Untapped potential offers hope

The global economic crisis has no doubt had a negative impact on the property sector and the number of estate agents has reportedly shrunk from about 80 000 in 2008 to half that today.

Similarly, the contribution to gross domestic product has fallen by an even greater margin.

Despite the downturn, there is a strong feeling in the Department of Human Settlements that tremendous potential exists because of the historical structure of the property market. Key among these opportunities is the unleashing of the so-called dead capital represented by properties to which owners have been unable to acquire legal title.

Presenting an overview of the industry's economic impact, Samson Moraba, chief executive of the National Housing Finance Corporation, said the property sector was worth R4.9-trillion, of which the residential sector constituted 67%. The shrinkage in the market was evident, however, in the industry now contributing 3% to South Africa's GDP, down from 8.3% in 2009.

The construction and development sector remained the second largest employer and therefore worth preserving and nurturing.

Moraba said the government represented a significant driver in this market because it contributed between 40% and 45% of the annual construction expenditure.

The commission on the industry's role as an economic driver deliberated on ways to maximise this potential in this context.

It was acknowledged that greater inclusion in the industry could significantly increase its contribution to economic growth by expanding potential wealth creation through property ownership, as well as exploring the latent potential that lay in effective partnerships with public sector entities.

Should this potential be realised, it could translate into meaningful business opportunities for small and medium enterprises. The commission reported that the lack of transformation and broad-based participation was a significant hurdle — black professionals comprised only about 10% of the real estate industry.

The causes are both historical and systemic; for example, the remuneration model excludes entrants without the means to support themselves in the start-up phase and there are inordinate delays in the issuing of rate clearance certificates.

It was therefore recommended that new models for enterprise development be considered that draw on the inherent opportunities in the public sector, both from a funding or subsidy point of view and in the creation of market access.

Such schemes could involve a review of the remuneration model for estate agents, including the possibility of developing a mechanism through the Services Seta to fund new entrants in the market.

No concrete proposals were produced on how to leverage the government's property portfolio and needs, although it was suggested that the State be engaged to explore such possibilities.

To gain a clearer picture of these opportunities and possible remedies, the commission suggested that a scoping exercise be undertaken to identify key impediments for small and medium enterprises in the industry.

Linked to this issue of enterprise development was the view that the Estate Agency Affairs Board should consider splitting its role as both player and referee by restricting its mandate to that of regulator and that a unified national body be established to represent industry interests.

The commission also said the legal review now under way had to limit the onerous conditions placed on the industry. The volume of the regulations, as well as strict clauses in laws such as the Consumer Protection Act, were seen to be restrictive and detrimental to industry growth.

These challenges, it was suggested, could also be overcome through improving the regulation of the industry by giving real teeth to sanctions against illegal and unethical operators and by fighting the creation of monopolies. But none of these measures or interventions would have any real impact on the market unless ownership and the path to ownership were transformed.

This related to both the "dead capital" in the township market and the attitude of financial institutions to properties located there.

The commission said all properties in predominantly black areas should ideally be owned unambiguously, thereby allowing owners to let, inherit or mortgage land. It was proposed that such transformation be expedited through a process that places no further financial burden on the owners, specifically in terms of arrears rates, rents and other charges.

Professional services provided by lawyers, planners, surveyors and accountants should also be provided pro bono or at substantial discounts to enable a positive outcome.

Other current requirements such as electricity safety certificates and building plans should also be abolished to expedite this process.

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