot of panic out there. I think they've all run out of money and they're now scrambling around trying to squeeze blood out of a rock,” says Gopal.
The Johannesburg council has announced it will start charging a one-off levy on property developers to fund infrastructure demands arising from new developments.
It's warned that if they don't pay up the council won't give them the necessary approvals or clearance certificates for their developments.
Gopal says this is “extortion” and Sapoa — which represents most of the country’s commercial property owners and developers — will fight tooth and nail against the levy, which it regards as “illegal”.
“The city is wanting developers to pay for infrastructure that's already in the ground. They're wanting to raise an additional tax to maintain existing infrastructure that's already paid for.
“Obviously we're not willing to pay twice for the same infrastructure which we paid for five or 10 years ago.”
This money should have been ring-fenced for the development and maintenance of infrastructure.
“We'd like to know where that money has gone.”
We feel our industry is bearing the brunt of the mismanagement, incompetence, wastage and corruption down the years
— Neil Gopal, CEO of the South African Property Owners Association
He says new development has been tapering off in Johannesburg since 2014 as a result of over-development in certain asset classes — particularly in the office environment — as well as site invasions by the construction mafia which “make it very risky for investors”, unrest and Covid.
“The city's rates base has been contracting and going backwards and they, along with other municipalities, are trying to come up with clever ways of taxing property owners.”
The so-called “one-off” levy, which he doesn't believe will be anything of the sort — “I believe it's going to continue” — is not the answer to the city's problems.
The council says it needs to establish a sustainable infrastructure financing model, but the only sustainable way forward is to grow the economy, he says.
“We cannot continue redistributing this economy, we have to grow it. We know the numbers. There were 2-million people on social grants in 1994, there are now close to 20-million. That's a recipe for disaster.”
To grow the city's economy the council needs to attract investors.
“There's an imperative to get more investment, but then the environment needs to be conducive to attract that investment. And it is not conducive if there are fiscal problems, if there's the threat of more unrest, if you can't get electricity to a new shopping centre you want to build, if you're not too sure what your property rates increase is going to be next year.”
Sapoa's members are big property owners in Europe, the UK, Mauritius and Australia, and Gopal says they're warning them about the risks of investing in Johannesburg.
“The more problems fester at a local government level in SA, the less appetite there will be to develop more here, and more money will flow offshore. We're seeing this.”
By discouraging investors, isn't Sapoa making it more necessary for increasingly cash-strapped Johannesburg to hit developers with extra taxes?
“We're not discouraging investors, the city is doing a good job of that by itself. We're merely highlighting the challenges of investing in the city,” says Gopal.
“And while it may or may not be necessary, the reality is that the money will flow elsewhere, to places that are not double-taxing you for infrastructure.”
The way for municipalities to resolve their dire financial predicament is not by charging extra taxes, he says.
“A one-off levy is not going to fix much. It's like applying a Band-Aid to someone who's bleeding profusely.
“Money's not the biggest problem. What we need for a start are people who know what they're doing. City managers should be competent engineers and not political appointments. Staff members and city managers must be on performance-based employment contracts, and if they don't perform they must be dismissed.
“We need to employ the right people. I don't think a lot of municipalities are doing that. And, of course, we need to stop the corruption.”
These are the reasons Johannesburg and other municipalities are in such a mess, he says.
“We feel our industry is bearing the brunt of all this nonsense, the mismanagement, incompetence, wastage and corruption down the years.”
We feel our industry is bearing the brunt of all this nonsense, the mismanagement, incompetence, wastage and corruption down the years
It doesn't matter that there's a new administration in Johannesburg that is trying to turn things around, he says.
“It does not help us as an industry to have a city that is collapsing. And it is not in the interests of any city to have an industry that is going through a very tough time, because they're going to stop investing and take their money elsewhere.”
All developers and property owners are worried about now is trying to maintain existing assets, he says.
“Never mind building new assets. If you don't have a guaranteed supply of electricity, or any guarantee that you're not going to be switched off a couple of times every day as and when, without much notice, it's not a good position to be in if you've got a new office development or new shopping centre development.
“We don't have to warn investors about the risks of investing here, they just need to read the auditor-general's reports.”
He says they were consulted on the new tax policy.
“We went through an almost two-year process with the city, which I believe was nothing but a tick-box exercise on their side. They ignored all of our comments and concerns. What came out was totally different to what we'd encouraged them to do.”
The city said last month it intended proceeding with the implementation of the policy regardless of the fact that the Fiscal Powers Amendment Bill has not been enacted.
This makes it illegal, says Gopal. Apart from the fact that it will accelerate relocation out of the city, Sapoa is opposing it on principle.
“If we let it go then the question is, what next? What else are they going to start doing without authorisation?”
