Foreword
2
Introduction
3
Section A
Motivation for the Inner City Area
4
A1
Area
4
A2
Complex Area in Transition
4
A3
Operational Rationale
6
A4
Economic Supra-National City
6
A5
Integrated Economic System
7
A6
Focus of Transformation
9
A7
Institutional Integration
9
Section B
Further Demarcation and Qualification Criteria
12
B1
The Current Significance of the Inner City for Johannesburg
12
B2
The Recent History of the Inner City
16
B3
The City of Johannesburg Response
17
B4
The Proposed Area
18
B5
Economic Reasons
20
B6
A Single UDZ
21
B7
Government Affordability Constraints
21
B8
Developed Urban Location
22
B9
Formal Resolution of Council
22
B10
Prioritisation within Integrated Development Plan
22
B11
Contribution to Local Revenue Collections
23
B12
Additional Measures to support Regeneration
24
B13
Commitment to Speedy Processing of Planning Approvals
25
B14
Reporting Requirements
26
Annexes
27
Urban Development Zone Tax Incentive
Application: 10 June 2004
Foreword
Few South Africans would disagree that Johannesburg is the country’s largest and wealthiest city.
Similarly, most will all have heard and have a perception of Johannesburg’s Inner City. By and large,
this will be based on negative impressions of high crime levels, an ailing Central Business District
and the image of Hillbrow as a neighbourhood with an enormous concentration of residents and as a
locality where many dubious activities occur.
Like most perceptions, this is based on an element of truth. But again, as always, the reality is much
more complicated.
Johannesburg is Africa’s prime candidate for global city status 1 - ‘on a continent where observers
found it hard to identify successful or even big cities, Johannesburg has stood out’ 2. It is truly the
financial powerhouse of the continent, accounting for 16% of South Africa’s national economic
output3. Its Inner City is a major economic generator, and important employment and service centre,
as well as an integral part of the fabric of metropolitan urban life.
The Inner City’s problems of urban blight are a product of, inter alia, disinvestment, capital flight to
the suburbs and poor city management in the 1980s and early 1990s. The continuing challenges to
the city administration include the crime rate, enforcement of by-laws, and management of informal
trading. There are also concerns over taxi management and the poor condition of some buildings.
Credit control and revenue collection in the Inner City pose another set of problems. All of these
problems are now being addressed, and a concerted coordinated effort being made to strengthen
the local tax base, support private investment and tackle social problems.
The Urban Development Zone tax incentive brings a new addition to the city’s urban renewal
arsenal; it will complement the regeneration strategy currently being implemented, and assist in
strengthening the many public-private partnerships already operating in the Inner City.
1
Van Der Merwe IJ, The Global Cities of Sub-Saharan Africa- Fact or Fiction? Globalisation & World Cities
Study Group, University of Loughborough UK, Research Bulletin 126, November 2003
2 Robinson J, ‘Beyond Developmentalism and Global Success’ in Tomlinson R, Beauregard R, Bremner l, and
Mangcu X (2003) Emerging Johannesburg: Perspectives on the Post-apartheid City
3 Global Insight database provided to City of Johannesburg Economic Development Unit 2004
Department of Finance and Economic Development
(Final Submission)
Page 2 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
Introduction
In late 2003 parliament approved the Revenue Laws Amendment Act, 2003, which included a new
section (s.13quat) to be inserted into the Income Tax Act providing for an allowance for erection or
improvement of buildings to support urban renewal and inner city regeneration. This new tax
incentive relates to the construction and refurbishment of both commercial and residential buildings
in designated decayed or inner city areas. The fundamental requirement of the new law is that the
incentive only applies to buildings located within an Urban Development Zone (‘UDZ’).
The City of Johannesburg (CoJ) is one of the 16 municipalities specified under this new legislation
that may apply to the National Treasury for the designation of a UDZ.
This submission is the metropolitan council’s application for approval of the Inner City of
Johannesburg as the city’s UDZ.
The CoJ is confident that it is thoroughly familiar with the National Treasury’s new legislation,
explanatory information and requirements for qualification for the UDZ Tax Incentive. CoJ officials
have met and corresponded frequently with National Treasury officials since the initial
announcement of the incentive in the February 2003 Budget Speech, both in terms of seeking
clarification and in supplying information on Treasury request. Following the most recent meeting in
May 2004, comments from National Treasury officials have been taken into account in the
preparation of this submission.
Following these consultations, comprehensive discussions with the CoJ political leadership and all
relevant Council officials have taken place to formulate this submission. Particular attention has
been paid to Sub-sections (6) and (7) of the Act relating to the extent and number of UDZs that a
municipality may demarcate. These sub-sections stipulate that the designated area must be the
traditional ‘social and economic heart of a municipality’4, must have a geographical area pro-rata to
population size, and also be the focus for other urban renewal initiatives.
The CoJ seeks approval to demarcate the Inner City as the single UDZ for the municipality, and to
take advantage of the variation on size of demarcated area provided for under Sub-section (7)(d).
This submission is set out as follows:



4
In Section A the CoJ sets out the motivation for its Inner City to be treated as a special case as
provided for within the legislation, against the context of the economic and demographic preeminence of Johannesburg in South Africa.
Section B deals with the clause-by-clause compliance with the legislation, demonstrating how
the CoJ is able to meet these requirements.
Annexes are appended which provide supporting information and detailed case studies of
issues and examples identified in the submission.
Explanatory Memorandum on the Revenue Laws Amendment Bill, 2003, SARS & National Treasury, 2003
Department of Finance and Economic Development
(Final Submission)
Page 3 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
Section A: Motivation for the Inner City area
A1
Area
The CoJ is submitting the currently demarcated Johannesburg Inner City as its proposed UDZ (see
Annexe AA1 for maps of the area). This corresponds to an area of 1 786 hectares (excluding rail
land and koppie areas)5, as opposed to the 690 hectares standard area allowed for under the
hectares-to-population ratio set out in the legislation6.
The Inner City comprises four inter-related zones, each with its own character and property pattern:




A2
Zone One Office & Business:
This zone comprises the Central Business District (CBD), Braamfontein, Marshalltown, the
Newtown Cultural Quarter, and City & Suburban. It is the main location of office and retail
properties, with a growing trend of public and private investment in core areas. However, the
south, east and northeast fringes of this zone show high levels of urban decay.
Zone Two Manufacturing & Industrial:
This is the manufacturing belt along the northern side of the M2, and includes City West, Selby,
Droste Park, parts of Jeppestown and Marshalltown. It comprises large properties used for light
manufacturing and warehouses. Buildings in the east and northeast are being invaded and
occupied by informal settlers.
Zone Three Fordsburg (plus):
This zone makes up the western portion of the Inner City, and comprises Fordsburg, Mayfair,
Pageview and Vrededorp. It is a an area of mixed use, with commercial and retail activities
along main roads and around the Oriental Plaza, and the rest comprising light manufacturing
and low-rise residential properties.
Zone Four Residential (plus):
This area is the main residential belt of the Inner City, ranging from the high-to-medium rise,
high-density suburbs of Hillbrow, Berea and Yeoville to Bellevue, Lorentzville, Troyville, Judith’s
Paarl, Bertrams and Doornfontein, which are medium-to-low, rise, medium density housing
areas. This zone includes the Greater Ellis Park Sports Precinct. There is a high degree of
urban decay in this zone, in some cases leading to whole blocks becoming blighted.
Complex Area in Transition
The CoJ believes that Johannesburg’s Inner City is undoubtedly a special case in terms of economic
importance and social impact. While the CoJ understands the rationale for a formula-based
calculation for the tax instrument, the urban regeneration reality is that Johannesburg’s
circumstances, size and economic importance should be taken into account in determining the size
of the UDZ area.
Johannesburg’s Inner City is a complex system in transition, subject not only to the dynamics of
inner city decline that characterise urban settlements across the world, but is also exacerbated by
the particular spatial and socio-economic impact of previous apartheid planning. The Inner City:



