Tshwane deals to die for

Metro under the microscope for paying huge amounts for land in transactions that generate massive profits for speculators.

The months before the 2016 local election were busy times for the City of Tshwane Metro Municipality. It acquired huge swathes of land that saw a few people smiling all the way to the bank. One lucky guy pocketed more than R94 million. 

The property deals were all done back-to-back, meaning there were original owners as well as an intermediate owner or middleman who had only acquired the land for a few minutes on paper before transferring it at a much higher price to a third party; the City of Tshwane. The metro used taxpayers’ money to finance the sequence of deals right from the start.

The land that was purchased in one of the deals consisted of 20 portions of the farms Strydfontein 306 and 307 on the north-western outskirts of the capital, near the Rosslyn Hub industrial development. Deed searches show that Tshwane bought the 20 agriculture smallholdings, covering 226 hectares on 16 March 2016 for around R211m. The properties were transferred and registered into the metro’s name on various dates later that year.

Significantly, on registration, each of the 20 title deeds received consecutive deed numbers for Proco Management (Pty) Ltd (the owner and seller) and Tshwane (the buyer and new owner).

This indicates that the registration into Tshwane’s name happened directly after the property was registered into Proco’s name. For example, portion 6 of Strydfontein 307 was registered to Proco with deed number T63281/2016 and to Tshwane with deed number T63282/2016 on 15 August 2016. Another example is portion 37 of Strydfontein 306, which was registered with deed number T56393/2016 to Proco and to Tshwane with deed number T56394/2016 on 21 July 2016. And so it went on: all 20 registrations followed the same pattern at the Deeds Office in Pretoria.

Pretoria lawyer, Hannelie van Tonder of Fuchs Roux Inc, told Noseweek she had been the conveyancing attorney for the back-to-back deals. Upon receipt of the money from Tshwane Metro’s lawyers, Kunene Ramapala Inc, Van Tonder paid out the original owners as well as the intermediate owner, Proco. She also paid out Nungu Trading 691(Pty) Ltd who was Proco’s silent partner.

Van Tonder assured Noseweek that the original owners had known all along they were part of back-to-back deals, which are apparently legal and are transacted quite often.

The mind-boggling question is: why did Tshwane willingly pay R94m more to Proco than Proco had paid the original owners? Why not buy directly from them? It appears this was all part of a plan that began to take shape long before the back-to-back registrations occurred in 2016.

Some years ago Nungu Trading (Pty) Ltd became interested in developing parts of Strydfontein as a future megacity. During a recent conference call with attorney Van Tonder and Nungu’s sole director Izak de Villiers, she told Noseweek that the owners of the smallholdings had signed so-called land-availability agreements with Nungu. These agreements enabled Nungu to go ahead and obtain the necessary authorisations to support its application to establish a town on part of the Strydfontein smallholdings. If Nungu later decided to buy the smallholdings, she said, the agreements would automatically become Nungu’s offers-to-purchase. But Nungu was nowhere to be seen when those properties reached the Deeds Office. The buyer was suddenly a new player, Proco Management, which had never been part of the negotiations with the original owners.
Noseweek was able to track down one of the original owners, Louise Honiball, who has since emigrated and now lives in Australia. She signed a land availability agreement with Nungu’s representative at the end of May 2015. It was valid for six months and stated that the developer was obliged to obtain approval from the Department of Human Settlements for their housing project. It did not specify whether this was the national, provincial or municipal Department of Human Settlements.

Six weeks later Honiball received an email informing her and the other owners who were ready to sell that the proposed Mamapo development had been submitted to the national Housing Development Agency. The correspondence came from Pieter Smith who told Noseweek recently that he had worked for Nungu at the time. Smith sent another email in October 2015 telling the owners that the biggest challenge for the planned megacity was to obtain external municipal and other services before they could start developing the town.

All the owners held on for another five months, and on 23 March 2016 Smith informed them that Tshwane council had approved the megacity development and the funds. But he mentioned that the deal was “sensitive” and the owners should be patient until the guarantees were received.

