Continued uncertainty around expropriation without compensation will impact land prices: SA banks

Land prices in South Africa have remained broadly stable despite some sharp declines in areas that were hit hardest by prolonged drought conditions.

This is according to the Banking Association of South Africa (BASA), which notes that there has, however, been a slowdown in the number of farm transactions and a decrease in capital investment into agricultural properties since the proposal to amend the constitution to explicitly allow for expropriation with compensation.

The farming community has adopted a ‘wait and see’ approach, the association said.

“Banks have taken note of the decline in land prices and will monitor the situation closely. As yet, the decline in land prices has not had any impact on the ability and appetite of banks to advance loans to the agricultural sector,” it said.

“Banks continue to view agriculture as an attractive sector for business. Lending by commercial banks to the sector increased by 10.32% in 2017, and 11.69% for the first six months of 2018. Unaudited figures indicate the ‘big four’ banks had exposure of R148 billion to the agricultural sector by the end of June 2018.”

Basa said that the collateral held by banks, supported by land values, is still deemed to be reasonable, and the lending criteria of commercial banks has not been impacted at all at this stage.

“For now we are confident the loans can be serviced,” it said.

However, it warned that prolonged uncertainty will significantly reduce property values.

“Farmers need to make capital investments into their properties and operations if they wish to remain globally competitive.”

“We urge the Constitutional Review Committee and the Office of the Presidency to expedite crisp and clear policy and legislative frameworks in respect of expropriation without compensation, as soon as possible.”

Read: It could take 200 years and R600 billion to process South Africa’s current land claims

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Continued uncertainty around expropriation without compensation will impact land prices: SA banks