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Tshepo Matlala of SAIBPP says black owned property companies have a 2 percent share of the R400 billion property sector. He says that 4 of the companies blacklisted were created through government opportunities. Matlala also says the sector has been very slow to transform due to a lack of support from financial institutions. He says an aggressive empowerment drive by government is needed.
Mr Tshepo Matlala, thanks very much for joining us here on our Transformation section. I know that the black property professionals are going to have their get-together very soon. What are the big issues that you’re going to be dealing with? I want to raise other questions in terms of the broader economy as well.
Well thanks Tim, for having me here. At the convention last year, a couple of the things we said we needed to was (1) stability and we got our new CEO, Vuyiswa Mutshekwane. We certainly need to make sure that Government implements this time because all the time, it was about policy. We’ve put our own people there and they assisted Government in implementing their own policy. Now we have the property management trading entity, which is established. It’s up and running. I think we’ve done well there. We then needed to look beyond borders so we’re saying ‘South Africans need to see South Africa as part of the continent’. We need to be able to say that if we are able to invest in this country, there’s no reason why we can’t invest across the continent. We need to be able to make sure that business moves from this side to the north, the west, the east, and vice versa. This year, our convention is looking at ‘beyond borders’.
We have some rather interesting personalities who will be talking to us. There’s Dr Kola Akinsomi who will be talking about West Africa and how to invest in West Africa. We have the Land Commissioner in Tanzania, Dr Kusiluka and Dr Kusiluka will be looking at the difficulties of setting up a property company or at least, trying to do a development in East Africa. It’s going to be quite exciting. What we’re saying is yes, there are issues that we need to deal with in South Africa. We’re dealing with them but at the same time, we need to make sure that we create new markets for our people.
I want to talk about the property sector and it where it fits in the broader economy. The last time I read the involvement by black professionals and property development companies owned by black people was only about three to four percent. Is that statistic true, and could you explain why?
Well, that statistic is true. It probably would have gone down by now. When we last spoke, the property market was sitting at about R300bn. It’s now sitting at over R400bn (this is in a year’s time). That three percent is probably now sitting at two-and-a-half or two percent. The issues really, are (1) to be in property, you need capital and capital means going to the banks to finance. How the banks look at new black entrepreneurs is quite problematic. I know of an instance – someone who came to us, looking for funding. He’s been in the property market for about ten years. He’s probably one of the best property practitioners I’ve ever known but the banks looked at him and instead of saying ‘we know you’re experienced. You’ve done particularly well. We can fund you’ the said, ‘well, you need equity of 50 percent’. The problem with property as I’ve said is that it needs deep pockets.
If you’re going to buy R100m development or R100m investment property, 50 percent means you need to have R50m. You need to get it somewhere. I know very few black people have R50m sitting around, so access to finance is a difficulty. The other difficult of course (from the authorities), is that I don’t think that from a policy point of view, they understand that since they are the biggest land owners, they need to make sure that they open up this land for black entrepreneurs. They’re starting to do that. There’s a township economy, which the Gauteng Government at least, is looking at but we need this to be done across the country. More than that, we need to be able to make sure that we fund students at university because we need our next crop of property practitioners coming into the market and we need to be focusing on that.
I’ll come back to the training. Property ownership is at the centre of the type of economy we have in South Africa. I wonder. If one uses what is going on in the sector from the point of view of the professionals (I’m talking about property developers and property funds etcetera), is that a reflection of property ownership in South Africa overall?
It is which is unfortunate. In any market, if you don’t have the majority of the people owning property, you’re going to have a problem. Countries that do particularly well are those where the majority of the people own their own properties – at least, on a residential basis. However, you also need to ensure that the majority of the people have access to commercial properties. It has to reflect across the country. When you don’t have that, you’re going to have a situation where almost every time you have a section of society that is dissatisfied then over time, it creates problems. It creates social problems. What we needed to do in the beginning (and what we can still do) is to ensure that we have as many black people as possible, moving into established companies, training, learning and moving out and doing things for themselves. So far, I think we have four listed property companies that are Black owned and black-managed.
Mainly, most of those were assisted by the Government ten-year lease plan. That plan is no longer in place. We’re still talking to Government about it and our view is very simple. If from 2008 to 2011, they could produce R13bn/R14bn worth of property companies, it’s a winning formula. There’s no reason why it should have stopped. We need to make sure that we accelerate that. We’ve certainly been talking to Government about it. There was a meeting over the past weekend with the Department. We were thrashing out issues and we were saying to Government ‘here’s a winning formula. Why should you abandon it?’
