Government is paying a premium to rent buildings it doesn’t use or need – and taxpayers are footing the bill
Public works minister Patricia de Lille has called on landlords in South Africa to assist the government in cutting one of the biggest sources of irregular expenditure – overinflated leases.
Speaking at the first Landlords Conference held this week, De Lille pointed out that month-to-month leases were a massive issue for the government.
The minister said that the Department of Public Works commissioned a study into the month-to-month prices being charged and found that close to 56% of the leases sampled had rentals over market rates.
Of these leases, rentals were on average 45% more than market rates.
In the Pretoria region, rental amounts were more than 66% above market rates. Durban, Port Elizabeth, and Johannesburg had over 60% of leases above the market rate, while Cape Town was estimated at 50% above the market rate.
“This shows from the leases sampled, that the government is paying a premium compared to market rates,” de Lille said.
“Over the years, the department had a recurring audit finding pertaining to the number of month-to-month leases that led to irregular expenditure,” she said.
“At the end of last year, I instructed that month-to-month leases need to be stopped and this was done for the sole reason that this was being flagged as irregular expenditure by the Auditor General.”
In the 2020-2021 Public Finance Management Act (PFMA) audit outcomes general report, the auditor general of South Africa (AGSA) highlighted that the Department of Public Works had spent over R13.5 billion on private leases – 37% of its total budget.
“The public works sector is responsible for providing and maintaining infrastructure that enables departments to deliver services to the public.
“Given the large number of properties under its custodianship (145,712 properties), the sector could be expected to spend a significant portion of its budget on facility management to ensure that these properties are regularly assessed and properly maintained,” the auditor general said.
“However, it actually allocates only 18% of its budget to facility management, while spending the largest portion – 37% – on private leases.”
According to the AGSA, thousands of buildings under the sector are in poor condition and deteriorating – and thousands more are empty. Yet, these buildings keep drawing funds from the department with leases getting paid.
“The sector owns over a thousand buildings that are not occupied, mostly because they do not meet the needs of departments. As a result, there are 3,704 buildings being leased from private property owners, of which 28% have expired lease contracts and are leased on a month-to-month basis.”
The AGSA said that some of these leases are very costly and escalate at a rate of 10% each year, which is generally above the inflation rate.
“As a result of the lack of competitive processes, the sector has incurred millions of rands in irregular expenditure and lost opportunities to negotiate these contracts to market-related levels.”
De Lille said that the situation has improved over the past five years where the department had over 1,700 leases that were on month-to-month in 2017 to just under 200 out of (2,400) leases on month-to-month to date.
The minister called on landlords to help the government address the issue, saying that it cannot not afford to spend taxpayer money irresponsibly.
“I conveyed to the landlords that the issue of month-to-month leases is one that we fix, because it is simply irregular expenditure,” she said. “We have been engaging landlords since last year on the issue of month-to-month leases.”
With the renegotiating of the leases, de Lille said that her department was able to save R273 million, adding that the process is ongoing.