Infrastructure Crisis Hits Property

As some Johannesburg residents and business owners count the cost of electricity outages and prepare to sue for lost income, there are some broader implications of South Africa's groaning infrastructure for investors in general.

Eskom has been called all sorts of names, usually ironic and mostly unkind, and disaster stories of blackouts abound in the media.

The cost to the South African economy of the generally deteriorating national power supply, and inefficiencies because of poor infrastructure, is estimated to be between a massive R2,9 billion and R8,6 billion annually. In addition, the maintenance backlog has been put at R5 billion according to the annual report of the accelerated and shared growth initiative (Asgisa). Consumers throughout the country have been warned of "darker days to come" as municipalities on a national scale are lagging in terms of technical asset management.

For building developers, the implications are clear. They will need to include back-up generators as a matter of principle in all their new projects.

But it's not only power that needs to be considered. If the doomsayers are right, water reservoirs will have to be incorporated into new buildings. Tenants are also emerging who demand that backup generators be written into their lease agreements. This is probably just the beginning of a trend, with such requests likely to be on the increase.

It is already very common that the development of road and transport networks is necessary for a new property project to receive planning permission. Other infrastructure could become a necessity too.

This is expected to raise the cost of owning and developing property. Not only will development costs be affected, but running costs too. This is compounding the problems that the industry already faces, namely skills shortages, a lack of materials and delays in council planning permission and zoning applications.

Councils, already struggling with approval times due to a lack of resources, are restricting additional rezoning until the required infrastructure is in place. For this reason, certain areas already have a moratorium on further development.

The infrastructure crisis will also impact negatively on property owners via turnover clauses. If a lease includes a turnover clause, property owners will suffer along with their tenants. In the recent outage in Bedfordview, the loss of business has been estimated to run into millions, which may also mean lost revenue for the owners.

Perhaps the most worrying aspect of this is the fact that there is no quick fix. Any solution to South Africa's problems will take years to achieve. The lead time for new power stations and for raising capacity and improving delivery is upwards of five years; it is not simply a matter of laying new cables. – Kara Michaels

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