South Africa’s property sector is being strangled by the effects of load shedding, and experts do not believe that employing a Minister of Electricity is the solution.
Rather, their suggestions include privatising the country’s energy sector, appointing a competent Board to deal with the Eskom crisis, and incentivising property owners to implement green solutions.
Kululwa Muthwa, chief executive of the South African Institute of Black Property Practitioners (SAIBPP), says the property and built environment sector in South Africa continues to serve as the bedrock of the mainstream South African economy, and is a sector that has been largely affected by the prevailing energy crisis.
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It has also been severely impacted by the consistent increases in interest rates, fiscal austerity, and a lack of investment in skills development for increased participation of previously disadvantaged individuals in the sector – all of which “remain insufficiently addressed” in President Cyril Ramaphosa’s State Of The Nation Address (SONA) last week.
Muthwa adds that the plans of the Government to address these issues, particularly the electricity crisis are concerning.
“The SAIBPP vehemently condemns the rolling blackouts that have become detrimental to South Africa’s daily economic activity. Furthermore, we note with much concern, previous remarks made by the chairperson of the board of Eskom, Mr Mpho Makwenya, on the need to implement Stages 2 and 3 of load shedding for the next two years as part of the power utility’s turnaround strategy.
“The Property sector and its value chain is a colossal consumer of electricity. Secondary to that, the sector remains as an epitome of a slow level of transformation and inclusion. The rolling blackouts have impacted black-owned property companies in the value chain which is further impacting the advances towards transforming the industry.”
“To add further anarchy to the dire state of our energy security,” she says the approved tariff hike by NERSA of 18.65% for Eskom will contribute to the unaffordability of both residential and commercial property for Black people in South Africa.
“As an organisation that has property ownership at the top of the agenda, we note that, without increased wages, increased funding towards SMMEs, fiscal austerity and budget cuts, the rising cost of energy supply further disempowers those who have been previously disadvantaged from access to property by virtue of the economic caste in our country.”
In addition, the SAIBPP is “not particularly enthusiastic” with the proposed solution of creating a Ministry of Electricity to address the energy crisis. Rather, the Association believes the current structure already caters for that oversight with clear terms of reference for accountability and responsibility.
“The added layer of bureaucracy will add further delays to addressing the matter directly. Eskom has a Board, which is appointed by the shareholder, and is tasked with dealing with all strategic matters to ensure that their current mandate of supplying South African citizens with energy is released.
“We implore the shareholder to appoint a Board that is competent and equipped with the relevant skills, aptitude and innovation to be able to deal with the complex matters facing Eskom at this point. The Board should be able to act with express authority and be given the latitude to co-opt any person/company that will contribute meaningfully in resolving the crisis and finding a sustainable solution. The Board should further be able to employ or head-hunt a competent CEO to lead Eskom through this difficult transition.”
Muthwa also calls on the Ministry of Finance to implement an energy rebate for poor households in the country who are “feeling the wrath of this crisis”.
“Poor and child-headed households should be given an energy grant to deal with this intense time of difficulty.”
She adds that the efforts to encourage businesses and individuals to provide alternative energy sources should be amplified, and any excess power should be funnelled to the grid. These efforts should be compensated and tax incentivised.
Load shedding is also a problem for Black property investors looking to buy commercial property. This asset type, she says, remains a resource that Black people struggle to access, utilise and economically benefit from through the rental of retail space in shopping malls owned by large players in the sector.
“Rolling blackouts have forced a plethora of companies to look for alternative sources of energy and move off of the Eskom grid. Companies such as Attacq have reported that during Stage 2 load shedding, they spend R170 526 daily to keep the lights on.
“With income inequality and wealth inequality at an all-time high in South Africa, Black players utilising commercial property spaces often do not have the liquidity to hedge against the rising cost of doing business in our commercial property facilities.”
Furthermore, Muthwa says falling consumer demand has lowered the revenue streams of businesses taking tenancy in our shopping malls.
“This reaffirms the detrimental effect of load shedding on transforming our commercial property spaces and increasing access to markets.”
John Jack, chief executive of Galetti Corporate Real Estate, says commercial property landlords are under pressure to invest in alternative energy solutions to attract and retain tenants. However, the upfront costs of this investment coupled with the challenges of high vacancy rates, interest rate hikes, rising business costs, and reduced rental rates have had a compounding effect on the sector.
“Commercial property is capital intensive and as such requires stability for investment. In addition to the factors previously mentioned, the reality is that load shedding affects business productivity. While some landlords are lucky enough to secure sound tenants on long-term leases, others have defaulting tenants, short-term leases, and tenants who simply cannot make ends meet when they have no power for hours every day.”
While some commercial properties are now geared up with alternative power solutions, many others don’t have the capital to do so given the challenges they face. Yet becoming energy-independent is “crucial to our economic success”.
While everyone agrees that South Africa is in crisis, Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, says adding another “fat Ministerial salary to an already-bloated public sector wage bill is not the solution. Her take-away from this year’s SONA was that it is going to be up to the people of South Africa to overcome the massive challenges facing the country.
“South Africans have skills and we’re an entrepreneurial nation. We’ve also demonstrated through the years that, when we come together, we have a very strong voice; and there’s never been a more crucial time to use it.
“We need to become a community of active citizens.”
For the government to prove it is serious about solving the energy crisis, Geffen says it needs to set a deadline to end load shedding “so that we can rescue our economy and create jobs”.
“And if it doesn’t deliver by the deadline, then it needs to concede its failure, eradicate the rot of SEOs, and privatise these sectors so that efficiencies and solutions can be implemented.”
Until the government moves to privatise the energy sector in South Africa, High Street Auctions Director Greg Dart says the country is unlikely to see true economic growth.
“In every SONA in recent history we’ve heard the same song: ‘Eskom is in shambles and the government is working on a solution’...
“This year, the solution is apparently going to come by way of an Electricity Minister in the Presidency, a State-Owned Enterprises Holding Company in government to oversee the SOE Boards that should be functional entities in their own right, and – most disturbingly – the declaration of a national State of Disaster that gives the Executive extraordinary power to override legislative process.”
He says South Africa already has a Public Enterprises Minister and the essence of his job description is to manage public enterprises for the good of the people of this country.
“Now taxpayers are also going to have to foot the bill for the salaries of an Electricity Minister and SEO Holding Company staff while they attempt to fulfil the Public Enterprises Minister’s mandate.”
Samuel Seeff, chairman of the Seeff Property Group welcomes all efforts to restore and address the energy crisis, but says that “we need to start seeing action”.
“This includes appointing a cabinet of competence rather than political convenience. The matter is urgent; there is no longer time to linger with policies and delays.”
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