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Will you still have to pay your bond if your land gets taken away?

Pierre Venter from Basa discusses possible ‘untoward consequences’ for borrowers, lenders and the overall economy.

NOMPU SIZIBA: There is much confusion about what will happen in the event that expropriation of land without compensation happens on a bonded property or land. According to the Draft Expropriation Bill of 2019, it says that the mortgage bond will automatically be terminated on the date of expropriation – that is, when ownership passes to the state. But one lender, SA Home Loans, recently took to social media to say that in the event of expropriation without compensation of land or property which has a bond over it, the client would still be liable to pay up what’s due to the lender. So where does this really leave financial service players?

To get a sense of how the financial sector is tackling this still-unknown outcome, I’m joined on the line by Pierre Venter, the general manager at the Banking Association of South Africa. Thanks very much for joining us, Pierre. If the Expropriation Bill 2019 is passed into law as it currently stands, how anxious is the banking sector about what this will mean for bonded property that’s subject to expropriation without compensation?

PIERRE VENTER: Good evening, and good evening to the listeners. We are concerned. We are concerned. We try and safeguard our depositors and borrowers as much as we possibly can. I think, to give context to the position, a bond is a real right. It’s a registered real right and, even if compensation is below the outstanding balance, that person would still be responsible for the repayment of the residue debt.

Having said that, though, we are in an invidious position. I think on the one hand we have a responsibility to safeguard our depositors, and on the other side it does represent an undue burden on borrowers.

NOMPU SIZIBA: Are you in agreement, Pierre, with the sentiment that was expressed by South African Home Loans, which basically indicated that in the event of expropriation of land without compensation the client would still be liable to pay the outstanding bond?

PIERRE VENTER: Yes, they would. Having said that, though, I think the matter is far from being completed. Back in 2011 we engaged with the Department of Rural Development on this matter because we reckoned and they recognised that this would result in an undue burden on the property owners. And for that reason they put a policy framework in front of cabinet, which was approved by them, where the state would guarantee the difference between the compensation that a property owner received and the outstanding balance.

Unfortunately that has never been carried through in any form of legislation, be it the valuer-general act [Property Valuation Act] or alternatively the various versions of the expropriation bill that we’ve seen. And for that reason what we’ve done is we’ve now re-approached the ad hoc committee again to ask it to reconsider on this matter.

What we’ve also called for is that an independent socioeconomic impact assessment to be done, because our president did promise us that that it would happen in an orderly fashion, which wouldn’t dilute property rights, which wouldn’t have an adverse impact on our economy, and which wouldn’t threaten food security.

So it’s all about how it gets implemented, and what angst it actually creates among property owners in the country.

NOMPU SIZIBA: Just give us the context, Pierre – when you look specifically at the agricultural sector or farm bonds, what sort of exposure do banks have to this sector?

PIERRE VENTER: We have an exposure of about R150 billion, which is reasonably small when compared with the residential and commercial markets, where our overall exposure is about R1.6 trillion. We don’t believe that land reform will be only restricted to rural areas. We have something like 1.2 million families that are living in informal settlements at the moment, so we urgently need a policy framework on how our cities are going to cope with the influx of families into these areas – and I think land reform has to be part of that. So we think it’s far broader than just rural areas.

NOMPU SIZIBA: Under the current Expropriation Act of 1975, what does the law say about what happens in the event that land or property is expropriated by the state without compensation on a bonded property?

PIERRE VENTER: If you look at the Expropriation Act of 1975, it requires the state to pay market value plus solatium, which is essentially pain and suffering that an expropriated landholder incurs because their property has been taken away from them.

NOMPU SIZIBA: Pierre, as parliament goes through the process of amending Section 25 of the Constitution, and there is a move from the old Expropriation Act to the new Expropriation Bill, apart from naturally lobbying policymakers, which is something that happens the world over, what is it that the banking sector is doing in the meantime to ensure that expropriation without compensation doesn’t result in losses for them?

PIERRE VENTER: We can’t [do anything]. I think if you look at existing debt, it will always be existing debt. So if the amount of compensation that you receive is below market value – you must remember from a lender perspective they base their lending to a client based on market value – it will translate into losses for lenders.

First of all, let me say that we do believe that it’s absolutely essential that we have a comprehensive land-reform programme in this country, and that we rectify the injustices of the past. Having said that, though, we need to protect property rights and the bank sits in an invidious position where they need to protect borrowers as well as depositors. And if it’s going to translate into losses, if severe enough, it could cause instability in the banking sector and in turn our entire economy.

NOMPU SIZIBA: Like you say – you used that fancy word – I’d say you are in a tricky situation in the sense that, if a situation does arise where a property or a piece of land is expropriated without compensation, and even if the law holds that it’s the bondholder’s responsibility to pay their dues, of course they won’t have an asset from which to get an income and ultimately pay you guys. So the law can be in there, but how practically will you be able to enforce your rights? That’s the question, isn’t it?

PIERRE VENTER: Absolutely. And that’s why we’ve called on the ad hoc committee to reconsider guaranteeing the difference between whatever that level of compensation is, even if it is nil compensation, and whatever the outstanding debt is.

