Johannesburg - Office property landlords are concerned by the government’s continued restriction on the rental escalation rate in contracts secured with the Public Works Department, according to the SA Property Owners Association (Sapoa).
This follows the Treasury issuing a directive in 2014 that capped rental escalations at a maximum of 5.5 percent a year.
The Treasury claimed at the time that the directive was prompted by the high rentals charged on Public Works Department leases by unscrupulous landlords.
Nomzamo Radebe, the president of Sapoa, said this week that the directive had been extended and was creating challenges for the commercial property sector.
“You can’t apply that to all properties in all locations. There still needs to be a deeper understanding around the fact that each property has its own characteristics and market rentals will differ in the property market,” she said.
Radebe said this was an issue major property owners and Sapoa members would like to engage on with government. An important engagement on office rental rates and escalations was expected to take place with government within the next two weeks, she said.
The Public Works Department adopted an informal policy of only granting long-term government leases to empowered companies and short-term leases to other landlords, resulting in a number of listed property companies selling their government office portfolio.
For example, listed Redefine Properties last year agreed to sell about 60 percent of its “troublesome” government tenanted offices portfolio to Delta Property Fund for R1.25 billion.
Radebe admitted that this policy had resulted in some transformation in the commercial property industry.
However, she stressed that transformation was not happening at the right pace and only happening “at a moderate pace”.
“I’d like to see more transformation in and around ownership, which requires funding.
“For someone to be in a position of significant influence, they need to have a lot more capital to buy something significant.”
Catch 22
Radebe said: “It becomes a bit of a Catch-22 situation because there aren’t many people who can raise the funding to be able to buy to get a significant stake, so I think its going to take some time.”
She added that there were a lot more people of colour that were in executive positions, “but it’s not nearly enough”.
Radebe has set herself a number of targets for her one-year term as Sapoa president. She said she would like to increase the number of people benefiting from Sapoa’s bursary fund, ensure that Sapoa’s education offering was still relevant, continue and build on the relationship Sapoa had established with the various mayors and municipalities and form a closer relationship with some of the regulators, such as the Estate Agency Affairs Board (EAAB).
Radebe said Sapoa’s bursary fund was established about five years ago and 77 people were being taken through the programme, while 27 had already graduated.
She wanted to focus on the relationship with mayors and municipalities because property rates were an important source of revenue to municipalities, which was also an important issue to property owners.
In regard to the EAAB, Radebe said she wanted to ensure the interests of the board were aligned with the commercial property sector.
BUSINESS REPORT