January 19, 2004
By Thomas Thale
WHEN it was set up to manage council property in 2000, the then Property Company (Propcom) inherited structures that were losing about R30-million per annum, had no experienced property developers and had no database to work from.
Now, three years down the line, the company has posted a record R60-million turnover on its property portfolio, "an overall turnaround of R90-million on our 2000 performance", says Leila McKenna, Johannesburg Property Company (JPC) managing director.
But this success did not come easily for the company. Speaking from the air-conditioned and newly painted offices on the ninth floor of the Braamfontein Centre, which the JPC now occupies, McKenna recounts adversities the company has had to overcome.
"We inherited staff that had no experience of doing property development and proper asset management. Property divisions of previous Metropolitan Local Councils (MLCs) were largely legal sections and as such most of the staff had a legal background," she recalls. "They fell under different clusters or departments such as legal or corporate affairs. The City had some records but, in most cases, there were huge gaps."
In 2000, the new unicity council then contracted Intersite, a property management company owned by the South African Rail Commuter Company (SARCC), to bring Propcom up to speed with the nitty gritty of property management on a three and a half year contract. "Intersite had policies and procedures that we could adapt and adopt to our environment, knew tender processes and procedures, and had a good land register and we could use their system as a base to construct our own land register," says McKenna. Propcom workers were deployed to Intersite offices in Woodmead and at Park Station, where they were taken on board as understudies to the Intersite personnel.
Now, with the contract having run its course, the renamed City of Joburg Property Company (JPC) stands proudly on its own and the mood among its staff is one of optimism and buoyancy. "In the past we had minimum contact with the public, now we interface directly with potential clients. Our staff handles an average of 800 calls per day and we receive between 30 and 40 new applications for property per day," says McKenna. "There is huge demand for property all over the city!" she exclaims.
Propcom was set up through the amalgamation of four units that had managed property for various MLCs. And the MLCs themselves were made up of 13 councils, which had used different methods of record keeping with varying degrees of success. Propcom then stepped into this quagmire, with a mandate to account for council-owned property. "The idea was for Propcom to operate as a private company, which was an agent for the council. Properties would not be transferred to Propcom, but would remain council-owned," recalls McKenna.
It is the sale of council property that has proven to be the cash cow for the JPC. Much of the JPC revenue was raised through auctioning off redundant council-owned land. The one transaction that stands out is the sale of a property in Hurlingham, valued at R10-million, which went for a staggering R23-million.
According to McKenna, the sale of council-owned land has increased by 165 percent since 2000. "We've had four auction sales to date and all of them averaged 80 percent above market value." Although it might seem lucrative now, cautions McKenna, the sale of land is not a sustainable way of conducting business. In the medium term, the JPC will have to decrease land sales and increase leases.
For now though, says McKenna, disposing of such properties saves the council the money that goes into maintaining them. "The majority of these properties are running at a loss. Even those with leases, either generate nominal amounts that we charge non-government organisations, or are low value leases. Eighty five percent of properties fall in this category," says McKenna. "The land that we dispose of is mostly land with no social, economic or financial value. Council pays for maintaining this land and loses out on rates and other forms of income, which would otherwise be paid for the land."
Another major achievement of the JPC is the completion of a database of council-owned properties. For the first time, the City has a clear idea of properties it owns. To set up this database, JPC had to buy information from the deeds office and reconcile it with files kept by the various councils.
"There are some 16 000 council-owned properties in the city, not 27 000 as we initially thought. The record of the properties disposed of were never referred to in an asset register. Changes happen quickly and records need to be kept updated." Of these16 000 council-owned properties, only 3 500 have been leased out and 6 200 are parks, says McKenna. Properties actually used by council, including parks, are estimated at approximately half the portfolio. Properties that are running at a loss and serve little public use are estimated to be in the region of between 5 000 and 6 000.
Other JPC milestones noted by McKenna are:
- The formulation of a policy on public places of worship. The policy was developed to meet the huge demand for public places of worship in places like Soweto.
- The completion of a register of an estimated 16 000 servitudes.
- The establishment of a land register to be linked to the Geographic Information System (GIS).
- Beefing up its staff complement with people who have requisite skills.
- Developing tendering procedures for billboard sites.
Despite these accomplishments, says McKenna, much remains to be done. Having completed the land register, the major challenge facing the JPC now is to determine the use of such property and its market value. The JPC also intends dividing all the properties into categories such as municipal use, social use, economic use and residual. For commercial properties, says McKenna, the challenge will be to get long-term leases.
According to McKenna, the JPC will table recommendations in this regard to the council in the 2004/2005 financial year.
By July, JPC aims to have a mini-call centre up and running. A property development division will be set up to look at high return or strategic value property with the aim of maximising land value before putting land on the market, says McKenna.
McKenna expresses confidence that the JPC has managed to get council value for money on its properties at rates between 40 percent and 50 percent below the market norm. "We recently did a costing exercise looking at transactions such as leases, sales, development and expropriation, which revealed that our services are much cheaper."
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