Has the most acute and multi-faceted level of urban problems in the country;
Is the crucible in which new approaches are tested and implemented; and
Is the looking glass through which South Africa’s success in inner city urban regeneration is
measured.
5
Which is about 1.1% of the total area of Johannesburg, i.e. 162,579 hectares
Based on the legislated allowance for demarcation of 150 ha per 500,000 persons, which permits an additional
20 ha per 100,000 persons if population exceeds 500,000, the population of Johannesburg is 3,200,000
according to Census 2001.
6
Department of Finance and Economic Development
(Final Submission)
Page 4 of 27
Urban Development Zone Tax Incentive
Department of Finance and Economic Development
(Final Submission)
Application: 10 June 2004
Page 5 of 27
Urban Development Zone Tax Incentive
A3
Application: 10 June 2004
Operational Rationale for the Inner City
The CoJ is making the case that the UDZ instrument will be most effective if applied across the Inner
City as a whole. The Inner City is a dynamic and powerful element of Johannesburg’s spatial and
social economy. An artificial division to meet the UDZ formula will cut across movement flows;
travel-to-work patterns and the land and property market, as well as disrupt the current holistic
regeneration approach currently being implemented.
The CoJ is concerned that limiting the UDZ boundary too tightly (for example by focusing only on the
CBD, and leaving out Hillbrow/Berea, Yeoville, Fordsburg or the industrial areas), will displace
investment from surrounding areas. From a property perspective it can be seen that the decline in
property values has not been limited to the CBD only – and in fact may have been far worse in areas
such as Yeoville and Hillbrow. These are also areas where ‘small investors (i.e. private individuals
who own their own homes) suffered a decline in their assets, whereas the CBD would have affected
the corporate/business investor more.
Area-specific initiatives have a ‘shadow’ effect - wherever the boundary is drawn the properties
immediately outside of it tend to suffer. In the case of the Inner City, the adjacent surrounding areas
are either middle- to higher-income residential areas, (including Houghton and Parktown), which are
unlikely to be assisted by this instrument, or industrial areas and mining land further to the south,
where there is a different land and property type.
As it now stands, the Inner City represents a complex but coherent collection of districts where the
prevailing property types are relevant to the UDZ tax incentive. If the current inner city boundary is
not accepted, then a smaller area will impose a shadow effect within the Inner City and undermine
the various coordinated economic regeneration initiatives that are currently in operation, at a time
when their efforts are beginning to bear fruit.
Given the rationale that the UDZ tax incentive should help ‘push along’ the free market (as opposed
to targeting a node where there is absolutely zero interest) then it is vital to note that the property
market is already showing signs of investment and redevelopment interest in Hillbrow, Yeoville,
Newtown and the surrounding areas as well as the CBD core. Properties in the predominantly
residential zones can be acquired at relatively cheap prices which add to the appeal from an
investors’ perspective. At the same time, new demand is being seen in the CBD at high-quality
residential developments (like 1 Rissik Street or Corner House) and for commercial space (at The
Mills precinct west of Newtown). It is the CoJ’s firm belief that this nascent investment interest
should be encouraged and supported.
Regeneration of buildings in Johannesburg is arguably being led by the residential sector – and there
are relatively few residential properties in the CBD. Again, the scope for residential property
redevelopment and investment in the wider Inner City is crucial – and provides much-needed
accommodation at prices that are relatively affordable. Furthermore, a private investment may well
take a risk on a single residential unit in Hillbrow, but is not so likely to re-develop a 15-storey office
building. Restricting the UDZ to a single smaller area may exclude potential investment and
development projects on the part of smaller, private or individual developers.
To summarise this section, the CoJ is of the firm opinion that, as the statistics in this document
establish, the Inner City represents the most suitable area necessary for the effective operation of
the UDZ instrument. The range of suitable land and properties for development or conversion, the
enabling institutional framework and the predictability of the CoJ and its partners’ approach to
implementation have boosted business and investor confidence across the whole area.
While problems certainly remain, they are no longer seen as insurmountable as was the case in the
late 1980s. We believe that there must be a critical mass within a particular location for an incentive
to work effectively, as those areas that are most developed grow the most rapidly. If the application
of the UDZ instrument is reduced to only parts of the Inner City, then the opportunity cost will have
more profound growth consequences than it would anywhere else in the country.
Department of Finance and Economic Development
(Final Submission)
Page 6 of 27
Urban Development Zone Tax Incentive
A4
Application: 10 June 2004
Economic Supra-National City
The Inner City makes the largest single contribution to Johannesburg’s economic output, which is the
most important urban economy on the continent. Johannesburg contributes more to South Africa’s
economy than any other area in the country. In 2002 Johannesburg’s GVA was valued at R163bn,
exceeding its nearest rival, the City of Cape Town, by R32bn. Johannesburg’s total economic output
comprises 44% of the total for Gauteng, and 16% of national Gross Domestic Product.
The Inner City is the largest source of the city’s economic productivity, providing over 23% of gross
geographic product. It has a larger value of production than Tanzania, the third largest economy in
the Southern African Development Community (SADC).
Current infrastructure investment in the Inner City has a replacement value of around R30 billion.
There are over 37 000 dwelling units, and the capital investment in housing in the Inner City has
been estimated to be around R1.2 billion. Taken together – property, roads and rail, information and
communications networks, and utilities – the Inner City is the largest concentration of urban
infrastructure in the country. The extent of this infrastructure investment is demonstrated by the
amount of existing floorspace in the Inner City:




Over 1 million m² retail
Almost 2.3 million m² office space
3.7 million m² in industrial stands, and
440 thousand m² gross lettable area in commercial space7
Inner City Structure
2,500,000
Square Metres
2,000,000
1,500,000
1,000,000
500,000
0
Zone 1
Zone 2
Zone 3
Zone 4
Inner City Zones
Retail Area
Office Area
Industrial Stand Area
Commercial Area (GLA)
Diagram 1: Structure and Category of Inner City Floorspace
To illustrate its national significance, the office floorspace in the Inner City exceeds the equivalent
total of the cities of Cape Town, Durban and Pretoria combined 8.
7
8
Statistics extrapolated from Land Use & Socio-Economic Report (2004), Report for CoJ by Plan Associates
Unspecified CoJ source
Department of Finance and Economic Development
(Final Submission)
Page 7 of 27
Urban Development Zone Tax Incentive
A5
Application: 10 June 2004
Integrated Urban Economic System
The Inner City is a highly integrated economic system. People both live and work within its
boundaries – it provides over 200 000 formal and informal jobs (more than the combined business
nodes of Sandton, Woodmead/Rivonia and Randburg). Over 800 000 commuters travel in and out
of the Inner City daily, giving it an average weekday population of over one million individuals.
Office and retail workers dominate the Inner City employment profile, as shown below 9:
Zone
Zone 1
Zone 2
Zone 3
Zone 4
Total
Retail
Workers
Office
Workers
Industrial
Workers
26 312
1 785
483
4 255
32 835
103 762
4 416
37
5 794
114 008
2 657
4 246
618
3 038
10 559
Commercial
Workers
119
46
120
302
587
Other
Workers
Total
18 485
5 395
848
18 492
43 221
151 335
15 888
2 107
31 881
201 211
Inner City Employment Profile
120,000
Number of Workers
100,000
80,000
Zone 4
Zone 3
60,000
Zone 2
Zone 1
40,000
20,000
0
Retail Workers Office Workers
Industrial
Workers
Commercial
Workers
Other Workers
Key Activity
Diagram 2: Inner City Employment Profile
The Inner City is immensely important in the metropolitan spatial economy. It forms the anchor point
for:



The Inner City – Sandton – Midrand – Pretoria corridor (the fastest growing development and
transport strip in the country in terms of property development, and the site of the Gautrain);
The South-West corridor to Soweto; and
The South-East corridor to Alberton
In addition, it is the pivotal point for the East-West corridor of former mining and industrial land
stretching from Crown Mines to Roodepoort. As a result, it is the heart of all public and private
transport systems in the city - the pre-eminent hub for the future growth of the metropolitan area on
sustainable public transport, as illustrated by the planned Gautrain investment in track and station
properties.
9
Statistics extrapolated from Land Use & Socio-Economic Report (2004), Report for CoJ by Plan Associates
Department of Finance and Economic Development
(Final Submission)
Page 8 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
The Inner City is the primary service centre for people living in southern Johannesburg – it is ‘part of
the neighbourhood to many among the two million who live south and south-east of the central
city…who view the Inner City as an economic refuge and many thousands who come daily to the city
to make a living through informal trading and other means’10.
The properties of the Inner City provide an important resource for the arrival of small-scale economic
activities (particularly C and D Grade office space), and have positioned it as the most important
incubator of SMMEs in the metropole. Such enterprises are not located in the higher-value
properties of the CBD or Braamfontein, but rather in the margins around these areas. Entrepreneurs
in these primarily black-owned activities have stressed the Inner City as a market for black and white
consumers, transport accessibility and ease of access to suppliers. In particular, it is the location of
choice for increasing numbers of immigrant entrepreneurs who play an important role in economic
regeneration – on average each entrepreneur creates four job opportunities per enterprise.
At the top end, A-grade office space in Johannesburg CBD has not moved much beyond R35/m² in
the past few years, while at the other end of town, prime office rentals in Sandton can be higher than
R100/m². For a small business, a start-up, or a cost-conscious organization, this difference of
R65/m² is significant. At the same time, cheap rentals in the over-supplied suburban office market
have prevented the CBD from exploiting this advantage – as too have previous perceptions of crime
and grime.
At the other end of the economic spectrum, the Inner City houses the headquarters of some of the
country’s largest corporations, including South African Breweries, Transnet, Standard Bank, Bankfin,
ABSA, Liberty Group, FNB, Anglo American, Sappi, JD Group, and Rennies. It is also the location
for the main offices of the City of Johannesburg council, the Gauteng Provincial Government and the
Constitutional Court. Such institutions represent a critical component of the knowledge-based
economy and are a vital factor in Gauteng’s drive to establish the ‘Smart Province’. They are also
significant employers of Inner City residents; for example 9% of the 6 699 staff employed at FNB’s
Bank City headquarters live in the Inner City11. This is proportionately higher than the expected
norm, given that the Inner City comprises 6.5% of the total Johannesburg population.
A6
Focus of Transformation
Johannesburg’s Inner City is a place where city meets suburbs, white meets black and cultures
come together. It exhibits competition between formal and informal activities over access to public
space, the needs of good governance and urban management, and a diversity of interests that range
across the local, Sub-Saharan and global economies.
These tensions are characteristic of inner city change and transformation, and are particularly
evident in the property market. Bad buildings – under-maintained, ‘slummed’, with tenants exploited
by unscrupulous landlords - are to be found in every district across the Inner City. They range from
former industrial buildings in Jeppestown that have been occupied by informal settlers to
overcrowded residential blocks in Hillbrow, Berea and Yeoville. Absconding landlords, often owing
millions of rands in rates and services charges, abandon properties. These are left to decay and
become run-down – something that taints the attractiveness of the wider neighbourhood, attracts
vice, and deters potential investors.
By the end of 2003 some 235 such buildings had been identified in the Inner City, and of the 37 000
housing units in the area, some 10 000 are in serious states of disrepair. By May 2004 the CoJ Inner
City Law Enforcement Unit had referred over 110 bad buildings for legal action and closure.
The increase in bad buildings reflects the focus of landlords and developers to maximise short-term
profit rather than pay attention to long-term maintenance and asset management. ‘Slumming’
properties in this way increases return over costs by exploiting a residential income group that is able
to pay reasonable rents, but where there is no market supply of adequate stock. The potential for
10
11
Tomlinson R, (1998), Inner City Economic Development Strategy, for City of Johannesburg
Information provided by FNB Human Resources Department (May 2004)
Department of Finance and Economic Development
(Final Submission)
Page 9 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
economic growth lies in creating adequate accommodation for people, who are currently paying
large rentals for very poor housing, and therefore encourage a growth in the actual property market.
The impact of bad buildings is evident in a serious decline in rates levied across the majority of the
Inner City districts. A comparison of monthly rates levied in July 2000 compared to February 2004
indicates a trend of decline in the Inner City12:
Total assessment rates levied (R)
Zone
Zone 1 Office & Business
Zone 2 Manufacturing & Industrial
Zone 3 Fordsburg (plus)
Zone 4 Residential (plus)
Totals
July 2000
16,777,050.72
2,682,557.05
2,107,322.26
2,524,522.41
24,091,452.44
February 2004
11,345,987.54
2,639,769.18
2,064,414.17
1,892,378.12
17,942,549.01
Difference
-5,431.063.18
-42,787.87
-42,908.09
-632,144.29
-6,148,903.43
%
-32%
-2%
-2%
-25%
-26%
Overall, there was a deterioration in assessment rates levied across the Inner City of 26%, with the
bulk of the decline concentrated in Zones 1 and 4. These summary figures also mask particular
townships where the degree of decline is higher than the zonal aggregate; for example:




A7
Marshallstown (Zone 1) - decline of 42% from R 3.87m to R 2.24m
Ferreiras Dorp (Zone 2) - decline of 49% from R 474 000 to R 247 000
Fordsburg (Zone 3) - decline of 23% from R 479 000 to R 369 000
Doornfontein (Zone 4) - decline of 61% from R 376 000 to R 146 000
Institutional Integration
The CoJ has not been defeatist in its response to the changes in its Inner City, but rather has put in
place a well-founded series of strategies, programmes, partnerships and projects to intervene,
address and reverse its decline. The case for selecting the Inner City is further strengthened by the
high degree of institutional coordination in place to implement urban regeneration programmes. The
original vision for the renewal of the Inner City was announced by the then Deputy President Mbeki
in July 1997. The CoJ established an Inner City Office in 1998. The Inner City boundary was formally
designated in February 1999 by the CoJ as a ‘Priority Intervention Zone’ and included as one of the
six Executive Mayoral Priorities in 2000.
The CoJ established two Inner City Committees in January 2001, which are led by the Member of
the Mayoral Committee for the Inner City. The jurisdiction of the CoJ’s Region 8 administration is
made up largely of the designated Inner City. The Region 8 Inner City Task Team is a dedicated unit
targeted at by-law enforcement and closure of bad buildings.
One of the CoJ’s key programmes in promoting property investment and economic value is the
Better Buildings Programme (BBP), which is managed by the Johannesburg Property Company.
Under the BBP, bad buildings are closed, attached by the CoJ and then auctioned to credible
developers who then commit to refurbishment and bringing the property back into economic use
within five years. The CoJ also undertakes write-offs on rates and service charges arrears for these
buildings.
In addition, the Inner City is also the focus for public-led development agencies and public and
private partnerships aimed at inner city regeneration. These include, but are not limited to:



The CoJ’s Johannesburg Development Agency (JDA);
The CoJ’s Johannesburg Property Company (JPC), as operators of the CoJ’s Better Buildings
Programme;
The CoJ’s Economic Development Unit, through its Area-Based Regeneration programme,
which focuses on strengthening economic sectors in particular spatial locations;
12
Statistics from analysis of assessment rates information, CoJ Revenue Services, Department of Finance &
Economic Development (May 2004)
Department of Finance and Economic Development
(Final Submission)
Page 10 of 27
Urban Development Zone Tax Incentive



Application: 10 June 2004
The CoJ’s Department of Development Planning, Transportation & Environment, which has
recently established a decentralised, dedicated Building Control Office for Region 8 to fast-track
planning-related applications in the Inner City.
The private sector-led Central Johannesburg Partnership (CJP), the development arm of the
Johannesburg Inner City Business Coalition (JICBC); and
The Inner City Property Owners and Managers Association (POMA), which represents landlords,
developers and property investors with interests in the Inner City.
The first Inner City Economic Development Strategy was completed in 1998, and has led to a series
of spatial development frameworks and programme designs, culminating in the Joburg 2030
Strategy (2002), the CoJ’s Integrated Development Plan (2003), the Inner City Regeneration
Strategy (2003), and the Inner City Business Plan (2004).
This strategy and plan treats the Inner City as a single, integrated entity. It is based on three
fundamental factors to attract and sustain investment:



That conditions for investment must be competitive and fair relative to the operation of the
market
They must be understandable, requiring clarity of intentions and transparency of purpose; and
They must be predictable, demanding consistent actions that are dependable and generating
decisions and actions that are a logical output.
In line with these conditions, regeneration activities are in place across the whole of the Inner City;
currently which include, inter alia:







