SAPOA PROPERTY NEWS 1

SAPOA Property News

You can’t squeeze blood from a stone

VO L U M E 0 2 - AU G U S T 2 0 2 0

I N T H I S I S S U E

C E O M E S S AG E You can’t squeeze blood

from a stone

How long the new Coronavirus can live on surfaces

Know your risk during COVID-19

C O V I D 1 9 Guidance Documents

E T H E K W I N I Advertising by-laws (2020)

O N L I N E Real Estate Courses

Preferential Procurement Regulations Litigation

M A R K E T DATA Weekly Note

THE POSSIBIL IT IES ARE ENDLESS. . .

Nextera Energy, Inc vs Eskom

SAPOA PROPERTY NEWS SAPOA PROPERTY NEWS2 3

MESSAGE FROM THE CEO

The latest Auditor General (“AG”) report which was released a few weeks ago, is critical and damning of most Municipalities. The report indicates extreme abuse of the public purse, with many municipalities having dysfunctional control environments, high levels of corruption, and a culture of unaccountability.

Only 20 municipalities received clean audits and only 2% of the municipalities are fully complying with legislation.

Your assets sit in these failing Municipalities where you contribute significantly to the rates base for services which should be commensurate to the rates you pay.

The fact that municipalities are in a financial calamitous state, means you will end up continuing to fund them at an ever increasing rate.

Consider this for a moment:• R1.26 billion was spent on

consultants to assist in the preparation of financial statements;

• 41% of municipalities had no policy or no approved policy on water maintenance;

• 41% of municipalities had no policy or no approved policy on sanitation;

• Many municipalities are crippled by debt and are unable to pay for water and electricity;

• Many municipalities are not able to collect debt;

• Unauthorised, irregular, fruitless and wasteful expenditure proliferates throughout all municipalities;

• Some municipalities depend on grants and assistance from national government;

• Lack of financial controls and project monitoring is common;

• Limpopo lost R1.2 billion through the VBS debacle;

• A municipal manager (Vhembe District in Limpopo) was found guilty of financial mismanagement and was paid a R1 million settlement when he resigned;

• Conditional grants are not always spent on intended purposes;

• Supply chain management marked by poor record keeping, lack of supporting documents, and improper tender documents;

• Expenditure on information technology: millions spent on systems implemented but not used, millions spent on systems with defects, millions spent on software licences not utilised;

• Salary figures for municipal managers and senior management were not in the report;

• A Municipal Manager gave himself a 48% increase during lockdown;

• Nine municipal managers need to account for irregular and fruitless and wasteful expenditure amounting to R32 billion.

The fact is that many Municipalities cannot “control” their expenses and that these runaway expenses are directly correlated to the unjustifiable increases in revenue from Property Rates. Basically, something has to

You can’t squeeze blood from a stone

The old saying, “You can’t squeeze blood from a stone,” vividly describes the futility of trying to extract more resources from something than it has to give. Unfortunately for the property sector, Municipalities plan to continue to do exactly this, squeeze blood from a stone.

MESSAGE FROM THE CEO

By Neil GopalCEO SAPOA

feed this level of consumption and mismanagement.

What we have seen is that municipal revenue streams are on the rise with respect to the 3 main cost components for property owners, this being property rates, and water and electricity costs.

Municipal financial mismanagement (which I highly doubt will improve), is directly related to the increase in these costs.

What has been evident is that the continuous over inflationary increases is leading to investors seeking better returns offshore.

It is hardly surprising that 77% of all capital raised in South Africa in the Property Sector in 2018 was moved offshore. Acquisition volumes have fallen sharply in SA, and overseas acquisitions by SAPOA members has increased sharply the last 5 years.

Unfortunately, the tougher trading environment, which is making it increasingly challenging for landlords to deal with the additional tax burden, is about to get worse, not better.

In order to extract more from the sector, Municipalities will adopt many more by-laws and policies to tax property owners. The Financial and Fiscal Commission, which advises Parliament and government on state spending and income, has proposed a raft of new taxes that municipalities could adopt to bring in more money. The report states the following, “As virtually all municipalities face diminishing own revenue and, in almost all instances, a very difficult task of financing their own infrastructure and services to meet the needs of a rapidly growing population, the urgency to find alternative revenue sources to augment conventional ones cannot be overemphasised.”

