After the Bell: Rupert pounced on at Leopard Creek
The dispute arose because the municipality suddenly increased its valuation from R450-million to R1.56-billion in 2017. The irony of the situation is that the council doesn’t actually provide Leopard Creek with any, you know, actual services.
There was an old computer game called SimCity, popular in the 1990s and early 2000s, that I always thought would be a great learning tool for municipal managers in SA. The game was for years the leader in the so-called open-ended city-building franchise, which required players to lay out a city from scratch and manage its development. What kept players glued to the screen was that disasters would keep happening, especially if you were too parsimonious with fire stations, police stations or hospitals. The whole process gets crazy — much like running a city in real life, I would guess.
But the biggest education about city development came with taxation levels. Since the temptation always exists to build faster and more, there was an equal temptation to tax higher. There was even a taxation level called “soak the rich”.
Of course, I immediately went for that level, as I suppose everyone did initially. But it was edifying to watch how your city’s rate of business growth would slow and city areas would start to decline, requiring a larger police force, which would in turn require higher taxes. Eventually, your city would collapse under its own weight, and you would be ousted as city manager. Sad.
There have been a couple of press stories over the past few weeks, most recently on Monday in Business Day, about a long-standing valuation dispute between the golf development Leopard Creek and the Nkomazi Local Municipality in Mpumalanga. The dispute has some news currency for two reasons: the Leopard Creek golf course is now SA’s number one course and home to the Dunhill Classic, one of the flagship events on the Sunshine Tour. Second, it’s well known as the brainchild of one of SA’s richest citizens Johann Rupert, chair, among other things, of Richemont.
It is by all accounts a magnificent course and development, nestled in a crook of the Crocodile River just on the other side of the Kruger Park. Giraffes drift across the course and hippos plunge in its river — it sounds just magical.
The dispute arose because the municipality suddenly increased its valuation from R450-million to R1.56-billion in 2017. The irony of the situation is that the council doesn’t actually provide Leopard Creek with any, you know, actual services. All the roads were built privately; the power comes directly from Eskom (when it does), and all the maintenance is done by the club. There is a water extraction plant, purification works, internal water distribution networks, and a sewage treatment plant, none of which is supplied or run by the council.
This is not a cheap club, but neither is it, at least in terms of the court submissions, a grand money spinner. It’s designed to more or less break even, which it does, despite very high course fees, which are necessary for such an unusual location.
The case was first lodged when the municipality revised its valuation, and a ruling was finally made in favour of the club in April this year. It’s a relief for the establishment, and I suspect South African golfers. But the question is, why was it necessary to go all this way uphill?
The valuation was not entirely plucked out of thin air. In simplistic terms, a professional valuer, Norman Griffiths, did the valuation in part by using the notional sales value of the existing houses in the development and assumed the sale of the remainder would happen at a lesser rate. There are 251 residential sites on the 336 hectare property. Of those, 113 have been fully developed.
His estimate of the value of the properties came to just under R1-billion for the 113 sites (roughly R9-million each) and then R270-million for the remaining vacant stands (about R2-million a pop). That R1.3-billion was increased to R1.56-billion during the long court process. Existing stands at Leopard Creek are currently on the market at anything between R2.5-million and R15-million.
Witnesses testifying for the property argued that this was, well, nuts. It already costs existing residents around R35,000 a month in levies just to hold their properties. Golf estates have been going bankrupt recently, and a valuation that rich would make the whole effort unfeasible, they said. And yet the municipality is persisting with the valuation and has appealed against the judgment.
In the Business Day story, Rupert is quoted as describing the rates valuation as a “scam” that is causing economic damage in the region.
“I want to build a hotel, [and] there are at least two hotel groups who want to invest but there is no certainty about taxes and rates,” Rupert said.
The dispute is also disrupting sales to potential new buyers and residents because there is no clarity about what the ultimate rates will be.
For me, the brouhaha illustrates the hostility municipalities seem to have for their ratepayers. I suspect too that SA’s councils are just getting more desperate for cash and applying the worst instincts of SimCity protagonists. The Nkomazi council, of course, has huge developmental pressures, like everywhere else in SA. Everybody, Rupert included, appreciates that. Yet, it’s crucial that councils develop a realistic model for how they tax and spend their limited funds, and don’t fall into the trap of “soaking the rich”. That way lies ruin. DM
- The size of the Leopard Creek property has been corrected. Apologies for the error.