The Dingleton Resettlement - Unsustainability on Steroids

This is a follow-up to the article published on 07 September 2020, another on 17 July 2022 and the most recent one here on 11 September 2022.

This article relates directly to the Dingleton Resettlement undertaken by Anglo American Kumba Iron Ore in 2014 – ?which has still not been completed despite the company announcing to shareholders some years ago already that it is completed ?- and it specifically deals with the block of flats (consisting of 104 flats) built by the company in Kathu in the Northern Cape Province of South Africa to accommodate households who lived in Dingleton but who did not own property in Dingleton. ?These flats are colloquially referred to as the CRUs, although officially the name appears to be “Siyathemba Flats”. ??In particular, this article speaks to the rather insane idea to convert these flats to a sectional title building, with Anglo American Kumba Iron Ore further pushing the insanity envelope by refusing steadfastly to create any legal instrument, such as a trust, through which to absolve the unfortunate recipients of these flats from having to pay levies for an extended period of time.?

South Africa’s National Housing Code was adopted and published in 2009.? In the Code, the Community Residential Unit (CRU) Programme replaced the National Hostel Redevelopment Programme and the proposed Affordable Rental Housing Programme.? The CRU Programme aims to facilitate the provision of?secure, stable rental tenure?for lower-income individuals; and targets low-income individuals and households earning between R800?and R3500?(current exchange rates: US$43 to US$187) a month, who?are unable to enter the formal private rental and social housing market.

Under the CRU Programme, housing stock must be owned by either a provincial housing department or a municipality.? It is envisaged that CRU housing stock should remain in public ownership and not be sold or transferred to individual residents.?

In April 2016, SIOC (Sishen Iron Ore Company which belongs to Anglo American Kumba Iron Ore) concluded a memorandum of understanding (which was made public after a successful PAIA – Promotion of Access to Information Act - application to the Northern Cape Provincial Government) with the Gamagara Local Municipality and the Northern Cape Government Department of Cooperative Governance, Human Settlements and Traditional Affairs (COGHSTA) regarding the development of CRUs for the occupation of Dingleton households resettled by Kumba.? Paragraph 4.1.9.1: “The parties will collectively investigate the need for further housing in accordance with Provincial Government’s subsidised housing programme and/or its policy on community rental units…”.

The company constructed 104 units with no evidence that those directly affected were consulted on any of these plans nor on the suitability nor aesthetics of these units.? On 31 May 2017, the Gamagara Local Municipality accepted SIOC’s donation of the land on which the Siyathemba Flats are built, and whilst the building is currently managed by Bidvest, it is understood that ownership (and management) of the building will be transferred from SIOC to the municipality in due course.? Whether the municipality would be able to manage and maintain the CRUs has always been doubtful.? In its resettlement planning, the company’s resettlement consultants pointed out that the overall expansion of Kathu, even in the absence of Dingleton’s relocation, is likely to pose a great threat to the management capacity of the municipality. ?There is no doubt that the fortunes of the municipality have changed since the time when any resettlement planning was done.? The town of Kathu has indeed expanded, and the municipality has struggled to keep up.? In an eviction case against some of the Dingleton residents filed in the Kimberley High Court (Case No 2068/18), Mr Kgomodikae Leserwane, the then municipal manager of Gamagara Local Municipality, indicated in his explanatory affidavit, dated 06 September 2019, that the municipality “is not in the position to make provisions of houses” (paragraph 5.3) and that a long term housing solution “should not implicate the Municipality as I have already stated that the Municipality is not in the position to handle and deal with risk that may emanate from eviction process” (paragraph 5.6).?? He also highlights in paragraph 5.2 that SIOC does not provide a long-term solution to the management of the CRUs and rental payment beyond an 18-month period and that there is no long-term solution coming from the company, beyond transferring the responsibility to government.

It is clear that the Siyathemba Flats were built to slot into the National Housing Code’s CRU Programme, as indeed its long-time moniker, “CRUs”, indicates.? However, one presumes that after Kumba encountered resistance from the municipality, it changed course and proposed that the building be converted to a sectional title building instead, even though the National Housing Code warns against this practice in the 2009 National Housing Code, Part 3, Volume 6, Section 1.4; several years before the decision by Anglo American Kumba Iron Ore that the Siyathemba Flats should become a sectional title building.

