State to blame for highly inflated Public Works leases - Redefine

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BR Redefine 2762 Independent Newspapers One of Redefine's buildings in Braamfontein, Johannesburg. The property company says Public Works is paying far too much to lease some buildings because of corrupt civil servants. Photo: Simphiwe Mbokazi

Johannesburg - The government, not commercial property owners, was to blame for corrupt leases entered into by the Department of Public Works, Redefine Properties has claimed.

Marc Wainer, the chief executive of the listed property group, said that monthly rentals for its B-grade Pretoria office portfolio were between R70 and R90 a square metre, which was market related, but the government was “being nailed in terms of corruption” where it was paying between R140 and R150 a square metre for the same quality buildings.

“We have had instances where we could not get a lease renewed at R75 to R80 a square metre and sell it on to a BEE [black economic empowerment] guy and he gets R130 or R140 a square metre.

“Who is nailing the government? They are nailing themselves,” he said at a presentation on the company’s interim financial results last week.

Wainer did not understand how the department could enter into such inflated lease agreements. He said that it should be easy for it to have a list indicating that B-grade properties in Pretoria’s central business district ranged between R70 and R90 a square metre.

“How does anybody pass a lease at R120 to R130 a square metre when you could get it [a list] area by area of what the rents should be in a band?”

He said Finance Minister Pravin Gordhan was wrong to paint the whole property industry with the same brush in his criticism during his February Budget speech because it was untrue. Gordhan asked the property industry: “Why aren’t you honest in the deals you make with government?”

He said the Public Works Department’s initiative to review the validity and cost effectiveness of all government property leases had exposed several deficiencies.

These included space that was unoccupied but paid for; space occupied by non-governmental entities; discrepancies between the space occupied and what was paid for; marked divergences from market rates; procurement through inappropriate non-competitive procedures; missing or invalid lease agreements; and unsubstantiated payments to landlords.

Neil Gopal, the chief executive of the SA Property Owners Association (Sapoa), said at the time that this attack on the industry was “unwarranted and unfortunate”, adding that many issues stemmed from the government’s own inefficiency and mismanagement.

He believed that the alleged high rentals might be due to collusion between some landlords and civil servants who had become exasperated by the department’s property management strategy, a BEE job creation and poverty alleviation policy, which had limited fair market competition.

The department’s unwillingness to engage with large listed and institutional property owners added to this problem, he said.

Gopal said Sapoa approved of and applauded the investigation by the National Treasury and other authorities into suspicious leases. He called on Public Works Minister Thulas Nxesi to make public the external auditors’ report on the leasing scandal and expose those involved, both from the private and public sectors. - Business Report


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