Presented by: Dr. Mahlape Mohale
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Transcript of Presented by: Dr. Mahlape Mohale
Measuring the size of dead capital in Johannesburg Metropolitan Municipality and determining its relationship to poverty levels
ISIbalo Symposium on evidence based decision makingFree State Province
10th-11th October 2013
Presented by: Dr. Mahlape Mohale
1. Introduction 2. Methods 3. Approaches to property markets valuation4. The City of Johannesburg in brief 5. Results 6. Analysis 7. Challenges in measuring dead capital in the
CoJ8. Conclusion
OUTLINE
Majority of the people in the world live in very poor conditions yet there are enough resources to support all the people on this planet. The world's poor control a vast storehouse of assets and resources, which combined with their proven entrepreneurial spirit, can be unleashed to enter the prosperous mainstream economy and eradicate poverty (de Soto, 2001).
1. Introduction
The burden of poverty in developing countries along with the imbalances between demand and supply of houses in urban areas has forced the urban poor to devise their own survival strategies and determine their own spaces in cities. By so doing the urban poor redefined urban space uses and became important role players in the property market that no government in developing countries can ignore (UNHABITAT, 2003).
What is dead capital?De Soto (2000) defines “dead capital” as assets that cannot be used effectively for economic transactions, guarantees, contributions or compensation.
Why the concern about dead capital? Informal dwellings in urban areas regardless of their low quality
are economic goods that have market value They serve large population estimated to be 1billion world- wide Important indicator of inequality in society Residential markets drive wealth generation in a country (UN-
HABITAT, 2009)
Hence measuring the size of dead capital in urban areas and determining its relationship to poverty levels in order to devise strategies to convert it into life capital is necessary.
1. Introduction Cont.
de Soto introduced the “dead capital” debate in 1980s Ddeveloping countries hold vast amounts assets Poverty the result of the inability of actors in the informal economy to optimally utilise
capital goods
Contributing factors include: Dysfunctional property and financial markets and information asymmetry Inability of the state to efficiently and cost-effectively establish property rights
Dead capital is generally linked to informal housing and business Will enable people in the informal sector to enter the formal economy Will mobilise dead capital and provide security of tenure Will bring about market-led land reform and the provision of basic services
Proponents and opponents of dead capital concept Reinforce inequitable land ownership financial exploitation of new property owners Loss of traditional, ingrained forms of tenure Benefits only a few de Soto’s central argument remains uncontested
1. Introduction Cont.
Japan & China
Leveraging land resources for development (de Soto, 2001)“The Western World successfully revolutionized their legal systems, property
laws, and developed the modern corporation that led to high living standards”
“Japan and China instituted private property laws and business reforms resulting in economic development and growth of the middle classes”
“ Assets in the hands of the poor in Europe, Latin America and Asia are estimated to be about US$9trillion”
“Africa has a large and rapidly growing informal residential property market” however there is very little literature on informal residential market in Africa and SA in particular.
1. Introduction cont. International experience
Latin AmericaRevolution Western
World
Africa?
The demand for an inclusive economic participation by the poor is a global phenomenon
Three developmental states of residential market in the CoJ where the assets exist in many forms:
Stage 1: DEAD CAPITALHousing assets that are only used for shelter
Stage 2: HYBRID (DORMANT/SLEEPING) CAPITALHousing assets that are used for shelter and to supplement income for subsistence. The income derived from rentals is used to support the households and keep them just above the poverty line.
Stage 3: LIVE CAPITALWhen housing assets are used for other purposes beyond shelter and subsistence, such as financing enterprise development. The sources of credit for this come from both formal and informal financial sectors.
1. Introduction Cont.
The City of Johannesburg (CoJ)
Formal residential houses – Soweto
Figure 1: Types of housing settlements in CoJ
The changing face of black residential market in CoJ
Figure 2: Residential flats in the CBD – Hybrid residential market
Mixed use flat, Low income group flat and gentrified flats in Hillbrow
How do the poor respond to the urban environments
Alexandra near Sandton City Johannesburg
Figure 3: Types of housing settlements in CoJ
2.1 Study area: Black residential areas in the City of Johannesburg (Black & Coloured)
2.2 Sources of data a) Secondary: The CoJ Valuation Register Roll
update 2004Stats SA -Censuses, LCS, IES and Poverty Measurement
b) Primary data – 1100 DU from 33 sub-place names 2.3 Analysis
Qualitative and quantitative methods
2. Methods
Figure 4: City of Johannesburg - main place
Figure 5: City of Johannesburg - Settlement types
Source: Stats SA, Census 2011 results 2012
Figure 6: The location of black residential areas in the CoJ relative to the CBD
Different methods for formal and informal property valuation USA -uses the Cost, the Sales Comparison and the Income approaches. The United Kingdom uses Comparative, Investment, Residual Profit and Cost methods Germany according to Schulz (2002) Net Present Value (NPV) and Capitalization method Other approaches especially in mass appraisals of homogeneous settlements are Automated Valuation Models (AVM) that
uses statistical models such as multiple regression analysis or geographical information systems. AVM may not be appropriate for estimation of property values in informal settlements because they are heterogeneous in terms of plot sizes, dwelling unit sizes and construction material used.
