A Working Model for Commercial Asset Development on Municipal Land

Purpose: The paper will share the experiences of the only municipal property company in South Africa (the City of Joburg Property Company SOC LTD) (JPC) in leveraging private sector investment on municipal-owned land to create long term income producing assets since its establishment in 2001, and outline a working model complete with key lessons learned and analysis of Design / methods followed/ approach. The paper considers the academic as well as professional literature that has developed around the role of public sector entities in using their property holdings to stimulate real estate activity. The paper will outline and explain the processes employed by JPC in leveraging investments, including an explanation of the legal and accounting frameworks. Case studies of completed developments will be presented from which general conclusions will be drawn. Comment will be made on extent to which processes have been successful. A cost-return analysis will be provided for various stages along the property value chain, in order to suggest the optimal risk-return position for municipalities to take in the municipal property development. The Paper considers key parameters in the implementation of a municipal asset development strategy.Findings: JPC has successfully leveraged nearly R2 Billion rand worth of completed development on municipally owned land including the development of large corporate offices (80 000m2) and neighbourhood retail centres, in its first ten years of existence. Most of these developments have been implemented by the private sector on the basis of long term (30-60 year) lease period in terms of which rental is paid to the municipality for the land for the duration of the lease and on expiry of the lease, the full asset accrues to the municipality, at no cost. The conversion of municipal vacant land assets is a key strategy in building future wealth for the municipality and ensuring long term sustainability. In addition, such a strategy has an important role to play in stimulating local economic development.Research limitations/implications: The research is focussed on land located in the Johannesburg Metropolitan area. It also only considers the role of the Johannesburg Municipality in promoting commercial developments. While such developments have multiplier implications for the rest of the property market, these secondary implications are not considered in this research.Practical implications: The paper will provide a practical model for leveraging development of high value commercial assets on municipal land, with low capital investment requirements and low risk. The assets will provide long term sustainable income to assist in the sustainability of municipalities.Originality / Value of work: JPC is the only municipal property company in South Africa, and is one of the few municipal entities with a dedicated property development function. As such JPC is one of the few municipal entities to have applied itself to the extraction of maximum commercial value from municipal property portfolios. The experiences of and the lessons learned have never before been documented and presented as a working model for municipal asset development.