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?

NO markets exclude the poor…...

(City of Cape Town, 2011/2012)

….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 everywhere

(Lightstone, 2011)

• 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

• Value must be defined beyond pure financial…

• The “private sector” includes indivuals and households

• 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?

• Tap into local knowledge and innovation

• 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

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