Why EWC remains a concern

Why EWC remains a concern

Category Property News

In his 2020 State of the Nation Address (SONA) the President said that government is ready to table the Expropriation Amendment Bill that will legalize expropriation without compensation (EWC). Many concerns remain - a key one is if banks will hold expropriated owners responsible for settling the outstanding mortgage debt.

Like last year, this year's SONA was delivered to a nation anxious for indications that government has a workable plan to ignite economic growth, fix the tax draining SOE's and in so doing restore investor confidence in the country. Property leaders say President Cyril Ramaphosa did touch on most of the important issues, but perhaps not in enough detail to allay investor uncertainty about the country's investment potential? The disruptive start to this year's SONA proceedings certainly didn't contribute to instilling investor confidence.

One of the key issues that the President did mention was the need for land reform and the government's readiness to commence with expropriation without compensation as a means to address this matter - but he did so without much further elaboration.

Investor fears about EWC not allayed

A few weeks before SONA the ANC's National Executive Committee added to the property sector's discomfort about EWC by announcing that their lekgotla endorsed the recommendation that the power to decide on the amount of compensation for expropriated property should reside with their executive. Up to now the proposed amendment to the Constitution left this decision with the courts.

Yael Geffen, CEO Lew Geffen Sotheby's International Realty, says the ANC's announcement defies both logic and sense in the light of the country's economic plight amid rolling blackouts as the national energy supplier battles to keep the lights on.

"We're effectively hanging out the 'closed for business' sign at precisely the moment when we most need the government to be stepping up to the plate," she says.

Specialist property attorney David Dewar agrees that the ANC's lekgotla announcement is both worrying and - in his view - unconstitutional.

"The courts can simply not be excluded from this. The decision also has the effect of violating international treaties that the ANC signed on behalf of South Africa, protecting property rights. The decisions taken at the lekgotla will hurt our reputation internationally.

"There are a number of fairly complicated legal arguments to be made as to the constitutionality of removing judicial access from the land issue, but The Constitutional Court probably sets it out best on its website, www.concourt.org.za."

In his State of the Nation Address President Ramaphosa said that the government is ready to table the Expropriation Bill but didn't elaborate on the form that it will take.

Herschel Jawitz, CEO of Jawitz Properties, welcomed the news about the finalisation of section 25 of the Constitution (the section that outlines the circumstances under which expropriation of land without compensation would be permissible), but adds that it is, however, the uncertainty around the amendment which is causing the damage and not necessarily the bill itself.

Geffen says the president's speech failed to allay investor concerns about the future of private land ownership. She says the government sits on nearly 2 million hectares that could be used for redistribution before touching privately-owned property, especially in the current economic climate with the country facing junk status.

"The president admitted in his speech that so far only 44 000 ha of state land has been released; a veritable trickle in the greater scheme of things. But very ambitiously we're being told a whopping 700 000 ha will be released in the coming year, which will be an administrative impossibility."

Joff van Reenen, lead auctioneer and Director of High Street Auctions, says last year the president vowed that land would be released from the property portfolio of the Department of Public Works to address the issue of human settlements. The president said this portfolio includes more than 93 000 buildings and more than 1.9 million hectares of land.

"The government is by far the largest land owner in South Africa and has for decades had within its power the ability to address much of the human settlement issues in South Africa, yet seems determined to press ahead with its plan to effectively invalidate one of the three pillars of constitutional access which has been guaranteed to all citizens.

"Much of our company's clientele resides abroad and we're already fielding uncomfortable questions on this issue that we are unable to answer in any satisfactory manner. The ANC's decision to pursue this course of action defies logic when it's prevailing message to the electorate is that we're committed to attracting international investment into the country," ends Van Reenen.

Land policy experts have also made the point that amending the Constitution to allow for EWC is not necessarily the most effective way to bring about much-needed land reform. Former president Kgalema Motlanthe has repeatedly stated that the blame for the dismal failure with land reform up to now in large part must be placed at the door of the ANC-led government due to a lack of political will to make it happen.

Read: 'EWC won't happen in 100 years' says former President

Who will be responsible for outstanding mortgage payments?

One of the key concerns about EWC is whether the banks and lending institutions will hold landowners responsible for the outstanding mortgage on expropriated property. The usual rule is that the expropriated owner remains liable for the outstanding mortgage payments. However, this may be difficult for the owner if his property was expropriated with little or no compensation.

Up to now the banks and lending institutions have been mostly non-committal in their comment on this matter. The media and the South African Institute of Race Relations (IRR) have been pushing the former for a direct answer to the question on what they will do if owners won't continue with mortgage payments to settle the outstanding debt on an expropriated property.

SA Homeloans on Twitter stated the following:

'In the event of expropriation, the bond payments would still remain owing to the mortgage lender. However, we understand that the rights of all parties will be considered in any expropriation processes and have no reason to believe that residential properties will be affected.'

SA Homeloans did not respond to requests for further comment on their Twitter statement from Property Professional. ABSA didn't respond either when asked how they would handle outstanding mortgage debt on expropriated property. FNB issued a non-committal statement saying "the bank is actively participating in the ongoing constitutional review process through the Banking Association of South Africa (BASA) as part of the broader industry".

The statement continued that the "South African government has assured the country that the implementation of land reform will consider the impact on the economy, property rights, job and food security". Therefore, FNB says they remain optimistic that the process will be managed in a responsible manner. "The Bank will communicate to its customers on matters which may impact contractual obligations during this ongoing process," the statement ends.

Also read: Banks caught amid EWC disaster

Government is clearly intent on making EWC happen, but it is equally clear that there are important matters that the legislators have to think through carefully before finally signing off the Expropriation Amendment Bill. South Africa is in no position to send out a message to property buyers and investors that the right to private property ownership will not be respected in this country.

Parliament extended the deadline for written comment on the Draft Constitution Eighteenth Amendment Bill relating to land expropriation without compensation. The new deadline for submissions is 29 February 2020. Comments may be addressed to: The Director-General, Department of Public Works, Private Bag X65, PRETORIA 0001 or hand deliver to: Central Government Offices (CGO), Building 256, Madiba street, Pretoria 0002.

Author: Lew Geffen Sotheby's International Realty