It seems however that the sensitivity factor was soon discarded because the title deeds of all 20 smallholdings show that Tshwane purchased them on 16 March 2016, a week before Smith’s email. According to the title deed, Proco bought Honiball’s property for R4.165m and sold it to Tshwane in a back-to-back transaction for R6,479,190m. But Honiball is adamant that she first heard of the existence of Proco when Noseweek recently contacted her in Australia. She also did not know that the price had increased by more than R2m when her land was sold to Tshwane Metro.

Tshwane paid Proco around R211m for the 20 portions of Strydfontein, while Proco paid the original owners around R117m. De Villiers said this was because Nungu had established a town on the land, which added value to the properties and the company also spent about R3m on town planning in an effort to obtain the necessary authorisations. He admitted that the original owners were not told about the price differences.

According to De Villiers Nungu and Proco have completed previous transactions together, although this was their first with Tshwane. He approached Proco after its owner, Tshepo Dibe, told him he was able to act as a go-between with Tshwane.

Noseweek has established that Dibe is a previous chairman of the Gauteng branch of the Black Management Forum and a member of the Black Business Council of South Africa. Apart from Proco, which was registered in 2013, Dibe is the director of another 11 private companies. He also seems to have had some connection with National Treasury because he used a Treasury email address in 2014. National Treasury’s communications officer Jabulane Mulambo was unable to confirm whether Dibe previously worked there and said his name was currently not in its database.

Dibe told Noseweek that the Strydfontein deal was a joint venture between Proco and Nungu and that he completed the negotiations with Tshwane because his company was BEE and VAT-compliant and had tax clearance. It was therefore agreed between him and De Villiers that Proco would do the final transactions. “But it was always our team together,” he said.

He explained the R94m difference in price as follows: “Now, we could have made a profit of R10, we could have made a profit of R7, we could have made R1,000 but at the end of the day, I mean, you negotiate what the need is until… once the value is clear. As such I don’t think there should be any problem.”

But just how much of Strydfontein was indeed an established township that supposedly added value to the individual properties and made Tshwane pay exorbitant prices for the land? And just how was the added value calculated?

De Villiers admitted that out of the 20 smallholdings sold to Tshwane, only five, consisting of 48ha, formed part of the application to establish a township. Tshwane’s Planning and Development department approved an application back in 2010 but by 2016 the proposed town was still not proclaimed in the Government Gazette.

Makgorometje Augustine Makgata

This is confirmed in a report compiled for Tshwane’s Mayoral Committee by Makgorometje Augustine Makgata, the metro’s head of Planning and Development. It outlined the need for the purchase and gave a highly inflated breakdown of the prices to be offered for each of the Strydfontein smallholdings. The report also referred to the “comprehensive valuations per property” that had been finalised and attached to the report.

The truth is that Tshwane’s own internal valuators were blatantly bypassed even though it is their job to specifically valuate municipal property acquisitions. Makgata told Noseweek that an external company had done the valuations. But despite numerous requests, he was unable to supply these “comprehensive valuations” mentioned in his report. If an external company did indeed value the land, they valued it at almost double its worth according to experts.

In the Makgata report Tshwane’s Chief Financial Officer recommended that the city manager negotiate and sign the offers-to-purchase the properties with Strydfontein’s owner and partner, incorrectly stated as Nungu Trading and Proco Management. No mention was made that the land actually belonged to private individuals or that Tshwane would fund the 20 back-to-back deals.

The head of Tshwane Metro’s  Housing and Human Settlements department supported the acquisition provided that bulk infrastructure was made available by the Water and Sanitation Department, which did not give its recommendations or comments in the report.

Without raising any concerns, the mayoral committee rubber-stamped the proposed acquisition of the portions of  the Strydfontein farms on 20 January 2016. The committee also approved a second acquisition, the remainder of portion 164 of the Farm Klipfontein 268, which was recommended in the same Makgata report. The deal was almost a mirror-image of the Sterkfontein back-to-back registrations, just with different players.

In his report Makgata referred to the 118ha pocket of farmland as Soshanguve Extention 20 – which was factually wrong because Klipfontein is, even today, still farmland and as far as Noseweek was able to ascertain, has not been reserved to establish a township. Closer inspection also shows that almost a third of the property consists of wetlands that cannot be developed.

