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Actual Regulatory Cost of Property Development on Selected Municipalities in South Africa

Consultative Workshop with Municipalities

30 April 2013

Southern Sun Hotel, OR Tambo Airport

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Presentation Outline1. Project Brief

2. Study Areas

3. Limitations of the Study

4. Project Approach and Methodology

5. Cost Comparison : Findings

6. Municipal Challenges and Constraints

7. Property Developer Surveys

8. Summary of the Study

9. Recommendations

10. Way Forward

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Project Brief

• To comparatively investigate the municipal development cost of property-related projects in select municipalities in which SAPOA members are most active.

• To determine both the costs of doing property-related investment; as well as to assess possible limitations posed by municipalities that impact development progress and feasibility.

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Sampling/Municipal Selection

• 18 Municipalities was selected (please see map on next slide).

• Objective to study two representative municipalities for each province ideally the largest cities.

• Mandate from GGDA to include all Gauteng Metro’s.• Selection is regarded as a pilot project for a future larger

sample which will be included.• Wish list of larger sample for future analysis included in

the report.• Budget and capacity limitations.

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Sampling/Municipal Selection

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Overall Methodology

A. Municipal Cost Assessment

Findings

Observations Recommendations

B. Municipal Capacity Surveys

C. Developer Experience Surveys

• Study comprised of three components:A. Municipal Cost AssessmentB. Municipal Capacity SurveysC. Developer Surveys

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A. Municipal Service Cost1. Finalise Reference Framework

2. Review Rates and Tax Policies of individual municipalities

3. Identify information gaps and uncertainties

4. Consult Municipal Departments to fill data/information gaps and ensure correct interpretation of calculation

methods

5. Data capture, information review and critical analysis

6. Investigate outliers

8. Comparative Analysis and Results

7. Consult with Municipalities to analyse and understand outliers

a) Identify cost indicators to be studied

b) Develop appropriate & standardised scenarios

Main Respondent GroupsTown planning departmentsBudget departmentCall centreEngineering departments

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Development ScenariosType of Development Description of the Development

Medium Density Residential Developments

20 unit townhouse sectional title duplex (100m² each) on a 0.8ha site

Retail Centre Regional Retail Centre (GLA of 40 000m²) on a 10ha site

Commercial Office 8 floor high-rise office tower block (1 000m² per floor) on a 3200m² site

Industrial Large industrial factory (10 000m²) on a 2.5ha site

1. Environmental Impact Assessment Fees 9. Sewerage Consumption Charges2. Zoning and Re-Zoning Fees 10. Refuse Consumption Charges3. Township Establishment Fees 11. Electricity Consumption Charges4. Subdivision Fees 12. Vacant Land Rates5. Building Plan Fees 13. Property Rates6. Sewerage Connection Fees 14. Property Rebates7. Electricity Connection Fees 15. Surcharges8. Water Consumption Charges

Development Cost Components

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B. Municipal Capacity Surveys1. Finalise Reference Framework

2. Telephonic and questionnaire email interviews with target sample

3. Identify information gaps and limitations

4. Second round interviews to fill data/information gaps and ensure

accurate interpretation of responses

5. Relate responses to cost calculations

6. Comparative Analysis and Results

Main Respondent GroupsHead EngineersHead Town Planners

*or respondents designated by department heads.

a) Develop focussed questionnaires

b) Identify representative departments and contact person for each Municipality

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C. Developer Surveys1. Finalise Reference Framework

2. Questionnaire Submission to Database (First Round)

3. Review first round responses

4. Second round submission to increase

responses

5. Relate responses to cost calculations

6. Highlight most important responses

7. Comparative Analysis and Results

a) Develop focussed questionnaires b) Develop online survey platform

Main Respondent GroupsProperty OwnersDevelopersLease BrokersProperty Management Companies

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Study Limitations1. Insufficient financial capacity and timeframe to cover all municipalities in South Africa

2. Different municipal structures and thus approach for each municipality had to be adjusted.

3. Standardisation limitations due to many influential factors as well as complicated and unique nature of individual developments

4. Respondents were unable to provide rationale for budgets as respondents were officials responsible for implementation and not necessarily the decision-makers.

5. Vast number of municipalities and range of components to compare led to a difficulty in determining “affordable” and “expensive”

6. Municipalities of various sizes (Metros and LM) are not all identically comparable

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Summary: Observations• The municipal service costs of municipalities vary extensively• Variations are mainly due to different calculation techniques• Costs for indicators such as connection fees can not be generalised as it is

reliant on unknown variables (e.g. distance to existing connections, availability of bulk services).

