Transcript Presentation title - Blue

How to maximize the benefit of State
investment in land
Lessons from the application of the
Urban LandMark Land Release Assessment Tool
in the Western Cape and Gauteng
13 April 2012
Nick Graham
Background to the Land Release
Assessment (LRA) model

Developed to assess the cost/benefit of Land Release
Programmes, which usually involve integrated developments

Applied to four case studies in the Western Cape and Gauteng

Excel-based spreadsheet model with 30 year time horizon

Divides project into housing typologies

Calculates NPV of total costs/benefits over specified time period
(20 years) for State, Developer and Households

Discounts all costs and benefits to project start date

Aims to account for total State investment (explicit and implicit
subsidies) and impact of project over the long term.
2
Background to the LRA model
Housing Development Financial Model
Developed by Eighty20
Inputs
General
Project Inputs
Global Index Inputs
State
State Cost Inputs
State Holding Cost Inputs
FLISP Subsidy Table
Inputs-Project
Inputs-Global Indices
Inputs-State Costs
Inputs-State Holding Costs
Inputs-FLISP Subsidy
Household
Household Inputs
Rate Level Inputs
Inputs-Household
Inputs-Rates
Developer
Developer
Developer
Developer
Developer
Developer
Inputs-Bulk Infrastructure
Inputs-Dev Capital
Inputs-Dev Holding Costs
Inputs-Dev Op Costs
Inputs-Dev Revenue
Bulk Infrastructure Costs
Capital Inputs
Holding Cost Inputs
Operating Cost Inputs
Revenue Inputs
Graphs
State
Waterfall Chart
State-Waterfall
Household
Waterfall Chart
HH-Waterfall
Developer
Waterfall Chart
Dev-Waterfall
Output
State Cash Flows
Cost
Holding Costs
Revenue
Summary
Performance Summary
Cost Flow Chart
State-Costs
State-Holding Costs
State-Revenue
State-Real Cash Flow
State-Performance
State-CF Chart
Household Cash Flows
Costs
Revenue
Value of Household
Summary
Performance Summary
HH-Costs
HH-Revenue
HH-Value
HH-Real Cash Flow
HH-Performance
Developer Cash Flows
Capital Expenditure
Holding Costs
Loans Issued
Operating Costs
Revenue
Value of Developer
VAT
Summary
Performance Summary
Dev-Capex
Dev-Holding Costs
Dev-Loans Issued
Dev-Op Costs
Dev-Revenue
Dev-Value
Dev-VAT
Dev-Real Cash Flow
Dev-Performance
3
Example: LRA outputs
Total State waterfall
R0
-R35,766
-R20,000
-R40,000
-R60,000
-R80,000
-R100,000
-R120,000
-R140,000
Explicit
Subsidies
Land subsidy Holding costs Infrastructure
Project
administration
On-going
services
VAT
Rates & Taxes Development
charges
Land
Total
4
Case studies
Mitchell’s Plain
Cosmo City
Blue Downs
Pennyville
5
Overview of case studies
Western Cape
Mitchell’s
Plain
No. of housing opportunities
Total area (ha)
Project period (years)
Gauteng
Blue
Downs
Cosmo
City
Pennyville
682
3,406
11,785
2,751
14
75
11,050
100
3
N/A
11
4.5
6
Overview of case studies contd.
Western Cape
Mitchell’s
Plain
Gauteng
Blue
Downs
Cosmo
City
Pennyville
Housing products
Subsidy units
341
FLISP units
Gap units
Bonded units
341
352
4,992
703
669
796
2,483
1,555
3,360
Social rental units
Market rental units
1,552
395
281
804
7
Land release strategies




Mitchell’s Plain: Land purchased from City by the developer. Land for the
subsidy units was sold at a discounted rate, while the remainder was sold
at market value.
Blue Downs: Land Availability Agreement between Province and
developer released land for development, with payment of assessed
market value on transfer.
Cosmo City: Land Availability Agreement between City and developer
released the land for development, with payment of agreed fixed value per
erf on transfer of subsidised units, and a fixed value plus 50% of profits on
bonded and commercial sites.
Pennyville: A Land Exchange Agreement between City and developer
meant that the land originally owned by the developer was transferred to
the city, but with the developer having rights to develop and transfer the
property to subsidy beneficiaries. Market rental units were sold to the
developer at an assessed market vale.
8
Caveats to model results
PZR (CalgroM3)
Social rentalPRIME
- rooms
PRIME -3JFS
PRIME
PRIME
Bonded housing
JOSHCO
Household cost of capital
+1
PRIME +1
PRIME
+1
PRIME
+1
Mitchell’sPRIME
Blue
Cosmo
Social rental
- family
Pennyville
Rental units
JHC
Plain
Downs
City 10%
Property value escalation
10%
10%
10%
Diluculo
Rental
units
Bulk Services
developers
Commercial
Long term CPI
4.5%
4.5%
4.5% Commercial
4.5%sites
upgrade
11,360
2,445
47,236 27,296
Long termBulk
electricity
inflation
4.5%
4.5%
4.5%
4.5%
Institutional
Services
in
Pennyville
22,720
4,889
Long termFull
prime rate
12%
12%12%
12%
Educational
Developer's cost of capital
Long term Repo rate
Collection assumptions
Imputed rent %
CODEVCO

