DFID Learning Event
Urban Property Rights: Sharing Lessons from
the Urban Land Market Programme Southern
Africa
Lessons on Property Markets
Rob McGaffin
[Urban Land Markets Programme
Southern Africa]
Context:
• Rapid growth of urban populations and rapid increase in the
demand for services in cities
• Depressed global economies, the search for yield and growing
African economies 3 – 5%
• Changing global power structures and interests – “land grabs”
Can markets enhance and use this economic growth to create and
capture value needed to meet the challenges posed by this
urbanisation?
….because they can’t outbid other users
…cost ± R18 000/m2 to build here
R10 000
R3 500
…can afford to rent 5m2 in the inner
city…if you can find it.
(Wolfe,2011)
Create entry points for powerful players
BBC Headlines:
“Ethiopians 'forced off the land' - 17 January 2012”
“Analysis: Land grab or development opportunity? - 22 February
2012”
“Ethiopia claims 'land grabs' benefits - 10 June 2011”
“Hedge funds 'grab' Africa's land - 08 June 2011”
“Land grabs – the new scramble for Africa - 26 July 2012”
YES
To survive in urban spaces, one has to transact. The degree that
markets allow for a fair and efficient transaction, then they play
a positive role in allowing people to engage with the
opportunities created by urban agglomerations
But KEY points need to be recognised:
• Markets are socially-constructed institutions that can be…and
are… moulded
• Markets are made up of a series of sub-markets that vary in the degree that they are regulated – Therefore, the informal/formal destinction is not useful
– Therefore, need to use the same concepts used in formal markets to understand and engage with them e.g. rent
• rent is a function of gross profit and therefore turn-over
Jeppe Street Traders:
(Research/Photos: T.Zack)
….outbid other users by paying 4 x premium retail shopping centre rental rates!
….how?
Occupy minumum (expensive) high exposure
space - ± 2 – 4m2
Maximise turn-over by supplying wholesale
to a market not serviced by the mainstream
retailers
• Transcations are not always driven by price and financial motives…socially-driven markets are important
…but financial and non financial motives and drivers do intersect…
…historically low barriers to entry in the
spaza market are due to collusion in price setting
…competitive price setting by survivalists is
seen as unethical and unfair. Instead, traders
compete through non price mechanisms such
as location, product presentation, customer
engagement. Entrepreneurs, in contrast, were
known to use price competition and bulk
procurement strategies to compete aggressively
with local spaza shops. (Chalmers et al,2012)
Non market mechanisms have their problems…
• Lack of funds and capacity
• Very difficult to allocate fairly
& efficiently
News24
26/9/2011
Free housing not sustainable… Human
Settlements Minister Tokyo Sexwale said in
Cape Town on Monday…
• Produces a standardised &
inappropriate product
Current complexities and rapid scale of development means we
need a new set of “universal” rules of the game that facilitate
transactions
For these rules to be relevant and affordable, they need to
address broader structural elements that protect vested interests
and they need to draw on local innovations and practices
However, these new rules need to be designed such that they
relate and work for the entire spectrum of actors/agents involved
It is therefore important to understand how the various urban
land markets work
Therefore, a key element of ULM’s work has been to be
understand how these markets work and the role they play in
value creation
Growing recognition that to address issues of urbanisation and
poverty, need to increase the value base and allocate it
differently…
Value is however not created without investment...a growing
realisation…
Therefore, we need to increase investment but we also need to
focus this investment wrt the actors (HH, communities, enterprise
and state) for the following reasons:
• The scale of the issue…therefore, need to tap into all
available resources
…..especially in a context of a diminishing public funding base….
Gordhan to crack whip on soaring state costs
“Unlike previous years when the policy statement increased the
main budget’s spending allocations, there will be no upward
adjustment of the 2012 budget’s spending of R1.15-trillion….”
(BD,28/10/2012)
• Households do have some means to contribute to their needs
....but are we creating the conditions and incentives for them to
do so?
