Official economic development agency, the Eastern Cape Development Corporation (ECDC), says it will be disposing of 12 of its stand-alone residential properties at a public auction in Mthatha and Butterworth respectively today.
In 2010, ECDC received cabinet approval to dispose of its non-core and non-performing assets which include its stand-alone residential property stock which has been a cash drag on the institution. ECDC is owed millions of rands in rental arrears by current tenants despite its rentals being some of the lowest in the market. For example, average rentals on ECDC three – bedroom stand-alone houses range from R2,500 to R5,000 a month.
“Between 2010 and 2013, ECDC engaged the services of a transaction advisor to guide on the ease of effecting this complex transaction. The corporation was advised to follow a batched approach in its property disposal strategy. Subsequently, current tenants of ECDCs standalone residential properties were in December 2012 given until 31 March 2013 a first right of refusal to buy the houses they currently occupy. Tenants were given a further 90 days to raise the funding.
“Some 32 houses have already been sold with completed transfers while another 19 of the properties have been sold and are in a transfer process. While some other tenants made offers to ECDC to buy the properties they currently occupy, these offers were not honoured and have since lapsed,” says ECDC general manager for operations Luyanda Tsipa.
Tsipa says where offers to buy the properties by current tenants are not made; the offer to buy the houses would be made open to the public in line with the ECDC Act and the Public Finance Management Act (PFMA). ECDC intends to finalise the disposal of its residential property stock by the end of the year ending March 2017.
Tsipa says the residential properties have presented numerous challenges for the entity particularly tenants who owe the corporation millions in rent. ECDC has paid millions in rates and taxes to the municipality for these properties.
“For example, the tenants of the 12 properties to be auctioned tomorrow owe a combined R5,3 million in arrear rentals. However, ECDC has always adopted a stance of persuading tenants to pay for the services, occupation and use of these public assets,” explains Tsipa.
The non-payment of rentals has rendered ECDC not being able to keep up with refurbishment and maintenance of such properties as the funds are going to the payment of rates , services and security yet there are no payments and cash flows for the usage of such water, rates and buildings.
ECDC continues to entertain settlement offers on arrear rentals by existing tenants in accordance with its policies.
“The PFMA and ECDC Act clearly state that these properties are a public asset which can only be transferred to individuals in return for economic value. The PFMA expects ECDC to demand payment for services rendered, in terms of “value for money”,” says Tsipa.
The ECDC Act further states that only economic considerations should be taken into account in decision-making regarding the disposal of assets. This means the economic value of the houses must be realised and the value of the properties is determined by market mechanisms such as independent valuations.
She says the funds generated from the sale of these properties will be reinvested back into ECDC to help fund businesses that want to take advantage of opportunities in key growth sectors of the economy.