Eskom has property in turmoil

Eskom's denial yesterday that it had threatened to block applications for power for new property developments was followed by the statement that applications would still be processed, but would take four to six months to do so.

"This latest shock has the property industry in turmoil," says Richard Gahagan, MD of Property24, "and it could have far-reaching consequences for both the residential and commercial markets."

Andrew Etzinger, Eskom's general manager of resources and investment strategies clarified that the strategy applied effectively to industry, as it was relevant mostly to projects requiring upwards of 100 kva.

"However, the question remains as to whether this could impact larger residential developments," says Gahagan. "If we find it does apply to new complexes and estates, then the developers will need to be able to give assurance to off-plan buyers that the home they are paying for will be ready on time, and will have the power supplies that are specified in the documentation."

"If the developer then experiences delays in obtaining electricity, this could push out the date of occupation substantially and put the buyer in the untenable position where he has sold his previous home and may temporarily have nowhere to stay."

"At a time when both the government and the industry have made commitments to the delivery of affordable housing stock for the emerging market, this announcement is highly discouraging as much of this stock will be supplied in large developments," says Gahagan.

In terms of industrial construction, commercial property is currently enjoying an investment boom that began as the residential bubble deflated. This is helping to sustain the property market overall as well as creating employment, and the power crisis could cause a slowdown that will affect not only the construction of all new properties but the employment of thousands in the construction sector as well as business in general.

Tony Stott, a senior manager at Eskom, told Beeld newspaper that the delay period would be applicable to all big developments in Eskom service areas countrywide. "We don't want to kill growth but we definitely don't have enough power for 9% growth in Johannesburg anymore," said Stott.

Eskom will still have to fulfil the requirements for all projects to which it has bound itself until the middle of February. However, Gahagan is skeptical of the power giant's ability to do this.

"There could conceivably be developments that have sold all their units and have put in their applications for power but which have not yet been granted," he says. "Where will they stand in this situation? The project won't yet fall under the category of an Eskom commitment but the units will have been sold and the prices paid probably don't cater for the installation of alternative power sources."

Lina Estate, a new development on Johannesburg's West Rand that launched last week, is one of the first complexes to publicise a commitment to offering alternative power sources to buyers.

And in terms of employment? Mike Schussler, an economist from T-Sec, has said that the decision could significantly limit economic growth. "Job creation is going to take a severe knock. Fourteen guys that could've been employed at a new petrol station are now going to remain unemployed for longer."

Schussler said he believed that the four- to six-month time period was merely an indication and that he expected it to take longer than this.

In real terms, the delays – whether industrial or residential – will result in a hold-up in the delivery of properties to the market, and Gahagan says that this "could effectively spell the end of any property investment boom." – Tracey Sandilands

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