Cape Town releases forensic reports into its sale of land to Growthpoint

The City of Cape Town is sticking to its guns that the controversial sale of ‘Site B’ in the city’s Foreshore area to JSE-listed Growthpoint Properties is all above board.

Late on Monday the city released its forensic reports into the R86.5 million sale, which concluded that it “sold Site B at the correct permissible floor area” or development bulk of 175 00m². However, the same report raised concerns that poor record-keeping in its Planning and Building Development department could be behind the whole debacle.

Pressure for reports to be made available

The release of the reports comes in the wake of civil society groups and opposition political parties calling for them to be released to the public in recent weeks, after the city officials said no irregularities were found in the investigation. The investigation was led by the Forensic Services Office in the city manager’s office). The Good party has also asked the Public Protector to investigate the matter.

Civil society groups have criticised the city for selling the prime site at below market value, claiming it has up to 46 000m² of development bulk and should be valued as much as R227 million. Civil society groups including Ndifuna Ukwazi, Reclaim the City and GroundUp have been protesting the sale for more than a year.

The city released two reports into the sale on its website, a forensic report dated 27 February 2019; and, a supplementary forensic report date 2 May 2019. The initial 47-page report raised several “control issues” around the city’s Planning and Building Development Management department.

“During the course of the investigation it was noted that Planning and Building Development Management failed to maintain adequate records which resulted in incomplete documentation,” the report states.

“As the custodian department, Planning and Building Development Management also failed to definitively quantify the permissible floor area and the potential accessible bulk of Site B It was noted that a bundle of documentation was provided to (the) Property Disposal (department) for their perusal and interpretation. This therefore, places the Property Disposal department at risk as they are not planning experts and thus they rely on the data provided by Planning and Building Development Management,” it noted.

‘Lack of planning and coordination’

The report also raised concerns around the “lack of integration planning and coordination between the departments within Property Management who are responsible for the disposal of City owned land”.

Growthpoint was the highest bidder for Site B which the city put on auction in September 2016. It paid R86.5 million for the property and took transfer of the site on March 7, 2017. Growthpoint is looking to invest around R2 billion into a new high-rise mixed-use development for the site that will include office, retail and hotel space.

According to the forensic report, the city commissioned independent valuations of the site that showed “the best estimated market value” for the land was R80 million. This was based on approved bulk rights for the site of 175 00m² and “taking into consideration that the purchaser may apply to the city to access additional bulk of approximately 30%”.

In a statement announcing the release of the report, the city said: “There has been much misinformation about the sale in the past months. The City’s Forensic Report shows that 17 500m² of permissible floor area was available as stated. The investigation was based on data that was relevant to Erf 165639, referred to as Site B, for the period August 1994 to December 2018.”

It added: “In all documentation, including the auctioneers pack, the permissible floor area was consistently listed as 17 500m² with a height restriction of 55m.”

Site has a ‘complex history’

The forensic report noted that Site B had a “complex history of rights, limitations, restrictions amendments and transfers which took place during the years 1994 to 2001”. It said that as a result the city’s Property Disposal department relied on information provided to it by the city’s Planning and Building Development Management department.

“However, Planning and Building Development Management did not provide (the) Property Disposal (department) with a definitive quantification of the permissible floor area and the potential accessible bulk in respect of Site B. For this reason, Property Disposal followed a cautionary approach and utilized the right allocated and detailed in the Substitution Scheme i.e. 17 500m².”

As part of its so-called complex history of rights, Site B was previously part of a bigger land parcel made up of sites A, B and K, which was once collectively referred to as Site AB and earmarked for a much bigger development that never got off the ground.

This combined site according to the forensic report had a development bulk of 69 000m². After bigger plans for Site AB failed, the city reverted to separate sites and sold Site A several years back to another property company, which used about a third of the available development rights at the time.

Civil society groups have used this as the basis behind their argument that the city sold Site B to Growthpoint below market value.

They claim that Site B could effectively still have remaining bulk development rights of up to 46 000m².

The city contends that development rights for the bigger land parcel (Site AB) had lapsed, and Growthpoint’s current bulk rights are for the auctioned amount of 17 500m². In its forensic report, the city includes the legal opinion of advocate Frank Pelser regarding the rights of Site A, B and consolidated Site AB.

“As Growthpoint is not the owner of Site AB, neither Growthpoint nor Site B is entitled to the allocation made in respect of Site AB. It should be noted that Site AB is a different and larger land unit. The re-subdivision of Site AB into its original form will stand until it is set aside by judicial review. In law Site AB is no longer in existence, therefore, the allocated bulk cannot survive,” the city said in a summary of Pelser’s legal opinion.

The city’s forensic report however noted that Growthpoint could apply for access to additional bulk rights for Site B.

Growthpoint has refuted claims that it underpaid for the Site B property by R140 million. It said in a statement last week that it “did not know that the property had more rights prior to buying it on auction”.