Business and civil society groups have raised major concerns around the government’s plan to allow for property expropriation without compensation (EWC).
These issues were presented in submissions to parliament’s Ad Hoc Committee to Initiate and Introduce Legislation amending Section 25 of Constitution on Tuesday (23 March).
While some groups – including trade federation Cosatu – showed broad support for the bill, much of the commentary from the business sector highlighted the permanent damage that EWC could cause to the economy.
Agricultural group Agri SA warned that changing section 25 could have such a detrimental impact on production and food security that it is not viable or sustainable.
The group said that its members are heavily invested in land, and given the fact that farmers utilise land for their livelihood and regard it as their home, expropriation will always be an ‘unpleasant and disruptive process’.
It added that many of its members are concerned about the possibility of EWC which may lead to the financial ruin of farmers and those who depend on them.
The group also cited a potential issue with EWC and the way that the Land Bank provides funding.
Agri SA said that the Land Bank’s terms of borrowing include unencumbered property rights at market values – this means that the international lenders they account to will call up this exposure where property rights are affected, and market values compromised.
This presents a potential R52 billion problem for the South African government, it said.
Business group Sakeliga said that it rejects EWC in its entirety, citing issues with constitutionalism and the confiscation of private property.
The group said that formally changing the Constitution to allow for EWC was only one part of the process, and that another essential requirement is that amendments must be in accordance with the deeper principles of constitutionalism itself, such as respect for private property as a cornerstone of civil society.
“The current bill is an attempt to insert into the Constitution a provision that is at odds with the principles of constitutionalism itself.
“Should confiscational powers for the state, as contemplated, be inserted into the Constitution it will render the document unconstitutional and illegitimate in so far as and so long as that amendment taints it.”
The group also took issue with the fact that compensation would not be offered to property owners.
“For a taking of property to constitute expropriation, it is essential that an owner have access to the remedy of compensation,” it said. “Absent the remedy of compensation, takings of property are not expropriations, but rather penalties or forfeitures, and therefore in fact really confiscations.”
Sakeliga said that these issues extend to international investors, and that consultation with international property owners, as required by the South African Constitution, have been insufficient.
Free Market Foundation
The Free Market Foundation said that the bill will resurrect one of apartheid’s ‘most obnoxious rules’ – the freedom for draconian officials to seize land of the poor with neither due process nor compensation.
The group said that the bill cannot be passed as it has failed to meet the requirements of effective public participation and the undertaking of a Socio-Economic Impact Assessment (SEIA).
“The department received 90,000 submissions, which it has clearly not considered given the sheer volume of work, time and the resources at its disposal,” it said.
“The committee does not know who wanted to appear, and therefore is unable to make informed decisions.
“More seriously, there has been no special effort to inform the public in general fully about the Bill’s draconian provisions, let alone its extreme implications for the poor.”
The Free Market Foundation said that the absence of an obligatory SEIA will also impact the poor.
“The bill proposes seizing thousands of properties with as little as ‘nil’ compensation and without due process,” it said.
“Because the poor, who will lose many more properties, will lose their most valuable asset on the mere service of a notice, they will be defenceless. The rich have the wealth with which to go to court.”
South African Property Owners Association & the South African REIT Association
In a joint submission, the South African Property Owners Association and the South African REIT Association raised a number of issues with EWC, saying it would be ‘disastrous for the economy’.
One of the key issues relates to local municipalities which are currently collectively owed almost R170 billion for rates and services.
“The threat of EWC will further deter investors from investing in these jurisdictions, thereby compounding the dire financial situation many of our local authorities find themselves in,” it said.
“Fewer investors mean fewer property developments. For existing investors, a bulk of who are SAPOA and SAREIT members, the pain is even greater as lower growth translates to a smaller pool of rates to be collected, thereby restricting the ability of local authorities to provide the much-needed services and infrastructure to its citizens.”
The group noted that more than 90% of the investments in the Special Economic Zones came from foreign countries.
“These are largely situated in the jurisdiction of local authorities. One could argue that the investments in Coega, in East London, Saldanha, took place on state-owned land.
“However, these investors want security of tenure, and would be hesitant to invest if the threat of expropriation without compensation is at their doorstep,” it said.
Other issues raised by the group include:
- EWC will result in a further contraction of the economy, leading to further job losses;
- Amending property rights will impact on property offered as security for credit extended which will have the impact of pushing up the cost of capital;
- Likely declines in property prices (collateral) will increase the cost of borrowing and constrain bank lending, while increasing systemic risk in the entire financial sector, including the risk of deposit withdrawals and pressure on commercial banks’ balance sheets;
- Any constitutional amendment which gives the government the right to seize a property without fair and reasonable compensation immediately will put the entire system of mortgage lending at risk;
- The criteria for granting loans would become more onerous with the consequence that less affluent borrowers may no longer be able to fund property purchases.