Real Estate Investor Magazine South Africa November 2013 | Page 20

GUEST EXPERT

BY BRIAN AZIZOLLAHOFF

Brian Azizollahoff
Talks About Corruption
Associated With
Government Leases

I

n addition to the thousands of leased premises housing government, the
government is overwhelmingly the largest property owner in the country
with at least R1.5 trillion of property in its portfolio. This figure could
be significantly higher but absent a current and accurate asset register, the
exact value remains a mystery. To put this in perspective, the entire listed
property sector’s market cap is approximately R220 billion so the government
owned portfolio is almost seven times the value. There is a perception that the
PIC (Public Investment Corporation), as the government employees pension
fund, is where the largest concentration of government-owned properties are
held but this is by no means the case. The government owns most its real
estate directly.
It is logical that the largest concentration of government spending is through
the Department of Public Works since it is that branch of government that
is responsible for infrastructure development and real estate matters including
leases. Since the change in government in 1994, it can be argued that
transparency has improved in South Africa and consequently corruption is very
topical. Some of the worst culprits of corruption have been landlords who prize
government leases above most others. It is common cause that a valid long-term
government lease will raise maximum levels of gearing whilst increasing the
value of a property substantially and hence landlords will often compromise
their ethics in order to secure such leases.
The government of South Africa has an unparalleled opportunity to
immediately transform property ownership in this country and in a manner that
will eliminate corruption associated with government leases once and for all.
The plan works as follows. National Treasury appoints corporate advisors
who are experienced in driving property company listings. An entity is
established and the advisors select, say, R20 billion of property. Valuers
are appointed to ensure that the properties are being injected at fair value.
The government then signs 20-year leases over all the selected properties.
A targeted initial return would determine the rental payable.
The theory is that it is not particularly relevant whether
the properties are commercial, industrial,
residential or service related such
as train or bus stations or
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