The formal market a) NPV is the ratio of benefit to cost, derived by subtracting costs from benefits in money terms. Usually used
for capital investments and less so in real estate investments.
Where: - C0 = Initial investment
• C = Cash flow r = Discounted rate
T = Time
b) Cost capitalization method uses a calculated rate to determine current value of property based on income.
CR = expressed as a ratio or percentage
where CR is cost capitalization rate sale price is the most recent sold price of a property Net income is rental income less expenses
3. Approaches to property markets valuation
c) Owner valuation method for informal property market & poverty estimates The Informal market valuation
Steps in calculating dead capital i) Average CoJ Registrar Roll value (A) = ii) Average owner estimated value (B) =iii) Establish the extend of the difference between average value of property and
average annual income (C) = (A)-(B)iii) Determine % difference (D) = (C)/(A)iv) Absolute value of differences (E)v) Absolute value of differences as a % of mean Register value(F) = (E)/(A)vi) Pearson correlation coefficient vii) Sample size (N) for all settlement types
Dead capital Q = E x the number of DUs NoteCalculate the vale according to settlement type
3. Approaches to property markets valuation cont.
4. The City of Johannesburg in brief Biggest city in SA with 4 434 827people (37.5% of Gauteng)
Area = 1645km2
Most densely populated city in SA at 2696people /Km2 (all) however for blacks the pop. density is 10 329people/km2
Economic hub of South Africa contributing the biggest share of Gauteng’s 36.4% GDP 130 wards of which 82 are mainly black residential areas Occupying 352km2 (20.4%)
of the CoJ’s 1645km2 land mass. Majority of black people resides >20km away from the CBD. Only a small percentage
stay in CBD 1 434 856 households - 1 173 562 in formal residential areas and 249 823 in the
informal residential areas. Blacks and coloured households make up 81.3% (1 166736) & the average household
size is 3.18people No. of DUs in formal backyards (90 587 formal structures & 122 869 Informal )
Black coloured Indian/Asian white Other Total
3 388 208 247 463 216420 544 597 37 696 4 434 827
76.4% 5.58% 4.88% 12.28% 0.85% 100%
Qualitative CoJ a classical apartheid city No transformation in settlement patterns
in the CoJ. Blacks still stay on the periphery of the city
- poorly serviced areas in some parts. Almost every former apartheid era house
in Soweto has been upgraded Mixed social classes coexist in harmony in
black areas as illustrated below.
5. Results
Apartheid era government houses in Mapetla SOWETO
5. Results cont.
Figure 7: Mixed social class housing in Soweto
Apartheid era house not upgraded but with a new perimeter wall
Upper middle class houseLower middle class house
High income group houseEntire street with middle class houses
Legal framework - a mixture of both de juro and de facto Political support for the urban poor is strong Distance from the CBD residential areas are located > 20km form CBD Settlement types- Formal and informal, single sex hostels and in the
formal areas there is mixed social classes in all areas, informal houses in both formal and informal settlements
Characteristics of houses- Same size of stands, same valuation by CoJ regardless of upgrades and backyard structure
Economic activities •Income levels are low•Economic structure dominated by informal sector mainly trading in food staff
and soft goods; property rentals; construction; services, metal works and transport (taxis)
•Transport system Environmental care• SOWETO is surrounded by mine dumps that release a lot of dust to
residential – high prevalence of Asthma and respiratory diseases• Sporadic green parks and public gardens in the formal areas and none in the
informal.
5. Results cont. Qualitative results
Black Coloured Indian/Asian White Other Total0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1107232
59504 57079
202904
8136
1434856
857409
57355 56648
202297
6901
1180610
245395
2149 338607
1235
249724
Total
Formal
Informal
Source: Census 2011
Figure 8: Settlement type by race in City of Johannesburg
Quantitative results 5. Results cont.