• Each municipality in their local context face their own unique challenges and problems

• Frequently highlighted challenge include: – capacity and financial resources – practical experience – backlog on infrastructure maintenance– developers taking advantage of system limitations

• Negative perceptions towards municipal performance is currently evident from the majority of developers

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Zoning & Re-zoning tariffs

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Zoning & Re-zoning tariffs

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Zoning & Re-zoning tariffs

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Rebated Property RatesResidential Retail Commercial Industrial

Johannesburg 445840 13,653.500 1,029.864 5363875

Tshwane 879660 18,956.000 1,429.824 7447000

Ekurhuleni 740000 10,430.000 786720 5142500

Cape Town 606200 8,486.800 640147 3334100

Msunduzi 1110000 14,140.000 1,066.560 5555000

Nelson Mandela Bay 744100 10,417.400 785770 5115825

Buffalo City 735000 12,862.500 970200 5053125

Mangaung 779288 27,034.000 2,039.136 10620500

Ethekwini 912903 14,504.000 1,094.016 7353500

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Rebated Property RatesResidential Retail Commercial Industrial

Mogale City 633946 14798000 1116192 5813500

Emfuleni 594108 11900000 897600 5830000

George 401054 4214700 317909 1655775

Mbombela 519824 9349816 774808

Emalahleni 576087 7321125 552222 2876156

Polokwane 475929 4305000 389664 1691250

Sol Plaatjie 911863 19159000 1445136 10661750

Khara Hais 1261832 13255200 999821 5207400

Rustenburg 529947 12880000 971520 5197500

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Property Rates

Residential Retail Commercial Industrial

Johannesburg 557300 13653500 1029864 5363875

Tshwane 1354000 18956000 1429824 7447000

Ekurhuleni 740000 10430000 786720 5142500

Cape Town 606200 8486800 640147 3334100

Msunduzi 1110000 14140000 1066560 5555000

Nelson Mandela Bay 744100 10417400 785770 5115825

Buffalo City 735000 12862500 970200 5053125

Mangaung 779600 27034000 2039136 10620500

Ethekwini 914000 14504000 1094016 7353500

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Property Rates

Residential Retail Commercial Industrial

Mogale City 1057000 14798000 1116192 5813500

Emfuleni 850000 11900000 897600 5830000

George 501400 4214700 317909 1655775

Mbombela 743200 13005300 980971

Emalahleni 768500 9761500 736296 3834875

Polokwane 476000 5740000 432960 2255000

Sol Plaatjie 912000 19159000 1445136 10661750

Khara Hais 1262400 13255200 999821 5207400

Rustenburg 530000 12880000 971520 5197500

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Subdivision

Johannesb

urg

Tshwan

e

Ekurhulen

i

Cape T

own

Msunduzi

Nelson M

andela

Bay

Buffalo City

Manga

ung

Ethek

wini0

100020003000400050006000700080009000

790 5541205

36592394 2880

3590

1783

8009

Residential

Residential

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Building FeesResidential Retail Commercial Industrial

Johannesburg 25000 405000 85000 105000

Tshwane 22440 440440 88440 110440

Ekurhuleni 22600 201390 66675 80115

Cape Town 55232 1104640 220928 208016

Msunduzi 19345 109769 32224 40240

Nelson Mandela Bay 52417 120840 120840 120840

Buffalo City 53330 945000 202000 177600

Mangaung 150000 4760000 952000 1190000

Ethekwini 29150 397750 87350 106750

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Building Fees

Residential Retail Commercial Industrial

Mogale City 24200 575200 115040 143800

Emfuleni 5581 187565 39021 48305

George 88920 1007076 204516 254676

Mbombela 6250 120250 24250 30250

Emalahleni 32262 64321 120498 149910

Polokwane 41040 820800 164160 205200

Sol Plaatjie 25080 501600 100320 125400

Khara Hais 8230 110830 24430 29830

Rustenburg

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Township establishmentResidential Retail Commercial Industrial

Johannesburg 4209 4209 4209 4209

Tshwane 7267 16350 11770 11770

Ekurhuleni 5375 5375 5375 5375Cape Town n/a n/a n/a n/aMsunduzi n/a n/a n/a n/aNelson Mandela Bay 2280 2280 2280 2280