We’ve also asked for an independent socioeconomic impact assessment to be undertaken, so that you have extensive research undertaken before we go down this path with untoward consequences for everybody.

NOMPU SIZIBA: That’s fair enough. And, just in terms of the government’s engagement or policymakers’ engagement with stakeholders like yourselves, do you think it has been sufficient?

PIERRE VENTER: We’ve always been given the opportunity to make submissions and do our presentations. So, for instance, the parliamentary review committee which preceded this ad hoc committee, which is now looking to change the Constitution, we were given an opportunity to make a submission. That submission is on our website, as is our current submission that we made to the ad hoc committee. We’ve also presented orally to them. But I think everybody looks at it and says that not a hang of a lot is going to change. If you look at our Constitution, its Section 25 has always had a formula which espouses just and equitable compensation, which could be a below-market value, and that value could be anywhere between zero and above-market value. That’s always been in our Constitution, and this latest change is really a suggestion to make explicit what is really implicit.

So, while your Constitutional Court judges have always – even recently retired Constitutional Court judges Sachs and Moseneke – have actually said that this section really allows for expropriation below market value, it is a transformative piece of legislation. It hasn’t really been used extensively by government on that basis. And what we don’t know is how widely and robustly this will take place. And our president has said, look, nothing is going to change. He’ll make sure it happens in an orderly way, which doesn’t have a negative impact on our economy, and/or food security.

So I think it’s all about implementation – and that’s the reason, if you look at the submission that we made, we asked for additionality to be put into our Constitution or into the legislation to take away any uncertainty that property holders may have.

NOMPU SIZIBA: Many thanks, Pierre for your time this evening.

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So our esteemed president gives the guarantee that it will be orderly and all of those nice words.
What happens if he gets booted out or the ANCancer gets voted out… what will the new plonkers make with this law that will then allow them to go crazy – no care about orderly.
THIS will create permanent uncertainty about property rights – no matter how you slice and dice it.

The outcome is clear to see : Its called Civil War .

CR opened pandoras box and the asset owning tax payers will pay the cost. Voters expect free electricity, water and now property too. We will be left with 95% of the population fighting over a few million houses and no one left to pay the bills anc at its best

People were ok with EWC when they thought Freddy van der Merwe on his 3 acre plot in the north will get EWC’ed. Seems people are waking up to reality – EWC’ed urban property will dwarf rural property. EWC is simply a land grab in the Zimbabwean style. Don’t believe the bromides you hear. EWC can be fast OR it can be orderly. EWC can’t orderly AND fast.

Rural land is often cheap. It’s cheap because a lot of it is located in areas that will require massive capital investment and development if you plan to farm the land there. If your only goal is to have a place to sleep under a tree and you’re happy to eat beans for the rest of your life then this path guarantees success. Most land grabbers would probably don’t want that kind of land. A property in Sandton close to shopping centres is probably more to their liking.

So. Expect EWC to happen hard in urban areas. There’s no cap on how many times property can be expropriated. If the first victim was EWC’ed then why should the second or third or nth victim receive compensation? (since they got if for free). But they voted ANC or EFF you say. Still won’t get compensation, my brother.

Only connected people will amass large property portfolios. The result is that one of the key pillars of a thriving economy will be destroyed utterly. Those people still left in South Africa will participate in what will become as known as “The Great Leap Backwards”. South Africans will become land workers, tilling the land and harvesting potatoes and beans in commune #32456. Politicians will become wealthy.

The draft bill is very clear: the bond will be terminated at the point of EWC. No wonder the banks are running scared, but expect the unbonded land owners to be the first victims.

Lalaland. To discuss this as if any person is actually going to keep paying a bond on a property that was taken from him.

People are going to run around killing people is the actual reality. It is full scale war. Private armies from elsewhere in africa will become active here. Other countries’ armies will become involved in return for promises of resources after the conflict.

No one will pay a bond after expropriation. It will probably also push a lot of people into bankruptcy where their liabilities exceed their assets with no chance of every recovering.

The first time that happens there will be a run on the rand and instant junk status. Not that the ANC ever cares about consequences.

No one will pay a bond after expropriation. It will probably also push a lot of people into bankruptcy where their liabilities exceed their assets with no chance of every recovering.

The first time that happens there will be a run on the rand and instant junk status. Not that the ANC ever cares about consequences.

The interviewee is walking on eggshells and doing a reasonable job. It’s why the need to protect borrowers and depositors gets mentioned so often and shareholders not at all; one could be forgiven for assuming the SA banking system is a mutual/stokvel system. Interesting that BASA is pursuing the guarantee by the State of any deficit. The primary beneficiary of such a guarantee is the bank shareholder.

Any lender who imagines that I, or any other sane person, will just meekly continue paying, is completely delusional. The minute the first property is stolen, the value of all property in SA as security becomes dodgy, if not zero.

