Government’s move to restrict land ownership by foreign nationals is set to impact the economy, as South Africa’s regulatory environment is already viewed as hostile towards foreign investors.
Foreign nationals will be restricted to leaseholds of 30 to 50 years and will not be allowed to buy land. Commentators doubt the viability of this option.
In the statement released by the Presidency on February 14, foreign nationals are defined as “non-citizens as well as juristic persons whose dominant share holder or controller is a foreign controlled enterprise, entity or interest. Hence not all immigrants to South Africa will be excluded from land ownership.”
In another twist, South Africa will now look to put a ceiling on land ownership for locals too.
The Regulation of Land Holdings Bill will put a maximum 12 000 hectare ceiling on ownerships by locals. “If any single individual owns above that limit, the government would buy the excess land and redistribute it,” the Presidency says.
However the Presidency adds: “It is recognised that this cannot apply retrospectively without constitutional infringements and as such those who have already acquired freehold would not have their tenure changed by the passing of the proposed law.”
The Bill will be sent to Cabinet for approval, then undergo a public consultation process before being constitutionality tested in Parliament and then sent to the President for assent.
It is said that the Bill contradicts section 25 in the Bill of Rights which mentions the right to property. “No law may permit arbitrary deprivation of property,” says Chief executive of the South African Property Owners Association Neil Gopal.
Head of special research at the South African Institute of Race Relations Anthea Jeffery explains that the country’s Constitution protects the property rights of all citizens.
“Among these are the many black Africans who have bought some 2 million hectares of farm land since 1991 or the 7.6 million black Africans who now own their own homes,” Jeffery says.
Once the Bill has been passed and is operational, a process will be established for the compulsory disclosure of land holdings by foreign nationals. “These disclosures will be in terms of race, nationality, gender, extent of land owned and its use. The process will be managed through a Land Commission,” states the Presidency.
Government’s hardened stance on property rights for foreign nationals is not new, but the latest talk sheds light on a topic often branded as ‘political talk’.
There have been widespread concerns over the lack of policy certainty from government, which adds further jitters to the investment community.
The latest move by government is seen as a broad attack towards investors. Efficient Group director and chief economist Dawie Roodt supports this view, adding that many European investors are concerned about property rights in South Africa.
“Private property rights are just the beginning of something much more important. What we are seeing is not an attack on property rights, but an attack on individual rights,” he says.
“Every time this issue rears its head, it further serves to erode confidence in the country as an investment destination – mainly as a consequence of issues of uncertainty,” says Pam Golding Property Group chief executive Dr Andrew Golding.
“Potential investors who may be weighing up South Africa versus a number of other destinations will potentially simply choose to invest elsewhere.”
Impact on residential and commercial sector
Some foreign nationals are investors who participate in the residential property market. Figures from analytics company Lightstone indicate that foreign purchases comprise 3% of South Africa’s residential sector.
Chairman of Seeff Property Services Samuel Seeff says the proposed Bill has little impact on the residential market, but has broad ramifications for South Africa being open to foreign investment.
“It [the Bill] might have an initial impact and the market will return to the norm. I don’t see this impacting on the property market itself,” he adds.
Gopal says foreign investment also benefits the commercial property industry. The industry falls prey to negative knock-on-effects with the Bill.
“I do not believe that the Deeds Registry is in any position to provide reliable or accurate information on the actual extent of foreign land ownership in South Africa. Until we know this, one cannot implement policy changes,” says Gopal.
Government has other legislations which impact property rights, including the amendments to Expropriation Bill of 1975 and the introduction of the Property Valuation Bill of 2014. All bills have been signed into law. Read about the bills here and here.