/ 23 July 2015

When good property turns bad

When Good Property Turns Bad

Big locks and chains clutch closed the gates to the Ridge in Berea, Johannesburg, and guards armed with sjamboks and safety horns stand watch.

Just a few days ago the occupants fled the 245 units when security personnel and the sheriff of the court issued a hard-fought eviction order.

Today the scene is quiet by comparison. Inside, and after a clean-up, the units look better than they did right after the eviction.

Even so, water damage is extensive. The windows are mostly broken and cupboard doors are either falling off or gone. In some rooms, only pipes remain where the sinks have been ripped from the walls. The communal bathrooms on each floor are trashed and the toilets are in pieces. The smell of urine is inescapable.

The owners of the building, a company formed by a group of entrepreneurs, lost out on rentals of R375 000 a month for a period of six months. And they are liable for the electricity bill racked up over that time.

The owners are assessing the extent of damage to the building and will decide whether to restore the building or to cut their losses and walk away from their investment.

Increase in activity
The Ridge is one of several buildings that had fallen victim to hijacking in what is believed to be an increase in the activity in the inner city of Johannesburg.

The total number of hijacked buildings in the inner city is unknown. Estimates vary from tens to hundreds. The City of Johannesburg said 19 properties were reported to the department as hijacked during the 2014-2015 financial year. It added that the Hawks were investigating 11 property hijackings. 

Hawks spokesperson Brigadier Hangwani Mulaudzi told the Mail & Guardian that the Ridge and Chung Hau mansions were among the 11 or more properties under investigation by the Hawks building hijacking team.

But numbers may be much higher. In a recent document, the Inner City Property Scheme (ICPS), a City of Johannesburg initiative, estimated that 400 buildings in the inner city are hijacked.

A hijacking is the illegal dispossession of lawful owners of the right to use and benefit from their properties, by which the hijackers seek to impose themselves as body corporate or agents of the property, according to the ICPS.

In some instances the hijackers hire a security company to intimidate and assault residents who do not want to pay them, the ICPS said.

Private sector experts in inner city housing said the incidence of building hijackings had been on the decline, until recently.

Mzansi Progressive Movement
A group known as the Mzansi Progressive Movement are said to have, over the past 18 months, successfully hijacked a number of buildings, including the Ridge.

The group is said to align itself with the South African Communist Party, but the spokesperson for the SACP, Alex Mashilo, said he had no knowledge of the Mzansi Progressive Movement. He added that the SACP would be opposed to the hijacking of buildings as part of its aim to fight crime and corruption.

Paul Jackson, the chief executive and founder of the Trust for Urban Housing Finance (Tuhf) – a financier of reasonably priced housing projects in areas of urban decline – said it had helped finance the company that owns the Ridge, and consequently had a first mortgage over the property.

Jackson said the Ridge was the first building on its books that had been hijacked in Tuhf’s 12 years of existence. “We were aware something was happening late last year and on January 4 this year we moved to change our managers and security at the Ridge. When we tried to do that we were forcibly and violently stopped by a group of people, a lot of people, dressed in SACP shirts,” Jackson said. “The tenants at the Ridge were requested and then required to pay rent to the hijackers.

“We have evidence of forcible requirements to pay R1 000 per unit per month … we are not talking small change.”

Rent collection drive
Jackson said the alleged hijackers are believed to have gone on a very strong rent collection drive before the eviction took place, “so there is an enormous amount of frustration when the Red Ants [private security personnel contracted by the sheriff to evict illegal occupants] show up, because people are paying rent”.

A number of contempt of court orders were obtained and even one warrant for imprisonment, but opposition from the Mzansi Progressive Movement saw the matter drawn out in court until the sheriff moved in on July 14.

Once a respectable building, the Ridge in Johannesburg today bears the ugly scars of hijacking and neglect. (Photos: Nicholas Pfosi)

Jackson said the owners were now responsible for the electricity bill. They had not asked for the electricity and water to be cut off; doing so presented more potential for damage to the building because occupants would light fires in the buildings or use the fire hydrants to get water.

Even so, the damage could see the investment under water.

Mendel Goldman, managing member at Zahavi Estates, has also been affected. “We have had two attempts in the last three months where different groups of people have come into our buildings wearing SACP shirts and offering our tenants free housing and handing out literature.”

Shoe manufacturing
Another recent case of hijacking jeopardising inner city investment is the case of Phindi and Tshepo Kgaudi, who were unable to occupy two inner city buildings they had purchased to house their successful and expanding shoe manufacturing business.

With no joy from the City of Johannesburg and the cost of rates, taxes, water and electricity bringing the couple to financial ruin, the Kgaudis approached the public protector. In December 2014 the protector released its report entitled Broken Promises, but fresh concerns have been raised because the city has failed to act on the recommendations as yet. (See below.)

A major consideration for potential investors in the inner city is that the process to evict occupants from a building has become increasingly protracted since a number of landmark court victories have relied on the right to housing, enshrined in the Constitution, to prevent evictions. In one prominent matter the courts declared the city responsible to provide alternative housing, particularly for the destitute, in the case of an eviction.

