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Clouds over government leases says Nomvete

Delta Property Fund's chief executive Sandile Nomvete says the cloud hanging over government leases needs to be resolved as it makes it difficult for black-empowered companies to get new leases.
In an interview with Business Day on Friday, after Delta Property made its debut on the JSE‚ Nomvete said government and business needed to come together and resolve government's billions of rands worth of leases because uncertainty is making it difficult for empowered companies to get funding from banks.

The new property charter requires property companies, with which government signs lease agreements, to have a black economic empowerment (BEE) rating.

Only about 10% of government's 3‚000 lease agreements are with black-owned property companies.

Nomvete said while the perception might be that it was simple for black empowered companies to get leases from the government "the reality is that government lease challenges have made it difficult for these companies".

A key problem is big property companies mostly hold the buildings sought by the public sector and new black entrants are finding it difficult to get funding to buy these assets.

"The Department of Public Works has a mandate on a number of projects‚ which include the maintenance of government buildings. There are a lot of things that the department is doing well‚ but the lease issue is the one dominating problem. The process needs to be cleared-up and agreed upon‚" Nomvete said.

Nomvete said Delta had put a team together to deal with leases for government departments.

"It is not that government does not want to pay‚ it is a question of the process. For instance when the auditor general comes around every year to audit the leases the government stops all payments for several months and this can be a challenge‚" he said.

Some property companies have bemoaned the time it takes to renew a lease with a government tenant - 18 months on average - a difficult period for a company with multiple leases to renew.

He says the government continues to be an anchor tenant for most property companies and BEE companies stand to benefit as big companies are increasingly shunning the public sector as a tenant because they can only sign short-term leases of up to two years.

"The firms clearly prefer long-term leases‚ which typically run for 10 years. This is where empowered companies come in," Nomvete said.

"While government policy looks good on paper‚ it is difficult to implement because most BEE companies do not have sufficient or appropriate stock. Corruption allegations are making it difficult for these same companies to compete," he added.


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