Using government owned property assets to stimulate economic growth

During the lead up last week to the international ratings agencies decision to keep South Africa within the investment grade community or relegate us to the back benchers of global capital markets, a lot was talked about in the media. Interestingly, nothing very positive.

There was mostly speculation of whether or not South Africa would be downgraded, the consequences of a down grade and importantly what the future will hold if we are downgraded. This comes off the back of trifling optimism about the ability of our political leadership to demonstrate concrete results when it comes to economic policies delivering tangible growth.

Can the South African Government steer the economy out of turbulent waters and set sail on a course to sustainable growth?

My personal opinion is yes they can. The key to my optimism is an understanding of the incredible wealth of property assets belonging to Government.

The property assets held by Government, at all levels, are mind bogglingly vast and varied. Across all spheres of Government, the property holdings vary from massive tracks of land in our air and sea ports, warehousing in our sea ports, handling facilities in our airports, key buildings in every CBD across the country, servitudes, water works, roads, railways, historical buildings, farm lands, military buildings, nature reserves, game parks, hospitality establishments, industrial estates, shopping centres, schools, hospitals, clinics, police stations, courts, housing and the list goes on and on. 

A critical ingredient in any plan to increase revenue and stimulate economic growth would be the most effective utilisation of your existing assets, of which property is critical.

The sad reality is that many publically owned properties are poorly maintained and underutilised. It is my experience that Government allows a situation whereby properties deteriorate and remain vandalised and vacant instead of selling them or reinvesting in them to generate an income.

The custodian of a sizable portfolio of Government property assets (also referred to as immovable infrastructure assets) is the Department of Public works. Interestingly, their “National Infrastructure Maintenance Strategy” was written in 2006.

The problem identified ten years ago is best summarised as “ Despite the good performance in some sectors, there is strong evidence that in other sectors much of the infrastructure, of both pre- and post-1994 vintage, is not being properly maintained. Older infrastructure is often not being refurbished and renewed when it needs to be, and there is inadequate planned preventative maintenance on new infrastructure”.

The crux of the matter is “If the appropriate infrastructure services have been provided, and these services are effectively managed, they promote economic growth, equity, sustainable development and job creation”.

The fact that a hospital is in a bad state of disrepair is a health risk to the patients and the doctors and nurses who work there. It is a wasted resource and reduces the ability of the community to access health care services that will improve productivity and ultimately economic growth.

The examples of neglected government owned property are endless. I would like to use just one small example to demonstrate a tangible solution rather than just focus on the negative.

There is a government owned block of flats in Durban on 97 Ridge Road which is a prime upmarket residential area known as the Berea. This block of flats is at least 12 stories high with approximately 14 flats per floor. This is an estimated total of 168 flats. The building is currently vacant, vandalised and derelict and has been in this condition for a long time.

Assuming the flats are all 2 bedroom they could attract a rental income of R8000 per month each. This would yield a total gross monthly income of R1 344 000. Some of this money must be used to pay the rates and taxes, upkeep of the building, gardening and security. Assuming 30% of the gross income is required for this the net monthly income from the building would be R940 800.

The reality is so sad that the government is losing R940 000 every month from just one example of neglect.

The simple conclusion is that this building should be sold or refurbished with immediate effect. If sold, it should be via public auction which is the most transparent method of sales. If refurbished it should be placed in a listed government property fund and managed in exactly the same way as any private sector property fund with one fundamental difference, the citizens of South Africa will be the ultimate beneficiaries of the income generated.

The Government under the leadership of the National Treasury should set up a listed property fund and begin to directly contribute towards economic growth via the property sector. The Government could generate billions of Rands in additional income if it utilised its existing property assets in the same way as the private sector would. This would greatly improve our economic prospects and at the same time fulfil many socio economic goals.