This in turn means that the banks are instantly technically bankrupt, because their liabilities will instantly exceed their assets. A loan you issue against valueless security, which nobody wants to buy, becomes a liability. This in turn may very well lead to a run on the banks, because the bank has no way of repaying your deposit if its liabilities are an order of magnitude greater than its assets.

Fully agree. Unfortunately only a very small portion of property will be affected, but the effect will be that me and you will be sitting with a bonded house that does not have value anymore or substantially lower value than current market.
In that case we will be trapped in paying off a liability.

Totally unfair. Unless you are raving mad you will not carry on paying the bond if your property is taken from you. This article is full of careful language and does not make an effort to portray the anger that would be unleashed if the government tried to force people to pay outstanding bond amounts. Never mind stealing your home.

To my mind, totally unfair is quite true. It’s a bit like calling “a bloody shovel” a “spade”.
To add to the misery, you will probably find in the fine print, that your property got you the bond, but you signed a personal surety for the bond. So even if your asset goes, you remain personally responsible for the debt.

Let’s be very clear about this. This is no time for pussyfooting or smearing honey around anyone’s mouth. If you forcibly take homes that people have worked their lives for, earned, scrimped and saved for, and built up painstakingly, then the banks can fold and nobody will care. The country can burn or waste away, people will suffer, but nobody will care.

Lol. Keep on dreaming if they think people will keen on paying for land so stolen…

What logic is this???

Cant say.

Im not sure I like what the Bankers are proposing….

“…the state would guarantee the difference between the compensation that a property owner received and the outstanding balance.”

So you have to have a huge bond on a property to benefit…

If paid up, EWC, you leave with zero… But actually a huge loss as you already paid for that property… you have could have put that cash elsewhere, but if you have a bond then get EWC, you again leave with zero, but dont have the massive loss of what you paid into that property…

This all seems so trite and unjust, that anybody could even propose this as a rationale move is pure delinquency. If you want the LAND, then pay market value for it… why do you care if government pays compensation for something you are getting for free?… We are on the verge of destroying the primary capital formation mechanism in most economies… It will not end well

Especially as it is taxes paid by bond holders and others that was supposed to sort out the land situation. Instead the ANC steals the taxes, and is about to steal your land. What could possibly go wrong?

Yes, you still have to pay? It is the same as if they steel your car or cellphone ….you still have to pay monthly installments, right?

No, if your car or cellphone get stolen, you can report it as stolen and in theory if the culprit is found (hopefully), then you are entitled to get your stuff back.

That is nothing at all like having your property expropriated without compensation.

Actually NO : If yr car is Stolen (Steal not Steel) and you bought it on Credit , then the Lender (who would hold the Reg Papers) will have ensured that you had insurance : Thats their Security . So actually its the Insurance Coy,s that cough up for a Stolen car bought on Credit .

….and have the right to claim any shortfall from you in the event the policy payout is less than the outstanding loan, and more importantly, if the claim is rejected, say though a breach of a policy condition or warranty by the driver, then the “driver” will remain liable to the bank for the outstanding loan!

No need to worry, your home owners insurance will pay out for the loss of your house at least.

You idiot. thats why u have insurance to pay for stolen car.

The banks are completely deluded if they think people will continue to pay for bonds on property that has been confiscated from them.

The sooner the ANC gang limit EWC in some way or form and create some certainty of property rights ..the better. But I fear that this will not happen largely due to the threat posed to the gravy train by the EFF.

People need to stop denying the facts…land grabs are going to be legalised and that includes the mansion in Sandton or Glitz palace in Clifton.

The solution-flee this failing land if you can work/afford elsewhere.

Banks will go down with us! If you property is appropriated, stop paying!

Default and make them feel the pain! What are they going to take away – your property IS the collateral.

Default, default and default again!

If EWC is to have and legitimacy in the eyes of the African continent – forget internationally- SA government would need to accommodate the land restitution committee requests of Eswatini and Lesotho. Historical records show vast tracts of land, Mpumalanga Nothern KZN belonged to the Swazi’s and most of the Free state to the basotho.

I don’t think as property owners we have anything to worry about.
The banks are the ones that are going to lose.

I will easily be able to repay my bond with my our new 1 million rand coin, thanks to our new lekker inflation number.

There is a massive opportunity to cash in on EWC, you just have to get the timing right.

Bond your properties to the max and let the brain cell donors deal with the fallout……..We need a Trump!

What about people like me? 73 year old pensioner and I do not have a bond on this property. I sold my more expensive house and bought this place so I could live bond free. Now this works against me. This is a working class complex, small houses and many are retired. Some have been here 25 odd years. I will be darned if I just hand my home over. I would rather burn it to the ground.

We need the exact opposite of a Trump, we need someone that can reign in the budget deficit, not further explode it.

Should my property (a domestic residence) be expropriated, I would firstly max my bond. Place my key valuables in a container to be shipped out to where property rights are guaranteed. Secondly I would go out and hire a Zama-Zama – pay him to invest in an appropriate amount of explosives and visit my house and a few hours later, and we both leave with it razed to the ground and he has a handsome payment for his day’s work. The bank and the party can sort the rest out among themselves. It’s a cute fantasy, no?

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