1 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

Presentation Outline 2 1. Project Brief2. Study Areas3. Limitations of the Study4. Project Approach and Methodology5. Cost Comparison : Findings6. Municipal Challenges and Constraints7. Property Developer Surveys8. Summary of the Study9. Recommendations10. Way Forward

Project Brief 3 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. 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.

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. 4

Sampling/Municipal Selection 5

Overall Methodology A. Municipal Cost Assessment Findings ObservationsRecommendations B. Municipal Capacity Surveys C. Developer Experience Surveys 6 Study comprised of three components: A.Municipal Cost Assessment B.Municipal Capacity Surveys C.Developer Surveys

A. Municipal Service Cost 1.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 7. Consult with Municipalities to analyse and understand outliers a) Identify cost indicators to be studied b) Develop appropriate & standardised scenarios Main Respondent Groups Town planning departments Budget department Call centre Engineering departments

Development Scenarios Type of DevelopmentDescription 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 m²) 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 Fees9. Sewerage Consumption Charges 2. Zoning and Re-Zoning Fees10. Refuse Consumption Charges 3. Township Establishment Fees11. Electricity Consumption Charges 4. Subdivision Fees12. Vacant Land Rates 5. Building Plan Fees13. Property Rates 6. Sewerage Connection Fees14. Property Rebates 7. Electricity Connection Fees15. Surcharges 8. Water Consumption Charges Development Cost Components 8

B. Municipal Capacity Surveys 1.Finalise Reference Framework 2. Telephonic and questionnaire 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 9 Main Respondent Groups Head Engineers Head Town Planners *or respondents designated by department heads. a) Develop focussed questionnaires b) Identify representative departments and contact person for each Municipality

C. Developer Surveys 1.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 10 a) Develop focussed questionnaires b) Develop online survey platform Main Respondent Groups Property Owners Developers Lease Brokers Property Management Companies

Study Limitations 1. Insufficient financial capacity and timeframe to cover all municipalities in South Africa2. 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 11

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 12

Zoning & Re-zoning tariffs 13

Zoning & Re-zoning tariffs 14

Zoning & Re-zoning tariffs 15

Rebated Property Rates 16 ResidentialRetailCommercialIndustrial Johannesburg , , Tshwane , , Ekurhuleni , Cape Town , Msunduzi , , Nelson Mandela Bay , Buffalo City , Mangaung , , Ethekwini , ,

Rebated Property Rates 17 ResidentialRetailCommercialIndustrial Mogale City Emfuleni George Mbombela Emalahleni Polokwane Sol Plaatjie Khara Hais Rustenburg

Property Rates 18

Property Rates 19

Subdivision 20

Building Fees 21 ResidentialRetailCommercialIndustrial Johannesburg Tshwane Ekurhuleni Cape Town Msunduzi Nelson Mandela Bay Buffalo City Mangaung Ethekwini

Building Fees 22 ResidentialRetailCommercialIndustrial Mogale City Emfuleni George Mbombela Emalahleni Polokwane Sol Plaatjie Khara Hais Rustenburg

Township establishment 23 ResidentialRetailCommercialIndustrial Johannesburg4209 Tshwane Ekurhuleni5375 Cape Townn/a Msunduzin/a Nelson Mandela Bay2280 Buffalo Cityn/a Mangaung Ethekwini

Township establishment 24 ResidentialRetailCommercialIndustrial Mogale City6676 Emfuleni5295 Georgen/a Mbombela9985 Emalahleni4218 Polokwane6794 Sol Plaatjien/a Khara Hais Rustenburg6050

Water connection 25 ResidentialRetailCommercialIndustrial Johannesburg Tshwane Ekurhuleni Cape Town Msunduzi Nelson Mandela Bay Buffalo City Mangaungquotation Ethekwiniquotation

Water connection 26 ResidentialRetailCommercialIndustrial Mogale Cityquotation Emfuleni George135840quotation Mbombela Emalahleni2537 Polokwane8948quotation Sol Plaatjie Khara Hais Rustenburg

Vacant Land 27 ResidentialRetailCommercialIndustrial Johannesburg Tshwane Ekurhuleni Cape Town Msunduzi Nelson Mandela Bay Buffalo City Mangaung Ethekwini

Vacant Land 28 ResidentialRetailCommercialIndustrial Mogale City Emfuleni George Mbombela Emalahleni Polokwane Sol Plaatjie Khara Hais Rustenburg

Electricity Consumption 29 ResidentialRetailCommercialIndustrial Johannesburg Tshwane Ekurhuleni Cape Town Msunduzi Nelson Mandela Bay Buffalo City Mangaung Ethekwini

Electricity Consumption 30 ResidentialRetailCommercialIndustrial Johannesburg Tshwane Ekurhuleni Cape Town Msunduzi Nelson Mandela Bay Buffalo City Mangaung Ethekwini

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 31

Way Forward 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.