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Calgro’s Fleurhof housing project suffers from white elephant syndrome

A dispute between JSE-listed property developer Calgro M3 and the City of Joburg has delayed the handover of 1 000 housing units for more than eight months.

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.

Disputed substation

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.

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That must be a pretty serious sub-station at R250m. Surely a couple of meetings will resolve this and put the housing project back on track, 1000 houses being unoccupied seems a bit stupid.

You don’t know how COJ’s abysmal budgeting system works. Projects are delayed for years due to ANC vote buying.

DA should clean that up asap, doesn’t happen overnight but delivering already finished houses is surely a no brainer for people who have no where to live. Makes you wonder about democracy when vote buying is more important than basic service delivery.

The biggest risk factor in this type of housing business is govt. Two large listed developers have been destroyed by govt not paying already.

COJ used the infrastructure money to in-source security guards at more than treble their previous salaries. Votes are more important than houses.

https://www.news24.com/SouthAfrica/News/city-of-joburg-insources-1600-security-guards-20180630

How do you arrive at that conclusion? The City was paying that amount to the outsourcing company anyway, just the workers only ended up with a third of it!

Wrong. CoJ was paying much more to outsource – the salaries are now PSIRA related and a better quality of security guards has been employed.

It would seem that this is a lingering problem from the ANC’s administration period through mismanagement and corruption.

This is the craziest thing I have heard in the longest time, and I have pretty much heard everything crazy out here! So, they want Calgro to pay for and build the substation, and all they will come do is collect the tarrifs. Am I missing something here? Shouldn’t Calgro build the substation, if this Municipality abdicates that responsibility, but then it should also abdicate its role to collect the tariff (that should transfer to Calgro so that it can re-coup its investment over time). Plain and simple.

Yip it is crazy. Also likely a result of the previous ANC munic who didn’t plan properly or make the contract crystal clear. If Calgro was supposed to build the sub-station then they would have priced that in, guessing the contract was therefore silent or vague on who was responsible for this, which would likely mean it was the governments responsibility.

Vote buying is the only Sanity the anc has.

In 1994 there was a backlog of about 1.5 million houses, in 2013 this stood at 1.9 million, estimates have been put at 178,000 new homes required per year.

At a very conservative rate of R2500 per m2 and 40m2 per RDP size house. It’s will cost R100k per house. The net upkeep cost of the growing number of homes is R17,8 Billion a year and this entire project would cost R190 Billion or 20% of the current national budget.

Seeing that this a constitutional right and according to the Housing act (1997). Anyone that governs S.A. has a massive mountain to climb least of all Substations.

I think that government should think less about SAA, Eskom and other SOE and more about the people that they made the promises to, I just wish that the people would hold their selected parties accountable.

As usual amounts are bandied about with gay abandon. No doubt there are contractors in the wings who can do the job for far less and if a decent electrical engineering firm is consulted the amount would be far less.

Get your supply directly from Eskom …

Extortion. Calgro cannot afford to wait but COJ can. Someone probably needs a payment and then this can get signed off. I suspect this is just the tip of the iceberg in this industry.

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