Presentation on theme: "Presented by: Dr. Mahlape Mohale"— Presentation transcript:
1Presented by: Dr. Mahlape Mohale Measuring the size of dead capital in Johannesburg Metropolitan Municipality and determining its relationship to poverty levels ISIbalo Symposium on evidence based decision making Free State Province 10th-11th October 2013Presented by: Dr. Mahlape Mohale
2Approaches to property markets valuation OUTLINEIntroductionMethodsApproaches to property markets valuationThe City of Johannesburg in briefResultsAnalysisChallenges in measuring dead capital in the CoJConclusion
31. IntroductionMajority of the people in the world live in very poor conditions yet there are enough resources to support all the people on this planet. The world's poor control a vast storehouse of assets and resources, which combined with their proven entrepreneurial spirit, can be unleashed to enter the prosperous mainstream economy and eradicate poverty (de Soto, 2001).The burden of poverty in developing countries along with the imbalances between demand and supply of houses in urban areas has forced the urban poor to devise their own survival strategies and determine their own spaces in cities. By so doing the urban poor redefined urban space uses and became important role players in the property market that no government in developing countries can ignore (UNHABITAT, 2003).
4Why the concern about dead capital? 1. Introduction Cont.What is dead capital?De Soto (2000) defines “dead capital” as assets that cannot be used effectively for economic transactions, guarantees, contributions or compensation.Why the concern about dead capital?Informal dwellings in urban areas regardless of their low quality are economic goods that have market valueThey serve large population estimated to be 1billion world- wideImportant indicator of inequality in societyResidential markets drive wealth generation in a country (UN-HABITAT, 2009)Hence measuring the size of dead capital in urban areas and determining its relationship to poverty levels in order to devise strategies to convert it into life capital is necessary.
51. Introduction Cont.de Soto introduced the “dead capital” debate in 1980sDdeveloping countries hold vast amounts assetsPoverty the result of the inability of actors in the informal economy to optimally utilise capital goodsContributing factors include:Dysfunctional property and financial markets and information asymmetryInability of the state to efficiently and cost-effectively establish property rightsDead capital is generally linked to informal housing and businessWill enable people in the informal sector to enter the formal economyWill mobilise dead capital and provide security of tenureWill bring about market-led land reform and the provision of basic servicesProponents and opponents of dead capital conceptReinforce inequitable land ownershipfinancial exploitation of new property ownersLoss of traditional, ingrained forms of tenureBenefits only a fewde Soto’s central argument remains uncontested
6International experience 1. Introduction cont.International experienceLatin AmericaRevolutionAfrica?Western WorldJapan &ChinaLeveraging land resources for development (de Soto, 2001) “The Western World successfully revolutionized their legal systems, property laws, and developed the modern corporation that led to high living standards” “Japan and China instituted private property laws and business reforms resulting in economic development and growth of the middle classes” “ Assets in the hands of the poor in Europe, Latin America and Asia are estimated to be about US$9trillion” “Africa has a large and rapidly growing informal residential property market” however there is very little literature on informal residential market in Africa and SA in particular.The demand for an inclusive economic participation by the poor is a global phenomenon
7The City of Johannesburg (CoJ) 1. Introduction Cont.The City of Johannesburg (CoJ)Three developmental states of residential market in the CoJ where the assets exist in many forms:Stage 1: DEAD CAPITALHousing assets that are only used for shelterStage 2: HYBRID (DORMANT/SLEEPING) CAPITALHousing assets that are used for shelter and to supplement income for subsistence. The income derived from rentals is used to support the households and keep them just above the poverty line.Stage 3: LIVE CAPITALWhen housing assets are used for other purposes beyond shelter and subsistence, such as financing enterprise development. The sources of credit for this come from both formal and informal financial sectors.