16 precinct projects to promote ripple-effect investments;
13 business/city improvement districts planned or underway, which will improve urban
management and municipal service delivery;
43 properties targeted in the first phase of the Better Buildings Programme;
Connectivity improvements through the recently completed Mandela Bridge and the planned
Inner City Distribution System;
Over 2 000 social or low/middle income housing units in development;
A rates rebate on mixed-use residential property in the Inner City; and
Improvements in security through the continued rollout of closed circuit TV.
The impact of these programmes is beginning to bear fruit, with performance surveys showing
increasing confidence among resident businesses and potential investors in the Inner City.
To demonstrate the realities of Inner City development, a sample of brief case studies has been
appended as Annexe AA2. These illustrate some of the positive developments and potential for the
implementation of the UDZ in the Inner City, as well as the difficulties that the CoJ’s coordinated
approach is currently addressing.
Examples are taken from each of the four Inner City zones. They range from the remarkable comeback of the Carlton Centre and exciting new high-density housing developments, to what is currently
described as the worst building in the Inner City.
The task of economic development and transformation of the Inner City is both current and pressing.
The UDZ tax incentive will be a valuable addition to the CoJ’s resources in meeting and overcoming
these challenges.
Department of Finance and Economic Development
(Final Submission)
Page 11 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
Section B Meeting National Treasury and Legislation Requirements
Under the population criteria specified under Sub-section(7)(a)-(c) the CoJ may put forward an area
of 690 hectares for a single UDZ, an area which largely corresponds to the Central Business District.
However, it is proposed that the current designated Johannesburg Inner City be accepted as the
demarcated UDZ, consisting of 1 786 hectares, excluding rail land and koppie areas (see map and
townships list in Annexe AA1) in line with the possibility allowed in the legislation under Sub-section
(7)(d).
The Inner City forms the majority of the CoJ’s Region 8 administrative area. It comprises the City
Centre or Central Business District (CBD); the office satellite centre of Braamfontein; the lower
density, predominantly residential suburbs to the east of the City Centre of Yeoville, Bertrams,
Troyeville and Jeppestown; the higher density residential areas of Berea and Hillbrow; the industrial
and distribution area of City Deep; the Newtown cultural precinct, and the largely residential areas of
Fordsburg, Pageview and Vrededorp.
The selection of this area is motivated on the grounds that the Inner City:






Is the historic social and economic heart of Johannesburg
Is the geographical area of Johannesburg that contributes most to the city’s economy
Complies with all the economic urban decay parameters specified in the legislation
Is a economically and socially related area, with strong internal networks and linkages
Has been a focus of specific attention since the early 1990s, with a series of fine-tuned
regeneration strategies, policies and programmes now in place
Is a long-standing and officially-demarcated area for urban renewal activities and the
administration and delivery of municipal services
Given the economic importance of the Inner City, and the CoJ’s consistency of approach, it is the
council’s view that the Inner City needs to be treated as a single entity for the purposes of the UDZ
tax incentive as outlined in Section A.
This proposal was endorsed by the decision of the CoJ Mayoral Committee of 31 July 2003 which,
after consideration of four possibilities as the demarcated UDZ (the Inner City, Randburg CBD,
Roodepoort CBD and Lenasia CBD), resolved that should the selection be limited to one area only,
then the Inner City would be recommended to be the designated area. This decision was based on
a sound consideration of which area had the greatest potential to benefit from the tax incentive, and
make a significant positive contribution to the city’s ongoing efforts in urban regeneration.
B1
The Current Significance of the Inner City for Johannesburg
The Inner City has key economic and social strategic significance for the city as a whole, as the
following brief statistics illustrate13.
B1.1
Contribution to Gross Geographic Product
The Johannesburg Geographic Value Added (GVA) was just over R101bn in 2002 (latest figures, at
constant 1995 prices)14. This is over 44% of Gauteng’s economic output, and as Diagram 3 shows,
outstrips its nearest municipal rival by R10bn.
13
The most accurate available statistics have been used in this and the following sections. However, given its
geographical nature and the varied databases in use by different local government structures before the
creation of the unicity, a perfect dataset for the Inner City area is not always possible. In such cases the CoJ
Region 8 administrative area is used as the closest proxy measure.
14 Global Insight database provided to EDU 2004
Department of Finance and Economic Development
(Final Submission)
Page 12 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
la
M
an
de
ul
en
i
N
el
so
n
Ek
u
eT
he
hw
Ts
e
Jo
C
ap
rh
an
e
w
n
To
bu
es
ha
nn
kw
in
i
180,000,000
160,000,000
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
rg
Rands
GVA per Metro, 2002
Metro
Diagram 3: GVA of the six major metropolitan municipalities, 2002
Source: Global Insight database provided to EDU, 2004
% of t ot al es t i mat ed GGP
Statistics available for Gross Geographic Product (which is a broadly similar measure to GVA) show
that the largest input to the city’s productivity comes from Region 8, which includes the whole of the
proposed area. As shown in Diagram 4, the next highest contributor is Region 3 (Sandton, includes
Randburg, Woodmead and Rivonia).
25.0
23.1
20.8
20.0
15.0
12.7
8.6
10.0
5.0
10.0
8.3
5.2
4.6
3.7
2.3
0.6
1
2
3
4
5
6
7
8
9
10
11
Region
Diagram 4: Administrative region contribution to the total Johannesburg Gross Geographic Product,
2002
Source: Johannesburg Inner City Economic Activity Analysis, Urban-Econ & Kagiso Special Places, 2003
B1.2
Infrastructure
Current infrastructure investment in the Inner City has a replacement value of around R30 billion.
There are over 37 000 dwelling units, and the capital investment in housing in the Inner City has
been estimated to be around R1.2 billion15.
15
Executive Mayor Mid-Term Review, City of Johannesburg 2003
Department of Finance and Economic Development
(Final Submission)
Page 13 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
B1.3
Employment
As shown in Diagram 5, the Inner City nodes of the CBD, Braamfontein, Hillbrow and Benrose
provide more formal employment than the combined business districts of Sandton,
Woodmead/Rivonia and Randburg.
Diagram 5: Nodes of Formal Workers, 200116
16
Source: Land Use & Socio-Economic Report (2004), Report for CoJ by Plan Associates
Department of Finance and Economic Development
(Final Submission)
Page 14 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
B1.4
Office and Retail Property
The Inner City provides a total of 2 150 594 m² of gross leasable office floor space in the top A and B
grades, compared to Sandton (1 112 364 m²) and Rosebank (294 944 m²). It is the largest node in
terms of total productive floor space in the metropolitan market17, and exceeds the equivalent total of
the combined cities of Cape Town, Durban and Pretoria. In addition, the Inner City provides
approximately 700 000 m² of retail floor space, primarily for the residents of the southern part of the
city, especially those without access to private transport.
B1.5
Population
The Inner City houses a significant proportion of the City’s population, at least 208 000 people, the
majority of whom, as shown in Diagram 6, live in Zones 1 and 4 18. It is projected to be around
256 000 by 2010. These numbers are swelled by the daily flows of commuters in the Inner City. The
numbers of pedestrians who walk in from nearby suburbs to the city centre, and users of public
transport, are exceptionally high. On an average weekday, there are one million people in the Inner
City19.
Inner City Residential Profile
160,000
140,000
120,000
Number
100,000
Hous eholds
80,000
Population
60,000
Economically Active
Population
40,000
20,000
0
Zone 1
Zone 2
Zone 3
Zone 4
Inner City Zones
Diagram 6: Inner City Residential Profile
B1.6
Corporate Headquarters
The Inner City houses the corporate headquarters for some of the country’s largest corporations,
including Transnet, Standard Bank, Bankfin, ABSA, Liberty Group, FNB, Anglo American, Sappi, JD
Group, and Rennies. Many of these companies own and occupy their own buildings, which means
that they are not dependant on the rental streams for their income. It is also the location for the main
offices of the City of Johannesburg council, the Gauteng Provincial Government and the Provincial
Legislature.
17
Urban-Econ & Kagiso Special Places (2003) Johannesburg Inner City Economic Activity Analysis
Statistics extrapolated from Socio-Economic Land Use Report (2004), CoJ Department of Planning,
Transportation & Environment
19 Executive Mayor Mid-Term Review, City of Johannesburg 2003
18
Department of Finance and Economic Development
(Final Submission)
Page 15 of 27
Urban Development Zone Tax Incentive
B2
Application: 10 June 2004
The recent history of the Inner City
The recent history of the Inner City is one of change and transition. Historically, the CBD served as
the primary centre of commerce and retail, with specialised sectors of legal services, medicine,
education and hotels. The CBD fringe along the M2 had a light-manufacturing component.
Change began in the late 1970s with the suburbanisation of retail and commerce. Through the
1980s and early 1990s poor urban management, increasing population pressure, informalisation,
and deregulation exacerbated this situation. This manifested itself in an increase in ‘bad buildings’,
slums, crime and shoddy urban environment, and further propelled disinvestment and the flight to the
suburbs. The CJP has monitored property and business investment in the Inner City since the early
1990s. From 1994 to 1998 it recorded no major commercial or residential investments in the Inner
City20. The impact of these changes is displayed in a persistent legacy of vacant office floorspace,
lower property rental levels in real terms and a reduction in rates revenue.
B2.1
Vacant Floorspace
Of the 2.1million m² of Grades A and B office floorspace in the Inner City, approximately 490 000 m²
(23%) is vacant (2002 figures)21. This compares with equivalent rates of around 15% in the Sandton
and Rosebank office nodes. The Inner City office vacancy rate has grown from 15% in the mid1990s and fluctuated between 20 to 25% over the past four years.
B2.2
Rental Levels
Office rental levels in the Inner City changed little over the past seven years. The current average
gross rate of R36.75 per m² for Grade A office space is a decline in real terms from the R30-R35 per
m² paid for similar space in the CBD and Braamfontein in 1997. By comparison, the rate for Grade A
space in Sandton has increased from R50 to R95 per m² over the same period.
Real residential rental trends have shown a similar decline in the Inner City. Data for the period
1990 to 2001 shows that rental levels in Hillbrow, Joubert Park and City districts peaked in 1996-97,
and have declined in real terms since. By comparison, the inner city suburb of Sunnyside in Pretoria
has shown an increase over the same period22.
B2.3
Assessment Rates
Assessment rates levied for the Inner City have declined over the recent period. In July 2000 (the
first date from which consolidated financial data is available) rates levied were R24.1 m. By
February 2004 this figure had fallen to R17.9 m, a reduction of R6.2m or 25%. The decline in
property values is most starkly illustrated by the case of the Carlton Centre, a building that
symbolised the CBD at the summit of its prosperity. In 1999 it had been vacant for two years, and
had a replacement value of R1.2bn. Transnet bought it that year for R33m.
B2.4
Housing Quality
Of the 37,000 housing units across the Inner City, the Region 8 Spatial Development Framework
estimates that 10,000 units are in varying degrees of disrepair:
Units in extremely poor state of repair
Units in a very poor state of repair
Units in poor state of repair
2 000
5 000
3 000
B2.5
Bad Buildings
In 1999 around 120 Inner City properties were identified in the CBD alone as bad buildings due to
high levels of rates arrears as well as poor maintenance. By 2003 this had risen to 235 as the
survey was extended to include surrounding areas (and is still underway).
The increase in bad buildings reflects the focus of landlords and developers to maximise short-term
profit rather than pay attention to long-term maintenance and asset management. ‘Slumming’
20
21
22
Interview with N Fraser, CJP Chief Executive, 3 May 2004
Urban-Econ & Kagiso Special Places (2003) Johannesburg Inner City Economic Activity Analysis
Urban-Econ & Kagiso Special Places (2003) Johannesburg Inner City Economic Activity Analysis
Department of Finance and Economic Development
(Final Submission)
Page 16 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
properties in this way increases return over costs by exploiting a residential income group that is able
to pay reasonable rents, but where there is no market supply of adequate stock. The potential for
economic growth lies in creating adequate accommodation for people, who are currently paying
large rentals for very poor housing, and therefore encourage a growth in the actual property market.
B3
The City of Johannesburg Response
B3.1
Institutional Arrangements
The Johannesburg Inner City has been a focus for urban renewal efforts since the mid-1990s, and its
importance in this respect is reflected by the institutional arrangements put in place to facilitate these
activities from 1995. The original vision for the renewal of the Inner City was announced by the then
Deputy President Mbeki in July 1997. The CoJ established an Inner City Office in 1998. The Inner
City boundary was formally designated in February 1999 by the CoJ as a ‘Priority Intervention Zone’
and included as one of the six Executive Mayoral Priorities in 2000. The CoJ established two Inner
City Committees (S79-advisory and S80-designated powers) in January 2001, which are led by the
Member of the Mayoral Committee for the Inner City. The Council’s structure includes central core
departments and 11 administrative regions. The area of the Region 8 administration is made up
largely (but not exclusively) of the designated Inner City (see map of both boundaries shown on the
map in Annexe AA1).
B3.2
Strategic and Policy Framework
These institutional developments have been underpinned by and reflect the thorough social and
economic studies of the Inner City undertaken over the past 10 years. In addition to statutory
requirements (most recently the 2003 CoJ Integrated Development Plan, which includes the local
integrated development plan23 and spatial development framework for Region 8), strategy and policy
documents range from the Inner City Development Strategy (1998), the Inner City Spatial and
Economic Development Frameworks (1999), the Inner City Regeneration Strategy (2003) and most
recently the Johannesburg Inner City Business Plan 2004 (see list of relevant documents in Annexe
AA3).
Diagram 7: Inner City Regeneration Strategy
Raise & sustain private
investment leading to steady rise
in property values
Address
sinkholes
Ripplepond
investments
Support
Economic
sectors
Intensive
urban
management
Maintain
/
upgrade
infrastructure
The long-term development strategy for the city, Joburg 2030 (produced in 2002), formulates a vision
based on the fact that the CBD remains a highly rated and productive asset in respect of office
space, amenities and infrastructure. However, it is currently too large in terms of effective
23
Also known as the RSDF – Regional Spatial Development Framework
Department of Finance and Economic Development
(Final Submission)
Page 17 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
urbanisation economies (around twice the size of New York’s Wall Street and ‘The City’ in London)
and it is necessary to shrink the core to capture the majority of A-grade office space users. Around
this tighter core, secondary grade office space will be continue to be taken up by back office
enterprises, SMMEs, financial service companies with city-based clients, NGOs, and social service
activities. Redundant commercial buildings will be targeted for residential conversion or demolition,
and are therefore ideal candidates for the UDZ incentive.
B3.3
Progress to date
Already there are clear signals that the process of turning around the Inner City has gathered
considerable momentum as a result of the council’s efforts, along with its business and civil society
partners. Council-led responses to date include:








