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The South African Property Owners’ Association (SAPOA), the country’s biggest property organisation, has been locked in a legal battle with the City of Johannesburg over their Development Contributions Policy. We take a deeper look at what is causing such furore.
What is the Development Contributions Policy?
The City of Johannesburg released its Development Contribution Policy on the 8th of October 2021. It applies a one-off charge levied by the municipality on all landowners and developers of new developments. The charge is supposed to cover the capital costs incurred by the municipality when installing new infrastructure or when upgrading existing infrastructure. Without paying it, property developers are unlikely to get their land development applications approved.
At the launch announcement last year, Thapelo Amad, the then municipal councillor, explained that the new policy will provide ‘greater clarity around existing funding instruments that allow for the timely provision of essential bulk infrastructure required to service the needs of new developments’. The property developers don’t quite see it that way.
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What is SAPOA’s view?
A major sticking point under the policy, is that developers are still required to pay the fee even if infrastructure is already in place and nothing is required from the municipality. SAPOA claims that this makes the policy provision unlawful and have since launched a court application against the City of Johannesburg to stop them from enforcing the policy
‘We found the underpinnings of the policy self-contradictory,’ says Neil Gopal, chief executive officer of SAPOA.
‘On the one hand, the policy states that its principle is that the development contribution must be used on existing or planned infrastructure impacted by the development. Yet, at the same time, it provides that development contribution can be used on infrastructure anywhere else in the municipality. In addition, it states that there cannot be duplicated cost recovery, but it also provides for a development contribution when capacity exists in infrastructure already paid for,’ he explains.
SAPOA, which is made up of some of the largest property investment organisations which represent about 90% of South Africa’s commercial and industrial property, have already made representation to National Treasury in regard to this alleged illegality. They argue that the municipality has incorrectly interpreted the Spatial Planning and Land Use Management Act (SPLUMA) in thinking it can impose the charges regardless of whether adequate services are already available.
‘SPLUMA does not permit the scheme that the policy envisages. Land developers already carry an enormous financial risk and requiring them to fund infrastructure in other parts of the city is not only unlawful but also unfair,’ adds Gopal.
So what does this mean for developers?
SAPOA understands and appreciates that developers should accept the financial responsibility for external infrastructure that are required by their projects. The costs for these developments soar into the millions, if not billions and burdening the municipality alone, is not fair. They want the court to declare that the City of Johannesburg can only charge developers for this, but that is where they draw the line.
They argue that costs for new infrastructure in areas not covered by their development must be found form alternative funding mechanisms which are already at the municipality’s disposable.
Although it sounds like a fair argument, the problem is that the municipality is digging their heals in; resolute and wholly denying any claims that they will be using funds generated from this fee to cross-subsidise infrastructure services in other areas of the city.
Instead the City argues that the fee prioritises, encourages and harnesses investment and development within the Johannesburg area, which in turn improves the municipality’s development position and facilitates economic growth across the landscape.
But levying a fee for infrastructure that is not needed could achieve the opposite. After all, the additional financial burden during an economic crisis could turn developers away from the area. That could be disastrous for the city in both the long and short term.
Whichever way it rules, without a quick resolution from the court, the development future of Johannesburg risks being entirely diminished over the coming months and years.