Figure 9: Household tenure status for Blacks and coloureds
Rented Owned but not yet paid off
Occupied rent free Owned and fully paid off0
100000
200000
300000
400000
500000
600000
509874
221831
148942
293377
39720
9041
6395942103
549594
230872212901
335480
Tenure status for black households in JMM
BlackColouredTotal
Source: Census 2011 results
5. Quantitative results Table 1: Average valuations by settlement type
Table 2: Summary statistics
Settlement type
Range of the Register Roll Valuation(R’ )
Ave. Register Roll valuation (R’)
Range owner’s valuation (R’)
Ave. owner’s valuation (R’)
Ave. owners rent value p.m. (R)
Ave. No. backyard DUs per stand
Formal houses
80000 to 300000
158 000 150000 to 600000
350 000 2 300 3 @ R300/unit
Flats 80000 to 300000
158 000 110000 to 300000
250 000 2 300 0
RPD houses 0 to 75 000 75 000 75 000 75 000 1 200 2 @ R300/unit
Slum/ Alex 0 to 1 350 000
Data is not consistent therefore cannot be used 25
Informal 0 0 2100 to 12500 6 000 300 2@ R150/unit
Settlement type
No. of DUs (A) (B) (C) (D) (E) = (E1 +E2)
Formal 914 764 158 000 350 000 -192000 -121.5 (E1 )192000
Informal 247 544 0 6 000 -6 000 0 (E2) 6 000
5. Results cont. To estimate the value of dead capital in CoJ the absolute value of the difference (E) is multiplied by the number of households that are not participating in the formal property market. Let (R) be number of informal DUs = 124 675
(S) = 230 872 be the number of formal DUs that are Owned but not yet paid off (meaning they are bonded) and
(T) = 470 433 be the number of formal households not participating in the formal property market less backyard DUs where the No. of formal DUs in the backyard = 90 587
and the no. of informal DUs backyard = 122 869therefore T = 683889- 90 587- 122869 = 470 433
E1 = The absolute value of the difference for the formal houses and
E2 = the absolute value for the informal houses (stands) Then
The total number of DUs that form dead capital are (P) = (R) + (T) = 124 675 + 470 433 = 593 103Where (q1) is the value for the formal housing (q1) = (E1) x (T), which is
= R192 000 x 470 433 = R90.323trillionand (q2) is the value of the informal housing (q2) = (E2) x (R), which is
= R6 000 x 124 675 = R0.748 billionTherefore (Q) The value of dead capital = (q!) + (q2)
= R0.748billion + R90.323trillion
= R91.071trillion
Black residential areas most compacted >10 000people /sq.km High rental stock – rental market vibrant (44.3%) stay in rented DUs There is security of tenure in black areas both de jure and de facto
yet poverty levels remain high Assets held by blacks are undervalued by authorities and the market Participation of blacks in formal property market remain low (20%) Information asymmetry is one of the factors contributing to market
distortion Informal housing -
The property and rental values of the structures are underestimated by owners. Prices covered only construction material thus excluding labour cost, land, services provided.
Alexandra is a slum proximal to one of the most prime areas in the CoJ. With huge potential to be transformed into a high market residential area for blacks provided they do it for themselves.
6. Analysis of Results
7. Challenges in measuring dead capital in the CoJ Gaps in literature Lack of direct measurements of dead capital. The form of SA cities - the legacy of apartheid and
lack of transformation in land use. Complexity of the informal residential sector and
emerging global issues beyond. formalization- inclusivity, consultative, and participation in decision making .
The asymmetry of information. Unavailability of data at small areas’ level. The continuous flux of the informal sector.
Dead capital - storage of value and wealth for the poor in JHB, GP and SA
Poverty in CoJ is much lower than other parts of the country The current economic model remains the main stumbling
block in unlocking potential for HIDs to prosper The Western world system’s failure to fully understand and
recognise the operations of social systems and economic dynamics in the developing world has locked out of the main stream economy the value of assets that are in the hands of the poor. As de Soto (2001) puts it: “extending the benefits of the market economy to those
living in the informal world will require an understanding of the underlying causes of informality in order for nations to adopt comprehensive and inclusive policies”
From dead capital to live Capital Capitalizing the assets and resources that are in the hands of the poor can unshackle the urban poor from the chains of poverty.
8. Conclusion
From dead capital to live capital Formalization of tenure Alternative legal system that combines the African land
tenure system (traditional/customary law) with the Western world property law.
Institutional transformation Social capital developmental approach to poverty
reduction Environmental protection for sustainable development. Developing credit facilities for informal property market
What is the situation in the Free State?
From dead capital to live Capital
8. Conclusion cont.
Mangaung Metropolitan Municipality
Source: N. Chobokoane ISIbalo presentation
Compactness
Source: N. Chobokoane ISIbalo presentation
Density
Source: N. Chobokoane ISIbalo presentation
THANK YOU
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References 1. De Soto, H. (2000) The Mystery of Capital: Why Capitalism Triumphs in the
West and Fails Everywhere Else. 1st Ed. New York Books. Pp20-80.2. http://digitalcommons.liberty.edu/gov_fac_pubs/173 Samson, S.A. (2004) HERNANDO DE
SOTO: CITADELS OF DEAD CAPITAL, STUDY GUIDE, 2004. Accessed 08/07/2012. 3. http://digitalcommons.liberty.edu/gov_fac_pubs/173 Samson, S.A. (2004) HERNANDO DE
SOTO: CITADELS OF DEAD CAPITAL, STUDY GUIDE, 2004. Accessed 08/07/2012.
4. UNHABITAT, Report 2/2012, Designing a land records system for the poor. 5. Rakodi, C (1992) Housing Markets in the Third World Cities: Research Policy
into 1990s. World Development, Vol. 20. No. 1 pp 39-55. 6. Durand-Lasserve, A. and Selod, Harris (2007) The formalisation of urban
land tenure in developing countries. World Bank’s 2007 Urban Research Symposium, May 14-16, Washington DC.
7. Statistics South Africa’s several releases: Census 2011, (2012)Measuring poverty in South Africa: Poverty lines for statistical reporting. Technical Report. November, 2008.Income and Expenditure of Households 2010/2011. (6 November, 2012)
Living Conditions of Household in South Africa 2008/2009. (2011)