The CoJ and Gauteng Government have made major investments and intensified efforts to
revive the area and manage the environment. Examples include the Blue IQ and JDA precinct
projects described below in more detail.
The Inner City Task Force was established, with considerable success in by-law enforcement
and closing down crime-ridden buildings
There has been improved co-ordination of agencies active in the Inner City, including the
Council’s Region 8 Office, the Johannesburg Development Agency (JDA), the Johannesburg
Metropolitan Police Department (JMPD), Blue IQ, the Metropolitan Trading Company (MTC),
Johannesburg Property Company (JPC), Pikitup, Johannesburg City Parks (JCP) and other
Utilities, Agencies and Corporatised Entities (UACs)
A close working relationship is in place with the Central Johannesburg Partnership (CJP)
Commencement of regenerating Special Activity Precincts
Most Inner City parks have been upgraded
Closer working relations have been established with Inner City property owners and managers,
particularly the Inner City Property Owners and Managers Association (POMA)
There has been renewed attention to maintaining utility infrastructure
The CoJ is well aware that addressing the persistent problems of the Inner City is part of a lengthy
process: none of them is likely to be addressed by an instant solution, but rather by the steady
application of capacity, resources and political will. To that end, the introduction of the Urban
Development Zone tax incentive is a welcome addition to range of instruments and mechanisms the
City has at its disposal and will increase the level of private sector investment.
B4
The Proposed Area
The Inner City represents a larger area than that provided for under the population criteria specified
under Sub-section(7)(a)-(c). Using the Johannesburg CBD as the central place of the Inner City, this
section addresses the requirements set out in Sub-section (7)(d)(i)-(iv) where a municipality seeks
the Minister’s approval for the designation of a larger area.
B4.1
Integration
Sub-section (7)(d)(i) requires the municipality to prove that the ‘excess area is integrally related’ to
the initially limited area. The CoJ recognises that the forces affecting inner city development include
physical, social and economic factors, as well as government policies. Similarly, renewal efforts
have to be effective, efficient and holistic. In selecting the Inner City as its prime urban renewal
district, and its nominated UDZ, the CoJ has recognised that the area must be treated in an
integrated fashion, and can demonstrate a high degree of integration across the Inner City in the
following aspects:
Institutional integration: As described previously, the Inner City falls within a single CoJ regional
administration under the Region 8 Office, and falls under the specific jurisdiction of two council
committees. It is the initial mandate area of JDA, and the focus area for the CJP, which is the
development arm of the Johannesburg Inner City Business Coalition (JICBC). The Inner City
designated area forms a coherent district for the utility operations of Joburg Power Region 2, Joburg
Water Central Region, Pikitup Central region and Egoli Gas.
Department of Finance and Economic Development
(Final Submission)
Page 18 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
In addition, a coordinating Inner City Strategy Working Group strengthens these institutional
arrangements and comprises:




