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The muggy world of land expropriation uncertainty

Replace slogans with concrete plans and policies – only then can we really start talking, says Magda Wierzycka of Sygnia Asset Management.

RYK VAN NIEKERK:  Over the past few years Moneyweb and Brenthurst Wealth have presented the ‘SA Quo Vadis?’ series of seminars around the country. These seminars analyse the key challenges facing South Africa and the impact they will have on your money, investments and retirement planning. The series kicks off on June 18 in Pretoria this year. The core theme is Land Expropriation Without Compensation – Your Money, Your Business, Your Property.

Magda Wierzycka, CEO of Sygnia Asset Management, is now on the line. She is also one of the keynote speakers at the event. Magda, welcome to the show. Why will the policy of expropriation of land without compensation affect people financially?

MAGDA WIERZYCKA:  Well, you know it is very difficult at this point to say whether it actually, once implemented, will or won’t affect people financially. It certainly can benefit people, those who do get access to land. But it still remains to be seen whether anyone is actually financially hurt by the policy. I think that, from what we are seeing, Cyril Ramaphosa is trying to find creative ways of achieving land redistribution without necessarily having to resort to changing the Constitution. So I wouldn’t automatically assume that people are going to be prejudiced by the redistribution policy.

RYK VAN NIEKERK:  Political analyst Ralph Mathekga said yesterday that we need a solution to land reform, but we need an innovative solution and this proposed one, expropriation without compensation, is not an innovative solution. To the contrary, it is a very un-innovative solution, and we could actually do better. Do you think it’s only politics at play here, or is there merit in the argument for this policy?

MAGDA WIERZYCKA:  I think one needs to debate political slogan and policy, and at the moment we are still living in a world of slogans. This concept of land expropriation without compensation is something that obviously was the platform that the EFF was running on, and consequently that’s really what the ANC stole from them at the December conference, which is why I think you have seen the EFF become a lot more radical in their narrative – because literally the entire policy has been stolen from under them.

I think there are creative ways of achieving land redistribution without having to resort to confiscation of land, which is actually, when you talk about expropriation of land, what people are concerned about – that suddenly their land is confiscated. I think we are very, very far from that.

One obviously needs to look at creative ways of achieving greater equality as far as land ownership is concerned. But when you do get to the true debate around land redistribution, a lot of it is not concerned with redistribution of agricultural land. What people actually want is land in urban areas – and that’s to change. But how do you give people land close to or within urban areas? So local development in densely populated urban areas is one way. Land doesn’t necessarily need to mean a piece of land. It can be an apartment, it can be a house, provided that it is in the right location and given for the right reasons.

At the moment we are living in a bit of limbo in the sense that we’ve heard the slogans but we haven’t seen any real policies which support those slogans yet.

RYK VAN NIEKERK:  Land is sometimes seen as a conduit to wealth or a better life, and it is a very emotive issue. Again, that’s why a lot of foreign investors look to South Africa to say, listen, sort yourselves out, get a policy in place and then follow it. We don’t want to see the policy change every few years. And obviously that deters those investors from coming in and putting up the factories and the enterprises to create the jobs that would primarily be the way for inequality to be reduced.

MAGDA WIERZYCKA:  One hundred percent. I think our biggest problem right now and the biggest challenge is to come up with a very clear policy behind the slogans, because the slogan is scary. It’s scary for foreign investors and it’s scary for fixed investment in this country. I actually don’t think that in the practical application it will mean what people think or project it as meaning. Hence, really priority must be given to coming up with a very, very clear policy around what is actually meant by the redistribution of land.

My concern is that, if you look at the agendas that President Ramaphosa has in front of him, there are so many different areas that he needs to tackle – mining, corruption, municipalities, bankrupt state-owned enterprises – and this is just one of the issues that right now it isn’t being given the priority that it actually does deserve. And it deserves that priority because he needs clarity so that one can start talking about foreign investment again. Truly my concern is that it isn’t being given particular priority – it’s just being thrown around as a slogan.

RYK VAN NIEKERK:  So how do you think it will play out? Do you think we can see firm movement to actually address this in the near future, because it seems like the president has identified it as a priority?