8Formal residential houses – Soweto Figure 1: Types of housing settlements in CoJFormal residential houses – SowetoThe changing face of black residential market in CoJ
9Figure 2: Residential flats in the CBD – Hybrid residential market Mixed use flat, Low income group flat and gentrified flats in Hillbrow
10Figure 3: Types of housing settlements in CoJ Alexandra near Sandton City JohannesburgHow do the poor respond to the urban environments
112. Methods2.1 Study area: Black residential areas in the City of Johannesburg (Black & Coloured) 2.2 Sources of data a) Secondary: The CoJ Valuation Register Roll update 2004 Stats SA -Censuses, LCS, IES and Poverty Measurement b) Primary data – 1100 DU from 33 sub-place names 2.3 Analysis Qualitative and quantitative methods
13Figure 5: City of Johannesburg - Settlement types Source: Stats SA, Census 2011 results 2012
14Figure 6: The location of black residential areas in the CoJ relative to the CBD
153. Approaches to property markets valuation Different methods for formal and informal property valuationUSA -uses the Cost, the Sales Comparison and the Income approaches.The United Kingdom uses Comparative, Investment, Residual Profit and Cost methodsGermany according to Schulz (2002) Net Present Value (NPV) and Capitalization methodOther approaches especially in mass appraisals of homogeneous settlements are Automated Valuation Models (AVM) that uses statistical models such as multiple regression analysis or geographical information systems. AVM may not be appropriate for estimation of property values in informal settlements because they are heterogeneous in terms of plot sizes, dwelling unit sizes and construction material used.The formal marketa) NPV is the ratio of benefit to cost, derived by subtracting costs from benefits in money terms. Usually used for capital investments and less so in real estate investments.Where: C0 = Initial investmentC = Cash flowr = Discounted rateT = TimeCost capitalization method uses a calculated rate to determine current value of property based on income.CR = expressed as a ratio or percentagewhere CR is cost capitalization ratesale price is the most recent sold price of a propertyNet income is rental income less expenses
163. Approaches to property markets valuation cont. c) Owner valuation method for informal property market & poverty estimates The Informal market valuationSteps in calculating dead capitali) Average CoJ Registrar Roll value (A) =Average owner estimated value (B) =Establish the extend of the difference between average value of property and average annual income (C) = (A)-(B)Determine % difference (D) = (C)/(A)Absolute value of differences (E)Absolute value of differences as a % of mean Register value(F) = (E)/(A)Pearson correlation coefficientSample size (N) for all settlement typesDead capital Q = E x the number of DUsNoteCalculate the vale according to settlement type
174. The City of Johannesburg in brief Biggest city in SA with people (37.5% of Gauteng)Area = 1645km2Most densely populated city in SA at 2696people /Km2 (all) however for blacks the pop. density is people/km2Economic hub of South Africa contributing the biggest share of Gauteng’s 36.4% GDP130 wards of which 82 are mainly black residential areas Occupying 352km2 (20.4%) of the CoJ’s 1645km2 land mass.Majority of black people resides >20km away from the CBD. Only a small percentage stay in CBD1 434 856 households - 1 in formal residential areas and in the informal residential areas.Blacks and coloured households make up 81.3% ( ) & the average household size is 3.18peopleNo. of DUs in formal backyards ( formal structures & Informal )BlackcolouredIndian/AsianwhiteOtherTotal21642037 69676.4%5.58%4.88%12.28%0.85%100%
185. ResultsQualitativeCoJ a classical apartheid cityNo transformation in settlement patterns in the CoJ.Blacks still stay on the periphery of the city - poorly serviced areas in some parts.Almost every former apartheid era house in Soweto has been upgradedMixed social classes coexist in harmony in black areas as illustrated below.
19Figure 7: Mixed social class housing in Soweto 5. Results cont.Figure 7: Mixed social class housing in SowetoUpper middle class houseApartheid era house not upgraded but with a new perimeter wallLower middle class houseEntire street with middle class housesHigh income group houseApartheid era government houses in Mapetla SOWETO
205. Results cont.Qualitative resultsLegal framework - a mixture of both de juro and de factoPolitical support for the urban poor is strongDistance from the CBD residential areas are located > 20km form CBDSettlement types- Formal and informal, single sex hostels and in the formal areas there is mixed social classes in all areas, informal houses in both formal and informal settlementsCharacteristics of houses- Same size of stands, same valuation by CoJ regardless of upgrades and backyard structureEconomic activitiesIncome levels are lowEconomic structure dominated by informal sector mainly trading in food staff and soft goods; property rentals; construction; services, metal works and transport (taxis)Transport systemEnvironmental careSOWETO is surrounded by mine dumps that release a lot of dust to residential – high prevalence of Asthma and respiratory diseasesSporadic green parks and public gardens in the formal areas and none in the informal.