Make no mistake, you are being punished for responsible behaviour.

The following is proposed, (source: The Business Insider South Africa)

• Advertisement taxes Advertisers would have to pay taxes on the use of sign boards.

• Hotel occupancy taxes A value added sales tax on your hotel bill.

• Fire service fees This levy is often imposed on insurance contracts, or added to property rates.

• Amusement or entertainment taxes This is charged on admission to amusement parks, or other entertainment outlets.

• Development charges The purpose of development charges is to ensure that private developers contribute to the cost of the municipal infrastructure they will use, e.g. costs of new connections to water, sanitation, roads and electrical infrastructure or other infrastructure services such as roads, schools, parks, library services, and fire and police protection. Proceeds of the development charges are then used to finance infrastructure projects such as local roads, street lighting and sewers.

• Parking lot taxes Levies or taxes on parking lots may also be considered.

• Local business taxes In South Africa, the idea of a local business tax has been discussed since 2012, when eThekwini municipality applied (unsuccessfully) for permission to levy such a tax. In South Africa, local business taxes would suit metros, intermediate cities and some fast growing urban municipalities, as they need the revenues to accommodate their rapid growth and development. Local business taxes are more stable and simpler to administer than taxes on profits. The only drawback of [local business taxes] is that it requires high levels of accounting and record-keeping and sound tax administration capacity.

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How long the new coronavirus can live on surfaces

3 hours

4 hours

24 hours

2 days

2 days

2-3 days

3 days

4 days

4 days

7 daysOutside of surgical mask**

Paper money**

Glass**

Polypropylene plastic*

Stainless steel*

Cloth**

Wood**

Cardboard*

Copper*

Paper and tissue paper**

SURFACE LIFESPAN OF COVID-19 VIRUS

BUSINESS INSIDER

Shayanne Gal/Business Insider

Source: New England Journal of Medicine*; The Lancet Microbe **

*At 21 to 23 °C and 40% relative humidity **At 21.6 °C and 65% relative humidity

MESSAGE FROM THE CEO HOW LONG THE NEW CORONAVIRUS CAN LIVE ON SURFACES

The reality is that most Municipalities are in a downward spiral and unfortunately more money will not solve the problem as these problems are overwhelming and insurmountable.

The damage done by Covid19 will only sped up this downward trajectory.

By raising more taxes, surcharges, levies etc to balance their books, municipalities will eventually become victims of their own success.

The logic is that if you want to stimulate growth, you have to cut taxes, not raise them. Unfortunately, the multitude of additional taxes is a sign of acute desperation due to mismanagement, corruption and an inability to fulfill basic revenue collection functions.

Higher rates and more levies will naturally translate into less developments, which translates into

a contracting rates base. This dangerous and unsustainable process has already started gaining momentum.

Neither political intervention nor further financial assistance will resolve the crisis we are faced with at Municipal level. If we apply logical reasoning, it means we have to confront the truth. And to confront the truth can sometimes be painful to bear. But I urge that you carefully consider further investments in municipalities that are failing and / or abusing its powers with respect to managing rate payers money. To prevent further financial pain, you will have to confront this truth.

Commercial Property Rates TariffsIndexed since ’08 relative to inflation and gross rental

Property Rates Tariffs relative to Inflation & RentalAll Commercial Property; Index starts in 2008

450

400

350

300

250

200

150

100

50

02008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Inflation (CPI) Property Rates Gross Rental

SAPOA PROPERTY NEWS6

Market Data - Weekly Note 31 July 2020

Asset Class Total Return Performance in ZAR

South Africa as at 30 July 2020

Description Currency % Change % MTD % YTD % 12mth* % 36mth* % 60mth* % Volatility^