The Member of the Mayoral Committee responsible for the Inner City
The Regional Director of CoJ Region 8 Office
The Director of the CoJ Economic Development Unit
The Chief Executive Officer of the Johannesburg Development Agency
For more details refer to Annexe AA5.
Economic integration: The various suburbs included in the Inner City have a variety of integral
effects on each other. Although definitive travel-to-work data is currently unavailable, pedestrian and
public transport passenger trends demonstrate that the office, retail and light manufacturing districts
of the central city are a source of formal and informal employment opportunities for the residents of
the surrounding districts.
The Inner City Regeneration Strategy, whose primary objective is to ‘raise and sustain private
investment, leading to a steady increase in property values’ is based on the position that the area is
an integrated system of sectoral and spatial activities. The strategy promotes a precinct-based
approach to achieve its objective, in which spatial target areas are the focus of public-led
improvements to lever in private investment and overcome disincentives to capital.
There are now 16 precinct projects underway, forming the ‘ripple-effect investments’ from which
property and economic activity investments will spread and eventually coalesce across the Inner City
(see Annexe AA4). Some of these investments are substantial – for example, the private sector-led
Sappi Piazza project involves R110m capital development. The public sector-led redevelopment of
the Newtown Cultural Quarter is a R145m capital project, while over R1.2bn public and private
investment is planned and/or underway at Constitution Hill.
In addition, there are a further 13 business/city improvement districts planned or underway where
intensive urban management actions assist in building business confidence in the area. More details
of these areas are set out in Annexe Three.
The Inner City is the prime economic incubator for new start-ups and growth of small, medium and
micro-enterprises (SMMEs). The CoJ assists these ventures with business advice, counselling and
support services provided, for example, through its partnership with Open For Business (OFB) and
the Fashion District SMME clothing cluster, both of which are located in the Inner City.
In addition to these support activities, there are economic links and flows within the Inner City that
serve particular markets. For example, it has been reported that the cross-border retail trade, in
which the CBD was pre-eminent in the 1990s, has now shifted to Fordsburg in the west of the Inner
City24. Clothing enterprises in the emergent Fashion District cluster are linked to the older and larger
factories in Fordsburg and Mayfair 25, as well as retail outlets in the Inner City.
The Inner City Economic Activity Analysis (2003)26 commissioned by the EDU identified further
internal linkages within inner city economic clusters. These include:



Inter-modal transport nodes with low-end retail, wholesale suppliers and informal traders
Wholesale suppliers in West City linked to wholesale suppliers in Fordsburg
Educational institutions in an Inner City-wide complex that links public facilities (University and
technikon) and private facilities (business schools, colleges and training centres)
The creative industries cluster is a further illustration of economic connections within the Inner City.
The ‘Cultural Arc’ encompasses the heritage and tourism component at Constitution Hill in the northKesper A, ‘Making a living in the Inner City’ in Tomlinson R, Beauregard R, Bremner l, Mangcu X (2003)
Emerging Johannesburg: Perspectives on the Postapartheid City
25 Robinson J, ‘Beyond Developmentalism and Global Success’ in Tomlinson R, Beauregard R, Bremner l, and
Mangcu X (2003) Emerging Johannesburg: Perspectives on the Postapartheid City
26 Urban-Econ & Kagiso Special Places (2003) Johannesburg Inner City Economic Activity Analysis
24
Department of Finance and Economic Development
(Final Submission)
Page 19 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
east of the Inner City, passes east through the Civic and Alexandra theatres in Braamfontein to the
Wits University Cultural Campus, and then connects over the Nelson Mandela Bridge to the
Newtown Cultural Quarter in the south-west. Newtown is further linked to artists’ studios and
creative activities in Fordsburg and Fietas to the west.
Economic integration is also demonstrated by the impact on business investment decisions. The
JICBC has consistently reported that negative perceptions of urban decay in Hillbrow and Berea
adversely affect the propensity to invest in the adjacent CBD and Braamfontein nodes, arguing for a
wider defined UDZ area. Similar perceptions have led to banks and financial institutions to being
especially risk-averse towards lending in residential areas in the Inner City.
Physical integration and inter-connectivity: The Inner City has a strong road and transport
network connecting its various suburbs. There are two urban freeways (M1 and M2), major eastwest (R21, R41, M18) and north-south arterials (M7, M9, M11, M27, M31, M71). Road connectivity
has been improved with the recent opening of the Nelson Mandela Bridge and Carr Street On/Off
ramps. The Inner City is traversed by east-west and north-south railway lines with 9 district
suburban stations and at a terminus at Park Station. The Inner City Distribution System (ICDS) is
being planned to connect all major nodes of the Inner City from the Oriental Plaza in the west to the
Fashion district in the east, as well as the Wits University East Campus, Metro Centre, Constitution
Hill, Park Station, Joubert Park and Gandhi Square Bus Terminus. The Park Central, Metro Market
and Westgate taxi ranks are the main hubs for services across the Inner City.
Social integration: The Inner City currently has 208 000 residents in 72 000 households. The
central city area (i.e. Zone 1) houses approximately 58 000 people in 20 000 households. The CoJ’s
housing projections show increasing demand for accommodation in the suburbs closest to the CBD,
which cannot be met within existing properties. Programmes to address this include the provision of
social housing - the Johannesburg Housing Company has built around 1 850 such units in the last
eight years, with 650 currently in development. In addition, a further 1 500 low- and middle-income
housing units are planned for Newtown.
The high degree of social integration between the central city and surrounding areas is providing the
impetus for residential adaptation of under-used or redundant office buildings. The UDZ tax
instrument will be particularly relevant in this respect, supporting the shrinkage of the current office
core, and its replacement with residential units in converted commercial properties.
Other programmes that strengthen the current levels of social integration include:
 The establishment of a People's Centre and satellite neighbourhood offices where residents can
obtain information and access community development and support programmes
 The Hillbrow/Berea Regeneration Initiative, whose goal is to build community and develop and
implement a co-ordinated local action plan
 The Western Joubert Park Project, which involves physical upgrading, community development
programmes and the development of the Greenhouse Environmental Centre
 The development of community education programmes that focus on youth development,
promoting citizenship and provision of sport and recreation activities
B5
Economic Reasons
Sub-section (7)(d)(ii) requires the municipality to prove that ‘sound economic reasons exist for
demarcating a larger area’. The statistics in sections A2.1 and B2 of this submission demonstrate
the economic significance of the Inner City to Johannesburg and, indeed, South Africa. Economic
progress so far has been slow but steady, and has involved the design and application of a large
number of programmes and mechanisms in an increasingly coordinated fashion. However, the
challenges of economic development and transformation of the Inner City are still far from overcome.
Statistics from the JDA’s most recent economic indicators report for the Inner City (Progress in the
City, 2003) highlight these issues further:

Attendance at cultural, entertainment and sporting activities totalled over 950 000 people in
2003, an increase of almost 12% on the previous year. This is an indicator of vibrancy and the
Department of Finance and Economic Development
(Final Submission)
Page 20 of 27
Urban Development Zone Tax Incentive




