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06 November 2023

OPINION: Transnet should sell its surplus land to unlock housing and jobs

Human Sciences Research Council (HSRC)

Such a move would release funds to invest in operational improvements and unlock strategic sites for development, writes Prof Ivan Turok, the NRF Research Chair in City-Region Economies at the University of Free State and is Distinguished Research Fellow at the Human Sciences Research Council. 

Image: Theo Jeptha

The government’s response to Transnet’s latest request for a bailout should be to tell it to dispose of its surplus property. This would release funds to invest in operational improvements and unlock strategic sites for the development of housing, which would spur construction activity and jobs.

Transnet has asked the government to take over part of its R130bn debt pile to bolster its balance sheet and enable investment in its operations. Transnet’s new turnaround plan also involves selling concessions on its main rail lines and leases for its port terminals, in a bid to get to grips with the logistics crisis. 

Yet, like many state-owned enterprises (SOEs) and government departments, Transnet is also sitting on real estate worth billions, including vacant and underused land and buildings in the hearts of cities. Its property division owns assets worth R9bn, while the overall property portfolio is worth R35bn. Transnet has owned much of this real estate for decades.

The SOE admits in its latest annual report that these assets are “underperforming and rundown”, and that its level of rent collection has declined from 85% in 2022 to 62% this year. It also acknowledges that it has left properties “undeveloped and underutilised”. 

It is holding onto these properties because it is speculating that its value will appreciate over time, and because it lacks the capital to do much with it. However, this has the effect of sterilising these assets for badly needed housing and other forms of development.

The shortage of well-located land for residential and commercial development in the major cities is well-known. The Housing Development Agency has found that the lack of sites for affordable housing is particularly severe.

Land constraints force most developers towards the urban periphery, which means sprawl, long commuting distances and prohibitive costs for public infrastructure provision. Development on infill and brownfield sites would make more intensive use of existing infrastructure and help to integrate fragmented cities.   

Maintaining distractions

Transnet also admits that it lacks the capabilities and resources to develop its redundant land assets or to undertake the preparatory work required for other public organisations or private companies to develop it. Releasing public land is a complicated process requiring legal expertise and commercial savvy to navigate the minefield of regulatory, technical, and bureaucratic hurdles. So Transnet follows a passive, wait-and-see approach to asset management, hoping that its large property portfolio will be worth more in due course.

The government should respond by insisting that Transnet disposes of its non-core properties and frees itself from the burden of maintaining these unnecessary distractions. This would release vital funds for reinvestment in improving its main rail and port operations. It would save the cash-strapped organisation from the ongoing costs of property taxes, service charges and security against land invasions.

Many of Transnet’s properties are in strategic locations, such as Culemborg in Cape Town and waterfront sites in Gqeberha and Buffalo City. Others are around railway stations and old depots. It would be ideal places for mixed-use projects that combine residential and commercial development. Such schemes offer convenience to households and shorten people’s journeys to work.

Wherever possible, the residential component should consist of a mixture of commercial and affordable housing. Developers would be encouraged to cross-subsidise from their market rate housing to ensure affordability for others. Residential development is outperforming all other sectors of the property market, which makes such arrangements more feasible.

The outcome would be a win-win — substantial additional funding for Transnet, more housing to alleviate the shortage, and more jobs across the construction value chain. Creating denser, more vibrant core cities would be another benefit, with the boost to municipal rates. A valuable precedent could be set for other state entities facing financial problems while sitting on vacant and underused real estate.

There are different ways that Transnet could make more productive use of its excess land and buildings, including outright sales, long-term leases, partnerships and joint ventures with experienced developers. A phased approach would be needed to avoid flooding the market.

Releasing surplus property isn’t a panacea for Transnet’s financial distress, but it could be an important part of the solution.

This piece first appeared in Business Day Live on 02 November 2023.

Human Sciences Research Council (HSRC)

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