What is a sectional title building?? It means that each section of a multi-unit housing development is owned separately, while the common space is shared.? This type of property ownership was introduced in South Africa in 1971.? A sectional title building is administered by a body corporate.? The body corporate is made up of all the individual owners of the sectional title scheme. This means that each and every owner of a unit is automatically a member of the body corporate. It is a legal entity, which exists to represent the owners and to manage and control the building by making sure that its financial, administrative and physical needs are taken care of.? ?The body corporate is capable of suing and being sued in its corporate name. ?It also has perpetual succession and continues to exist even though buying and selling of units and changes in ownership take place in the scheme.

In order for the body corporate to manage the business of the body corporate and common areas effectively, sectional title owners are required to pay levies.? Levies comprises all the anticipated costs of managing the block of flats, and usually includes (but is not necessarily limited to): water and electricity serving the common property; repair costs relating to the common property; insurance costs; security and maintenance costs; annual audit fees; and managing agent fees.?

Thus the owner of a flat in a sectional title building is obliged to pay for the capital, maintenance and insurance costs related to their individual flat; pay levies to the body corporate; and pay for the costs of municipal services and property taxes.

Levies are not optional, and owners have a legal duty to pay them in full and on time.? Should this not happen, the body corporate cannot just evict an owner for unpaid levies; but is forced to follow a complex and costly legal process to recoup the funds, which leaves the other owners on the backfoot because they will have to pay (as part of the body corporate) for these legal costs to recoup funds.? This whole scenario has a very high risk that owners who lose their properties due to the inability to pay their levies will end up homeless; that the body corporate itself can go bankrupt due to non-payment of levies and/or trying to recoup outstanding levies from delinquent owners; and that these buildings can rapidly deteriorate into slums and/or hijacked buildings - two of those negative outcomes that any responsible company claiming to adhere to the IFC PS5 would consider major red flags.? But evidently Anglo American Kumba Iron Ore is colour blind.?

You might also wonder why the South African National Housing Code warns against the practice of converting low-income flats to sectional title buildings.? The main reason is that the consequences are dire for those who get to own those flats.? It is not a pretty picture.?? Post-1994, the post-Apartheid government attempted to reverse the restrictions placed on property ownership during Apartheid.? It was intended that households that had been provided with state-funded and state-managed housing stock in the pre-1994 period would be given the opportunity to take ownership of the units in which they had lived; thus making provision for the transfer of state assets to qualifying beneficiaries where either the household or individual had a legally binding contract with the state regarding their housing unit or they are the sitting tenant in a context where the tenant of record could not be found.? Prior to 2009, this policy included converting municipal rental accommodation in flats into sectional title buildings and issuing title deeds to long-term residents.? Right from the onset creating successful sectional title buildings was fraught with challenges such as affordability and legal compliance. ?During Apartheid, maintenance of social housing blocks was the sole responsibility of local government through the Community Facilities Fund – from changing light bulbs in common areas to fixing lifts, painting, plumbing and electrical repairs, providing and maintaining playground equipment and fencing. [This is exactly what is happening at the CRUs/Siyathemba Flats, since it was built and occupied, with the company carrying all costs and no rental being paid by tenants.]? Once these buildings became sectional title buildings, affordability became the main problem because under the municipal rental arrangement, rentals were fairly low and excluded levies, rates and utilities.? With title deeds came all these other financial responsibilities, which were unaffordable for the overall majority of the beneficiaries.?

Management problems in sectional title buildings also had severe impacts on the value of the flats, especially at the lower end of the income scale.? Many buildings in effect become “dead capital”. ?Individual owners are not able to sell their units at acceptable prices and are then forced to rent to desperate tenants, people who themselves will be unable to pay rent and levies.? This inevitably leads to further collapse of management systems. The deterioration of a sectional title building soon impacts on surrounding buildings and areas, lowering property values and hence undermining the municipal rates base.? Sectional title buildings cannot be released on to the market for sale as a whole because they are owned by multiple owners.? In lower end sectional title buildings many owners “cut their losses” and abscond, leaving the building to drift further into decline with negative impacts for the people living in the buildings, the area as a whole, and the local municipality.? This not only results in the buildings becoming slums, but also contributes to the hijacking of buildings.? Even the South African government has realized that turning flats into sectional title units for lower-income households should best be avoided, particularly in multi-storey buildings.? The National Housing Code specifically states that it is “extremely complex, difficult and costly to transfer ownership to individuals and therefore the stock would be better suited to be retained as rental accommodation” (DHS, 2009, Part 3 Vol 6, section 1.4).