Golden Tau Developments (Pty) Ltd was stated as the owner of Klipfontein, which was in line with the historical information of ownership on the title deed. However, on registration in July 2016, there was suddenly a new owner, Linked Thoughts Consulting CC. On the title deed it looks as though yet another quick, back-to-back deal was done, as indicated by the consecutive title deed numbers, T43143/2016 and T43144/2016.

Tshwane bought the farm for R85.5m from Linked Thoughts Consulting, which then paid the original owner, Golden Tau Developments, just over R53m, making a profit of more than R32m in just a few minutes without having laid out a cent. Needless to say the source of the profit was taxpayers’ money.

Noseweek’s investigation revealed that Golden Tau Developments was in liquidation at the time, and the sale of its assets was handled by liquidator  Zaheer Cassim.

According to Linked Thoughts’ sole director Mokete Michael Rakgogo (see more about Mokete Rakgogo below) he paid a R2m deposit to Cassim when he bought Klipfontein and was given three months to find a partner or investor to come on board for his planned development. But it soon became clear that Tshwane would be unable to supply bulk services like water, sewage and other infrastructure in the next three years.

“In the end I lost, because Tshwane did not want to commit,“ says Rakgogo. “They preferred to buy the land. They got themselves a bargain because that land will be worth billions in years to come.” And that brings us back to the question of the missing valuations. While Rakgogo says the price Tshwane paid was not too high for what they got,  expert valuators Noseweek spoke to agree that Klipfontein is worth about R20m.

Amolemo Mothoagae

Rakgogo negotiated the sale with Tshwane’s then head of Housing, Amolemo Mothoagae, who certified the invoice for payment on 31 May 2016. She has since left Tshwane to become the executive director of Johannesburg’s Development Planning department.

Tracked down attending a conference in Cape Town, Mothoagae said it would be inappropriate for her to comment since she no longer worked for Tshwane. What she did do, however, was to immediately contact Rakgogo and various Tshwane officials to tell them that we were on to the story.

Since 2016 Rakgogo has continued to buy up farmland in Tshwane, despite knowing that the metro will be unable to supply bulk services for town development. In both his private capacity and through Linked Thoughts he owns 12 properties worth more than R22m and none are bonded.

Zaheer Cassim did not respond to several phone calls or questions sent to him via email.

Months before Tshwane purchased the portions of Strydfontein and Klipfontein, national Treasury’s then chief procurement officer Kenneth Brown sent a letter to Jason Ngobeni, Tshwane’s city manager at the time. Dated 9 December 2014, Brown said his office had received allegations that the municipality intended to acquire parts of the farm Sterkwater 106 at an inflated price.

The letter referred to the big difference between the internal and external valuations. “Internal valuation indicates that the land is worth R25m whereas external valuation indicates that the land is worth R135m. The municipality agreed to pay R100m for this property.” he wrote.

The then Minister of Finance, Nhlanhla Nene was copied in the letter and Tshwane was requested to submit the valuations, the municipal rates and tax that had been paid as well as the minutes of the meetings held to discuss the acquisition. Tshwane submitted the documents and its internal valuation showed that the land was indeed valued at 25m. The proposed acquisition was then cancelled.

Rakgogo’s last-minute response, after he was told by Mothoagae, who signed off on the deal, that Noseweek was asking questions: “Please note that I’m prepared and willing to buy this land back; this land is gold I can grab at any moment, given the opportunity.

“Please talk to the City Manager and the Mayor to sell this land back to me. For the record, please note that I will be making a formal offer to the City between today and tomorrow.”

Mokete Michael Rakgogo

Mokete Michael Rakgogo

Mokete Rakgogo, founder and CEO of Linked Thoughts Consulting, told disability magazine Rise ’n Shine how the Amavulandlela Funding Scheme for entrepreneurs with disability had helped him.

Rakgogo said that, in 2015 when his firm, Linked Thoughts, needed funding to conclude a construction project, he applied to Amavulandlela and his company received a R5m loan.

He told Rise ’n Shine that he was destined to become an entrepreneur, as he started buying and selling goods from an early age.

Rakgogo has a B.Com and an Honours degree in Accounting. He worked for PricewaterhouseCoopers (PwC) as an accountant for two years and later joined Safcon Housing Solutions as the executive finance manager.

Linked Thoughts Consulting is a construction company which offers a range of services including building RDP houses and schools, office renovations and civil works.

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