MAGDA WIERZYCKA:  Well, he has identified it as a priority in terms of talking about it, not as coming up with concrete policy or policy framework around it. They need to come up with a clear policy framework – to overuse the word – by the time the next elections come around. So it is a political priority in terms of having some clarity on it before the next elections. But you know the next elections are in in 2019, so there’s still a little bit of time.

But really it is very difficult to see how it pans out. I think some of it will take the form of looking at vacant plots of land in urban areas and looking at converting those into residential areas and low-cost residential areas; so that’s one way. I think timely distribution of agricultural land to tenant farmers will happen, but it’s very difficult to see what else can happen on a grand scale.

Look, the government is still the largest land owner in South Africa, so there is a lot of land that can be allocated. But my concern is the type of land that is available is not the land that the people would want. They actually want land in urban and near-urban areas where they can live and work.

RYK VAN NIEKERK:  But many of the political arguments claim that this is aimed at productive agricultural land – and, as you say, that is not the case. So do you think this is also being exploited by other parties apart from the EFF and the ANC to drive a political agenda?

MAGDA WIERZYCKA:  Absolutely. Look, you always have to assume that when it comes from the mouth of any political party there is a political agenda behind it. And that political agenda is always clear, which is to get support and to get the votes. I think from a real demand perspective there is a much greater demand  – as I have heard from a variety of people who are, well, better positioned than I am to project what will happen – the real demand is for urban land, and not really for rural agricultural land. And I think that’s where the priority needs to be placed, because it’s also the quickest way of showing results, rather than agriculture.

RYK VAN NIEKERK:  So the main area of concern for investors should be policy uncertainty and the knock-on effects from that, and not land expropriation without compensation per se? It’s just the perpetual policy uncertainty environment.

MAGDA WIERZYCKA:  That’s exactly it, I think, the sooner we get policy certainty around certain areas, and this is one of them. The mining charter is another. This is where we need clarity and certainty because without that certainty you’ve got these kind of rating agencies, for example, floating around and commenting. And foreign investors have the attention span of [a gnat] when looking at emerging markets. We always like to think that an investor sitting in London or New York pays a huge amount of attention to South Africa as a particular emerging market. They don’t. They tend to kind of bundle emerging markets together and then they put out commentary which is then read by more long-term investors. And hence we really need to get rid of slogans which scare away investment. Replace those slogans with very concrete plans and policies and only then can we really start talking about attracting foreign investment in South Africa.

RYK VAN NIEKERK:  Thank you, Magda.

Brought to you by Brenthurst Wealth.

The Quo Vadis Series kicks off on June 18 in Pretoria at the CSIR Conference Centre, and then on June 19 in Johannesburg and on June 21 in Cape Town. Ticket prices range from R350 to R450, and tickets are available at Quicket.co.za. For more information search “Brenthurst”.

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I would add one thing. Since the movement of people to urban areas do not seem to slow down and the seemingly unstoppable population growth of around 1%, the land problem in urban areas will only get worse. I see no possible solution for this.

As I see it, the problem is that urban or peri-urban redistribution is unlikely to change the gross distribution of land seen from a racial perspective. Unless a clear means of doing this is achieved that is not arbitrary or unfair to the individual person or company, the matter will continue to be a ‘threat’ to investment for a long time to come.

It’s worth keeping in mind that in wealthier suburbs our progressive tax and rates systems already generate a small but not insignificant redistribution of property wealth. For example, a R8m house in an estate or higher-end suburb can generate R713,000 of transfer duties every time transferred. Taking a sale every 7 years on average (may be less – there seem to be figures from 5-10) that generates about R102K per year (or about 5.31 old state age pensions at current rates). Then for local taxes (rates) the delta etween that house and a average price SA house is about R46K per year (using Cape Town rates) of net subsidy over the average assigned to local service delivery. In total then, a NET of about R150K per year generated by an upmarket house over an average one without any economic activity of the owner being taken into account.

Should also have added that if the property concered was owend for 7 years and the price growth had been 6% then capital gains tax after the R1m abatement on sale would be about R302K total (if the owner is at the top marginal rate) – adding another R43K per year to what the property is generating in national taxes. So all in about R190K per year. Which means each house of that value is probably paying NET additoinal taxes that could pay the rent on two moderate properties.

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