PUBLIC-PRIVATE COLLABORATION –

CASE STUDY : COSMO CITY

Yusuf Patel

Seminar – Urban Regeneration

5 November 2014, Maboneng

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Addressing Needs of

Informal Settlers

Cosmo City was borne out of an urgent need to create accommodation for the informal settlers of Zevenfontein, Riverbend and the farm workers of Cosmo City that illegally occupied privately owned land in the North Western area of Johannesburg.

City of Johannesburg and the Gauteng Government were instructed by the courts to find alternate accommodation to house the informal settlers and took the bold decision to acquire 1105ha of land and to relocate them into an integrated, mixed use development that would comply with the government’s policy in terms of a sustainable development.

The only way to achieve this ambitious vision was to embark upon a Partnership agreement between the City, the Provincial Government and the private sector to apply and put into practice the government’s “Breaking New Ground” Strategy.

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• Cosmo City was initiated by the Gauteng Department of

Housing and the City of Johannesburg in late 1998.

• Codevco (Basil Read) were appointed as preferred developer

in 2000.

• After many years of court cases defending objections to the

development, Codevco eventually broke ground in January

2005.

• By 2012 Cosmo City was the first successfully completed

mixed income, fully integrated sustainable human settlement in

South Africa.

Time Lines

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12 schools (7 complete)

40 sites for churches, clinics and crèches

43 parks and recreational sites

32 commercial and retail

40ha industrial park

300 ha environmental area

Land: 1 105ha

Top Structures:

• 5 000 BNG/FSH

• 3 000 Finance Linked units

• 3500 Bonded Houses

• 1000 Rental apartments

(281 complete)

Total 12 500 units

Population 60 000 +

Scope

PARKS

EDUCATION

COMMERCIAL

TRANSPORT

CHURCHES

HO

MES

PO

LIC

E

MEDICAL

Mixed Use

Integrated

Sustainable

Development

INDUSTRIAL

SOCIAL / RENTAL STOCK 6

7

COSMO CITY SCHOOLS 8

9

10

11

12

13

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• Development value: R15.9 BN

CoJ should be collecting at least R100m p/a in rates & taxes

• Employment: 30 924 (During Construction)

• Unlocking household asset value - 1000 affordable houses

financed by FNB in 2006 increased in value by estimated

R100 million

(Mail & Guardian Business, November 15-21, 2013)

Socio-Economic Impact

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Gauteng Department of Housing

ˉ Housing subsidies

ˉ Schools

City of Johannesburg

ˉ Land owner

ˉ Bulk infrastructure

ˉ Approvals

ˉ Urban Management

Codevco (Basil Read)

ˉ Developer

The Parties

GAUTENG PROVINCIAL GOVERNMENT

CITY OF JOHANNESBURG

SUBSIDY AGREEMENT LAND AVAILABILITY AGREEMENT

AND

SERVICES AGREEMENT

CODEVCO DEVELOPMENT AGREEMENTS

LOW INCOME HOUSING

FINANCED CREDIT LINK HOUSING

BONDED HOUSING

BUILDING CONSTRUCTION

DESIGN & CONSTRUCT

APPOINTMENT

BULK & LINK

ENGINEERING

SERVICES

DESIGN & CONSTRUCT

APPOINTMENT

TOWNSHIP

ESTABLISHMENT

LAND SURVEY

COMMUNITY LIASON

LABOUR DESK

ENVIRONMENTAL

CONTROL

MARKETING AND

SALES

CONSULTANTS

CONTRACTORS

CONSULTANTS

CONTRACTORS CONSULTANTS SUB

DEVELOPERS

Design, acquire all necessary regulatory approvals and build the Cosmo City integrated development.

Appoint all the necessary professionals and contractors to install the required services for the project.

Ensure that all vacant and serviced land be developed in terms of the approved township application which may be amended from time to time to suit market conditions.

Sell all non-subsidised residential and non residential properties.

Liaise with all the necessary “Government” Departments to acquire schools, parks and clinics etc.

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Developer’s Brief

LESSONS

LEARNT

CODEVCO .

LESSONS LEARNT

Cosmo City was not only to be a 12 500 housing development it was to be a lifestyle that had never been tested before.

For such a development to work it was imperative that it would attract people that could afford to buy elsewhere but were prepared to invest in a town that catered for all income groups including people that would be living in a formal environment for the first time in their lives.

WHAT IS MIXED USE INTEGRATED HOUSING?

“Mixed use is to provide those facilities that makes a town sustainable .”

“Integration is to join together different income groups harmoniously into

a single community.”

Cosmo City is the first mixed use, fully integrated/inclusionary housing development in South Africa that encompassed the following components:

• Provide the same level of service for all income groups.

