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In 2017, the world was exposed to a new concept called ‘Day Zero’, when the water supply for the city of Cape Town was projected to run out.
We have learned a lot since then, because the City of Cape Town managed to avert that moment, but not without significant hardship, inconvenience, and loss of investor confidence. The latter is important in the context of estate living because nobody wants to own an asset that decreases in value. Stated differently, planning to avoid a local Day Zero scenario has many benefits beyond the mere convenience of having water, because it also boosts the confidence of any investor willing to buy real estate in a well-designed development.
We can think of Day Zero as being that moment in time when the normally reliable supply of water can no longer be guaranteed. The operative word is ‘guaranteed’, for this is what fuels the psychology of confidence. We like to think that we make rational decisions, but in reality, many decisions are often fuelled by a perception or an intuition. Investor confidence is in that category, so when thinking of Day Zero planning, this ought to be front and central in the mind of the decision-maker.
So, what is the likelihood of any estate in South Africa facing its own Day Zero?
Prior to 2017, such a notion would have been unthinkable. After that, it is now becoming a growing reality for large parts of the country. The reason for this is the complex water supply chain that has evolved over the last century of industrial development in South Africa. A century ago, South Africa had a mining and agricultural economy. Half a century ago, we had evolved into the biggest gold producer in the world, with a strong industrial sector and a thriving diversified economy with an annual growth of around 7% sustained over decades. Some referred to those years of prosperity as the Midas Touch era, because it was all due to gold production. Central to this economic boom were the water boards, tasked with the responsibility of securing bulk water resources by investing into infrastructure, and institutions capable of shifting massive quantities of water over vast distances, to sustain the many bustling industrial hubs.
Today all of that has changed. We are now rapidly deindustrialising and, at best able to sustain feeble economic growth well below population growth. Our railways have disappeared, and our mining industry is no longer the engine of growth it once was. Our major state-owned enterprises (SOEs) are all in financial distress, with many having failed. Central to those distressed SOEs are the water boards, almost all of which are facing bankruptcy due to the pervasive culture of non-payment. No entity can survive if it is cash-constrained, and all our water boards are profoundly cash-constrained. All require a financial bailout by the state, but the demands of Eskom alone have placed such a burden on the fiscus that the likelihood of any bailout is remote. Rand Water, as just one example, requires R36 billion, with the three metros it serves requiring R100 billion. This sort of money is simply no longer available in a country with 27 million people living on SASSA grants, sustained by 7 million taxpayers in a stagnant economy.
This takes us back to our central question – will any estate face its own Day Zero?
The simple answer is yes, but the devil is always in the details, so there is also a caveat involved. That caveat is that it depends where you are located, and what the financial health is of the municipality that supplies you with your water. You see, the supply chain for water is complex. The water boards are responsible for water in dams and rivers. They manage the infrastructure that processes raw water into clean water, and then deliver it to the various municipalities. It is the municipalities that supply the estates, but they are generally in arrears with their payments to the water boards. This means that the original provider of water is in distress, and in many cases is close to failure and in need of a bailout that is increasingly unlikely.
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We need to look no further than the current situation in Gauteng, KZN, and cities like East London and Gqeberha. All are major industrial areas. All have many residential estates, and all are experiencing failure along the water supply chain. They collectively contain most of the human population, so the new normal for those fortunate enough to live in residential estates is that Day Zero is no longer an abstract concept. Emerging from this urban space we now have a new concept called ‘water shifting’, which is the official ‘remedy’ to a possible Day Zero. All this does is rob Peter to pay Paul by shifting water to the most volatile areas, ostensibly to avoid the rioting that is inevitable. How this will work overtime is not clear, but it is now part of our New Normal. If Day Zero is the problem, then water shifting is the apparent solution, even if it is an inadequate response to a misdiagnosed malady.
Which brings us back to the psychology of investment. For many people, their home is their largest single investment, so why would they risk that if property values could decline? This brings into focus the essence of the Day Zero risk, which is all about managing the perceptions that people have when making an investment decision. To this end, we are likely to see a growing trend in preference to buying property in estates that can sustain water supply, even in the face of deteriorating municipal infrastructure and the increased media reporting of angry citizens protesting over water service failures.
Nothing is more devastating to investor confidence than seeing media coverage of burning tires and police intervention because of water service failures. The opposite also holds true. When an estate provides the assurance that water (and energy) disruptions do not happen in that space of stability and tranquility, the investment value increases.
The take-home message is that it is likely that various estates will be confronted by the reality of water supply disruptions. This is going to increasingly conflate the words ‘Day Zero’ and ‘water shifting’. Savvy developers will understand that investor confidence will differentiate the perceived value of one estate over another. Investment into on-site storage and alternative supply, that leverages the benefit of estate living over the inconvenience of a stand-alone property, will pay handsome dividends.
