JOHANNESBURG – Growthpoint executive director, Estienne de Klerk, says the recently-gazetted property charter does level the playing field but it remains to be seen if the Department of Public Works (DPW) will honour its requirements.
The charter was initially signed by the industry in 2006 but was only gazetted in June, providing a framework and principles upon which black economic empowerment (BEE) should be implemented in the sector.
Growthpoint is the largest listed South African property company on the JSE with a market capitalisation of over R39bn and currently has a BEE rating of level three.
De Klerk says what differentiates the property sector from others is the number of institutional investors in listed property companies which are basically “colourless”. “The bulk of investors are managed unit trust funds and pension fund money, for example government’s employee pension fund. We have little control over who is buying and selling these shares.”
De Klerk says there are companies by virtue of this that have many more BEE shareholders than direct white ones. Growthpoint’s BEE partners own in excess of R2.8bn worth of its units as a result of two empowerment transactions.
“The DPW has until now chosen to ignore the property charter in the awarding of leases and has followed its own principles which were set up in a strategy document which focuses purely on ownership criteria.”
Some industry insiders say this has led to significant abuse in the industry resulting in only a few select BEE investors benefiting from this.
He says what the charter does do is put all South African companies on the same footing having to comply with seven components of the legislation.
He adds that what is important in this regard is that companies should no longer be judged in terms of who they know or their political connections. “At least everybody has to score accordingly. Public works has to recognise the scoring process. If they don’t, they will be in breach of this charter to which they are a signatory and of their own law.”
In 2011, it emerged that tenders granted by the DPW worth R3bn, had been affected by serious irregularities. An investigation into the department was launched following a corruption scandal concerning the leasing of buildings from businessman Roux Shabangu for use as the new police headquarters.
This led to former head of police, Bheki Cele, being relieved of his duties.
The industry hopes that the new legislation will go some way in eradicating perceived fraudulent activities favouring those with political and other connections.
De Klerk and Redefine CEO Marc Wainer have said that the property charter gazetted is significantly more onerous than the one that was signed in 2006. The new document’s targets are now largely in line with those of the Department of Trade and Industry’s (dti’s) Codes of Good Practice.
De Klerk said the dti was only prepared to sign off on the charter if most of the criteria were in line with these codes. However, he added that in terms of the ownership criteria, a positive for the sector was that the dti recognised the number of mandated investments into the sector.
“Therefore listed property companies may calculate their empowerment ownership score by eliminating these colourless investor shareholdings to the extent of up to 70% of these colourless investors, in effect calculating the empowerment score over the remaining 30%.”
Talking about the various criteria of the charter, De Klerk said preferential procurement and enterprise development were the ones that truly empowered the previously disadvantaged. “It really does promote entrepreneurship and competitive advantage. It also serves as a natural incentive for real estate companies to apply their spend to black-owned and black companies.”
De Klerk adds that the benefit of having a scorecard is it enables companies to manage their specific requirements while at the same time gaining BEE points. For example, a company might fare poorly in terms of the number of black people on its board, but might make up for that in terms of its contribution towards socio-economic development in the form of bursaries and training.
He also feels that criticism of the industry is often unfair and uninformed with regards to transformation. “Transactions worth billions of rands have been done. In theory the problem has not been a lack of effort on the part of the industry. A lot of people have done huge amounts of work in this space.
“For seven years we’ve been driving this process. The property sector funded it continuously. To turn around and say nothing has been done is unfounded. The reality is (the property sector) is incredibly capital intensive.” He reiterates: “The bulk of the investment into the sector is ‘colourless’ and comes from institutional investors, not white or black investors.”
He cited as an example Sandton City, north of Johannesburg, where the shareholders were the Liberty pension fund and the Government Employee Pension Fund, which put billions into revamping the landmark building.
“That is an example of the capital that is in the industry,” De Klerk says, adding that it would be difficult for selected individuals to maintain the capital investment required over the long-term. This is why the industry is dominated by money from the savings industry.
In an earlier interview with Moneyweb, Wainer also said it was crucial that public works take the scores into account when considering companies for business.