• Providing housing for the full economic spectrum group in the same human settlement.

Public-Private Investment Mix

LESSONS LEARNT

1. Location – Growth Area

2. Design – Protect assets and allow for natural integration

3. Identify beneficiaries upfront

4. Co-ordination

5. Household preferences: Commercial Centre's – Spaza Shops

6. Communicate, Communicate, Communicate

• Education Programmes – beneficiaries / bond holders

• Induction Courses – Contractors / Labour Desk

• Community Liason Officer

• Newspaper

• Established residents associations.

7. Funding & Cross subsidization

8. Alternative energy and environmental initiatives

9. Would we develop another Cosmo City?

1. Location – Growth Area

To achieve a successful integrated development it is essential that the development is located in a growth area, one needs to create a destination which will attract the bonded market. This market is required to provide the cross subsidisation that makes such developments work.

2. Design – Protect assets but allow for natural integration

Integration requires careful design that will encourage natural process:

• Quality design and schools being provided and positioned strategically to attract learners from the different income groups.

• Commercial facilities providing a good blend of services required by the different income groups.

• Traditional trading facilities must not be ignored for all income groups. Be it informal trading areas, taverns or malls and restaurants.

• Encouragement for the residents in the low income area to upgrade their houses and gardens.

• Churches, Clinics, Parks and open areas.

• Same level of services through out and proper transport facilities.

3. Identify beneficiaries upfront

The beneficiaries of the BNG houses should be identified upfront and inducted so that there is no confusion who will benefit form the development. This will help to avoid land invasions.

4. Co-ordination

It is critical to establish a management committee with the authorities as one has to work as a team.

Developer has to be Hands-on to achieve results

A project such as Cosmo City with a development cost of over R3 billion has a number of commercial issues at stake which have to be fully appreciated and therefore obstacles have to be overcome fast and implementation has to happen as seamlessly as possible.

5. Commercial Centre's – Spaza Shops

Provision was made for 32 number commercial retail sites at Cosmo but no provision was made for any informal trading.

Many beneficiaries earned their living, prior to being relocated to Cosmo City, by trading in the informal settlement they were living in. When they moved to Cosmo City they continued to trade from their houses.

This did not only apply to the low income but it has also been noticeable in the financed linked and bonded areas as well.

It is essential to provide formal trading facilities as early as possible even if one has to subsidise it, and to provide proper market places to allow informal trading.

6. Communicate, Communicate, Communicate

• Edducational programme about living in a new town and the responsibilities that comes with that is crucial.

• CLO’s to liaise with the residents and assist them.

• A successful community newspaper was started

• This also led to the establishment of residents associations as small groups of people started to establish task groups

• Induction Courses – Contractors / Labour Desk

Every contractor that works at Cosmo City must go through an induction course so that they understand what Cosmo City is about and they can buy into its success.

• We also established a labour desk where beneficiaries and local residents could register and contractors were obliged to draw their resources from. This way it created work for the local community it enabled them to build their own city.

7. Funding & Cross subsidization

Cosmo City`s total development cost is R 3.8 billion of which the funding is shared approximately

20 % City of Johannesburg - Land / Bulk and link infrastructure / community and municipal facility

19 % Gauteng Provincial Government – Subsidies, Clinics, Schools, and provincial facilities.

61 % Private

But what is critical in such a development from the private sector is the cross subsidisation that needs to take place especially to make the financed linked housing work. It is a requirement to provide a house on a serviced stand for a household income of under R 7500 /month - now up to R 15000 /month. This can only happen by cross subsidization between the bonded houses and the financed linked houses.

8. Alternative energy and environmental initiatives

We have started a new programme within Basil Read called BR-Green Projects to address these challenges especially for integrated developments.

We recognize that the type of developments we undertake are large from 100ha to 1400ha and that a lot of natural vegetation is lost. BR-GP has established a pilot nursery at Cosmo City to perfect the art of propagating trees, shrubs and vegetables.

The programme has propagated over 300 000 trees to be used as well in future developments.

Alternative building and energy still remains an unaffordable source to integrated housing - innovations are increasing.

9. Would we develop another Cosmo City?

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Mega-Scale Housing Delivery:

Economic Impact Integrated sustainable human settlements

Project No. Units Impact during

construction (R)

Employment

during

construction

Post

construction

(R)

Post

Construction

employment

Savanna

City

>18 000

R28,4 bn

54 900

R12,7 bn

12 700

No referencing and usage without permission from Basil Read (Pty) Ltd

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Notes: Direct, indirect and induced impact of a typical housing project in South Africa

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Subsidised/Social &

Affordable Housing

Public Public/Private Private

State Market Collaboration/

Contracting

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Why Public-Private Contracting?

