The era of government crafting wonderful policies promising to transform the property sector in order to facilitate the entry of more black players and women and then doing very little to implement those policies is over. It’s time to act. Otherwise, the property industry will continue to fail to reflect the country’s demographics 20 years into democracy and beyond.
This is the strong message Thomas Matlala, SAIBPP president, is taking to the SAIBPP’s one-day conference at Turbine Hall, Newtown, Johannesburg, on November 6. It’s a sentiment shared by all within his organisation and black property professionals and owners. The conference’s theme is “property transformation 20 years after democracy”. Matlala speaks from experience, having witnessed efforts to transform the property industry in the past 20 years. Those efforts have had mild results. While a Property Charter has been in place since 2007, binding property industry players to facilitate transformation, most black practitioners bemoan the slow pace of transformation in general in the real estate industry, which includes commercial and residential, estimated to be worth more than R4.9-trillion.
SAIBPP, a membership organisation formed in 1996 to represent the aspirations of black property practitioners and owners, puts the blame squarely on government’s door. The organisation believes that government, as represented by the Department of Public Works, has the immense power to effect change – if only policies could be implemented properly and a broader vision of job creation and empowerment of those previously excluded to participate in the property industry is adhered to. “South Africa has the best empowerment policies in the world. All it simply needs to do is master implementation and enforcement,” says Matlala.
SAIBPP’s mission to change the face of an industry that traditionally had a few significant black players. Historically, black people were prohibited from
owning commercial property and could lease residential property only in townships and not in formerly white suburbs. Property ownership is universally seen as the main enabler of wealth creation for nations. The exclusion of black people in owning property has resulted in a massive wealth gap in South Africa. The country has the highest Gini coefficient rate in the world with property and land ownership heavily skewed as a result of the apartheid policy of excluding black
people from fully participating in the economy.
Even though the country had a new political dispensation and empowerment was uppermost in the government’s agenda, the property industry remained largely
untransformed. Why was that? “First of all, the property needs deep pockets. Secondly, the barrier to entry is high,” says Matlala, who was elected president in 2011, replacing Kgaogelo Mamabolo.
Matlala says the push for change is made up of two objectives: “The first objective is to have greater black representation in property businesses,” he says. “The second one is to create black-owned businesses in the property industry. If we leave current property players as they are and only pine for black representation there is no guarantee that those representing the aspirations of black players within these companies will be conscientised enough to realise the need for these companies to change. We have seen it in the past. People would buy stakes in property companies, sit on the board and nothing would change.”
The government comes into the picture of transforming the property sector because it is “the biggest landlord and tenant”. It has stock worth hundreds of millions of rands that it can either sell to black property practitioners or lease buildings owned by black-owned companies. At the moment government offers three-year leases, with a 5% escalation per annum, to property companies. In 2006, heeding calls for transformation by SAIBPP, the Department of Public Works (DPW) took a bold step of entering into 10-year lease agreements with empowered companies. It was a boon for emerging black property practitioners, just what everyone had long been calling for. “Within three years about R13bn worth of black property companies were created,” says Matlala.
Then came the much-published Roux Shabangu saga and coupled with DPW’s maladministration and corruption by both department’s officials and some unscrupulous private property owners and the wheels came off. To bolster its governance and avoid the repeat of mistakes, the DPW, following a Treasury’s directive, cut leases from 10 years to three. Instantly, transformation gains were reversed and confusion was sowed in the industry. Matlala feels reducing the lease term was erroneous. “Yes, it was necessary to deal with corruption, but it must be remembered that it was government’s fault; it implemented its own policy badly,” says Matlala. “Just because there were problems with one deal there was no need to scrap a policy that was otherwise working fine. You don’t cut your hand just because you have a mosquito bite on your finger.
Matlala government could play a meaningful role if the Minister of Public Works could receive informed advice about the fundamentals of the property industry. “The problem is when a person advising the minister doesn’t understand property issues well. As they say, little knowledge is very dangerous,” says Matlala. He cites the current three-year leases, with their 5% yearly escalation, as a typical example of faulty reasoning. “With inflation sitting at 6%, this arrangement means that whoever owns that property is losing money every year. It means the owner is financing the government to be in that property since someone has to pay that extra 1%.
In simple terms, the current policy means as a landlord to government your rental escalation at 5% is below inflation. If you are an empowerment player, you won’t be able to sustain that because you don’t have the money. You will have to retrench people because you are financing the government to be in your properties. Only someone who doesn’t understand property could have given that kind of advice.
In general, I don’t think the government wishes to ensure that empowerment companies fail.” Matlala says any erroneous advice at departmental level is costly to the broader society, not just black companies that are immediately affected: “If as a property practitioner you make losses, it means you won’t be able to pay tax as well as you should, meaning less money to the South African Revenue Service and less money for government to build schools, hospitals and roads. That is why the skills set of people advising the minister is very important. Mistakes affect the whole value chain of the country’s economy.”