21Figure 8: Settlement type by race in City of Johannesburg 5. Results cont.Quantitative resultsFigure 8: Settlement type by race in City of Johannesburg
22Figure 9: Household tenure status for Blacks and coloureds Source: Census 2011 results
235. Quantitative resultsTable 1: Average valuations by settlement type Table 2: Summary statisticsSettlement typeRange of the Register Roll Valuation(R’ )Ave. Register Roll valuation (R’)Range owner’s valuation (R’)Ave. owner’s valuation (R’)Ave. owners rent value p.m. (R)Ave. No. backyard DUs per standFormal houses80000 toto2 300R300/unitFlats80000 totoRPD houses0 to75 0001 200R300/unitSlum/ Alex0 to 1 Data is not consistent therefore cannot be used25Informal2100 to 125006 000300R150/unitSettlement typeNo. of DUs(A)(B)(C)(D)(E) =(E1 +E2)Formal-121.5(E1 )192000Informal6 000-6 000(E2) 6 000
245. Results cont.To estimate the value of dead capital in CoJ the absolute value of the difference (E) is multiplied by the number of households that are not participating in the formal property market.Let (R) be number of informal DUs =(S) = 230 872 be the number of formal DUs that are Owned but not yet paid off (meaning they are bonded) and(T) = be the number of formal households not participating in the formal property market less backyard DUswhere the No. of formal DUs in the backyard =and the no. of informal DUs backyard =therefore T = =E1 = The absolute value of the difference for the formal houses andE2 = the absolute value for the informal houses (stands) ThenThe total number of DUs that form dead capital are (P) = (R) + (T)==Where (q1) is the value for the formal housing (q1) = (E1) x (T), which is= R x= R90.323trillionand(q2) is the value of the informal housing (q2) = (E2) x (R), which is= R6 000 x= R0.748 billionTherefore(Q) The value of dead capital = (q!) + (q2)= R0.748billion + R90.323trillion= R91.071trillion
256. Analysis of ResultsBlack residential areas most compacted >10 000people /sq.kmHigh rental stock – rental market vibrant (44.3%) stay in rented DUsThere is security of tenure in black areas both de jure and de facto yet poverty levels remain highAssets held by blacks are undervalued by authorities and the marketParticipation of blacks in formal property market remain low (20%)Information asymmetry is one of the factors contributing to market distortionInformal housing -The property and rental values of the structures are underestimated by owners. Prices covered only construction material thus excluding labour cost, land, services provided.Alexandra is a slum proximal to one of the most prime areas in the CoJ. With huge potential to be transformed into a high market residential area for blacks provided they do it for themselves.
267. Challenges in measuring dead capital in the CoJ Gaps in literatureLack of direct measurements of dead capital.The form of SA cities - the legacy of apartheid and lack of transformation in land use.Complexity of the informal residential sector and emerging global issues beyond. formalization- inclusivity, consultative, and participation in decision making .The asymmetry of information.Unavailability of data at small areas’ level.The continuous flux of the informal sector.
278. ConclusionDead capital - storage of value and wealth for the poor in JHB, GP and SAPoverty in CoJ is much lower than other parts of the countryThe current economic model remains the main stumbling block in unlocking potential for HIDs to prosperThe Western world system’s failure to fully understand and recognise the operations of social systems and economic dynamics in the developing world has locked out of the main stream economy the value of assets that are in the hands of the poor. As de Soto (2001) puts it:“extending the benefits of the market economy to those living in the informal world will require an understanding of the underlying causes of informality in order for nations to adopt comprehensive and inclusive policies”From dead capital to live Capital Capitalizing the assets and resources that are in the hands of the poor can unshackle the urban poor from the chains of poverty.
28From dead capital to live capital 8. Conclusion cont.From dead capital to live capitalFormalization of tenureAlternative legal system that combines the African land tenure system (traditional/customary law) with the Western world property law.Institutional transformationSocial capital developmental approach to poverty reductionEnvironmental protection for sustainable development.Developing credit facilities for informal property marketWhat is the situation in the Free State?From dead capital to live Capital
29Mangaung Metropolitan Municipality Source: N. Chobokoane ISIbalo presentation
30Source: N. Chobokoane ISIbalo presentation CompactnessCompactness – 0.13;Bloemfontein central is relatively compact compared to some of the areas around it such as oranjesg, Hilton, Aboretum and willows. However, it is less compact than Wesdene and ButesigThe side of the airport less compact and some of these areas next to Fichard Park, fauna,Pellesier and hospital park and around dan pienar, heuwelsig, pentagon park, Helicon heights and hilsboro;Large scale developments: North east of rudolph greyling between rail line and N8; between grasslands and Bloemsprut farms and east of meadows street; laurie park area; kwaggafontein and cecilia area; pentagon park on both sides of Builfontein road up to the N1; around reynecke avenue between Tempe,N1 and frans kleinhansSource: N. Chobokoane ISIbalo presentation
31Source: N. Chobokoane ISIbalo presentation DensityThe southern parts of the CBD are generally dense with an exception of SPs; old townships are denser that the areas which used to be small holdings, because informal settlements and were later formalised.Lowest density – small holdings and farms-spitskop, Groenvlei etcSource: N. Chobokoane ISIbalo presentation
33ReferencesDe Soto, H. (2000) The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. 1st Ed. New York Books. Pp20-80.Samson, S.A. (2004) HERNANDO DE SOTO: CITADELS OF DEAD CAPITAL, STUDY GUIDE, Accessed 08/07/2012.UNHABITAT, Report 2/2012, Designing a land records system for the poor.Rakodi, C (1992) Housing Markets in the Third World Cities: Research Policy into 1990s. World Development, Vol. 20. No. 1 ppDurand-Lasserve, A. and Selod, Harris (2007) The formalisation of urban land tenure in developing countries. World Bank’s 2007 Urban Research Symposium, May 14-16, Washington DC.Statistics South Africa’s several releases:Census 2011, (2012)Measuring poverty in South Africa: Poverty lines for statistical reporting. Technical Report. November, 2008.Income and Expenditure of Households 2010/2011. (6 November, 2012)Living Conditions of Household in South Africa 2008/2009. (2011)