• Inequality has a spatial dimension...by definition one needs
geographically targeted (“localised”) investment to break
this pattern
It gives the “localised” investor the right to claim the value
created by the investment….let the poor become “shareholders”
ULM markets theme has undertaken a further number of research
pieces to better understand how markets work and how they can
facilitate the investment process….
(Rode, 2009)
Move people to the opportunities…or opportunities to the
people…or both?
Soweto
CBD
Location is important because where
your rights are realised impacts on
your ability to access the city
(Rode, 2009)
BRT Line: CBD - Soweto
….can infrastructure, and the value created, be used to improve
the access of the poor to the city?
Bus Rapid Transport System
(Rode, 2009)
BRT Line: CBD - Soweto
….can infrastructure, and the value created, be used to improve
the access of the poor to the city?
Logical Points of Investment?
Create new points of investment or use
infrastructure investment to open up existing
opportunities in the city
Value Creation
Need to change the economics of the site
…and the development conditions (land, zoning, services etc.)
need to be in place to maximise the value creation.
If, for example, the upgrading of a
rail station does not alter the
number of computers passing
through the station, or the level of
spend of the commuters in the
adjacent area, or the number of
commuters wanting to live near to
the station,
…..then the level of value add as a
result of the station upgrade is
likely to be low.
Value Measurement
Need a method that:
• Enables one to “get ahead of the curve” to secure the capture
point
• Enables one to intervene in the value creation process
Value Capture Mechanisms
• TOD
• Land Banking
• Zoning Tools
• Air Rights
• Business Improvement District
• Development Contributions
• Land Value Increment Taxes
• Land Increment Financing
Legal Context
• Republic of South Africa Government Gazette – The Constitution of the Republic of South Africa (108 of 1996). Gazetted December 1996.
• Republic of South Africa Government Gazette – Public Finance
Management Act (29 of 1999). Gazetted April 1999.
• Republic of South Africa Government Gazette - Local Government: Municipal Systems Act (32 of 2000). Gazetted November 2000.
• Republic of South Africa Government Gazette - Local Government:
Municipal Finance Management Act (56 of 2003). Gazetted February 2004.
• Republic of South Africa Government Gazette - Local Government:
Municipal Property Rates Act (6 of 2004). Gazetted October 2006.
• Republic of South Africa Government Gazette - Municipal Fiscal Powers and Functions Act (12 of 2007). Gazetted May 2007.
• Republic of South Africa Government Gazette - National Land Transport
Act (5 of 2009). Gazetted April 2009.
• Republic of South Africa Government Gazette - Department of Rural Development and Land Reform. Spatial Planning and Land Use Management Bill (B-2011). Gazetted May 2011.
Taxes and levies Statutory or compulsory, enforced by legislation.
Beneficiaries constitute a distinct group of individuals.
No direct benefits accrue to individual beneficiaries in exchange for payments made (benefit
principle only applies broadly).
Government departments or agencies decide upon the purpose for which the revenue is spent.
Normally used to mobilise general funding for programmes or services which provide general
benefits shared by a group of beneficiaries.
‘Free rider’ problem exists, whereby some may receive greater benefit than others, or than their
payment justifies.
User charges and
administrative fees A marketable good (in the case of user charges) or a service (in the case of administrative fees) is
provided to an identifiable beneficiary.
Payment is required for the provision of those certain government goods and/or services.
Direct benefits accrue to beneficiaries in exchange for payments (individual benefit principle).
Voluntary; transactions take place in a willing buyer market.
Revenues are earmarked or ring-fenced, by definition.
Amount charged should not exceed average cost of the good and/or service. The level of user
charges and administrative fees should also be set taking into consideration beneficiaries’ ability
to pay.
Sapoa mulls court action on surcharge
March 12, 2012 IOL News
The South African Property Owners Association (Sapoa) is on the
verge of taking the eThekwini Municipality to the High Court in a
legal effort to have the development surcharges that are being
levied against property developers declared illegal and thus
withdrawn from implementation.
…importance in roll-out of “Cities Support Programme”
Sapoa challenges Durban property development levy
December 2, 2011 Property News
Value Use
“…..municipalities are becoming increasingly dependent on
national infrastructure grants to fund their capital budgets.
