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Home / Bad Property Pricing Policy Can Have Disastrous Effects
Bad Property Pricing Policy Can Have Disastrous Effects
2006-03-20Staff Report 2 "A Rundu Case-Study By Patrick Hilger My article could fit any major town, including Windhoek, where inequalities are forever increasing. However for this study case, I choose Rundu as it is the most extreme case of underdevelopment to come as new proposals suggest price increases of 500 percent to 1 000 percent on urban land. In other words, it was suggested that business plots will rise from N$12/m2 to N$60/m2 while formal residential areas will increase to N$50/m2. For light industrial and general residential areas we would be faced with increases of up to N$100/m2. Namibia is currently considered the most unequal society in the world. This can be measured through a Gini coefficient that currently lies at 0.707. The Gini coefficient is a number between 0 and 1, where 0 corresponds with perfect equality (where everyone has the same income) and 1 corresponds with perfect inequality (where one person has all the income, and everyone else has zero income). This coefficient shows that 30 percent of the people own 70 percent of the revenue. I will show how the new property prices are worsening this situation. Rundu is a fast growing town but has also the relative high rate of unemployment and the fewest job opportunities to offer until now. Given the fact that only 35,2 percent of the population of Rundu is actually employed, with 44,2 percent economically inactive and 20,6 percent unemployed, we would expect that all attempts to support self-employment initiatives should be encouraged. Given the low investment rate in the region, we would also expect a policy to encourage outside investors and SMEs to pick up the challenge and take the risk to bring and construct value-adding business in the town. A housing survey1 on demand and affordability done for the long term structure plan of Rundu however, found out that only 37 percent of all households have sufficient income to afford payments of a N$20 000 (15m2) core house. Now what will be the consequences of this newly proposed rates on the life of the people and for the development of the town as a whole? First, young local entrepreneurs will not afford the new proposed rates and will now have to get a loan to pay for a plot before even considering building on it. Light industrial ventures (to which our government gives high priority to achieve its development goals) are characterized by initial low profits, high investment and high risks and will not cope to pay back interest on the invested capital. Indeed a 4000m2 plot, previously acquirable for N$48 000 would now cost N$400 000 or equal to the total investment previously budgeted for the same business. Second, outside investors who could have been previously attracted by the town's attractive investment environment (low property fees) will now stay far away, as Rundu has a number of comparative disadvantages: -Long distances from the centre entail very high transport costs; -Low buying power with a tiny high and middle income class (the median household income lies at N$600-800); -Low numbers of skilled workers. So you are entitled to ask who will benefit from the new rates, the RTC? NO, as I will show later, the RTC has only been ill advised. The main beneficiaries of the new scheme are previously advantaged as well as a tiny number of already established businessmen and multiple plot owners (this is not a black & white issue I am discussing here but rather a new kind of money segregation happening all over, making it not less painful). Only current business plot owners will be able to benefit from the new scheme and monopolise the business sector even more. The major business and plot owners are in the retail businesses in Rundu and they will not further absorb the unemployed youth. Given the new opportunity of seeing their property value multiplied by 10 and the impossibility for others to buy any of the still available properties, the available office space will go down. I should mention for outsiders that the Rundu's economy is monopolised by a handful of families who also own the plots. This small group will now build the required offices as a new investment opportunity and have at their mercy all upcoming small and medium entrepreneurs. A direct consequence will be an increase of rental fees as well as a further increase of the prices of the goods on sale to allow the lessees to cover the higher fixed costs. Lack of competition will also increase the profit margins of these already established businesses, making an already poor community even poorer. Rundu will be at the mercy of some 5-10 already advantaged families who mostly got their business plots for N$12/m2 and below (often without following the required procedures and channels). As prices of nearly all consumable goods have increased by 50 percent and more since 1999 the disposable income for entrepreneurs has even become lower (while income hardly increased). We could argue that the measures where imposed to the RTC as a mean to fill the debts in the treasury and to increase its revenue. However, given the above scenario, we cannot expect properties to move as the benchmarks are too high. Private contractors, agents and the private market in general will also react to this by increasing property prices even more. People born in the informal and semi-formal area of Kehemu or Safari will see a new kind of fence erected in front of them. This one is invisible and vicious as they will never afford a house in tutungeni. Outside foreign investors will prefer to stay in Windhoek close to their market and local small business will try their luck outside town, giving the town an even bigger informal belt. On unsurveyed areas the new policy requires a business plan but does not give any indicative prices, this however gives space for all kinds of speculations. Why? Business plans are confidential and cannot be handed overÃÆ'Æ'ÀÃ...ÃÆ''šÃ‚ºto a management committee without a guarantee of confidentiality as no assurance will be given that the BP will not be used by some for their own plan once all the ground work has been done. A business plan can be replaced by a simple proposal or feasibility study with a sketch plan attached. An evaluation of the merit of the proposal can easily be determined on this basis without requiring delicate financial data. As the new proposed policy for surveyed property did not indicate any price guideline, it willÃÆ'Æ'ÀÃ...ÃÆ''šÃ‚ºopen the Pandora box to all kinds of speculation, personal conflicts and will be predestined to lead to cases of corruption (the very evil we try to combat in our society). If no price tag can be put on unsurveyed land, it must at least be indicated between which extremes the price may vary. In no case should the price be below or above the range of N$ 8-20. What are the solutions for the RTC? Suggestions on how to increase the Rundu town council revenue are numerous; here are some of them: Increase and adapt tax rates for businesses according to revenue and size. This could be done, for example for the solid waste management and refuse removal fees, fitness certificates, etc.ÃÆ'Æ'ÀÃ...ÃÆ''šÃ‚ºWealthy ownersÃÆ'Æ'ÀÃ...ÃÆ''šÃ‚ºlike Ok Foods, Engine and Discount Hardware should pay higher fees than small businesses. Supermarkets are known to create a lot of litter, producing plastic bags and tins that spoil the floodplains, but they are not required to pay the price for it. A business with a N$100 000 turnover per month pays the same refuse removal fee as a business earning N$3 000 per month. -Instead of putting up new segregating borders based on huge price differences between locations, there should be an upgrading of informal areas (with revenues created through a more just taxing of businesses, joint ventures with contractors, registering of PTOs, etc). -Extend formal areas and thus increase the potential sources of income. -Clear outstanding PTOs to be registered as title deeds. -The urban area has been extended since 2002, but no PTOs have been claimed. -Put up indicative prices for unsurveyed plots according to the categories of the business and the expected cash-flow scenarios in order to come up with objective and viable prices. -Prime areas can be created with higher rates, but this must be justified by investment and infrastructure through joint ventures with contractors and strictly limited to some areas. All in all the private market will then decide if the prices are justified. Given the previous relatively low plot prices, a reasonable price increase cannot be avoided, but the latter one should be contained within a 100-150 percent margin. Prices could then be revised and discussed every five years in accordance with the economic development of the town. Artificial price increases should be avoided at all costs because they lead to even higher property prices for dwellings which are already becoming unaffordable for Rundu citizens. They also lead to the above scenario which we want to avoid. We want to see Rundu like any other town as a place to attract businesses, thus the property rates for business should be kept as low as possible in order to attract investors who can create jobs, pay taxes to the RTC and reach the vision 2030 we all dream about. Let us not destroy this dream. Patrick Hilger is a socio-economist." 2006-03-20Staff Report 2