SA Equities ZAR -1.52 2.78 -0.46 1.00 3.91 4.74 28.41

SA Bonds ZAR -0.32 0.21 0.57 3.72 7.62 7.29 13.74

SA Listed Property

(SAPY Index)ZAR -0.20 0.26 -37.39 -39.23 -19.23 -9.99 44.90

SA Listed Property

(All Property Index)ZAR -0.04 -0.38 -38.58 -39.47 -20.59 -12.13 43.04

SA Cash ZAR 0.01 0.41 3.60 6.67 7.12 7.18 0.26

Global Listed Property ZAR 1.19 -0.43 -2.29 1.99 8.57 8.54 26.29

UK Listed Property ZAR 1.79 3.03 -9.49 15.31 6.40 -0.23 31.24

US Listed Property ZAR 1.44 0.19 -1.83 0.06 7.43 7.42 39.10

Europe (ex UK)

Listed PropertyZAR -0.11 1.67 3.98 15.22 11.17 12.15 27.91

Australian Listed

PropertyZAR -0.20 -3.73 -17.25 -19.91 2.38 6.10 42.25

Developed Listed

PropertyZAR 1.16 -0.51 -2.68 0.84 7.52 7.13 27.82

MSCI World ZAR 0.98 1.33 17.63 23.78 14.98 11.60 24.39

MSCI EM ZAR 1.24 5.30 16.89 22.79 9.60 9.86 19.82

MARKET DATA - WEEKLY NOTE

GUIDANCE DOCUMENTSCOVID 19

We already have dozens of coronavirus-related resources for you at www.sapoa.org.za

We would like to thank Resilient Reit Ltd for their One Million Rand contribution towards SAPOA’s Covid-19 initiatives, without which none of this would be possible!

SIGNAGE CATALOGUE

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WORKPLACE RE-ENTRY 1

WORKPLACE RE-ENTRY

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SHOPPING CENTRE COVID-19 EXPOSURE MITIGATION PROTOCOLS

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SHOPPING CENTRE COVID-19 EXPOSURE MITIGATION PROTOCOLS

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REACTION PROCEDURES TO COVID19 CASES

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REACTION PROCEDURES TO COVID19 CASES

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SAPOA PROPERTY NEWS SAPOA PROPERTY NEWS8 9

At the beginning of 2017, the City of Joburg (“COJ”) published its new Outdoor Advertising By-Law for public comment. SAPOA submitted comments and the City did not take SAPOA’s comments into consideration.

Like many other instances, the so-called ‘’public-participation” processes in various government institutions and departments are a pretence. Various ongoing attempts to make something that is not the case appear true, is one unfortunate outcome of failing Municipalities.

On 20 March 2017, the City adopted and approved the Outdoor Advertising By-Law. It stated that the By-Law will be promulgated on 31 May 2018.

SAPOA’s view was that the promulgation of the new By-Laws

will immediately and retrospectively criminalize hundreds of private property owners with unapproved advertising signs on their properties without affording the affected property owners the opportunity of arranging their affairs in such a manner as to ensure compliance with the new By-Laws and legitimization of the affected advertising signs.

The City, as a commercial role-player in the outdoor advertising arena, was undoubtedly conflicted between its regulatory function and its commercial interests. Because of the above and from a constitutional perspective, the regulatory control over the process should ideally be divested to an impartial decision-making body and not to any particular City official.

The enforcement measures, which were severe, can be imposed arbitrarily by the officials playing the role of investigative, prosecutorial, adjudicative, and the sheriff’s functionaries.

When the rule of man starts to contravene the rule of law, we have the right to act.

Our actions caused the suspension of the enforcement of the newly promulgated 2018 Outdoor Advertising By-laws until a court case challenging various aspects of the By-laws had been heard by the Gauteng Local Division. This agreement was made an order of court by Deputy Judge President Mojapelo on Tuesday 29 May 2018. The Deputy Judge President ordered the enforcement of the By-laws to be suspended until such time as judgment is handed down in the application before the court. The judgement was handed down on 18 February 2020 and SAPOA was successful and obtained the orders as prayed for in the main application, resulting therein that the 2018 Outdoor Advertising By-Law was declared unconstitutional.

Costs were awarded in favour of Sapoa, including the costs of two Counsel.