Goldman got into the property game in 2002. He bought a number of already hijacked buildings in the inner city because he could acquire them very cheaply. “The first one or two evictions were benign. We gave notice and they moved out. As a result of that I landed up buying quite a few hijacked buildings, not realising it would become a contentious issue.”

Later, three of Goldman’s buildings were entangled in court battles for two or three years. “I wasn’t expecting it, it was a major strain on my business. It could have sunk me.”

Former church
One property, formerly a Methodist church on Wolmarans Street, was purchased by Goldman in 2007 because an outflow of sewage from it affected the neighbouring building that he owned. But eight years later it remains illegally occupied.

Various attempts to clear the building have been unsuccessful and the city has disconnected the electricity, including illegal connections, on many occasions.

“I’ve seen a difference. It was easier to get an eviction order back then – but it wasn’t easy then either. It may have taken two or three years, and was opposed at every turn, but at least eventually you knew you would get it,” said Goldman.

The requirement for the city to provide alternative accommodation, means “from my experience, we are basically at a deadlock until the city council does so”, said Goldman. “Indigent people or not, it is difficult to prove otherwise and it is difficult to access their information.”

Goldman is no longer in the market to turn around such buildings.

Developers and investors
The Johannesburg Property Owners and Managers Association represents roughly 40 developers and investors in affordable housing in the inner city. They own about 50 000 housing units that are occupied by as many as 250 000 people, said the association’s chairperson, Renney Plit. The investment represented by the association’s members is an estimated R10-billion.

Plit, who is also chief operations officer at Afhco, the leading inner city property development and management group, defined a bad building as that which is “totally out of control, where there is no management taking place, there is no maintenance taking place, typically some gang controlling it, and it has become a sinkhole in the precinct”.

Those, like Plit, who have been working in the field of inner city property development (and redevelopment) for decades, agree that the problem of hijacked buildings used to be far worse in the 1980s and 1990s when historical investors exited the city. Good buildings went bad as a result of neglect.

“With many of these old family-owned buildings, people became too scared to come into the city to manage the building, or they lost the ability to collect rent and, in many cases, just walked away from it,” said Plit. “People disappeared, the original owner passed on, maybe the building is in a family trust. But they lost the ability to generate income. They simply became too scared to go there.”

Many corporates also left the city for greener pastures – and, at the time, lower rates – in Sandton.

‘Big man with a gun’
Greg Vermaak is an attorney who has for 20 years specialised in hijacked buildings in Johannesburg through his property protection practice, and has acted on behalf of property owners, including the Ridge. “Somebody inherited these buildings, generally it was a community. So it was ripe for some big man with a gun to come along to say ‘I’m in charge now, and you will pay me rent now.’?”

The city council started tackling bad buildings in 2001. “The intervention showed investors the authorities weren’t going to abandon town,” said Vermaak, who personally closed down hundreds of such buildings.

The city was stopped from this anti-bad building drive by the Constitutional Court, which handed down a judgment that a public sector body can’t evict indigent people without providing alternative accommodation.

Paul Jackson, of a housing finance trust, said cutting off water and electricity could cause damage to the buildings.

“By then the area was already on the up, so wasn’t a big problem for investment. But the city now knows if it takes action it faces potential action to provide alternative accommodation, so it has had to be careful,” said Vermaak.

The uptick in hijackings over recent months differs from decades before, in which poorly managed buildings were targeted and rental collection happened down the barrel of a gun.

“You almost never get an armed hijacking these days – what you do get are committee hijacks where a tenant committee comes to a manager and says it is not satisfied and takes over.”

‘Somebody is collecting rent’
Regardless of how a takeover occurs, “make no mistake, somebody is collecting rent in every building, every shack, every piece of open land, in every bus shelter in this country”, Vermaak said. In some buildings hijackers could be pulling in half a million a month: “It’s big money,” says Plit.

While there have been major improvements over the past decade, property owners say the existence of bad buildings continues to hold back the regeneration of the inner city.

“In the fashion precinct there are two or three hijacked properties and it is a disaster. The churn of tenants [in the surrounding buildings] is excessive,” says Plit. “You are trying to uplift this area … but then you have these buildings in the centre that are crime havens and have sewage running out of them … It’s getting better but we have to fix this problem.”

Jackson said he thought the city was relying excessively on private investors to sort out the inner city blight.

“This kind of thing can set back the inner city regeneration by years and year and years.”

“Tuhf has invested over R2-billion in City of Johannesburg and if the city regresses, our business regresses and the business of our clients,” Jackson said. “This thing is so nebulous: who is representing who? Who has what legitimacy? Why does this thing take so long? We don’t necessarily have the answers but we have some very serious allegations.”

Dedicated office
Spokesperson for the City of Johannesburg, Nthatisi Modingoane, says the city has a dedicated office working to address the issues of hijacked and problem buildings in the inner city.

“Work is, however, done in conjunction with other internal city departments, such as health, emergency management services, development planning, housing, inner city property scheme and social development. These internal departments focus mainly on bylaw interventions to ensure compliance,” he says.

