BEE in the Know

The Amended Property Sector Charter

Jenni Lawrence Jenni Lawrence

Amended Property Sector Overview

Why a sector charter?

Section 12 of the BEE Act refers to the gazetting of Transformation Charters. These are also referred to as Sector Charters, developed by major stakeholders in the relevant industries, and seek to achieve broad-based transformation.

The intention of the charter is to increase the pace of transformation within that specific sector, as well as taking into account any characteristics within that sector, which may need to be treated differently.

The property sector is currently valued at R5.3 trillion with a further R520 billion’s worth of land officially zoned for commercial and residential development.

The majority of this property and land is in the hands of white-owned companies and shareholders, while land owned by the public sector contributes a total of R237 billion. (source:  PSCC)

The key objective of the new Property Sector Charter scorecard is to increase the speed of the ownership distribution of this property and land to the benefit of previously disadvantaged South Africans.

Do I fall under the property sector scorecard?

This property sector scorecard includes entities involved in commercial activities in the following industries:

These codes will apply to a subsidiary of a holding company or division or business unit if the primary business of that entity is dealing in property or related services. However, if the holding company is required to comply with the provisions of another code, these provisions will not apply to such an entity if their services provided are:

a)    Related to an internal business function of the entity

b)    Related to an in-house function of the entity

c)    Not competing on the open market with services provided by the entity

The code does not apply to activities such as mortgage loans, properties in possession of banks, property owned, leased or used for the conducting of the business of the company or any in-house related management services.

Which scorecard applies to me?

The threshold levels for EME and QSE scorecards depend on the nature of the entity.

Companies in the property sector which qualify as an exempt micro enterprise (EME) do not require a B-BBEE audit.  Instead, they can declare their B-BBEE status by means of an affidavit confirming their turnover and percentage of black ownership. With 100% black ownership, they would achieve a BEE level 1, and with at least 51% black ownership, the entity would achieve a level 2. If black ownership is below 51%, an automatic level 4 is achieved.

A qualifying small enterprise (QSE) which falls within the turnover thresholds above and has at least 51% black ownership may use an affidavit confirming turnover and percentage of black ownership.

With 100% black ownership, they would achieve a BEE level 1, with at least 51%, a level 2. If black ownership is below 51%, a BEE audit would be required to determine the BEE level.

A generic enterprise is one that has a turnover exceeding the thresholds above, and these enterprises would require a BEE audit to determine the BEE level.

Which elements of the scorecard apply to me?

Because of the diverse nature of the property industry, there are a number of different scorecards to cater for different types of structures.  Businesses that typically do not have employees such as a Real Estate Investment Trusts (REIT), are not measured under management control and employment equity, or skills development. Businesses that do not own property, such as asset managers, are not measured under economic development, or other similar elements. The Complex Structure table indicates which elements are applicable to each type of entity.

The weighting points per element have changed, as have the points required in order to reach each level of BEE compliance.

Complex Structure Table

Since the points for different types of entities within the property sector vary based on where they fall under the complex structure table, the points calculation for BEE recognition level qualification will use the formula:

A = B/C x D, where -

A = Points for BEE level qualification

B = Maximum point under the code

C = Maximum point available to measured entity per segment

E.g: Asset management

  • Maximum point available is 127
  • If measure entity score 85 Points
  • 132/127 x 85=88.35
  • 88.35 = BEE level 4 (100% recognition)

Points per level

Priority elements

The priority elements have been implemented in the elements that have been deemed to be slow to transform.  Large Enterprises are required to comply with all of the Priority elements applicable to their scorecard.  Qualifying Small Enterprises (QSEs) are required to comply with at least two priority elements, one of which has to be the Ownership element and the other element can be of the enterprise’s own choice of those available as priority elements in their particular scorecard.

Non-compliance with the 40% sub-minimum requirements of any of the priority elements will result in the measured entity’s B-BBEE Status Level and corresponding B-BBEE Recognition Level being decreased by one level until the next applicable verification period in which the measured entity can demonstrate compliance with the sub-minimum requirements.

The priority element requirements for the amended property sector scorecard depend on the sub-sector into which the entity falls, and are as follows:

Ownership: The sub-minimum requirement for the Ownership element is 40% of Net Value (40% of the points).  This is applicable to all property entities.

Management Control: The sub-minimum requirement for the Management Control element is 40% of the total weighting points (excluding bonus points). This is only applicable to Estate Agents.

Skills Development: The sub-minimum requirement for the Skills Development element is 40% of the total weighting points (excluding bonus points).

Enterprise and Supplier Development: The sub-minimum requirement for the Enterprise and Supplier Development element is 40% of the total weighting points of each of the three measuring categories within the Enterprise and Supplier Development element, namely: Preferential Procurement, Supplier Development and Enterprise Development. This is applicable to all property entities EXCEPT to the Estate Agents entities.

Economic Development: The sub-minimum requirement for Economic Development element is 40% of the total weighting points.

Since not all property related companies are measured on all of the elements, the table below indicates which priority elements are applicable to each sub sector:

EAP targets

Under the “old” targets, the adjusted recognition for gender (ARG) calculation determined the target for black female representation across the scorecard, where specific targets for women were not indicated.

