South Africa’s listed property sector has been criticised for being slow to commit to broad-based black economic empowerment (B-BBEE), but there are indications that the sector might turn over a new leaf.
The sector has grown in leaps and bounds, but observers argue that the sector has a dearth of previously disadvantaged individuals in executive positions.
Part of the blame has been laid at the government’s door: there has been a lack of decisiveness and clarity on B-BBEE policy. But equally industry executives have not invested sufficiently in transformation mechanisms.
The spotlight on the sector’s transformation follows the implementation of the new B-BBEE codes of good practice which came into effect on May 1.
Delta Property Fund chief operations officer Bronwyn Corbett says the new generic B-BBEE codes by Department of Trade and Industry (dti) are set to impact the entire property industry.
“People have to realise that they are going to have to take B-BBEE seriously going forward,” Corbett said at the annual South African Property Owners Association’s International Convention.
Changes to B-BBEE codes
The amended codes now have five scoring elements (reduced from seven) against which companies are measured.
These include ownership, management control, skills development, enterprise and supplier development and socio-economic development. The amendments place an emphasis on three priority areas: ownership, skills development, and enterprise and supplier development. Companies must achieve compliance on at least 40% of these priority elements.
Failure to achieve the 40% will result in the reduction of overall compliance by one level.
The dti’s codes have been aligned with the Property Sector Transformation Charter. All companies assessed under the charter have an additional six-month transitional period to review their B-BBEE strategies to take account of the aligned codes.
According to the latest results of a study by MSCI’s subsidiary, IPD South Africa, of the 89 executive managers at JSE-listed property companies, 75 executives or 84.3%, are white.
Black executives take up 14 positions, 15.7% of the leadership of the listed property sector. The study features JSE-listed property counters and excludes dual-listed ones.
Black managed funds include Rebosis Property Fund, Delta, Dipula Income Fund and Ascension Properties, which contribute to the sector’s more than R300 billion market capitalisation and 40-odd listed funds.
Based on the results of the study, Pareto Limited CEO Marius Muller says there has been no transformation in the sector.
“We have had significant growth in the sector for the last ten years. We have seen that property has been among the best performing sectors on the stock exchange, but I don’t believe that there is sincere commitment to transformation in the listed property sector,” Muller says.
Of the few black individuals who are in executive positions, Muller says this has been made possible by the government’s policies which have reduced the barriers of entry into the sector.
The issue also speaks to the sector not being able to retain black individuals, which ultimately contributes to the deficit of talent, says Muller.
The way property deals are structured has also been criticised, with detractors arguing that it impedes transformation. CEO of Emira Property Fund James Templeton says property companies embark on raising funds through issuing shares to the market, which dilutes the shareholding structure of companies.
“Property companies have raised funds over the last years by issuing shares. By the virtue of issuing shares our shareholding has gone from about 15% ten years ago to 6% because we just keep issuing shares. Other sectors (financial services) have only been diluted to 15%.
For the sector to harness transformation opportunities, TseboREAL Asset Management managing director Mashilo Pitjeng says CEOs are responsible for putting transformation on the agenda.
“In sectors where transformation has been successful, where there is employment and skills development, the companies in that sector came to create group schemes or programmes and dialogue,” Pitjeng explains.
The writer is part of a sponsored trip by Sapoa to the annual Sapoa International Convention.