The department also works with external bodies such as the National Prosecuting Authority’s asset forfeiture unit, the Hawks, and home affairs’s immigration unit to tackle criminality in the properties.

Modingoane said the city had introduced a problem properties bylaw to effectively co-ordinate work to ensure properties comply with existing legislation. The city had also launched an implementation plan for the inner city and had established an office and appointed a manager to drive its implementation.

The legal representative for the Mzansi Progressive Movement in the Ridge matter did not respond to requests for comment. 

Life in a rotting carcass

Up a steep fire escape, one can reach the roof of the third floor of the Lister Medical Centre in the Johannesburg city centre – a clear vantage point on what was once known as Chung Hua Mansions. The building is now a carcass.

Not a shard of glass is fitted to the hundreds of window frames, which are now rusted and buckled. The upper floors are pitch black where a fire broke out a few weeks ago. Garbage spills out over ledges and piles up in every crevice below the building.

Palisade fencing and barbed wire is welded over openings on the derelict building that might allow access to the Lister Centre roof. Already, one fence is pulling away from the wall as rubbish spills out.

Burglar bars have been put up around exposed offices and alarm beams installed to detect movement on the roof, where steel panelling has been removed.

Despite the rubbish that falls on the roof of the Lister centre, cleaners won’t come up here every day because the occupants of the adjacent “bad building” throw bags of urine out the window, and even once tossed out a double mattress.

“From a hygiene point of view it has really impacted on us,” said Daniel Swimmer, portfolio manager for City Property Administration. An additional wall had to be put in before the KFC below could move in because sewerage and water from the hijacked building was leaking into Lister.

“And from a safety point of view it is terrible. Every weekend we hear how many people leave our building and have their cellphones stolen, or get mugged,” he said.

It was thought the fire would clear the building, but within hours the occupants were back. Lister and the managers of another adjacent building have been trying to clean out Chung Hua for years, without success. “The council has offered alternative accommodation to people in the building and it was turned down,” said Swimmer. “There are women and children in that building, but the current conditions are inhumane.”

The Lister Medical Centre recently underwent a R21-million refurbishment. “We really are trying to improve the [central business district],” said Swimmer. “We have a big interest here; we believe this place has the possibility of going back to former glory … For us to continue to participate in improvement of the city, we need the council and the city to be on board.”

How the City of Jo’burg failed the Kgaudis

In 2008 Phindi and Tshepo Kgaudi, a married couple and co-owners of a shoe company, bought two companies in Jeppestown. Each company was located in a building that housed illegal occupants.

Frustrated by a slow and ineffective eviction process and little help from the City of Johannesburg, the Kgaudis approached the public protector to investigate.

In the public protector’s report, released in December last year, it was stated that the city failed to enforce its own laws through disconnecting electricity and other services to the building, which amounted to maladministration. The report also found that the city failed to hold a particular councillor, Mzwandile Zwane, responsible for his possible role in what unfolded.

The report said the illegal occupation, or hijacking of buildings, especially in the City of Johannesburg, had become a “major nightmare” for investors.

“Today the Kgaudis have lost everything; their home is in the process of being sold in execution of a court order, while the two buildings remain unavailable for use due to illegal occupation,” the report said.

It directed the executive mayor to ensure: an internal investigation is conducted into the cause of the city’s failure to provide the complainants with the service expected; an urgent investigation is conducted in respect of all privately owned buildings that are illegally occupied; and that the city complies with its responsibility to provide emergency housing.

Democratic Alliance councillor Andrew Cadman raised red flags last month when, he said, executive mayor Parks Tau, in the final hours of a council meeting, had attempted to bury the report and had failed to take action against Zwane.

The city has since refuted this and said it was in the process of implementing the public protector’s recommendations, including an investigation into alleged misconduct by Zwane.

Upturn of good, cheap flats

The need for low-income housing remains a central issue to the City of Johannesburg’s rejuvenation, says Renney Plit, chief operations officer at Afhco and chair of the Johannesburg Property Owners and Managers Association.

The association typically focuses on providing housing where rental for a bachelor flat starts from R2 500 per month.

“So you would need to earn at least R6 000 [to get the lease],” says Plit. “Now what happens if you earn R4 500 a month? You are not destitute, but you living in one of those horrific buildings. You can live in Diepsloot but spend maybe R1 000 in transport each month.”

In 2012, Afhco secured R154-million in funding from a French development agency to do two pilot housing projects, on condition it was lower-income projects. The housing projects, providing 1 235 units in two inner city buildings, are pitched at R1 500 rental a month, going up to R2 250.

Without development funding, the model doesn’t work, said Plit.

“Typically you are looking for an 11% return in the first year – and if you are borrowing at a prime rate of 9.25% you are actually cross-subsidising capital repayment in the first few years.”

The Johannesburg Social Housing Company, with a mandate to deliver affordable, sustainable social housing in the region, has delivered 7 000 units between 2004 and 2012. Afhco alone has provided 10 000 lower income units in the inner city since 2000.

Plit said there are solutions, but they need government to be more proactive. “It is not going to take a hell of lot to incentivise the private sector,” he says.