Tongaat Hulett woes could hurt KZN North Coast development boom

Tongaat Hulett woes could hurt KZN North Coast development boom

The Umhlanga Ridge New Town Centre development precinct, with the new Cornubia node in the foreground. Image: Supplied

The anticipated announcement of one new development has already been put on hold as sugar and property group Tongaat Hulett continues to struggle.

Concerns have been raised that the restructuring and associated job cuts at struggling sugar and property group Tongaat Hulett could stall developments north of Durban and along the burgeoning KwaZulu-Natal North Coast.

Tongaat Hulett is one of the biggest single landowners in the province, with large tracts of land from Umhlanga to the area surrounding King Shaka International Airport and Dube Trade Port, and further up the North Coast as far as Tinley Manor.

Since 1990, its conversion of agricultural land into commercial and residential property projects has seen the company and its affiliates facilitate investments of more than R70 billion in the region. Its major ‘master-planned’ property development projects include the Zimbali Resort, La Lucia Ridge, the Umhlanga Ridge New Town Centre surrounding the expansive Gateway Theatre of Shopping, the Ridgeside precinct in Umhlanga, and, more recently, the Sibaya and Cornubia development precincts.

Several property groups and business organisations contacted by Moneyweb have conceded that the woes at Tongaat Hulett will negatively impact development in the region, considering that the group is a major driver of several property projects.

Already, one of the group’s biggest announcements – related to a new Club Med Resort near the town of Tinley Manor – has been put on hold. Moneyweb understands that an announcement was meant to have been made in March. KZN provincial government authorities confirmed during Africa’s Travel Indaba in May that Tongaat Hulett had signed a memorandum of understanding with Club Med, although the name of the developer/investor was not revealed.

“Clearly problems at Tongaat Hulett group and the restructuring underway has had a significant impact on its development division, as the group looks to cut its debt and costs,” says Neil Gopal, CEO of the South African Property Owners Association (Sapoa).

“It’s the last thing the eThekwini Municipality needs as Tongaat Hulett is a big player in Durban and on the KZN North Coast. The Tongaat Hulett Developments division has been driving many of the developments north of Durban.”

Tongaat Hulett’s burgeoning Ridgeside development node in Umhlanga.
Image: Supplied

He says Tongaat Hulett’s woes and the general negative sentiments in SA’s commercial property sector have been exacerbated by poor economic growth, uncertainty around land expropriation without compensation, the so-called “construction mafia” halting property projects in the province, as well as inefficiencies and higher rates at municipal level.

“The multi-layered problems facing the country, including issues at Eskom and even load-shedding earlier this year, have all contributed to the weak state of the commercial property market,” says Gopal.

Glen Robbins, a KZN-based urban and regional planning economist, says Tongaat Hulett has been struggling to sell land in the last year on the back of SA’s weak economy and policy uncertainty.

“Tongaat Hulett’s model of master-planning and packaging land for development worked for a long time and saw them become a major driver of development north of Durban. Things have become more complex for them in recent years. The situation the group finds itself in is not good and will have a negative impact on KZN, for both the property and the sugar industry.”

He adds: “Without doubt, property groups dealing with Tongaat Hulett will wait for the dust to settle before signing deals or embarking on new developments. I doubt there will be developer appetite for newer projects such as their Shongweni development between Durban and Pietermaritzburg. You may also see slowing demand for projects around Sibaya and Cornubia, north of Durban.”

‘Flash sales’ of land a possibility

Robbins also raised concerns that as part of its restructuring Tongaat Hulett may undertake “flash sales” of large tracts of land to cover some of its debt. Most property companies speaking to Moneyweb on condition of anonymity raised similar concerns, including Tongaat Hulett’s capacity to deliver on its infrastructure commitments for its development precincts and the possibility of it exiting property development altogether.

However, Moses Tembe, who chairs local business body the KZN Growth Coalition, tells Moneyweb the coalition has received assurances from Tongaat Hulett that it will deliver on its infrastructure commitments for current projects.

“We are all concerned about developments within the group that have led to it suspending the trading of its shares on the JSE,” says Tembe. “It will have an impact on new developments, but we have been assured that budget commitments made to current projects like the Sibaya precinct will continue and  that land sales already made won’t be reversed. Important developments like the new private university at Sibaya and the resort at Tinley Manor will go ahead.”

Cobus Oelofse, CEO of the iLembe Chamber of Commerce, Industry and Tourism, says: “Tongaat Hulett is a significant economic contributor to the iLembe district which includes coastal towns like Ballito and Tinley Manor. Turmoil in the group will negatively impact the region’s economy.”

He adds: “While the company’s woes are a setback for the region, we believe there is sufficient momentum in the real estate sector on the North Coast. There are other significant players now, such as Collins Residential, IFA Hotels & Resorts, which is driving Zimbali Lakes, and Royal Shaka Property Group, among other private property developers.”

Tongaat Hulett’s share price has plummeted more than 75% since the beginning of the year and stood at R13.21 when it suspended trading on the JSE on June 10. This came in the wake of the group’s SENS announcement on May 31 that it would have to restate its equity by between R3.5 billion and R4.5 billion.

Its Developments division has come under scrutiny as the company continues with its group-wide “strategic and financial review”, which has seen it institute a forensic investigation into its operations and financials.

The company said it would respond to Moneyweb’s queries this week.

Brought to you by Moneyweb

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