City of Johannesburg
Gauteng
Provincial
Gauteng Provincial
Department
of Local
Department
of Local
Government
and Housing

City of Johannesburg

Concept of ‘the developer’
Household
Developer
State
State
Developer
Household
Variable
financial inputs
Higher property rates exclusion in Western Cape (R200,000
vs
Subsidy housing
Blue
M5 Developments
Mitchell’s
Plain
Cosmo City Pennyville
R150,000)
Subsidy housing
Downs
Top-structure
Sub-contractors
Credit-linked housing
PUMA and capital
Variable
costs
requirements
developers REPO
State's
cost ofoperating
capital
REPO
REPO
REPO
Government and Housing

9%
Cosmo City
80%-95%
7%
8%
8%
8%
80%-95%
80%
65%-95%
7%
6.5%-7.2%
7%-8.7%
9
Sales prices, subsidy values and rentals
Mitchell’s Plain
Blue Downs
Cosmo City
176,721
185,000
331,450
238,000
452,552
400,000
101,106
101,232
Pennyville
Sales price
FLISP
Gap
368,421
Bonded
Subsidy value
Subsidy
108,109
77,813
FLISP
77,813
Gap
58,455
Bonded
26,476
Rental
Social Rental (3bed)
Market Rental
(3-bed)
1,500
3,300
2,100
10
Subsidy comparison
Explicit subsidies
Institutional subsidy
Internal services
City subvention grant
NHBRC enrolment
SCCCA
Geo-tech variance
Total explicit subsidies
Other subsidies
Land Subsidy
Bulk infrastructure
Land holding costs
Total other subsidies
Total subsidies
Mitchell’s Plain
Blue Downs
Cosmo City
Pennyville
53,227
25,492
8,600
1,637
10,803
8,350
108,109
55,706
25,000
1,298
10,602
8,500
101,106
63,258
28,285
46,039
21,553
13,336
104,879
3,740
22,720
3,600
2,815
6,415
107,521
14,610
59,639
8,396
75,988
20,216
32,679
74,249
179,128
52,895
128,883
26,460
134,569
11
Comparison of findings: State perspective
Mitchell’s Plain
Blue Downs
Cosmo City
Pennyville
Return on Investment (ROI)
Subsidy
-60%
FLISP
Gap
108%
Bonded
-59%
-88%
7%
-19%
95%
2%
99%
26%
Social rental
-141%
Market rental
Total NPV
ROI
-100%
7,038,344
6%
-96%
8%
477,045,588 -784,238,814
-424,187,830
68%
-32%
-75%
12
Comparison of findings: Developer perspective
Mitchell’s Plain
Blue Downs
Cosmo City
Pennyville
Return on Investment (ROI)
Subsidy
4%
FLISP
Gap
19%
Bonded
-18%
-11%
-17%
3%
15%
14%
-2%
27%
Social rental
-5%
Market rental
Total NPV
ROI
-8%
31%
62%
20,416,921
74,623,042
152,691,007
150,943,303
14%
8%
13%
29%
13
Comparison of findings: Household perspective
NPV
Subsidy
Mitchell’s Plain Blue Downs Cosmo City
166,222
FLISP
Gap
81,131
Bonded
106,330
147,162
72,623
144,938
66,487
187,800
23,606
322,422
Social rental
Subsidy
FLISP
Gap
Bonded
Social rental
Market rental
200,431
61,879
Market rental
ROI
Pennyville
Mitchell’s Plain
116%
13%
-50,502
-101,188
Blue Downs Cosmo City
Pennyville
141%
22%
11%
3%
301%
39%
52%
46%
-6%
313%
39%
-16%
14
Winners and losers
Who benefits?
Who loses?
Mitchell’s Plain
Subsidy households
Developer
Blue Downs
Subsidy households
State
Bonded households
Cosmo City
Subsidy households
Bonded households
Developer
State
Market rental tenants
Pennyville
Subsidy households
Developer
State
Market rental tenants
15
Conclusions






Questionable longer term viability for the State in the Gauteng case
studies
Land Availability Agreements and bulk infrastructure funding make
a significant difference to the overall project viability – regressive
subsidies if applies universally
Internal cross-subsidisation is essential in integrated housing
projects – but who should subsidise?
Gap housing increases project risk and compromises viability –
social rental housing maybe a better alternative
Subsidy recipients are the big ‘winners’
Developers seem to have got the housing mix right, but is level of
subsidy required sustainable?
16