Application: 10 June 2004
economic importance of cultural and creative industries in regeneration. However, the total is
still down 11% from a high of just over 1 million in 1997.
The value of private sector building plans approved and work completed was around R60m for
new building, additions, alterations and parking in 2002, a major increase from the R20m in
2001. This excludes cell phone masts and public buildings.
Office vacancy rates (A&B grades) have stabilised around 24% in the CBD and 12% in
Braamfontein. Brokerage companies in the Inner City report that at least 60% of new leases are
signed by emerging black businesses.
RSC salary levies have remained stable between 2001 and 2002 for the Inner City
Issues identified for urgent attention by survey respondents include improving buildings and
shop fronts, demolishing or converting run-down buildings and tackling crime. Empty buildings
and shops (often with illegal residents) were identified as particularly negative aspects.
Current property development initiatives strengthen the case for the delineation of the entire Inner
City as a UDZ. The CoJ has revamped its Better Buildings Programme (BBP) to deal with such
properties. The BBP is aimed at attracting private sector investment in acquiring and bringing
buildings back into economic life, primarily for residential use. The JPC is the manager of the BBP,
and has a current portfolio of 43 properties, of which 13 have already been handed over to private
sector partners for redevelopment and management. The 43 portfolio properties comprise the first
phase of the BPP, include over 2 500 rooms and apartments, and will require an estimated R 108
million to refurbish.
The BBP is proving attractive to new and credible property developers who enter into obligations and
investment agreements with the JPC. In return the CoJ agrees to write off all arrears on the property
and facilitate the development process. The BBP operates across the Inner City and demarcating
only a limited area for the UDZ would distort its operations.
The CoJ is concerned that drawing the UDZ boundary too small, for example, by focusing only on
the CBD, will displace and draw in investment from surrounding areas rather than helping generating
new investment. Area-specific initiatives have a ‘shadow’ effect - wherever the boundary is drawn
the properties immediately outside of it tend to suffer. In the case of the Inner City, the adjacent
surrounding areas are either middle- to higher-income residential areas, (including Houghton and
Parktown), which are unlikely to be assisted by this instrument, or industrial areas and mining land to
the south, where there is a different land and property type. As it now stands, the Inner City
represents a complex but coherent collection of districts where the prevailing property types are
relevant to the UDZ tax incentive. If the current boundary is not accepted, then a smaller area will
impose a shadow effect within the Inner City and undermine the various coordinated economic
regeneration initiatives that are currently in operation at a time when their efforts are beginning to
bear fruit.
B6
A Single UDZ
Sub-section (7)(d)(iii) requires that the municipality does not demarcate two areas if it is
contemplating designating a larger area. The CoJ can confirm its intention to demarcate the Inner
City as a single UDZ.
B7
Government Affordability Constraints
Sub-section (7)(d)(iv) requires that the Minister is satisfied that the demarcation of the excess area
would fall within Government’s affordability constraints. Since only the National Treasury knows the
final level of this ‘cap’, the CoJ can simply acknowledge that this is a factor that will be taken into
account in relation to approval of the proposed area in conjunction with National Treasury.
Projections of the likely take-up of the tax incentive in the Inner City are not easy to make, given the
untried nature of the initiative and the multiplicity of factors that can affect property markets and
urban regeneration. In the case of the BBP first phase programme, it will cost an estimated R108
million to refurbish 43 residential and commercial buildings, an average of R2.5 million per building.
Department of Finance and Economic Development
(Final Submission)
Page 21 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
If all the developers were to accelerate depreciation on refurbishment over five years then the
estimated tax saving (and cost to the fiscus) would be R32.4 million.
Private sector take-up is less easy to predict, particularly given that commercial confidentiality
usually governs incipient property deals. The CJP has stated that JICBC members have expressed
keen interest in the timing and implementation of the UDZ, which may well indicate that
developments are being planned with the incentive in mind27. A similar report has been received
from one of the major housing developers in the Inner City.
It appears that the growing interest in property investment and development in the Inner City – which
started to emerge in around 2000/01 – will be boosted by the introduction of the UDZ incentive. In
particular it will attract the interest of smaller or individual investors who have been prepared to take
some risk for the possibility of attractive returns (anecdotal evidence suggests that well-managed
high-density residential blocks in Hillbrow can achieve better yields than prime office buildings in
Sandton).
B8
Developed Urban Location
The CoJ’s proposed UDZ complies with this requirement under Sub-section (6)(a) of the legislation.
B9
Formal resolution of Council
Sub-section (6)(b) of the legislation requires the council to demonstrate that the UDZ area is
demarcated no later than 30 June 2004. The history of the identification and demarcation of the Inner
City as a target regeneration area has been mentioned previously in Section B3.1 of this submission.
In 2000 the area was adopted as an Executive Mayoral priority for the 2000-2005 term of office. The
Inner City boundary was adopted as the area of jurisdiction for the Member of the Mayoral
Committee responsible for the Inner City, and for the Inner City Portfolio (S80) and Inner City
Advisory (S79) Committees established in 2001.
The confirmation and adoption of the Inner City as the formally demarcated priority area for the
proposed UDZ was agreed by resolution of the Mayoral Committee on 31 July 2003. This decision
was ratified at the full Council meeting held on 21 August 2003 (see Annexe AA9).
This present submission was agreed by resolution of the Mayoral Committee on 10 June 2004.
B10
Prioritisation within Integrated Development Plan
This criterion, under Sub-section (6)(c) of the legislation, requires the council to demonstrate that the
UDZ area is identified within the council’s integrated development plan as ‘a priority area for further
investments to promote business and industrial activity as well as dense residential settlements to
support such activity’. The city’s Integrated Development Plan 2003/2004 (IDP) received final
approval by Council on 28/29 May 2003. The plan consistently identifies the Inner City as a priority
area as shown indicated below.
B10.1 Vision & Strategy
The Joburg 2030 strategy forms the over-arching long-term vision and strategy framework in the
city’s IDP. It focuses on economic growth as the crucial driver to building a better city, highlights the
CBD and Inner City as a priority for regeneration as a prime business location, albeit on a smaller
scale (CBD); a focus for financial and business support activities (CBD); information and
telecommunications activities (CBD and Doornfontein); transport and distribution (City Deep); and
cross-border retail activities (CBD and Fordsburg).
27
Interview with N Fraser, CJP Chief Executive, 3 May 2004
Department of Finance and Economic Development
(Final Submission)
Page 22 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
B10.2 Mayoral Priorities
Within the 2030 vision and strategy, the IDP sets out the Executive Mayor’s six medium term
priorities. These are Inner City regeneration; economic development and job creation; public safety;
service delivery excellence; good governance; and HIV/AIDS.
B10.3 Sector Plans
The IDP sets out a series of sector plans to give effect to the Joburg 2030
Strategy, aligned with Mayoral priorities. These include economic sectoral development, skills
development and economic regeneration. The city’s Economic Development Unit (EDU) coordinates
these activities and works closely with the Council’s Planning division, the JDA and the JPC. The
immediate priority areas for economic regeneration are the Inner City; NASREC expo centre and
environs; the Soweto retail sector; and Randburg CBD.
B10.4 City Scorecard and Key Performance Areas
The IDP links mayoral and Joburg 2030 priorities to overall performance of the council administration
via the ‘City Scorecard’ and key performance areas (KPAs). It identifies the following aspects for
attention in the Inner City over 2003/04:






By-law enforcement
Troyeville, Malvern and Bertrams – development and implementation of intervention strategy
Increasing residential occupation
Increasing the rates base
Building confidence to attract investment by reducing inner city crime
Promoting culture, entertainment and heritage
These KPAs are translated further into activities under the City Plans of CoJ departments. Specific
Inner City priority activities for 2003/04 are set out in Annexe AA6.
B11
Contribution to Local Revenue Collections
This factor requires, under Sub-section (6)(d) of the legislation, that the proposed UDZ area
‘proportionately contributes or previously contributed a significant portion of the total revenue
collections ‘ for all areas located within the current boundaries of the municipality. It also requires
that the level of contribution is showing a sustained decline.
A detailed trend analysis for the decline in Inner City revenue is difficult to produce, given the
municipality’s experience in the changes of the number of municipal structures, alterations to
municipal boundaries, restructuring processes, and the use of different financial and statistical
systems over the past 10 years.
However, from the data available, the following illustration can be made. In July 2000 the amount of
assessment rates levied in the Inner City was R24.1m, equivalent to 16% of the total for the CoJ,
which was R149.3m. Total land values in the CoJ for the same month were R35.6bn, of which the
Inner City made up R4.3bn or 12%.
By February 2004 these figures had declined substantially. Inner City assessment rates came to
R17.9m or 9.5% of the CoJ total. For the purposes of comparison, these figures exclude the
increased rates levied with the incorporation of the Midrand / Modderfontein / Lethabong areas into
the CoJ area. If these areas are included in the total, then the Inner City’s contribution to total city
revenue has declined to 8.5%.
Land values show a similar decline. Total land values in the CoJ for February 2004 (using the same
comparative base) were R35.2bn, of which the Inner City made up R2.7bn or 8%. If Midrand /
Modderfontein / Lethabong are included in the total, then the Inner City’s contribution to total city
land values has declined to 7%.
Department of Finance and Economic Development
(Final Submission)
Page 23 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
Comparisons of Assessment Rates & Land Values
July 2000
Assessment Rates
R
%
CoJ (excluding Midrand, Modderfontein & Lethabong)
149.3m
100.0
Inner City
24.1m
16.0
Land Value
CoJ (excluding Midrand, Modderfontein & Lethabong)
35.6bn
100.0
Inner City
4.3bn
12.0
Feb 2004
R
%
189.7m
100.0
17.9m
9.5%
35.2bn
2.76bn
100.0
8.0
In addition to this:




Rates levied in the Inner City declined by 25% from July 2000 to February 2004.
The approximate total arrears owed to the CoJ for the 43 properties currently identified under the
BBP are R 101.4 million. The estimated total value of those properties is just over R 9.1 million.
The number of bad buildings identified in the Inner City on the basis of rent arrears has risen
from 120 in 1999 to 235 in 2003. The estimated book value of these buildings is around R 670
million, and 85% owe significant amounts of arrears.
An age analysis of municipal debt in the Inner City shows that in February 2004 the total amount
owed to the CoJ was R838.8 million. Over R 713 million of this amount had been owed for over
12 months. This debt is persisting, despite the strenuous efforts of the Credit Control division
who are currently recovering around R20 million in arrears per month.
B12
Additional Measures to support Regeneration
This criterion, under Sub-section (6)(e) of the legislation, requires the council to demonstrate that
significant fiscal measures have been implemented to support the regeneration of the area. The
measures identified are municipal budget allocations -Sub-section (6)(e)(i); special tariffs -Subsection (6)(e)(ii); and business partnerships to promote urban development - Sub-section (6)(e)(iii).
B12.1 Municipal budget allocations
In addition to the operational and capital budgets for general municipal service delivery in the Inner
City, the CoJ has allocated specific funds to promote urban regeneration in the area in 2003/04:
Department / Agency
Operating Funds
(Rm)
2.0
7.9
1.5
19.5
5.0
Finance & Economic Development (EDU)
Housing (Inner City projects)
Planning & Building Control Enforcement
Heritage
Johannesburg Development Agency
Johannesburg Property Company (BBP)
Capital Funds
(Rm)
20.2
2.1
60.0
-
The CoJ has secured R 300 million from the Gauteng Provincial Government via its Blue IQ
programme and R35 million from the national Department of Justice to support JDA capital projects
in 2003/04. In turn, this levers in substantial amounts of private sector investment as shown below in
the capital budgets of JDA projects in the Inner City for the period 2003/08:
Development
Constitution Hill
Greater Newtown
Braamfontein
Main Street
Drill Hall
Jeppe
Faraday
TOTAL
CoJ
(Rm)
35.0
36.7
27.5
2.0
10.0
10.0
41.9
163.15
Department of Finance and Economic Development
(Final Submission)
Public Sector (Rm)
440.0
470.0
0
0
0
0
0
910.0
Private Sector &
Donors (Rm)
40.0
132.0
200.0
18.0
50.0
2.0
0
442.0
Page 24 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
In addition, continued support for the BBP will require the CoJ to write off approximately R 101
million in arrears to bring the current portfolio of 43 buildings back into useful economic life.
B12.2 Special Tariffs and Policies
The CoJ applies special tariffs on rates to promote development in the Inner City. Measures include:
Inner City Bad Debt Write-Off Policy: In December 2001 the Council approved a special
arrangement to streamline the approach in clearing an outstanding debt owed by an existing
property owner in the Inner City. This applies where the transfer of the property will result in
restoration and refurbishment of the property to comply with the Council’s by-laws and permit the
issuing of a property clearance certificate in order to allow a new investor to take expeditious transfer
of the property. In particular this measure is aimed at supporting the BBP and other private sector
landlords.
Inner City Mixed-Use Residential Rebate: In October 2001 the Council approved a 40% rates
rebate on mixed-use residential property (three or more units, and 80% of total floorspace used for
residential purposes) to promote the conversion and refurbishment of such properties in the Inner
City.
B12.3 Business Partnerships to Promote Regeneration
The CoJ has in place a variety of well-founded and effective formal partnerships in place with
business to promote Inner City regeneration. The foremost and longest partnership is between the
city and the CJP. This partnership was established in 1992 between business, community structures
and the then local authority. With the advent of representative local government in 1995 the trilateral nature of the partnership was no longer appropriate, and the CJP was restructured as a
Section 21 Company representing and financed by inner city business. The CJP established the
JICBC to broaden its consultative base and representivity.
The CJP drives the formation and operation of Business and City Improvement Districts in the Inner
City (see Annexe AA4) and is a prime partner in initiating and supporting development projects with
the CoJ and JDA. To illustrate, the redevelopment of Ghandhi Square in the Inner City, involving the
CoJ, CJP, JDA and local property developers is considered to be one of the best Public-Private
Partnership urban projects in the world and is showcased on the United Nations Centre for Human
Settlements best practice database.
The CJP has also established the Johannesburg Trust for the Homeless (JTH) to promote and
develop transitional housing solutions in the Inner City.
In addition, the CJP, through its BBP, has entered into formal housing partnerships with Ithemba
Property Trust, COPE, Johannesburg Housing Company and Mageba Investments to promote Inner
City social and rental housing investment. These and other credible developers are represented in
POMA, with which the CoJ and its development agencies have regular partnership consultations.
B13
Commitment to Speedy Processing of Planning Approvals
Sub-section (6)(f) of the legislation requires the council to commit to processing all planning
approvals in the UDZ within 90 days of submission, and to report those applications that take longer
on a quarterly basis to National Treasury, giving reasons for the delay.
The current situation is that the CBD area of the Inner City is almost completely covered by a
General Zoning. This allows a very wide range of land uses. It is unlikely that many developments
in this area will require rezoning. Rezoning is necessary where the development necessitates a
change to bulk, coverage, height or parking provision of a building. Any new building, as well as the
renovation of building that involves either structural alteration to the building or a change in use still
has to have a building plan approval by the CoJ.
Department of Finance and Economic Development
(Final Submission)
Page 25 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
B13.1 Rezoning
Where a rezoning is required the Transvaal Town Planning & Townships Ordinance dictates that
once the applicant has submitted his or her application it has to be advertised for 28 days.
Simultaneously the CoJ has to notify key government bodies and give them a 60-day period within
which to submit comments. On the expiry of the 60-day period the CoJ has to analyse, review and
follow up on the comments of the public and the submissions of the government bodies. Once this is
completed the report is finalised and submitted to the Town Planning Tribunal. This tribunal has to
have 14 days within which to peruse the report. In practice, taking into account the intervals
between meetings of the tribunal this generally takes between 21 and 28 days. In total it is clear that
currently the 90-day turn-round time set out in the UDZ legislation clashes with the requirements
under the prevailing planning ordinance28.
B13.2 Building Plan Approvals
Where a building plan approval is sought, the CoJ has 30 days within which to scrutinise a plan
submitted to it. On expiry of this 30-day period the CoJ can either approve the plan or (i) refer it for
comments from the UACs, (ii) require it to be re-submitted as an application for rezoning or (iii) refer
it back for correction of errors by the applicant.
Currently 44% of building plans in the Inner City are approved within the 30 days period.
B13.3 Forecast
Currently, the CoJ is caught between the need to comply with the contrasting requirements of two
sets of legislation in delivering planning approvals. However, it is anticipated that this will not hinder
the implementation of the UDZ incentive to a serious extent, for the following reasons:





Given the nature of the Inner City’s built stock, the current experience of the BBP, and trends in
property redevelopment, the majority of applications will be for building plan approvals rather
than rezoning. These applications can be easily dealt with in the stipulated 90-day period
The General Zoning regime that already applies to the CBD means that very few planning
applications will require rezoning. The CoJ can forecast that the 90-day requirement can be
comfortably met for the vast majority of proposals in this area
The CoJ has already planned a review of the zoning controls in the Inner City, and is waiting for
the Gauteng Provincial Government to finalise regulations under the recently enacted Planning &
Development Act that will allow it to do this. This review will streamline zoning controls, resulting
in even fewer procedural obstacles to development in the Inner City
The establishment of the dedicated Building Control Office in Region 8, in coordination with the
Development Management division of the Department of Development Planning, Transportation
& Environment, means that the institutional arrangements to fast-track UDZ-related applications
in the Inner City are already in place
The CoJ will dedicate additional resources to this function, if required
B14
Reporting Requirements
This criterion, under Sub-section (9) of the legislation, requires the council to provide an annual
report for the UDZ listing, inter alia, each qualifying taxpayer, building location, costs incurred, total
jobs created, additional property rates collected and total applications for a certificate. The CoJ
accepts this condition and is confident it will be able to meet its annual reporting requirements.
28
Note that other cities, e.g. Buffalo City, also note concerns about the inherent conflict between the allowable
period of 120 days in terms of the Local Ordinance, versus the 90 days allowable in terms of the UDZ allowance
Department of Finance and Economic Development
(Final Submission)
Page 26 of 27
Urban Development Zone Tax Incentive
Application: 10 June 2004
Annexes
AA1
The Inner City of Johannesburg Boundary and Definitions
AA2
Good and Bad Building Case Studies
AA3
Strategy, Policy and Programme Documents for the Inner City
AA4
Current Precinct Development Initiatives in the Inner City
AA5
Current City-led Institutional Arrangements for the Inner City
AA6
IDP Key Performance Areas Inner City 2003/04
AA7
Inner City Zones: Key Data
AA8
Inner City Regeneration Strategy: Business Plan for 2004 - 2007
AA9
Reports to Committees of Johannesburg Council
AA10
Presentation to Committees of Johannesburg Council
AA 11
Letters of Support
Department of Finance and Economic Development
(Final Submission)
Page 27 of 27