This is not a sustainable trend, because it means the tariffs for
the main municipal services are not covering the infrastructure
costs of providing those services.
There is also a concern that the use of conditional grants by
national government reduces municipalities’ scope to set their
own expenditure priorities, and thus weakens their
accountability to local communities”
A riot police officer attempts to take cover behind a passerby making a
recording of the scene on his mobile phone, from protesters throwing
stones during a student demonstration against what they say is the poor
service of the TransMilenio bus rapid transit system in Bogota on March 9.
(http://photoblog.msnbc.msn.com/_news/2012/03/09)
Key Lessons:
The impact and viability of many VC mechanisms, as well as their
ability to promote pro-poor outcomes, is dependent on the nature
of the mechanism and the context (location and timing) in which
they occur.
As a result, VC is not a panacea for solving all poverty and poor
city structure problems. Under certain circumstances, different
VC mechanisms have the potential to be used as a strong
developmental tool but under other circumstances their impact
will be limited.
It is therefore important that one firstly, understands the context
and the nature of the problem. Secondly, the nature of the
mechanisms and the conditions for their success and thirdly, how
they can be used to overcome the identified problem.
Jabulani Mall Dennilton Moutsi Mall Thohoyandou Mall Katlehong Shopping Centre Giyani Shopping Centre Tsakane Mall Atteridgeville Mall Khayelitsha Gugulethu.............
Retail is one of the few significant forms of investment occuring in the emerging market areas in our cities
Mixed Response
“The people of Alexandra will fight for what belongs to them. We will cripple the tenants until they leave.” said Makgoka. (Soweton, 15 June 2009)
Vs
Tebogo Mogashoa of Pan Africa Development Company says, “Pan Africa Shopping Centre represents the dreams and aspirations of the Alexandra people. We developed it for them.” (Eprop, 18 August 2009)
Study Findings
Generally positive wrt consumers
• Decrease in external shopping from 55% - 38%
• 71% of formal shopping done at new centre
• Travel time to formal centres dropped by 57%
• Travel time to small businesses dropped by 25%
• Travel costs to formal centres dropped by 36%
• Travel costs to small businesses dropped by 21%
• 75% said that the centre made more, and a wider range of,
affordable goods and services available locally
• 79% said that the centre provided a safe and secure retail
destination
• 83% perceived the need for the centre to expand
Can play a positive anchor tenant role for small enterprises and
nodal development
• 75% saw growth of 5-10%, 25% saw a decline of 5-10%
• …apartheid dormitory
towns with no economic
logic
…create points of
investment
However, can be exclusionary
• Employment – 64% (same), 14% (inc), 22% (dec)
• Profit – 40% (same), 31% (inc), 29% (dec)
• Turn-over – 42% (same), 29% (inc), 29% (dec)
• 73% perceived a decline in support of local businesses
Key Lessons:
• Develop as part of a precinct/node where local authority can
protect & enhance local rights & maximise leverage
opportunities
• Use “design” best practice that understands trading models
• Understand business models
– Need for flexible space
– Provide smaller space (rent and stock)
– Service wholesale needs e.g. learn from local practices – Jeppe Street
Concluding Lessons
• Markets are socially constructed institutions that can facilitate transactions, investment and prosperity in cities
• They impact on everyone and are used by everyone
• They can support vested interests and perpetuate inequality but they can be…and are…adapted to improve the access of the poor to the city
• They are made up of a complex arrangement of sub-markets that interact, support and conflict with each other
• Delineating them into formal and informal are not useful ways to understand them and to identify the points of entry to improve them
• They are key to faciliting investment in cities by individuals, households, communities, enterprises and the state, which is critical for development and socio-economic mobility in our cities
Further Work
• Implement lessons learnt • e.g. National Treasury “Cities Support Programme” – Value-capture
• Implement pilots to develop capacity and “know how” • e.g. Tax Increment Financing
• Continue to develop & implement tools to rapidly assess land markets
• Continue to develop private sector interface dash-board of local property markets (al+hdc)
• Continue to understand the relationship between governance models and the operation of the market
• Continue to advocate markets message