Investigation uncovers corruption in eThekwini housing development

THE Special Investigation Unit (SIU) investigation into the eThekwini Municipality's housing programme has uncovered serious irregularities and potential corruption involving the sale and purchase of 29 sites including community parks and sport grounds in Phoenix. 

The SIU was mandated to establish if the municipality had disposed of or alienated its immovable property through its Human Settlements Infill Housing Programmes (IHP) in a proper manner. 

In addition, it was tasked to establish if the transfer or sale of vacant properties by developers was in breach of the developers' contractual obligations and contrary to the objectives of the IHP; and to identify any unlawful or improper conduct by the municipality’s officials and employees, or any other person or entity. 

According to the 41-page explosive report, the investigation emanated from a complaint received during October 2019, from an anonymous whistle-blower to the SIU regarding maladministration in the affairs of the municipality in respect of the disposal or alienation of immovable property for the provision of housing through the municipality's IHP. 

Around the year 2000, the municipality took a policy decision to utilise various vacant  sites called “infill sites” for the purposes of facilitating housing development for the  affordable market population within the eThekwini operational area. 

The infill sites were previously vacant and comprised municipal-land dispersed in various parts of Phoenix. Ownership and title in the various infill sites belonged to the municipality. 

According to the report, the purpose of the disposal of municipal-land was intended for qualifying beneficiaries to pay towards housing bonds and obtain such financial assistance with the view of paying off the capital asset for acquisition of a house. 

In order to achieve this objective, the municipality appointed private developers to prepare vacant land for the construction of the houses and to build houses with a view of the municipality selling and transferring the houses to the intended beneficiaries of the development. 

“This IHP was planned as an affordable housing scheme intended for the middle and lower economic growth sector.”

According to the report, the resolution of the municipality was for each serviced site to be sold at R30 000, excluding VAT and to sell all bulk (un-serviced) residential sites at R100 000 per hectare excluding VAT. 

“The costs of development of the sites was to be borne by the developer and recovered in the selling price from the purchaser.”

According to the report, in September 2002, a tender advert inviting developers to express their interest in developing houses on 130 sites on an agency basis for the IHP was published in the Mercury newspaper. 

Findings

In its final investigation report released last week, the SIU found that the disposal of or alienation by the municipality did not comply with the provisions of the Constitution of the Republic of South Africa, Act 108 of 1996, the Municipal Finance Management Act 58 of 2003 (MFMA) and the municipality's Supply Chain Management (SCM) Policy. 

In addition, the SIU found that the appointment of developers, Lady Brick Block Property Developments trading as Woodglaze Trading (Pty) Ltd, Madupha Business Enterprise CC and Ready Homes CC was made in contravention of the SCM legislation and prescripts. 

The investigation further revealed that the allocation of sites to developers was contrary to the intended purpose of the IHP, thereby constituting irregular and unlawful conduct by the officials who failed to follow the municipality's SCM processes. 

“A corrupt relationship between the developers and the officials who received undue gratification in the form of financial benefit for their unlawful conduct,” it read. 

Appointment of Woodglaze Trading (Pty) Ltd

According to the report, the  “appointment” of Woodglaze Trading (Pty) Ltd was not in accordance with the requirements of Section 217 of the Constitution, in that, it was not transparent, equitable, fair and competitive. 

The investigation found that the Bid Evaluation Committee and Bid Adjudication Committee recommended that Woodglaze Trading (Pty) Ltd be appointed from the original list of tenderers, three years after the contract was awarded to the initial developers.

Appointment of Ready Homes CC and Madupha Business Enterprise CC

The investigation revealed that there was no SCM process or any documentary evidence substantiating the appointment of Ready Homes CC and Madupha Business Enterprise CC.

“The SIU established that  Sabamba (initial awarded developer) had withdrawn from the IHP. Madupha was a sub-contractor to Sabamba and Ready Homes was a sub-contractor to Cascades (initial awarded developer).

“Although the investigation could not establish with certainty the date on which the aforesaid developers were appointed to the IHP, it is evident that the appointment of Ready Homes, Madupha and Woodglaze was improper, irregular, unlawful and contrary to policies and procedures of the Municipality in terms of Section 2(2) (a) of the SCM Policy.”

