A dispute between property developer Calgro M3 and the City of Johannesburg over the R250-million construction cost of an electricity substation has delayed the handover of new affordable housing units in one of South Africa’s most spatially integrated and celebrated housing projects.
Calgro M3, which has developed subsidised housing in partnership with the government since 2008, completed more than 1 000 housing units at the Fleurhof housing development on the West Rand in November 2017.
However, the firm’s dispute with the City of Johannesburg over the construction cost of a substation that would electrify Fleurhof has stalled the handover of new housing units to potential buyers and tenants.
The dispute has led to the houses being unoccupied for more than eight months. Fleurhof is already home to more than 10 000 fully government subsidised and privately financed housing units.
Wikus Lategan, CEO of Calgro M3, confirmed the dispute to Moneyweb – describing it as an “amicable and professional disagreement” with the municipality.
“There is a need for a substation for the [Fleurhof] area, which would cost our engineer circa R220 million to R250 million,” he said.
“The cost is a misunderstanding [between all parties]. A substation needs to be built at a time when money is scarce between the private and public sector in SA. We can’t expect the city to pay all of it, but the city can’t expect for us to pay for all of it.”
Essentially, the municipality insists that Calgro M3 should foot the bill for the electricity substation and, until the dispute is resolved, the housing units cannot be handed over. The dispute has also slowed the pace of building an additional 1 500 to 2 000 units – a new phase that would extend the Fleurhof project.
Despite asking for emailed questions regarding the matter, the City of Johannesburg didn’t respond to Moneyweb’s request for comment at the time of publishing.
Fleurhof has been identified by the municipality as a successful model of integrated spatial planning and densification. The Rea Vaya Bus Rapid Transit System and other mass transit systems link Fleurhof closely to economic nodes and opportunities – reversing SA’s inefficient spatial planning that still sees people spending an inordinate amount of time and money travelling from home to places of work and play.
The substation, the construction process of which is still at an early stage, is expected to add additional electrical capacity to the entire Fleurhof project, including the 1 000-plus vacant units.
Lategan said connecting the units to the existing substation would “put too much demand [on] the system, especially in winter”, hence the need for a new substation.
Discussions regarding Calgro M3’s proposal to share the cost with the municipality so that construction of the substation can be completed are ongoing. “None of us can afford to have houses completed, which cannot be handed over to subsidised owners. It’s more frustrating for people waiting for houses,” said Lategan.
Asked if property developers would under normal circumstances foot the bill for the substation, he said the cost of installing electricity is normally borne by the municipal council. In some cases, property developers who are developing for profit would be required to contribute towards their own costs to electrify units.
In Calgro M3’s case, the company would traditionally, and over time, have to bear a portion of the cost since the municipality is its development partner.
Three property developers that Moneyweb spoke to said it is unreasonable for a municipality to expect developers and investors to pay for the construction of an electrical substation – especially when they are required to pay other housing development costs, including the zoning of land, bulk earthworks, road infrastructure and sewage. These costs were once paid by municipalities, but were shifted to developers.
“Essentially, a substation is the local authority/Eskom responsibility as they are the service provider,” said one developer.