Land expropriation update

Private Property South Africa
Kerry Dimmer

Homeowner concerns around land expropriation and what this could mean for you.

On Wednesday (27 November 2019), the long-awaited draft bill to amend Section 25 (S25) of the Constitution, relative to land reform, will be presented to members of parliament for deliberation. This has created, in the weeks preceding, some fear-mongering on social media platforms, heralding the dawn of Zimbabwe-like land seizures, suggestive that there remains some misunderstanding behind the Amendment.

We reached out to National Practice Head and Director of Real Estate, at legal firm Cliffe Dekker Hofmeyr Inc, John Webber, for clarification.

Background

S25 (which enshrines the constitutional right to property) forms part of the Bill of Rights, which is itself part of the Constitution. The Constitution is the supreme law of the Republic of South Africa and has the greatest impact on the basic and fundamental rights to which all citizens are entitled. It is this Constitution which is the source of the Constitutional Court’s rulings.

A change to any part of the Bill of Rights requires at least a two-thirds (67 percent) majority vote of the National Assembly, and the endorsement of at least six provinces’ to such amendment. Since the Constitution was passed in 1996, there have been approximately 17 amendments to the Constitution, however the Bill of Rights has yet to be amended, making this forthcoming amendment rather significant.

In essence, S25 relates to the nation’s commitment to land reform and expropriation, the latter being the ‘action of a state of taking property from an owner for public use or benefit’. Last year, the Constitutional Review Committee, driven by a proposition from the Economic Freedom Front (EFF) to include expropriation without compensation, determined that the Constitution should include expropriation without compensation. Following this an Ad Hoc Committee was appointed and tasked with drafting the legislation required to give effect to this determination, which is what is being presented on Wednesday.

Current wording of S25 and proposals to change the wording of S25

Currently S25 states that where compensation is payable for the expropriation of land by the State, the amount payable should be ‘just and equitable’. S25 further states that ‘the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interest of those affected.’

Two different proposals have been made to amend S25. The first proposal is the adding of a proviso to the effect that only ‘a court may determine that no compensation is payable in the event of expropriation of land for purposes of land reform’ .

The second proposal is that ‘land may be expropriated without the payment of any compensation as a legitimate option for land reform in order to redress the results of past racial discrimination.’

The difference between these proposals is that the latter does not require the courts to decide on the value of compensation, meaning that various government departments and authorities could zero-value any land expropriated for land reform purposes. It is this difference that has conjured up the dreadful images of Zimbabwe’s land seizures, which in John Webber’s view, is exaggerated.

“The fact is that our Constitution already allows for a number of factors to be considered in determining value. This amendment does not put us on the same road as that of Zimbabwe, but how people see the amendment and react to is what changes sentiment.

“The EFF’s proposition was to have the amendment structured along the same lines as the Mineral and Petroleum Resources Development Act and what that Act did namely, was to make the land a resource for the country, with the government acting as custodian of that resource. This is not expropriation in the true sense of the word but is rather deprivation. In this sense it would mean that absolutely everyone would be deprived of their ownership and would have to apply for a right to occupy the land they previously owned,” says Webber.

“Seen in this light, it does not address the objective of expropriation without compensation, which is land reform and redistribution to rectify past racial discrimination. You can’t just take land ad lib, it has to be redistributed and such expropriation and redistribution must have a public purpose.”

The Ad Hoc Committee therefore has to carefully consider the wording of the amendment to avoid any ambiguity. Webber says the most sensible wording would include the courts being specifically mandated to make decisions as to how the value of a property has been determined and to justify that value, even if that value is zero. “This is the most sensible approach as it forces authorities to apply themselves in a rational manner and give recourse to the property owner via the court system.”

Appropriate land use determinations include, amongst other factors, how the land was originally acquired and the manner in which such land is currently used.

“The target of land reform in the past has been to expropriate large tracks of undeveloped, under-utilised land and develop such land for new housing developments. I anticipate that this will remain unchanged with the amendment. It may however, include the expropriation of agricultural land that will be redistributed to communities, but I emphasise that such land has to be appropriately valued by a court, assuming that the Ad Hoc Committee has chosen this route,” says Webber.

Private properties

The question on everyone’s lips is whether or not this amendment will have any impact on the owners of private properties. Webber thinks that this is exceptionally unlikely. “If it were to be applied it would have enormous unsettling effects on the whole economy.”

It is important to bear in mind that while the banks are subject to the rule of law, any compensation received by a property owner will first be applied towards settling the outstanding bond in respect of such property. If no compensation was received, the banks would also receive nothing.

“A carte blanche expropriation without compensation system would affect the banks’ propensity to lend money in the future, make tenure uncertain and raise interest rates. Should this happen the banks would grind to a halt,” Webber says. “Market values would decrease, rates and taxes would similarly go down. These are just some of the many knock-on effects which would occur and which would be disastrous for the economy.”

Home owners’ protection

Webber does believe there may be isolated cases of homes being expropriated; the building of a public road or a housing development, as examples. “There has to be a public need for the expropriation, and the expropriation is restricted by what that future use or need is. That part of S25 is not being amended, it is only the issue of compensation which is under scrutiny. Private home owners are protected by S25 in that they reside in their home and it is for private use. It is not a public purpose or in the public interest to expropriate one’s home in order to give to someone else, leaving the original owner homeless.

“The government would achieve nothing by that musical chair arrangement.”

Public participation

Once the amendment has been presented on Wednesday, it will be deliberated by members of Parliament, likely on 10 December 2019. Thereafter the bill will be published in the Government Gazette, after which the public will be able to comment on the bill until about the end of January next year. Such commentary, inclusive of civil society organisations that wish to challenge the amendment, must be considered by Parliament before the bill can be passed by a full Parliament.

Property agent comment

Some of the property groups we approached were not prepared to comment ahead of the announcement, bar Herschel Jawitz CEO of Jawitz Properties.

“It seems clear that the government does not need an amendment to the Constitution to expropriate land and that this change to the Constitution is not going to fix land reform. Land reform is going to be fixed by government implementing a sustainable solution that involves public and private partnerships. This would be critical in areas like agricultural land and in urban development where private developers can be co-opted into building affordable housing together with government subsidies and finance available to buyers.

“The uncertainty as to how the process will be implemented, if at all, is the real cause of the uncertainty as opposed to the amendment itself and markets and investors never like uncertainty,” said Jawitz.

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