Make great cities – integrated, spatially efficient, inclusive

Optimise location - Housing has to be delivered according to a strategic spatial development and investment framework

Cover investment costs adequately – sustainable human settlements

Share capabilities & synergise responsibilities

Contain Costs – ensure affordability with quality

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CONTAIN

COSTS

What can

people afford?

R350 000 house

R100 000 house

Need

R6 667 income p/m

Need

R11 667 income p/m

R200 000 house

Need

R3 334 income p/m

Reduce regulatory approval & preparation time

Apply Standards consistently

Plan better for bulk & lower contributions

Achieve economies of scale

Innovation (technology & policy)

Public-Private Investment Mix

Bulk Contributions

• Planning challenge: Lack of certainty regarding the availability of

bulk

• Policy challenge: Uncertain bulk service contribution framework

• Cost challenge: High and rising bulk service contribution costs

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Bulk Contributions Impact

Selling Price

VAT Top

Structure

Internal LPFM Available

for Bulk

R400 000 R56 000 R175 000 R60 000 R60 000 R49 000

R400 000 R56 000 R200 000 R60 000 R60 000 R24 000

R350 000 R49 000 R175 000 R60 000 R60 000 R6 000

R350 000 R49 000 R200 000 R60 000 R60 000 -R19 000

Illustration:

• 50m2 house

• Building rate: (1) R3500/m2; (2) R4000/m2

• LPFM: Land, Pre-development costs, Finance cost, Marketing

costs

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Bulk Contributions: Usage Standards

• Lower contributions should apply to affordable housing

developments compared with up-market housing

High Income Household

Affordable Housing

9 Kl/day

0,8 Kl/day

Water Usage Comparison

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Housing Market Households (%) by Household Income Category

2006

4.84%

7.40%

8.54%

11.32%

11.64%

8.96%

7.04%

7.17%

6.82%

6.74%

6.27%

5.66%

7.58%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

0-200

201-500

501-1000

1001 - 1500

1501 - 2500

2501 - 3500

3501 - 4500

4501 - 6000

6001 - 8000

8001 - 11000

11001 - 16000

16001 - 30000

30 001+

Number of Households (as %)

Source: Adapted from Global Insight

Inco

me C

ate

gory

(M

onth

ly)

Subsidy market (52.7%)

Outstanding demand –

1,8 million units

Open market

(19.5%)

Gap market (27.8%)

Outstanding demand -

600 000 units

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Mega Project - Development Phases

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Outcomes Mixed income

Mixed Use

Green

Smart

Connected

Well managed

Viable

Sustainable

Investigation

Feasibility

Agreements

Planning & Approvals Construction

Marketing & Sales

Urban Management

1-2 years

3-5

years

7 – 15

years

Delivery Success Factors

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Well located

and priced

Land

Infrastructure

• Bulk

• Link

• Internal (water, sanitation,

power, roads, etc)

Accountable &

dedicated

Project team

(officials)

Planning,

Design,

Funding &

Financing

capacity

Development

Management &

Construction

Delivery

capacity

Integrated, sustainable human settlement

Subsidies, End-

User Finance

Product and

construction

technology

Long-term spatial planning & Land use management

Community

development &

local institutions

Urban

management

+ + + +

Marketing & Sales

Who are the Public & Private Sectors?

Public National government

Provincial government

Local government

State owned enterprises

Private Investors

Land owners

Funders

Developers

Contractors

Professionals

Home owners

Communities & Stakeholders

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What are the Responsibilities?

Public Sector Spatial planning

Land & Bulk Infrastructure (external engineering services)

Development approvals

Land Use management

Subsidies & Grants

Public & Municipal facilities (schools, clinics, parks, community centres, etc)

Urban management

Private sector Investment & Finance

Pre-development cost (studies, design, feasibility, applications)

Internal infrastructure (internal engineering services)

Top structures (FLISP, Bonded, office, retail)

Development Management

Construction

Marketing & Sales

67%

33%

Typical investment mix for Sustainable Human Settlement

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Procurement Strategy

State/Municipal Land Sell

Land Availability /Implementing Agent

Implementing Agent

Private Land Purchase

Land Availability

Incentivise/guide

Open

Fair

Competitive

Value for Money

Cost-Benefit Study

Rates base

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Public-Private Contracting: Key Issues

Packaging of proposal calls – must be realistic and credible

Realistic Land Development/Land Availability Agreements

MFMA – Limits municipalities to 3 year funding commitment

Installation of infrastructure – municipality or developer Engineering Service Agreements

Bulk contribution policies

Proper cost/risk and benefit understanding and sharing Life-cycle approach

Land value creation and Built environment investment

Rates base

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Thank You

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