Property, flounders, building cements upswing

Transformation continues to take a back seat in the property sector, with B-BBEE scorecards falling further in 2023, according to the Sanlam Transformation Gauge report.

Companies in this sector scored 32% of their management control target in 2023, from 35% last year and 39% in 2021. Black ownership also regressed to 65% of the target in 2023, down from 67% in 2022 and 78% in 2021. However, there were improvements in the targets for skills and enterprise and supplier development, it said.

The report comes as the sector struggles with an oversupply of commercial property in a subdued economy.

Lerato Ratsoma, MD of Empowerdex, said the market is under pressure in a difficult post-Covid trading environment.

“The property sector has been under a lot of pressure, with people not wanting to work at their offices, making it difficult to attain internal targets, especially for listed property entities. It is an industry that is still reeling from the after-effects of [companies downsizing], and with rates going up, it does not help their tenants to maintain their offices.”

Nigel Adriaanse, CEO and founder of Enterprise Development Property Fund, said while Covid-19 wreaked havoc on commercial office and retail space, before this BEE wasn’t a priority for most property companies. “And now it’s taking even more of a back seat because things are so bad economically post-Covid and with the Eskom crisis and economic downturn.”

Fewer than 10% of registered real estate agents are black, highlighting the lack of transformation, he said. “When one looks at the BEE scorecard of most property companies, elements such as ownership and management control, where real empowerment lies, show it is yet to take place.” 

However, despite economic headwinds, the report found the performance of construction companies encouraging. In the survey they achieved 81.87% of their target for black ownership in 2023, from 68% in 2022.

These companies also reached 79% of their enterprise and supplier development target, up from 60% in 2022, while skills development was 83% of target. Management control was at 84% from 67% last year.

"[This] is something that must be commended, considering some of the things that are happening in the industry. [It was] able to attain a level 2 status overall for all the entities in our sample this year,” said Ratsoma.

“This is encouraging. It is because competition in this industry ensures all entities operate at the highest level possible, and possibly also because it's [the operating companies rather than the subsidiaries that are being assessed].”

The report, which classified mining manufacturing, mining and retail under the generic segment, found other than enterprise and supplier development, there was improvement across the board.

For example, the mining industry exceeded the 26% historically disadvantaged South African ownership set out in the first mining charters, achieving more than 35% ownership.

However, rolling blackouts undermined the manufacturing sector's potential.

Manufacturing Circle executive director Philippa Rodseth said: “We’re dealing with a shrinking sector that’s operating under a lot of duress. When one looks at the amount of management time that needs to be spent on working operation schedules around not only load-shedding, but unplanned load-shedding, it really gives an indication of where priorities lie. It’s not to say that those transformation aspects are not important. It’s really a case of focus and priorities, particularly in the short term when we’re looking at a very difficult situation.”

In all sectors unlisted companies are punching above their weight, reaching 86% of their black ownership targets compared with 76% for their listed counterparts. The former reached 55% of their management control target vs 53% for the latter. Skills development is at 77% in unlisted companies compared with 72% in listed businesses.

“The assumption has been that they will be better, be a shining light, an example to everyone else. What we are seeing is that listed companies have underperformed unlisted companies by a mile in some instances,” Ratsoma said.