In October 2021, the City of Johannesburg (CoJ) introduced a Development Contributions (DC) Policy, signalling a transformative approach to managing infrastructure demands of new developments. This policy mandated a levy on all new developments to fund infrastructure improvements and support economic growth.
The South African Property Owners Association (SAPOA), representing property investors, expressed concerns, predicting increased developmental costs and potential misuse of funds. They feared the levy could deter investors and lead to developers effectively paying double for city infrastructure improvements.
Despite these apprehensions, the High Court in Johannesburg, in a recent ruling, upheld the city’s right to implement this policy. Judge Ingrid Opperman’s judgment dismissed SAPOA’s application to interdict the CoJ from implementing the DC Policy, emphasising the policy’s alignment with the Spatial Planning and Land Use Management Act (SPLUMA).
Key points from the Court ruling
- Policy continuity: The DC Policy does not introduce a new approach but extends the existing framework under SPLUMA, which already recognises the concept of a ‘development charge’.
- Legal grounding: The policy’s implementation is lawful under SPLUMA, which authorises development contributions as used in the DC Policy.
- Impact and fairness: The development contribution is levied based on the impact of new developments on the city’s overall infrastructure capacity. It is deemed fair and rational to apportion costs between developers, following a user-pay methodology.
- Utilisation of funds: The funds collected can be used for infrastructure in different areas of the city, not necessarily tied to the specific development that contributed the levy.
In light of the ruling developers will need to familiarise themselves with the specifics of the DC Policy and its implications on their projects. It’s crucial to understand how the levy is calculated and how it aligns with the impact of their development on the city’s infrastructure.
The development contribution will need to be incorporated into project budgets from the outset. This proactive approach will help in avoiding unexpected costs and delays in project approvals. Developers are also encouraged to:
- Maintain open communications with the City of Johannesburg. Engaging in dialogue can provide clarity on how the levy is applied and ensure compliance with both the DC Policy and SPLUMA.
- Ensure all developments comply with the relevant legal frameworks. Keep thorough records of all transactions and communications with the city regarding development contributions.
- Understand the provisions for refunds or set-offs in cases where a developer’s costs in installing external engineering services exceed the contribution levied by the city.
- Consider the long-term impact of development contributions on project viability and investment returns. Factor in the potential for infrastructure improvements funded by these levies to enhance the value of the development.
The judgment in favour of the City of Johannesburg’s DC Policy marks a significant shift in the landscape of property development. Developers must adapt to this change by integrating the levy into their planning and budgeting processes, ensuring legal compliance, and engaging constructively with city authorities. This approach will not only align with legal requirements but also contribute to sustainable urban development, benefiting both the city and the developers.
By Dhahini Naidu | Director