Under the amended codes, targets for women are based on specifically aligned economically active population (EAP) targets, which give specific recognition to Africans, Coloureds and Indians, and these targets are further broken down into male and female targets.

The EAP targets apply to the generic scorecard for junior, middle and senior employees under management control, as well as to the targets for skills development. They do not apply under other targets such as ownership or board recognition. Also, they do not apply under the QSE scorecard, where “black” is not broken down into “sub”-race groups.

Major differences in the elements between general amended codes and amended property codes:

The information below relates to the generic scorecard. The QSE scorecard generally has slightly lower targets but it is now also required to be measured under all elements according to the complex structures table.

Ownership

Ownership is a priority element and as such, a sub-minimum applies. In this case the sub-minimum of 40% applies to net value, which refers to the accumulated net economic interest in the hands of Black People after the deduction of monies owed on the debt.

  • Target for ownership is 27% for property owners
  • Target for ownership is 25% + 1 vote for all other property scorecards
  • Weighting points and net value targets vary for property owning companies vs other property sector companies

A new sub-element has been added to the ownership scorecard and that is the element of Financial Support.  This sub-element is applicable for property owning companies only.

The target for this element is based on financial support for companies which are black owned AND controlled (at least 51% black owned) and with a BEE level between 1-3, and it refers specifically to a percentage of re/development which is spent on properties not currently owned by the measured entity.

The target for financial support can be derived as follows:

  • Difference between this year and last year’s capex, or
  • Difference between this year and last year’s property assets

If a property owning company does NOT develop or redevelop properties/assets in a particular year, they exclude these points from the denominator.

Bonus points:

Three points are awarded for disposal of assets to a company that is at least 51% black owned with a BEE level between 1-3. The target is 35% of total disposals, with a sub-minimum of 20% of the 35% applicable before points are awarded, i.e. 7%.

This cannot be claimed if the disposal is also claimed under the sale of assets provision.

Management control

Where applicable, the targets remain the same at as the general amended codes, and employment equity is measured separately. No EAP is applicable.

The scorecard for Estate Agents is separately indicated and has higher points and also, higher targets for some indicators. Most notably higher targets have been set for executives on the board and in other management positions.

Employment equity

Where applicable, the targets under senior, middle and junior management are the same as those under the general amended codes, although the weighting points available are slightly higher.

The EAP targets apply to junior, middle and senior employment only, and these do not apply to board participation.

The key difference here is in the classification of management levels, which is according to the following salary bands:

  • Management (estate agencies only) R360k
  • Senior management R450K
  • Middle management R225K-R450k
  • Junior management R150-225K

The scorecard for Estate Agents is separately indicated because the EAP targets are not applicable for this scorecard. This scorecard recognises practitioners, management and administrators, rather than junior, middle and senior management.

Bonus points are awarded for exceeding management targets.

Skills development

Where applicable, this is a priority element with 40% of the points (excluding bonus) to be achieved in this element in order to avoid a penalty level drop.

With a lower target (5% instead of 6% under the general amended codes), there is a significant focus on skills expenditure in the amended codes.

As with the general amended codes, recognition for spend on learners is based on specifically aligned economically active population (EAP) targets which give specific recognition to Africans, Coloureds and Indians, further broken down into male and female targets.  Unemployed learners are now counted under the scorecard and this creates an opportunity to recognise points under any demographic target where you do not employ sufficient staff to allow you to achieve the skills points per category.

Mandatory training is generally excluded under the amended codes, but an allowance is made under the property sector for Estate Agents. Training defined and required by the Estate Agency Affairs Board can be counted, as well as the SACPVP qualification for valuers which will also qualify under skills development in the property sector.

Where an unemployed learner has completed at least 6 months of a learnership, apprenticeship or internship, AND obtained employment longer than 12 months, these learners can be counted under the target for absorption, for bonus points, whereas under the general amended codes, they can only be counted once the learnership is completed.

The EAP targets are not applicable for disabled learners.

Enterprise and supplier development

This element is a combination of two elements from the “old’ codes, namely procurement and enterprise development, with the addition of a new sub-element – which is supplier development.

Differences to be aware of:

  • The targets are the same as under the general amended codes, but with lower weighting points
  • There is a major shift in the importance of procurement from 51% black owned and 31% black women owned suppliers
  • There is an additional target for spend with at least 51% black owned property services enterprises with a BEE level of 1-3, as a percentage of total property services spend. This can include any service related to the maintenance or upkeep of property e.g. landscaping, security, cleaning, and does not have to be a company rated under the property scorecard.

Socio economic development (SED)

The target for SED remains at 1% NPAT, but the weighting points are lower.

Environmental projects count for recognition under this element, where biodiversity is put at risk due to property development.

Economic Development

Where applicable, this includes contributions towards infrastructure projects, particularly in under resourced areas.

Contributions in under resourced areas are recognised based on the latest Infrastructure Municipality Index percentage developed by the draft financial services sector code and these contributions will be published on the PSCC council website.

The full charter and scorecards can be seen on our website [ 709 kb ].

To discuss your BEE certification requirements according to the amended codes of good practice, or specifically related to the Construction or Property industries, please contact Jenni Lawrence.