City of Johannesburg

Finance & Economic Development

UDZ Tax Incentive – Application by JoburgPresentation to Finance, Strategy & Economic Development Committee7 June 2004

Annex A

A10: Presentation

to Com

mittees

Background

• Budget Speech by Minister, 2003• Meeting between EDU & NT to determine

location & size of UDZs• Mayoral Comm recommendation in July

2003– That, in order of priority, following be

recommended to National Treasury for inclusion in UDZ Incentive: Inner City, R’burg CBD, R’poort CBD & Lenasia CBD

– That, if National Treasury limits selection of designated areas to one area only, Inner City be recommended for UDZ incentive

• Legislation approved by President in December 2003

What does the Legislation cover?

• Income Tax Act 58 of 1962, Revenue Laws Amendment Act: Insertion of Clause 33, Section 13quat

• Accelerated depreciation deductions for construction & refurbishment (erection, extension, addition, improvement) whereas previous depreciation was zero, 2% or 5%

• UDZ Incentive/Tax Allowance– Aims to support urban renewal efforts– Targets inner cities in 16 LA areas, in UDZs

• Preparation of case for larger area being finalised for 23 May

Structure of Inner CityTotal Inner City is 1.1% of total Joburg area (1,786 ha excluding Zone 5); allowable UDZ is 690 ha

Zone 1- office & business: 28% of Inner City (502 ha) & 4,212 erven

Zone 2 – Manufacturing & industrial: 23% of Inner City (417 ha) & 2,489 erven

Zone 3 – Fordsburg +: 7% of Inner City (118 ha) & 1,858 erven

Zone 4 – Residential +: 42% of Inner City (749 ha) & 8,856 erven

Residential Profile of the Inner City

• Nearly 208,000 people live in Inner City (+6.5% of all population in Joburg)

• Highest number of households and people live in Zone 4 (69%) & in Zone 1 (27%)

Rationale for Extent of Application

• Complex area in transition – Suffers from inner city decline like

others in world– Impact of apartheid legacy being

dealt with– Crucible for new approaches

• Operational rationale– Application deals with possible

“shadow” effect whereas smaller area will not

Rationale for Extent of Application, cont…

• Economic supra-national city– Joburg contributes 16%, R163bn, of

SA’s GDP (over R30bn more than next largest earner, Cape Town)

– Joburg’s 5-year economic growth rate from 1997-8 to 2000-1 was double the national average (i.e. 5%)

– The Inner City contributes over 23% to city GGP (Region 8 proxy)

– Largest concentration of infrastructure in SA: infrastructure replacement costs are +R30bn

Inner City Economic Structure

• Highest concentration of retail space is in Zone 1

• Industrial space is located throughout Inner City reflective of its historic mining & manufacturing economy

• Integrated urban economic system– Provides more jobs

than Sandton, Woodmead/Rivonia & Randburg combined

– Important anchor for E-W corridor & N-S Corridor (location of Gautrain route)

– Location of corporate HQs plus SMEs

Employment Profile of the Inner City

• Over 201,000 jobs located here (+15% of all jobs in Joburg) (2001)

• Office based workers are the majority (57%)

• Most employment (75%) located in Zone 1, followed by Zone 4 (16%)

• Unemployment at 32%

Rationale for Extent of Application, cont…

• Focus of transformation– E.g. Better Buildings Programme– Inner City Task Force– Declining land values from 2000 to

2004 (e.g. Berea 41%, Braamfontein 18%, Fordsburg 12%, CBD & Hillbrow 38%)

– 26% decline in assessment rates from +R24m (July 2000) to R18m (Feb 2004) (32% alone in Zone1)

Rationale for Extent of Application, cont…

• Institutional integration– Inner City Office, 1998– Adoption of Inner City by CoJ as priority

intervention area in 1999– Inclusion as one of 6 Mayoral Priorities in 2000– Creation of dedicated Inner City committees– Role players, e.g. JDA, EDU, CJP, JICBC, Region

8, POMA, working towards same goals– Planning for Inner City as a single, integrated

entity– Committed interventions, e.g. precinct

projects, BIDs, Better Buildings, ICDS, housing, rates rebates, CCTV, etc, underway

Progress to Date

• Presented to Inner City Portfolio Committee (19 May), Economic Development Subcommittee (21 May), Finance, Strategy & Economic Development Committee (7 June), then Mayoral Committee (10 June), Council thereafter

• Decision to be forwarded with application (ready to go!) to National Treasury for approval –No guarantees of success for entire Inner City

• Latest notification rec’d from Treasury

Possible Impact of UDZ allowance

• Only Zone 1 showcased here today

• ‘Bad’ building: Massyn Court, corner Kerk & Mooi Streets– In Fashion District– Worst building in Inner City

• Overcrowded• Shacks on balconies• No services, fire risk from candles

(during day)• Sanitation buckets emptied into

stairwells

– Valued at R600k in 1991, now 480k– Next to high-value area – good

prospects for regeneration

Possible Impact of UDZ allowance

• ‘Good’ building: Carlton Centre, Commissioner Street– Biggest single development in

SA when built in 1973• Includes hotel, • Biggest parking garage in Inner

City• Tower is 50 stories high• Replacement value of R1.3bn• Empty for +10 years

– Sold for R33m & now 98% occupied

– Part of BID, CCTV– Now shopping centre is also

over 80% let, possible hotel reopening

Contact Details

Li PerneggerProgramme Manager

(Economic Area Regeneration)Finance and Economic Development

City of JohannesburgCell: +27 (0)82 464 4287

Tel: +27 (0)11 407 7031/7141 Fax: +27 (0)11 403 4125

E-mail: lpernegger@joburg.org.za