Expropriation of land without compensation will destabilise the banking sector and potentially lead to private-sector lenders withdrawing from providing loans in which land-based property is offered as security, parliament was told on Wednesday.
The Banking Association SA (Basa), the industry body representing all registered banks in the country, warned that expropriation without compensation could spark an economic crisis, much like the 2007/2008 global recession that started from the downturn of land-based properties in the US.
Banks have about R1.6-trillion in property loans that include land‚ commercial property and home loans.
There is mounting fear that wholesale expropriation without compensation will discourage investment in SA, threaten food security, and negatively affect economic activity and job creation. This comes at a time when the country is battling low growth and high unemployment, exacerbated by Covid-19.
Moves to expropriate land without compensation could also force banks to adopt a more conservative approach to the extent of loans they would be prepared to provide and increase the borrowing interest rates to compensate for the additional risk in the event of expropriation, Basa said.
“Insecure property rights and policy uncertainty retard investment and economic development critical to tackling unemployment, poverty and inequality,” Basa MD Bongi Kunene said in a presentation to parliament’s ad hoc committee on amending section 25 of the constitution
The committee is tasked with exploring the issue and the possible amendment to what is known as the property clause. It is holding public hearings now before finalising the amendment by May.
But the decision to amend section 25 seems set in stone, with ANC and EFF MPs strongly backing the change to make clear that which is implicit regarding the expropriation of land without compensation, as a legitimate option to tackle skewed land ownership patterns dating back to the apartheid and colonial eras.
Basa said that while it supports land reform, it should be done in a manner that doesn’t rattle investors. It said, for instance, the courts should be the final arbiter should the government decide to expropriate property without paying compensation.
The ANC has previously proposed shifting the arbitration powers from the courts to the executive in terms of compensation to be paid. Mathole Motshekga, who leads the ad hoc committee, has said previously that if the courts determine compensation “it will take another 25 or 50 years to sort out land reform”.
In its submission to parliament, Basa said, internationally, the norm among both developed and developing countries is that full, adequate, fair or just compensation is paid to expropriated property owners.
“If the international community were to view the proposed changes to either section 25 of the constitution and/or aligned legislation (the Expropriation Act) as not being aligned to international norms, this would pose a potential threat to their investment within SA and future investments.”
Hearings continue on Thursday.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.