Councils zero in on developers

Developers face extra charges as municipalities seek new ways of recovering the cost of building and upgrading public infrastructure. Municipalities are being encouraged by the National Treasury to charge developers for the infrastructure required for new developments, as well as the upgrade or alteration of existing properties. World Bank estimates show municipalities are losing up to R4.7 billion a year by not charging developers fully for associated infrastructure costs. The National Treasury has developed a framework to ensure that development charges facilitate new property developments. The chief financial officers of the metros met two weeks ago to discuss draft policy proposals on development charges, and would meet again before the end of the year to finalise the proposals, said Cape Town’s acting mayor, Ian Neilson.

Ethekwini has already published for public comment a draft policy on development charges. Its definition of property development means redeveloping a house or houses into multistorey townhouse complexes will attract a development charge because of the greater demands townhouses place on infrastructure. Other forms of development include rezoning of properties, according to eThekwini’s draft policy document. Ethekwini’s deputy head of finance and major projects, Jay Balwanth, said the proposed development charge would apply to all residential, commercial and industrial property projects. It was due to come into effect in July. Neilson said Cape Town began reviewing its policy on development charges two years ago.

“We became involved in this process in order to achieve uniformity within the local government sphere. However, this led to further delays in finalising the process,” Neilson said. Ongama Mtika, a spokesman for Nelson Mandela Bay Metro, said the city charged developers for selected services based on what was permitted by by-laws. The city had established a task team to develop a uniform policy on development charges. “It has already met twice, and is due to meet over the short term to measure the impact that development charges will have on those influencing the infrastructure of the municipality,” Mtika said. “The team will consider and review a number of scenarios, from domestic exposure to major industry.”

The municipal infrastructure required to support new property developments is typically very costly. Municipalities can finance new infrastructure by borrowing funds or by charging property developers a fee equivalent to the cost of the new municipal infrastructure (or the cost of using existing infrastructure). The Treasury says those who benefit more from a product or service should pay for it in proportion to the value they derive from it. “A development charge is designed to pass the up-front costs of the new municipal infrastructure associated with specific developments on to the responsible developers, who in turn will pass it on to their customers – the users of the new infrastructure,” it said.