Regardless of the instances of bumpy implementation, SAIBPP firmly believes in working with the government to change the landscape of the property industry. Matlala sees nothing wrong with SAIBPP relying so much on government support to transform the sector. “Economies that have grown from the kind of past we have included government assistance. The Chinese government sets the economic agenda.
Between 1970 and 1990, it turned an agrarian economy into a highly industrialised one and is now the second biggest economy in the world. Similar government interventions have happened in Malaysia and Brazil,” says Matlala. “We had the same situation here in South Africa when the Nationalist government drove measures to economically uplift the poor Afrikaners. Some of the big companies today started out as suppliers to government and had exclusive contracts with the government. As a result, the Afrikaners’ economic wellbeing was transformed and they became part of the mainstream economy. There’s no reason we can’t do the same for emerging black players.”
In practical terms, though, how can government flex its muscle to effect transformation in the property industry? “Growth point, the biggest listed property company, has R80bn worth of properties. Government, on the other hand, has R450bn worth of properties, about six times the size of Growthpoint. Six major black companies can be created from these properties. That just shows how big the market is. We just need to think outside the box,” says Matlala.
Government intervention could also create a push for established corporates to take transformation more seriously. “Once government intervenes, your typical CEO or chairman and the board will be able to realise that they have two imperatives – make money and comply with the law,” says Matlala. He points out that transformation is linked to black economic empowerment, which, in turn, benefits the entire economy of the country. “The first benefit of black economic empowerment is that the money will remain in the country because the companies are South African-owned and this will help with the country’s balance of payment. Secondly, it means the skills remain in the country. Thirdly, we can be able to employ more people. So, black economic empowerment helps to create a stable economy and make the country work. Black economic empowerment is crucial; it is not a nice thing to have. It’s a must-have.”
In its advocacy for transformation, SAIBPP benefits from working closely with other like-minded black groupings. “We are the founding members of the Black Business Council. We are one of the six office bearers of the Council,” says Matlala. “Synergies with organisations such as the Black Management Forum and the Black Lawyers Association assist us to get a better understanding and a broader view of the issues in the country.”
He says the government’s much-publicised idea of creating 100 industrialists in the next few years to radically transform the economy dovetails with SAIBPP’s standpoint on the need to create many black-owned companies. “If government’s plan were to extend to the property sector, SAIBPP would be more than willing to provide advice to government on how bigger black-led property companies could be created”, says Matlala. “Our tax base will increase. More jobs would be created.
The government can collect more revenue to fund infrastructure development projects. That is why we say the government simply needs to implement. No more policy discussions. The only discussion SAIBPP would like to be engaged in is on how the policies we have had in the past 20 years are going to be implemented in the next 20 years. The National Development Plan, for example, is an implementation document.”
How does he see the prospects of transformation in the property industry in the coming years and SAIBPP’s role? “We promise our members that in the next five years we’ll push the government to implement its own policies. It’s time for action,” says Matlala.
While a lot is yet to be done, Matlala is pleased with some key milestones in the property industry over the past 20 years. “When we started, there were probably less than 10 of us. Now when you go to meetings, you get a room full of people. So we have been able to get our people into the industry,” he says. “Secondly, some of our members fly high in the corporate world where they should have been all along had the market been open to them at the time.
Thirdly, crafting the Property Charter, a second Charter after the mining one, and seeing that succeeding after all these years. Fourthly, being able to finance students at university who will be the next leaders in the industry and hopefully members of SAIBPP. Lastly, it has also been gratifying to see the emergence of black-owned property companies that have since grown bigger. You have some high-powered executives who in the early days were executive members of SAIBPP. There is no property company that has not been touched by SAIBPP one way or the other. That fills us with pride.”
As SAIBPP president, Matlala’s abilities to lead from the front, to amplify the rallying cry of transformation, are in no doubt. His deputy at SAIBPP, Nkuli Bogopa, describes him as having an “action-orientated leadership”, someone with “great networks and this assists in maintaining the high profile of the organisation. He is open to ideas and input from the board.” Felicia Sao, another SAIBPP board member, says Matlala “is very detail-orientated” and is always willing to provide leadership to a board consisting largely of young members.
Oarona Khama, a property practitioner and former president of SAIBPP, remembers Matlala’s early days in the property industry. In 1994, the two met as trainees at JHI Properties (both studied at Wits University). “At JHI, we sat side by side as we learned about property management and property brooking (selling and renting commercial property). Together, we walked the streets of Johannesburg identifying opportunities for letting. Thomas’s passion for deal-making was unmistakable. I knew then that he was destined for great things,” says Khama. “Thomas has great people’s skills, a requisite for a leader and he continues to steer SAIBPP in the right direction, especially on issues of transformation.”
