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City of Cape Town fails to explain R140m property sale bungle

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But there is a solution that can benefit the city’s residents

Google Streetview image of Foreshore
This is the property on the Foreshore that the City of Cape Town sold to Growthpoint. Photo from Google Streetview
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Deputy-Mayor Ian Neilson has defended the City of Cape Town’s controversial sale of Site B – a prime Foreshore property. But Neilson’s statement is inconsistent with municipal laws.

Last week, GroundUp reported on an apparent valuation blunder which saw the City sell Site B to property giant Growthpoint for much less than its market value. According to a calculation based on the size of the development that Growthpoint intends to build on Site B, the plot is worth up to R227 million, and not the R86.5 million at which it was sold. That difference relates to the maximum combined floor area that a high rise building on the site may occupy. Auction documents incorrectly stated that the maximum floor area was 17,500m2, when in fact it was 46,000m2. (This is a slight simplification. Interested readers can read last week’s article for the details.)

The City’s mistake was first picked up by Ndifuna Ukwazi (NU), an NGO which advocates for affordable housing in or near Cape Town’s city centre. NU said that the sale amounted to a “gift to one of the most profitable companies on the JSE” and blamed Neilson and his team. At the time of the sale in 2016, Neilson was the Mayoral Committee member for Finance who oversaw the City’s property sales.

But, responding to NU some days later, Neilson disputed claims that the City had made a mistake. He said that Growthpoint only had rights to develop 17,500m2, although he did not address the fact that the figure was based on an outdated and defunct document.

Neilson’s statement then went on to say that additional rights for developing a larger floor area on Site B were potentially available, but that Growthpoint “would have to purchase [those rights] from the City in terms of the Municipal Asset Transfer Regulations (MATR)”.

But the MATR regulates the selling of properties, not development rights, by a municipality. Development rights fall within the domain of the City’s own Municipal Planning Bylaw - which makes it clear that a landowner may only develop land in accordance with a zoning scheme or when approval is granted by the City. There is no mention that such an “approval” would be based on purchasing additional rights.

In short, it is the zoning scheme that defines what development rights a landowner has, and this has nothing to do with the price paid to the City when the property was sold. It does not appear to be possible for the City to withhold “ownership” of development rights, once a site has been sold.

GroundUp sent a media query to Neilson, and asked him to clarify his claim that Growthpoint would have to pay the City if it hoped to access development rights over and above the 17,500m2 that it had apparently paid for. GroundUp also asked Neilson to confirm that the 17,500m2 figure originated from a mistake in the auction documents for Site B.

The City’s media office asked for a 24-hour extension to source a response. Yet, when a response came it addressed neither of these questions. Neilson simply said: “The City of Cape Town is currently engaging with Growthpoint on this matter and therefore is not in a position to comment at this stage. We will be able to provide more clarity in due course.”

This echoed a response sent by Growthpoint on Monday, in which the company also declined to respond to direct questions about Neilson’s statement. GroundUp asked Growthpoint whether it agreed with Neilson’s conclusion that it had to pay extra if it hoped to access the 46,000m2 floor area that it had requested in its development application for Site B. Nadine Kuzmanich, Growthpoint’s Head of Marketing and Communication, said that the company was engaging directly with the City on its vision for incorporating Site B into a precinct along with two neighbouring properties.

Ndifuna Ukwazi however questioned why the City would not advertise a property at its full developments rights and called on Neilson to justify his statement about selling additional rights after the sale. “If he can’t then we would argue that he must admit that under his watch, the City lost up to R140 million. If this is the case, the City Manager needs to initiate an investigation urgently. ”

Disclaimer: Daneel Knoetze worked for Ndifuna Ukwazi until June 2017. He is currently a freelance journalist and no longer has any affiliation to Ndifuna Ukwazi.

Editors’ view

The evidence shows that the City of Cape Town sold the Site B property on the Foreshore up to R140 million below market value. It is a good thing that Ndifuna Ukwazi has taken on the role of a watchdog that oversees large property sales in the city. This is likely to serve Cape Town’s residents well.

Mistakes happen, although this is a particularly expensive one. The question now is what to do about it. It is in the best interests of Cape Town that Growthpoint does in fact develop the full 46,000m2 it has applied for. Densification (building higher on already developed property) rather than suburban sprawl is generally a better way to manage Cape Town’s growth. But, this must happen in a way that makes Cape Town more inclusive and makes life easier for more working class people.

A good solution to this debacle will be for the development of Site B to include a large social housing component, ideally based on subsidised rentals.

© 2018 GroundUp.
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TOPICS:  Housing
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Letters

Dear Editor

Yes, mistakes happen, but secret 'donations' also happen. (and if the donations are from companies to political parties, then such secret donations are actually technically legal. Yes, it's like legalising bribery)

From allowing sky-rises in Bokaap, while completed heritage zoning protection has been sitting unsigned for 3 years, to Vredehoek, to Maiden's Cove, this city council has been giving developers some very special favours.

The solution is very simple. The DA must declare which developers are donors. And what special deals they are giving developers in return for those donations.

Dear Editor

I've read this article with concern, as it's perpetuating Ndifuna Ukwazi's ignorance on the subject matter.

The site in question only has an approved bulk of 17 500m2. Growthpoint in no way has rights to develop 46 000m2 worth of bulk. They have merely applied for a (significant) departure from the site's existing zoning rights, which may or may not be granted. If it is granted, it will likely come with a number of conditions.

Naturally, the City is unable to sell a property based on speculation that zoning departures may be granted by another department once a development proposal is submitted. For example, if another bidder were successful and proposed a development of 30 000m2 in an effort to maximise their investment, the figures in the article would be redundant and the City's "loss" would be less. I expect most developers would attempt to apply for departures in some way or form.

Since the property was auctioned off to the highest bidder (all who would be aware of their ability to apply for zoning departures after acquiring the property), I'm unsure how one can claim that the property was sold for less than its worth. The property was sold for the highest price the market was willing to attach to it.

Ultimately, we should be encouraging densification (within reason) and using zoning departures as a means of ensuring more affordable housing is developed within the City Bowl area, when the City opts to grant those departures.