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South Africa Property Market Slows

Sep 5, 2018 1:56:54 PM

Taking Land With No Compensation

South Africa Property Market Slows

African National Congress’ decision to move forward with Expropriation of land without compensation brings about significant problems.

By Peter Gilmour, chief foreign correspondent

It’s been 24 years since the Apartheid government in South Africa fell and was replaced by the African National Congress under the leadership of Nelson Mandela. One of the primary responsibilities of the ANC government was to reduce poverty, create employment and effect far greater economic equality than existed in 1994. Today, 36 percent of the population still live in relative poverty which is morally debilitating and threatens political and economic stability in the constitutional democracy. It was accepted that there would be no immediate solutions, but the ANC is increasingly being held accountable for doing little to alleviate poverty.

Taking Land With No Compensation

The ANC recently held a conference on the future of land in the country, and one of the major decisions was that “the government must immediately use section 25, the so-called ‘property clause’ of the constitution to implement the policy of expropriation of land without compensation.” The two aspects of this are: one is coercion and the second is loss.

In most countries, land may be appropriated from time to time for purposes of common good when it is deemed to be more important than the individual good. The term without compensation, however, suggests vindictiveness that has no place in a constitutional democracy. In many developed countries, there is the concept of willing buyer, willing seller, but this is absent from clause 25 of the constitution. This could result in circumstances in which the court could determine that it is appropriate not to pay compensation for land.

Threat or Harnessing Economic Potential?

President Cyril Ramaphosa recently said that the government’s land reform plans should not be regarded as a threat but as a way to harness the country’s economic potential and to heal the deep divisions created by the previous administration. He has promised to redistribute land to the black majority to address the racial inequality that persists after two decades since apartheid ended.

Some say that these policies may be electioneering ahead of a crucial election campaign in 2019, but the reality is that, if carried through, it could erode property rights and severely deter foreign and local investment in real estate. The President has also said that he does not want this process to be a threat to South Africa’s financial institutions which currently have billions of dollars invested in residential, commercial and agricultural property.

Markets Are Stalled

Lack of clarity on the expropriation policy is causing the economy and real estate market to stall unnecessarily. The FNB property barometer shows a significant reduction in residential real estate sales in all markets. Buyers are not committing to contracts, and serious sellers are being advised to reduce prices to meet reduced demand. This is in addition to a traditionally slower winter market and the severe drought conditions being experienced at present. Real estate markets do not enjoy uncertainty, and the new ANC policies may result in a significantly slower market for the rest of 2018 and beyond.

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