According to the report, 29 sites in areas such as Rydavale, Stanmore, Brookdale, Stonebridge, Greenbury, and Clayfield in Phoenix, were sold to the three developers for IHP purposes. 

However, some of the sites which were sold by the municipality for as little as R21 000, were resold from R60 000 to over R34million, and developed for other purposes and/or to undeserving / unqualifying beneficiaries. This was contrary to the objectives of the IHP. 

Disciplinary referrals 

On June 7, 2022, the SIU submitted four disciplinary referrals to the municipality for financial misconduct against officials, the investigation found.

Among their charges included failure to comply with the Municipal Systems Act (MSA), MFMA, and SCM regulations and policy. 

In addition, the SIU submitted to the National Prosecuting Authority criminal referrals of corruption between the officials and developed in terms of the Prevention and Combating of Criminal Activities Act, as well as three matters for financial misconduct in 2022. 

Civil litigation 

The SIU in its reports, said it had finalised its internal processes to refer the matter for civil litigation in the Special Tribunal. 

“The SIU will seek to recover losses suffered by the municipality by instituting civil litigation.” 

Systemic recommendations 

In addition, the SIU said during the course of the investigation, it evaluated the system of internal controls and found that the municipality lacked controls in certain crucial aspects. 

It said that in 2017, the municipality took a resolution to stop developers from developing in Phoenix under the IHP. 

“The investigation confirmed that the said resolution was never implemented by the municipality. The municipality must ensure that council resolutions are implemented and adhered to in order to  ensure lawfulness and compliance with all legislation, principally section 151(2) of the Constitution of the Republic of South Africa, Act No. 108 of 1996.

The SIU said the municipality must also ensure contractual agreements between itself and developers are in place outlining duties, roles and responsibilities, and put in place a proper contract management system as required in terms of Section 116 of  the MFMA. 

Among its other recommendations, the SIU said the municipality’s Revenue Management Unit, including the rates department must maintain updated information of outstanding rates on properties. 

“Overdue rates must be recovered in terms of the applicable legislation, including the MSA, the eThekwini Municipality Credit Control and Debt Collection Policy and the Property  Rates Policy and the Municipal Property Rates Act 6 of 2004, among others. Oversight over implementation of the policy for non-payment of rates should be actively monitored.”

Right of reply

Gugu Sisilana, the eThekwini Municipality’s spokesperson, said they took the matters raised in the SIU report seriously and remained fully committed to cooperating with the investigation.

However, to safeguard the integrity of the process, the municipality does not engage in public discussions regarding SIU investigations or related internal disciplinary matters, she said.

“All communication pertaining to the investigation will be directed to the SIU team through the appropriate channels. Where applicable, disciplinary action will be taken in line with the municipality’s internal procedures.”

In a statement to the POST, Ready Homes CC, said: “It is with dismay that it has come to our attention that the SIU has published a report dated March 13, 2023(which is nearly two and a half years old), in which serious allegations have been made implying dishonesty and corruption on the part of various people including, in our instance, Ready Homes.”

They said that they denied being guilty of any wrongdoing. 

“The conclusions which the SIU came to more than two years ago are wrong insofar as they pertain to Ready Homes. We were not asked for our input or comment before that report was written, nor were we asked for any additional input two and half years later.

“It is of concern to us that this report was being presented as if it were an objective conclusion, perhaps even, analogous to the weighing of evidence presented by all parties as one would see happen in a court of law,” it read. 

They said they have been given an opportunity to respond to the allegations made against them.

“Our response is a detailed one and we believe that, certainly insofar as we are concerned, it addresses all issues pertaining to Ready Homes. The matter shall be heard and we have no doubt, then, it will become apparent to all what actually happened but until then, we believe it is appropriate to reserve any further comment.” 

Woodglaze Trading (Pty) Ltd said: “The matter is sub judice.”  They did not respond to requests for further information. 

Despite several attempts, Madupha Business Enterprise CC could not be reached for comment.

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