Buffalo City n/a n/a n/a n/a

Mangaung 340 2000000 64000 42500

Ethekwini 342 4212 4212 4212

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Township establishment

Residential Retail Commercial IndustrialMogale City 6676 6676 6676 6676Emfuleni 5295 5295 5295 5295George n/a n/a n/a n/aMbombela 9985 9985 9985 9985Emalahleni 4218 4218 4218 4218Polokwane 6794 6794 6794 6794Sol Plaatjie n/a n/a n/a n/aKhara Hais 2060 1030 1030 1030Rustenburg 6050 6050 6050 6050

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Water connectionResidential Retail Commercial Industrial

Johannesburg 34284 35482 35482 35482

Tshwane 16110 23610 23610 23610

Ekurhuleni 37348 45906 45906 45906

Cape Town 5580 6962 6962 6962

Msunduzi 19597 27605 27605 27605

Nelson Mandela Bay 30000 35000 35000 35000

Buffalo City 28482 38664 38664 73045

Mangaung quotation quotation quotation quotation

Ethekwini quotation quotation quotation quotation

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Water connectionResidential Retail Commercial Industrial

Mogale City quotation quotation quotation quotation

Emfuleni 28050 30200 30200 30200

George 13584 0quotation quotation

Mbombela 28000 34000 34000 34000

Emalahleni 2537 2537 2537 2537

Polokwane 8948quotation quotation quotation

Sol Plaatjie

Khara Hais 14100 17800 17800 17800

Rustenburg 28280 27131 27131 27131

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Vacant Land

Residential Retail Commercial IndustrialJohannesburg 445840 5573000 445840 557300Tshwane 1202800 15035000 1202800 1503500Ekurhuleni 596000 7450000 596000 745000Cape Town 242480 3031000 242480 303100Msunduzi 404000 5050000 404000 505000Nelson Mandela Bay 446460 5580750 446460 558075Buffalo City 441000 5512500 441000 551250Mangaung 155920 1949000 155920 194900Ethekwini 875200 10940000 875200 1094000

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Vacant LandResidential Retail Commercial Industrial

Mogale City 845600 10570000 845600 1057000

Emfuleni 340000 6375000 510000 742500

George 100280 1253500 100280 125350

Mbombela 445900 5573750 445900 557375

Emalahleni 278900 3486250 278900 348625

Polokwane 455820 2050000 164000 205000

Sol Plaatjie 39880 747725 59818 184435

Khara Hais 63120 789000 63120 78900

Rustenburg 150000 1875000 150000 187500

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Electricity Consumption

Residential Retail Commercial Industrial

Johannesburg 1.21 0.56 0.8 0.8

Tshwane 1.03 0.32 0.36 0.36

Ekurhuleni 1.09 0.95 0.99 0.99Cape Town 1.4 0.55 0.54 0.54

Msunduzi 0.59 0.65 0.59 0.59

Nelson Mandela Bay 1.07 0.62 0.65 0.65

Buffalo City 0.54 0.9 0.97 0.97

Mangaung 0.94 0.87 0.87 0.87

Ethekwini 0.75 0.9 0.9 0.51

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Electricity Consumption

Residential Retail Commercial IndustrialJohannesburg 1.21 0.56 0.8 0.8Tshwane 1.03 0.32 0.36 0.36Ekurhuleni 1.09 0.95 0.99 0.99Cape Town 1.4 0.55 0.54 0.54Msunduzi 0.59 0.65 0.59 0.59Nelson Mandela Bay 1.07 0.62 0.65 0.65Buffalo City 0.54 0.9 0.97 0.97Mangaung 0.94 0.87 0.87 0.87Ethekwini 0.75 0.9 0.9 0.51

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Recommendations

• Standardised and transparent costing and calculation approaches.

• Customer care and liaison to disseminate information and communicate w.r.t. backlogs and system delays.

• Development consulting services provided in-house by municipalities as a value added development promoting service and additional income generator for the municipality.

• Mutual understanding of both parties (Municipality and Developers) of the processes its limitations, time constraints and costs incurred.

• Utilisation of information technology to streamline and track development processes

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Way Forward

1. A detailed manual outlining the standardised approach to tariff setting to be investigated and developed

2. Create an Index on development costs to be available to the public

3. Broaden the study areas to a more representative national sample

4. The potential the development and introduction of an Information Technology administrative system

5. Develop an online “calculator” tool to calculate specific costs

To ensure the continued relevance of the research, it is suggested the cost analysis be reviewed annually due to new tariff policies released by municipalities in July of every year.