November 17, 2004
By Lucille Davie
INVESTORS are itching to get their hands on some of Johannesburg's "bad" buildings - despite the enormous refurbishment problems involved.
There are currently 52 "bad" residential buildings on the City's list, with at least 183 potential investors lining up to buy them.
The number of investors changes almost daily, says Geoff Mendelowitz, programme manager of the City's Better Buildings Programme (BBP), run by the Johannesburg Property Company. The programme, now a year old, moves along at a pace that would have most people seething, and requires wheelbarrow loads of patience and good humour, qualities Mendelowitz obviously has in abundance.
A "bad" building is one that has deteriorated to such an extent that its market value is below the outstanding debt owed. Living conditions in the building have become extremely harmful to the occupants, with sewerage running down stairways and garbage accumulating around the entrances.
The buildings are usually controlled by slumlords who overfill the flats, charge exorbitant rents and allow the buildings to become rundown. Flat hijacking, where tenants invite more tenants to share the flats (in some cases three or four families share a two-bedroomed unit), also puts enormous strain on the buildings' amenities.
Slumlords neglect to pay the rates over to the City, and electricity and water are terminated, further jeopardising the quality of life of the tenants.
According to the October Trafalgar Inner City Report 2004, there is a six-stage process in the rehabilitation of badly degenerated buildings, accounting for the long delay in getting them refurbished.
Step 1 is the identification of the buildings, and the creation of a database of bad buildings. The 52 buildings currently on the database are mostly in the inner city, Hillbrow, Berea and Yeoville.
Step 2 sees the BBP making the properties available to investors, who, once screened, can tender for them.
In Step 3 the BBP adjudicates the responses and feasibility studies submitted by the investors and uses criteria such as projected costs, BEE components, amount offered for the building and rehabilitation plans, to select who gets on to the database. There are 43 potential new investors at this stage of the process.
In Step 4, agreements are signed with the successful, potential investor, while in Step 5 the building is acquired from the owner and transferred to the new owner - often a lengthy process.
In Step 6, the real work starts - getting rid of illegal occupants, paying the City for the write-off of arrears of rates, electricity and water, and starting the refurbishment process.
At present, says Mendelowitz, there are two buildings at Step 6, with construction ongoing. Seventeen buildings have been cleared of tenants, waiting for the final legalities to be cleared with the owner. This involves "a couple of serious battles", where some buildings are at the liquidation stage.
Every South African city has its own approach to regeneration incentives, says the report. Johannesburg's BBP is one of the "most innovative", with each building requiring a "unique approach". Most of the owners are deeply in debt to the City, with no viable way out of the mess except through the six-step programme.
Mendelowitz estimates that the programme is "on the verge of a number of buildings being transferred to new ownership". He expects that by February or March next year the process will start picking up. "We are well poised for next year," he concludes.
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