Constitutional Challenge on the City of Joburg’s Advertising by-laws (2017)

ETHEKWINI ADVERTISING BY-LAWS (2020)

When the rule of man starts to contravene the rule of law, someone has to uphold the law.

ETHEKWINI ADVERTISING BY-LAWS (2020)

In June 2019 the eThekwini Municipality promulgated advertising by-laws similar to that of the Johannesburg Municipality (which was declared unconstitutional by the High Court as the result of an application launched by SAPOA – see above).

Unfortunately the High Court decision came after the promulgation of the by-laws by eThekwini and the fact that is on the statute books means that it substantially undermines the victory SAPOA achieved in relation to the Johannesburg By-laws.

Given the above, SAPOA has launched a similar challenge against the eThekwini by-laws on the same basis the Johannesburg by-laws were challenged. Significantly, the private parties involved in the matter have indemnified SAPOA against any costs and any adverse cost order and provide SAPOA with an opportunity to support the private property owners in eThekwini with regards to advertising by-laws.

The challenge on the by-laws is based on the following:

• the Municipality’s promulgation of the Bylaw was inconsistent with its constitutional and statutory obligations and lacks public participation.

• the Bylaw contemplates that the Municipality will also participate in outdoor advertising and derive an income therefrom, and the absence of clear parameters for the exercise of its powers under the Bylaw creates the risk of bias and/or the perception of bias – effectively

the Municipality acts as both judge and jury;

• the application fees in the Bylaw are excessive and constitute an unlawful surcharge and tax, which has not been validly approved;

• the Bylaw compels property owners and advertisers to “indemnify” the Municipality in the event of any non-compliance with the Bylaw, without providing any clarity as to what “indemnification” is required or how it is to be calculated, and in a manner which constitutes an unlawful infringement of their constitutionally protected rights to freedom of contract;

• the penalties stipulated in the Bylaw are excessive and incommensurate with the offences to which they are linked;

• the impoundment provisions of the Bylaw allow for the removal and impoundment of billboards without a court order, which is unconstitutional and infringes inter alia the right to property (section 25), the right to proper and just administrative action (section 33) and the right of access to justice (section 34);

• the Bylaw creates vicarious liability for owners of property upon which outdoor advertising is situated in circumstances where the owners may be unaware of any contravention of the Bylaw on their property and have no control over the incriminating conduct – there is thus an insufficiently close connection between the conduct and the person held

vicariously liable therefor;

• the Bylaw creates presumptions which are unconstitutional in that innocent persons can be convicted of an offence and penalised for offences they did not commit, had no control over and might have been unaware of.

• the Municipality’s promulgation of the Bylaw without the prior and proper adoption of the Area Control Maps contemplated in Chapter 5 of the Bylaw is premature, as the maps are a necessary regulatory framework without which the Bylaw is vague, unworkable and unlawful;

• the Bylaw limits the right to freedom of expression under section 16 of the Constitution, and the right to freedom of trade and occupation under section 22, and such limitation is not reasonable or justifiable as contemplated in section 36 of the Constitution;

It will be noted that the grounds advanced above are nearly a duplication of the grounds advanced by SAPOA in the SAPOA vs the City of Johannesburg case and that it formed the basis for SAPOA to participate on the litigation to:

• Protect the interests of its members in eThekwini;

• To protect the value of the Johannesburg judgement for SAPOA’s members.

Constitutional Challenge on eThekwini Advertising by-laws (2020)

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THE POSSIBILITIES ARE ENDLESS...THE POSSIBILITIES ARE ENDLESS...NEXTERA ENERGY, INC ESKOM

The predecessor company Florida Power & Light Company was founded in 1925. (Florida, USA)

NextEra Energy, Inc was founded in 1984

1 March 1923

NextEra Energy, Inc has been named to Fortune’s 2020 list of the “World’s Most Admired Companies” and ranked No. 1 in the electric and gas utilities industry for the 13th time in 14 years.