I’ll go back to the point of the two percent of the overall property sector in South Africa. You say it’s about R400bn and there’s a possibility that only two or three percent is in black hands, and Government has come to the party to create the opportunities. Why is the private sector not helping? Is there anything that the private sector can do to accelerate the transformation or at least, participation by Black owned companies?
There’s a lot that the private sector can do and there are examples of that. One of the companies that listed is Dipula, which started as a joint venture between Dijalo Merchants and Redefine. That created an R4m/R5m company at last count, so it can be done. If you have over 30 listed companies; if each and every company would have a joint venture partner then certainly, we can change the market. We could change the markets in the next 2/3/4 years. It can be done. My view is that you are quite correct in saying that the private sector needs to be doing something. If you have a winning formula in anything, stick to that formula. We know that the joint venture formula works, where a black group with skills joins a venture with an established company with funds to create a new entity. That works and our view is that, that should be going forward. We can see that happening with all the property companies.
Okay. Why is it not happening, though? I’ll go back to the funding point because insurance companies for instance, seem to be the main investors in some of the major property investments we’ve seen made. Insurance is insurance for everybody in South Africa. It’s not for one part of the population so it should be as empowering as the companies themselves are, by their own clients – a diverse range of clients.
That’s not true. One of the reasons why it’s not happening is that we still see resistance to transformation. This resistance started in the early days. We had the Property Charter to ensure that we push people towards a certain objective and the Property Charter was signed by everyone. What we’re seeing now, is quite a number of those companies that, as much as they’ve signed for the principles of the Property Charter they themselves are not practising it. What need is a little bit of a stick. The charters themselves are not able to do that, but I think that nothing says to Government ‘you cannot enforce this. You cannot give the charters a little bit of a stick to encourage people and companies to transform’. Unfortunately, if people are not pushed to transform, we won’t see that transformation.
Government is probably the biggest owner of property in the country so somehow, it should be playing an even bigger role in creating these new property companies – albeit development or funds. What is the size of the business that’s going to the Black owned companies, from Government?
When they had their ten-year plan (it was called the Ten-year Lease Policy), things moved, so it created from zero to R12bn/R13bn. They stopped that. The market stopped. It shows you what happens when you have a bigger player changing the rules. As you correctly said, Government is the bigger player here. With one stroke, you can create multiple black owners of property. If Government were able to say (and I think they’re sitting at R900bn, which can be accounted for in properties across the country) ‘we’re going to make sure that 25 percent of these will go to black entrepreneurs, the market will change. The thing is that people don’t see this as a social issue. They think it’s a business issue only. It is a social issue. If you don’t deal with it today, you’re going to be dealing with angry people down the line. Certainly, nothing can stop Government from saying ’25 percent of our R900bn will go to black entrepreneurs’.
The Constitution allows them to do so.
It could be that we’re getting ahead of ourselves here. I’m going back to the point of the professionals in the industry. Is it not a case of lack of capacity maybe, on the part of the black community? As we’re having this conversation, I’m thinking that somebody may say ‘it sounds like an entitlement conversation. If you can’t do it, there’s no way you can be empowered in this sector’. What’s the situation with regard to the skills and number of professionals in the sector?
Look, we have over 1500 individual members. We have over 30 corporate members, so there are skills there. That’s the one thing. The other thing is that for any institution/group of people to create institutions, you need assistance. The Afrikaners did it very well with the creation of Sanlam and Santam, for example. They’ve created billionaires. In fact, I read an article two weeks ago where it says ‘the billionaires that are sitting in Stellenbosch… You can trace them from the empowerment policies of the National Party Government’. They had a leg-up. There’s nothing, which says we can’t have a leg-up as black business, because we come from a negative position. Is it entitlement? No, it isn’t. As I said, we have over 1500 members. These are engineers, quantity surveyors, property asset managers, and property financiers. The skills are there.
Some of the best companies and some of the divisions of banks are run by our own members, so the skills are there. All they need is an opportunity and that’s what it is.
If there’s one (or a couple) of ideas, which you think would help fast-track the transformation of the property sector, what do you think that would be?
Firstly, it would be making sure that everyone aligns with the Property Charter. What it does is it says to the private sector, that (1) ‘you need to form those joint ventures with black parties, in order to create new entrepreneurs, new markets, and new companies’. (2) You need to ensure that Government makes property available to black parties. (3) You need to ensure that access to finance is made simpler for people. By ‘simpler’, I don’t necessarily mean that they shouldn’t go through the rules. There are ways of doing that. In the past, we’ve seen the equity portion, which our people don’t have. That can be dealt with and that’s what you need – three things. You need equity from the banks, opportunity from Government, and assistance on a financial level from private companies. This is where the Property Charter plays a role.
Mr Tshepo Matlala, thank you very much for talking to us.
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