The uncertainty and fear around land expropriation has already created pressure within the banking and property industry, says Cas Coovadia, managing director of the Banking Association SA (Basa).
Writing in an opinion column for BusinessDay, Coovadia said that a lack of clear and decisive political leadership has undermined assurances by President Cyril Ramaphosa that land expropriation will be done in such a way as not to harm economic growth and food security.
“The possibility of expropriation without compensation has already started discouraging essential investment by farmers and others into their properties,” he said.
“The likely outcomes of expropriating agricultural land for less than market value are severe, including increased food insecurity due to reduced investment in local agriculture.”
Coovadia added that expropriation without compensation could also reduce the capacity of banks to extend credit, which is often used by entrepreneurs for personal development and to improve living standards.
“If the value of land is reduced by expropriation without compensation or at below market value, banks will have fewer assets on their balance sheet with which to extend credit, and they will have to adopt more conservative loan policies,” he said.
While South Africa’s banks admit they are uncertain about the full consequences of land expropriation, initial legal opinions indicate that the borrower will still be fully liable for any debt incurred, irrespective of any expropriation of the underlying asset,
Basa has previously warned that reduced appetite from property buyers could destabilise the banking sector and may have a negative impact on the credit rating of the sector and the country.
The current exposure banks have in relation to land-based property is approximately R1.613 trillion in the form of mortgages.
Parliament has extended the comment period for South Africa’s proposed land expropriation bill until 29 February 2020.