Eskom is the largest producer of electricity in Africa and was among the top utilities in the world in terms of generation capacity and sales, but has since slipped in both categories

A privately owned but highly profitable listed company A state-enforced but highly unprofitable monopoly

14,000 employees (2019) 46,665 employees (2019)

45,900 megawatts of generating capacity 37,745 megawatts of generating capacity

NextEra Energy, Inc has developed enough wind and solar farms across the U.S. and Canada to power the entire nation of Greece.

Eskom cannot generate adequate supply of electricity to power South Africa

Delivers rate-regulated electricity to an estimated 10 million people

Generates approximately 95% of electricity used in South Africa to an estimated 16,7 million people

NextEra Energy, Inc is the world’s largest generator of renewable energy from the wind and sun consistently.

It owns and operates generating plants powered by natural gas, nuclear energy, and oil.

It is one of the nation’s cleanest and most reliable electric utilities with bills nearly 30% below the national average

Eskom accounts for 42% of the nation’s total greenhouse gases

Revenue

US$ 19.2 billion (2019)

Revenue

US$ 12.4 billion

Net income

US$ 3.39 billion (2019)

Net income

US$ -1.4 billion (2019)

Total assets

US$ 117.7 billion (2019)

Total assets

US$ 52.2 billion (2019)

Market capitalization

US$117 billion (2019)N/A

For the 15 years ending Dec. 31, 2019, NextEra Energy delivered a total shareholder return of approximately 945% compared to 309% for the S&P 500 Utilities and 264% for the S&P 500 Index.

Eskom’s net loss was a staggering -11.52%, down from -1.13% in the previous financial year.

NextEra Energy Resources has more wind capacity in its portfolio than all but seven countries in the world. It was recognized by Fortune among the top 25 companies globally that “Change the World.” The annual list recognizes companies that have had a positive social impact through activities that are part of their core business strategy. NextEra Energy was the only energy company from the Americas named to the list and one of only two electric companies in the world to be included.

In 2019 Eskom stated that load shedding was initiated due to breakdowns at power stations as well as the depletion of water and diesel resources. Other reasons cited included legacy issues from state capture corruption, coal availability, and that new power plants such as Medupi and Kusile were not yet operational. But the root causes are gross mismanagement and rampant corruption.

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Regulations in terms of the Act were first adopted in 2001, but certain of these regulations were declared inconsistent with the provisions of the Act during March 2010. The 2001 regulations were then repealed and replaced with the 2011 regulations, during June 2011. These 2011 regulations were subsequently repealed and replaced by the Preferential Procurement Regulations of 2017 (“the Regulations”).

Section 217 of the Constitution provides that, “When an organ of state in the national, provisional or localsphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective.” The section furthermore makes provision that a procurement policy may provide for categories

of preference in the allocation of contracts and the protection or advancement of categories of persons disadvantaged by unfair discrimination.

The Regulations differ from the 2001 and 2011 regulations in some aspects, the most important of which are the following:

• Pre-qualification criteria to allow for the advancement of certain categories of bidders were introduced;

• Functionality was allowed, to be used to ascertain whether tenders are acceptable or not;

• The preference point system for the acquisition of goods and services which existed in previous forms of the regulations was retained, but the threshold to distinguish between low value and high value contracts was increased from R500,000.00 in the 2001 regulations, to R1,000,000.00 in the 2011 regulations, to R50,000,000.00 in the 2017 regulations.

Many of SAPOA’s members regularly tender to Government and its related entities for the provision of office and other space. Members are therefore well aware of the provisions of the Preferential Procurement Policy Framework Act, 5 of 2000 (“the Act”), as well as the regulations issued thereunder.

Preferential Procurement Regulations Litigation

PREFERENTIAL PROCUREMENT REGULATIONS LITIGATION

The main problem experienced with the Regulations is that BEE status may now be used twice in the tender process in the evaluation of a potential bidder, first as a pre-qualification measure, and secondly as part of the normal scoring process, together with functionality, cost and the like. As such, the view has been formed that the regulations are not only unconstitutional, as they downplay the importance of a fair, equitable and cost-effective tender process, but that they are also in conflict with the provisions of the Act, which provides that a preference point system is to be followed, but which does not allow for a pre-qualification criteria.

