The property sector is preparing to adopt the sector transformation charter, which has been under construction over the past year.
That should unlock a more meaningful black economic empowerment (BEE) process for the sector, which seems to be lagging behind on the transformation front.
Dominated by the property loan stock structure, the property sector of the JSE represents a unique opportunity for a transfer of assets to BEE groups. Property loan stocks - a hybrid of debt and equity - are more of a dividend play and relatively more tax-efficient.
The debt portion of the hybrid structure minimises tax liability at the primary level because a chunk of net income is distributed to unit holders as loan or debenture interest. The loan portion is taxed in the hands of the unit holders. The same principle applies to dividends declared by property unit trusts. This benefit may dwindle in the future as tax authorities consider closing the gap.
The strong income aspect of these companies may allow BEE groups, most of whom are highly geared, to retire their debt quickly and earn net equity value. A lax regulation of these structures also means that they can grow quickly, allowing for impressive capital gains.
With the exception of Johnnic Holdings - which landed on the property sector of the JSE by default - none of the sector companies features in the top 50 of this year's Top Empowerment Companies. Only one other company, Alpina Investment, appears in the top 100.
Under the chairmanship of Andy Tondi, the property charter steering committee last year produced a transformation document designed to transfer 25% of the industry to black hands within five years.
As with many other sectors, the property sector charter formation process has been delayed while the stakeholders wait for the finalisation of the BEE codes of good practice.
Tondi says the property sector charter will respond to the particular demands of the property industry in more detail than the codes can. "Taking into consideration the unique features of the industry, we have had to emphasise different elements of empowerment to other sectors."
The disposal of assets to broad-based empowerment groups is highlighted in the charter, and Tondi says this offers a unique opportunity for speedy empowerment. The draft charter proposes awarding nine scorecard points to groups that, through the disposal of assets, transfer property to empowerment groups.
Deals concluded in the sector include the R1bn BEE equity transaction announced by Growthpoint and the deal by Pangbourne Properties, in which it sold 6% to BEE group Yard Capital.
Spearhead Property Group claims in its latest annual report that it has boosted its BEE unit holders to about 25%.
A significant portion of BEE activity is taking place at the property management companies that manage the portfolios of the property groups listed on the JSE. This includes Mvelaphanda's 50% stake in Broll Property Group.
Cyril Ramaphosa's Shanduka Properties holds a 50,4% stake in Property Fund Managers, the company that manages the portfolio of property unit trust Capital, while JHI Real Estate has teamed up with Phatsima, the investment vehicle of Herman Mashaba.
