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Johannesburg - Thousands of black investors are preparing to
enter the lucrative government property lease market, estimated to be worth
R300bn, thanks to a new property fund from investment firm Siga Capital.
The move will open doors to investors who have found it
difficult to enter the market.
Siga Capital plans to list the fund on the JSE to raise the
billions needed to acquire and develop properties for leasing to government.
The state is the country’s largest occupier of commercial
office space.
The Siga Capital Property Fund is expected to enter the
market before the end of the year, according to veteran investment banker David
Goss, who will manage it.
Goss is bullish on the government lease market despite
industry concerns borne out of an ongoing investigation by the Treasury into
nearly 4 000 lease contracts entered into by the Department of Public Works
with property companies.
The probe was sparked by the ill-fated R500m lease deal
involving the relocation of police headquarters to a building owned by
businessman Roux Shabangu.
The contract was overturned when Public Protector Thuli
Madonsela found that it had been irregularly awarded.
Now, hundreds of state lease contracts may be cancelled if
they are found to have been awarded using underhanded methods.
Goss believes the state is a good, well-paying tenant that
honours its rental commitments.
“We have seen an increase in demand for office space by
government. The risk of default on rent by the government is minimal, unlike
private businesses that sometimes collapse and end up defaulting,” he says.
Goss says Siga’s property portfolio will constitute 75% of
government-tenanted properties while 25% would cater for commercial and retail
tenants.
The group is the developer of the Tshwane Precinct
Development, which will cost R4bn to construct on 200 000 square metres of
prime land in the Pretoria central business district.
The development is a stone’s throw from the Gautrain station
and will boast an International Convention Centre, a 10-storey hotel and office
buildings for government departments.
“The government is sitting in a lot of old, run-down
buildings which are inefficient and expensive to maintain.
“The government wants to expand its services, but the
existing buildings do not meet its expansion plans because there isn’t enough
space to accommodate additional employees,” said Goss.
Siga is building a war chest of up to R10bn. It has already
raised about R6bn in debt and an additional R4bn will be raised through the
listing.
By listing, Siga will follow in the footsteps of other
black-managed listed property funds - Ascension Property Fund, Rebosis (run by
property baron Sisa Ngebulana) and Dipula Income Fund, led by Izak Petersen.
In nearly 10 years, the listed property market has seen
rapid expansion, growing its market capitalisation to more than R150bn this
year from R23bn in 2003.
Black-managed property funds account for about 3% of the
market capitalisation.
With interest rates at the lowest level in more than three
decades, listed property has proved to be an attractive investment option for
investors.
Bonds offer yields of about 7.8% growth while cash provides
negative real yields.
On the other hand, listed property is expected to provide
returns of between 12% and 16% a year over the next five years.
The Public Works Department wants to help the likes of Siga
and Rebosis take advantage of this growth by putting long-term leases in their
hands.
This move is expected to help the property sector meet its
BEE charter, which has a target of 25%.
Public Works wants to give 10-year leases to black companies
and two-year leases to white companies in a bid to fast-track transformation.
However, this approach has backfired as white property
owners, who hold a large chunk of stock, are selling properties to blacks (who
have leases but no stock) at inflated prices.
The Black Property Owners Association confirms that white
owners, who hold about 95% of government leases, sell stock at inflated prices.
“Sometimes you find guys selling property at R50m even if
the underlying lease is short-term. It would have made sense to sell at that
price if the lease was long-term.
“Besides this you still have to refurbish the building,
pushing the costs even higher. We are struggling to make money,” a member of
the organisation said.
Fearing commercial reprisal and comebacks, he asked to
remain anonymous.
Lack of access to funding is another barrier to entering the
market for many black companies.
“Black-managed funds are effectively deemed the landlords, which may aid in attracting longer term government leases but access to funding across all aspects of development is by and large the key barrier to entry by other black developers,” said Ngebulana.
