In the wake of Tuesday’s South Africa Investment Conference in Sandton, the question we should all be asking ourselves is not only how we attract new capital and investment into our economy, but also how we can unlock the capital already trapped in the state.
For far too long South Africa has spoken about growth as though it depends only on what we can build from scratch. However, one of the country’s greatest investment opportunities is not greenfield alone. It is the vast portfolio of public land and buildings already on the national balance sheet, which are too often left vacant, vandalised, hijacked, underused or poorly managed.
The reform now under way through the South African National Property Company offers a way to change that. It offers a pathway to convert public assets from a cost centre into an engine of growth, investment and long-term national wealth.
The scale of this opportunity is extraordinary. In the department of public works & infrastructure alone, the country owns 88,000 buildings and 5-million hectares of land. However, at the same time, the state spends about R6bn a year leasing private buildings. That contradiction perfectly captures the failure of the old model.
We own prime assets, yet too many stand empty and idle. We hold many strategic land parcels in our cities, but too often we fail to use them to drive growth, housing and urban renewal.
As the department, we sit on an asset base estimated to be valued at R155bn, but for decades these assets have not been managed in a way that creates value for the public.
We own prime assets, yet too many stand empty and idle. We hold many strategic land parcels in our cities, but too often we fail to use them to drive growth, housing and urban renewal.
This is why the property company matters. The reform we have embarked on is not cosmetic. As mentioned by the president in his state of the nation address, it is the most significant reform in the management of state property since 1994.
At its core, the reform has a simple but powerful idea: the state must stop being a passive owner and collector of neglected assets and start acting like a professional steward of a strategic national portfolio.
The company we are building is designed to achieve precisely that. In this environment, the department of public works & infrastructure will remain the custodian and policy authority. However, the company becomes the operational vehicle for achieving delivery. It will be a ringfenced, professionally governed platform responsible for asset optimisation, commercial management, redevelopment and investment structuring.
This separation is important because it introduces stronger governance and clearer accountability, with the professional discipline required to manage assets at scale. The reform furthermore reduces the space for political interference in daily operating decisions about managing state assets, thereby reducing the opportunity for fraud and corruption.
It is also important to be clear about what this reform is not. It is not a fire sale of state property. I have said on record that the state cannot sell all the property it owns; equally, it cannot continue to hold everything on its books. There is a middle ground between “core” and “noncore” assets — one we aim to unlock through the company.
Creating value from underperforming assets
The company will help us create value from our underperforming assets, improve service delivery, reduce wasteful expenditure and create structured portfolios for investment. This will mean that selected core assets will — for the first time — be managed through a vehicle built to meet the standards of modern asset management, helping to unlock development finance and commercial execution.
This is where the private sector comes in to partner with us. If South Africa is serious about growth, we must be equally serious about building credible, investable platforms. That is why the company is intended to provide a structured vehicle through which institutional investors, developers, operators and development partners can participate in defined property portfolios, which will be backed by long-term demand and predictable revenue streams.
The new model set out by the department will include accommodation charges, backed by government tenants, public-private partnerships for precincts and facilities, and development funds with ring-fenced portfolios. This is thus investment with structure behind it, not just a slogan.
Our office accommodation portfolio shows the point most clearly. The government is the country’s largest anchor tenant; however, the public has not yet benefited from that scale.
Billions to private landlords
Instead of using the strength of our tenants to build and maintain public assets, the state has for years been transferring billions to private landlords at prices that are often far above market value.
The company creates the opportunity to reverse that logic by redirecting lease expenditure into the development and maintenance of state-owned precincts, which will unlock value to create a new institutional-grade asset class.
This will provide investors with long-dated and state-backed cash flows that can support bankable projects. That is how an annual state expense becomes an equity-building platform that will help to create value for the country.
We already have a sense of what this can mean in practice. In Tshwane, the government precinct programme points to what a properly structured platform can unlock: 30 projects, more than 1-million square metres of development, and about R33bn in the first phase alone.
According to the department of public works & infrastructure’s own projections, this phase will allow us to eliminate more than R400m in annual leasing costs while building a property portfolio valued at R45bn-R55bn once complete.
During the wider construction of this phase, a projected 100,000 direct and indirect jobs will be supported while up to R60bn in broader economic activity will be catalysed.
Ambitious urban renewal
Our reform also opens the way for a far more ambitious form of urban renewal.
Underutilised public buildings can be refurbished and brought back into productive use. Well-located public land can support mixed-use development, affordable housing and commercial growth close to transport and employment. State precincts can be modernised to improve service delivery and the quality of the built environment in cities.
Public land near economic nodes can stop being fenced-off dead space and become platforms for construction, enterprise and inclusion.
As a country, we need to make an urgent decision: are we happy to maintain vast land parcels such as underutilised military bases that can accommodate 20,000 housing units while people continue to live in informal settlements along the N2 in Cape Town? That is why I am so passionately committed to unlocking public land for human settlements.
There is another reason this matters now. Investors do not only look for opportunities. They look for credibility. They look for governance. They look for pipelines that can move from announcement to execution.
This is why the new property company matters alongside the Strategic & Special Delivery Unit, which is now being established in the department. One reform unlocks investable assets while the other is designed to improve the state’s ability to execute. Together, they help to tell investors that we understand that the test of investment policy is delivery, not announcement.
The immediate task is to build a professional property company that can reduce waste, improve assets, crowd in investment and create sustainable returns.
But none of these reforms will work without getting the basics right, which includes a verified, digitised asset register, clean governance, credible project preparation, bankable procurement processes, clear institutional roles and a relentless focus on execution.
These are not optional extras. They are the foundation of investor confidence. Without them, the company risks becoming another announcement. With them, it can become one of the most significant economic reforms under way in South Africa.
We also have a bigger horizon in view with the formation of this company. I have publicly said that this reform presents a long-term value-creation opportunity that could, over time, become an anchor for a sovereign-wealth-style vehicle.
The immediate task is to build a professional property company that can reduce waste, improve assets, crowd in investment and create sustainable returns. But if we get this right, we will have done more than clean up a neglected property portfolio. We will have created a mechanism through which public assets can generate intergenerational value for the nation.
While countries worldwide are competing fiercely for investment and capital, South Africa cannot afford to leave one of its greatest assets trapped in inertia.
The choice is straightforward. We can either continue with a model of decay and fragmentation that leads to escalating lease costs. Or we can build a platform that turns public assets into productive ones that will attract private capital on clear terms and help to strengthen the public balance sheet.
The company is, ultimately, about more than property. It is about whether the state can finally translate what it owns into what the country needs.
• Macpherson is public works & infrastructure minister.
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