I recently spoke to the former chairman of the iconic Johannesburg Inner City Anstey’s Building body corporate, Brian McKechnie, in the hope that there is some secret ingredient to why the building is still a functioning body corporate; anything that might help the doomed future of the Siyathemba Flats.? Sadly, the reality is that even the Anstey’s Building suffers from owners not paying their levies, putting strain on those few owners, who finding it difficult now to sell their flats in the Anstey’s Building, continue to pay their levies despite often no longer residing in the building or even in Johannesburg.? The secret ingredient appears to be a few wealthy flat owners, who are able to pay and who continue to pay for a variety of reasons, mostly, I suspect, linked to sentimentality.? The commercial part of the building is owned by an NGO.? Should responsible owners be forced to sell or abandon their flats, the Anstey’s Building would likely go the same route as all these sectional title buildings all over the Johannesburg Inner City.? But let’s not fool ourselves, these sectional title disasters are not limited to Johannesburg or Gauteng but can be found in all big cities in South Africa.? Unfortunately, there will be no wealthy owners in the Siyathemba Flats to bail it out; and should Anglo American Kumba Iron Ore not come to its senses, Kathu will be the next town to host a sectional title slum.?

As a matter of interest, one could attribute Anglo American fleeing the Johannesburg Inner City in 2021 as one of the reasons that property values in the Johannesburg Inner City fell through the floor and one of the reasons many of those owning property in the inner city are now unable to sell their property for an acceptable amount.?

It is evident that sectional title schemes are not the most suitable ownership model for lower income households.? Owners become poorer than they were prior to taking ownership, and the affordability gap broadens in step with the country’s financial woes. ?This model requires regular income and prompt payment of monthly levies to the body corporate, among other expenses. ?It is unreasonable to expect a low-income household to pay a levy, which is only one line item of the household’s expenditure, when they can hardly afford electricity, water, school fees, food, transport, and medical treatment.? These future Siyathemba Flats’ owners will be trapped in a situation where they stand the real risk of losing everything and ending up homeless.?

The only realistic remedy would be a trust that will pay the full levy for all resettled flat owners for an extended period of time.? Another option would be to broaden the scope of the Dingleton Home-Owners Resettlement Trust to include levies payable by resettled owners of flats in the Siyathemba Flats.? As part of the resettlement agreement, Kumba created a trust for resettled homeowners in 2016 based on the following:

3.2.1 the Previous Owners will be paid an amount calculated in terms of the relevant Agreement to Subsidise the Municipal Property Rates payable in respect of the Dingleton Properties and the New Properties for a period of 25 (twenty five) years;

3.2.2 ?a lump sum per Exchange Agreement, being the value of the Subsidy for that particular exchange Agreement, as at the date of transfer of the relevant Dingleton Property to SIOC, shall be contributed by the Previous Owner to the Trust; and

3.2.3 the Trust shall be liable to apply the Contributions to pay the Subsidies to the Municipalities for the benefit of an on behalf of the Beneficiaries.

The subsidies in the Dingleton Homeowners Resettlement Trust applies to all homeowners, even those who were “buy-outs” (as opposed to those who exchanged their properties in Dingleton for a property in Siyathemba, Kathu in “Exchange Agreements”) and who received millions in excess to the value of their purchased replacement house.? The beneficiaries of this trust are arguably much wealthier than those households who are now being offered a flat in a sectional title building.? Certainly Anglo American Kumba Iron Ore is aware of this?? Or must one assume that they have (once again) buried their heads in the hot sands of the Northern Cape?

As 2024 kicks off, ten years after the company started relocating Dingleton residents, some of them to a holding camp, the OCP, where they still languish today; one can only hope that Anglo American Kumba Iron Ore will do the right thing: create a trust for the Siyathemba Flats, or even better: abandon the crazy idea of sticking people in unsustainable flats and just build these people houses.? No one worse off, that’s how it’s supposed to be, not so?

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