It has recently come to SAPOA’s attention that there is currently litigation pending in the Supreme Court of Appeal where it is sought to have the Regulations

declared unconstitutional and invalid. SAPOA, in furtherance of its objective to protect the interests of the commercial and industrial property sector, and to enable wider participation in the industry by historically disadvantaged members of the community, has decided to attempt to join these proceedings.

SAPOA is seeking leave to join the matter as an amicus curiae, a so-called friend of the court. The roleof an amicus is to assist the court in deciding the matter before it, by placing further evidence and/or arguments before the court. It does not become involved in the dispute between the litigants at all.

In our view, insuring a competitive bidding process in the property sector is of importance, not only to our members, but to the economy as a whole, in order to insure, as far

as possible, that government does not overpay for space it occupies. Furthermore, the pre-qualification criteria, in our view, lends itself to manipulation of tenders to the determent of the economy as a whole and specifically to the detriment of our members. SAPOA’s role in this matter is not to attack the principles of BEE, but rather to show that the current regulations do not comply, in their practical effect, with the constitutional imperatives of fairness, competitiveness and cost effectiveness.

We also invite members, who may have had their tenders rejected based on similar grounds to contact us as a matter of urgency, in order to consider whether those facts may also be submitted to court.

PREFERENTIAL PROCUREMENT REGULATIONS LITIGATION

SAPOA PROPERTY NEWS SAPOA PROPERTY NEWS14 15

1 Opening the mail

2 Getting restaurant takeout

2 Pumping gasoline

2 Playing tennis

2 Going camping

3 Grocery shopping

3 Going for a walk, run, or bike ride with others

3 Playing golf

4 Staying at a hotel for two nights

4 Sitting in a doctor’s waiting room

4 Going to a library or museum

4 Eating in a restaurant (outside)

4 Walking in a busy downtown

4 Spending an hour at a playground

5 Having dinner at someone else’s house

5 Attending a backyard barbecue

5 Going to a beach

5 Shopping at a mall

6 Sending kids to school, camp, or day care

6 Working a week in an office building

6 Swimming in a public pool

6 Visiting an elderly relative or friend in their home

7 Going to a hair salon or barbershop

7 Eating in a restaurant (inside)

7 Attending a wedding or funeral

7 Traveling by plane

7 Playing basketball

7 Playing football

7 Hugging or shaking hands when greeting a friend

8 Eating at a buffet

8 Working out at a gym

8 Going to an amusement park

8 Going to a movie theater

9 Attending a large music concert

9 Going to a sports stadium

9 Attending a religious service with 500+ worshipers

9 Going to a bar

LOW RISK

MODERATE RISK

MO

DERATE-H

IGH

MO

DERATE-LO

WH

IGH

RISK

BE INFORMED: Know Your Risk During COVID-19On a scale of 1 to 10, how risky is...Ranked by physicians from the TMA COVID-19 Task Force and the TMA Committee on Infectious Diseases

@texmed @wearetmawww.texmed.org

Texas Medical Association | 401 W. 15th St. | Austin, TX 78701-1680

DO YOU WANT TO INCREASE YOUR KNOWLEDGE AND SKILLS IN THE PROPERTY INDUSTRY?

SAPOA is proud to collaborate with Wits Enterprise to bring you the following series of online Real Estate Courses

Please contact Mafonti Morobi, SAPOA Education Officer at eduofficer@sapoa.org.za for more information or Jody Soombur, Wits Enterprise – Short Course Support Coordinator at jody.soombur@wits.ac.za

Introduction to Real Estate (IRE)03 August -28 August 2020

Real Estate Investment Analysis 03 August - 28 August 2020

Building Services17 August - 11 September 2020

Real Estate Market Analysis (REMA)24 August - 18 September 2020

Real Estate Finance (REF)24 August - 18 September 2020

Commercial Real Estate Valuation (CREV)07 September – 02 October 2020

Real Estate Corporate Finance (RECF)05 October - 30 October 2020

Facilities Management (FM)26 October – 30 October 2020

Please click here for more information and to register

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Now Online!

SAPOA PROPERTY NEWS16

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