Public Works committed to improve Government’s leasing deals
Public Works Minister, Thulas Nxesi recently hosted a meeting with media and CEO's of the country’s property companies stressing the need to stamp out corruption in government’s property leasing deals.
Department of Public Works Minister, Thulas Nxesi recently hosted a meeting with media and CEO's of the country’s property companies stressing the need to stamp out corruption in government’s property leasing deals.
The strategic planning session aimed to introduce the industry to departmental property services, the Property Management Trading Entity (PMTE) — and issues discussed included transformation in the property sector, boosting transparency in Government property leasing activity, pricing of leases and rental benchmarks.
PMTE operates as a trading entity within DPW and its mandate includes the provision of accommodation and rendering of expert built environment services to user departments at national government level.
About 56% of Government's leasehold portfolio was above market rental and these rentals were on average 45% above market rentals, according to a study done for the department last year.
One reason for the high portfolio rentals relative to market rentals was the escalation mechanism the department had entered into in the past. This included a gross lease agreement at fixed escalation rates over the duration of the lease.
Nxesi has done a lot of work to improve his department which had been highly inefficient and unreliable.
“Allow me to remind you where we come from as Public Works. When I was appointed Minister at the end of 2011, the Department was characterised by poor management and weak controls resulting in adverse audit findings culminating in disclaimers, widespread corruption and scandals – particularly in the property and leasing environment,” Nxesi said.
Paul Serote, the head of PMTE said these expenditures could be managed through consistent specifications for government accommodation, the alignment of rates to market rentals, and allowing for regular rental reviews possibly every three years, and longer-term leases.
With the state’s immovable asset register and the PMTE in place, the government now had the tools to leverage the state’s property portfolio for economic development, job creation and empowerment, he said.
Minister Nxesi stressed that Finance Minister Pravin Gordhan in the Budget speech had directed all spheres of government to “renegotiate all leases”.
With a leased portfolio valued at about R4 billion a year at national level, the PMTE had a responsibility to positively influence the broader property market and to support transformation so that ownership, management and control better reflected the demographics of the country.
Nxesi stressed that the fact earlier attempts at empowerment in relation to leases came with negative unintended consequences should not deter the government from continuing with its mandate to transform the built environment sector.
“The issue was how to achieve this goal in such a way that resulted in broad-based empowerment that was balanced with other government imperatives, such as cost containment, and priorities, such as rural development, that implied that development was increasingly rolled out outside of the urban centres.
“But we must be very careful that transformation is not just reduced to black and white and what was done by the whites now must be done by the blacks. That is very dangerous,” Nxesi said.
“Transformation is about race but also the content on how things are done. What we are not going to do is to give business to people and they do not perform. There must be value for both government and yourself as property owners,” he said.
The Minister also added that there were significant opportunities for private sector investment in the state’s property portfolio through the development of unutilised government land and buildings, and the building of small to large government precincts and service delivery outlets in small towns and rural areas
Recently his department had strengthened ties with South African businesses especially property institutions which includes Property Sector Charter Council, South African Institute of Black Property Practitioners (SAIBPP) and South African Property Owners Association (Sapoa).
Vuyiswa Mutshekwane, CEO of SAIBPP commended DPW and the PMTE for their commitment to improving efficiency and curbing excess spending.
"PMTE completion of the asset register will facilitate the administration of government properties and serve as an accurate base for their leasing and disposal strategy. We do however lament the challenges that black property practitioners continue to face as a result of the unfavourable lease terms and, we call for the urgent reinstatement of the 10 year lease policy. This will assist black industrialists by providing favourable conditions for long term funding," she said.
