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.