How will land reform affect property investment?

In 2016 South Africa's parliament saw turmoil and chaos in the form of the ruling party trying to push out a working agenda for a proposed bill that would see specific sections of the property expropriated without compensation and allocated to previously disadvantaged groups.

This move sent chilling shockwaves throughout the investment sector, both foreign and domestic, and gave rise to a whole new concern amongst homeowners. Is the land I own truly secure?

Expropriation without compensation

Also known as EWC, the ANC government had outlined a bill which sought to change the constitution and allow for the party to start allocating property from already demarcated areas and begin the redistribution process via land reform. However, changing the constitution requires at least a ⅔ majority of parliamentary votes. Thanks to strong opposition led by a coalition of parties, no constitutional change could be achieved.

ANC's failure to amend the constitution

Despite losing ground in the constitutional battle, the ANC also has a myriad of problems facing its inability to inspire more voters to turn out for them. Since the year 1999 each and every subsequent election has seen support continue to drop. Without being able to secure support from opposition parties and with parliament moving towards a more coalition-based government, the ANC has now instituted a dramatic shift in their Land Reform policy.

Through a new directive, the ruling party has once again made EWC a hot topic by the establishment of the Land Reform and Agricultural Development Agency.  

Effect on the investment sector

One of the most formative debates on this topic continues to revolve around the nationalisation of South Africa's mining sector. A couple of months ago, the CEO of mining giant Anglo American, made the terms for discussion extremely clear and stated that if ownership of mining lands is not guaranteed then investors WILL flee.

"We must find sustainable and inclusive solutions," said Mark Cutifani, "South Africa's willingness to boost foreign investment on its soil can only be met if the government details its plan on land reform."

As the land reform debate surges on without a comprehensive framework, the constant uncertainty continues to limit the short-term investment capabilities within the country.

The ongoing debate

According to a statement made by Justice Minister, Ronald Ramola in December of last year, the ANC will not be deterred in their new policy proposal. "The matter is now ended. We will now use our simple majority to pass laws that will allow for expropriation without compensation."

However, resistance to this move has not gone unheard. Most opposition parties have warned that this new move by ANC will undermine property rights as well as investor confidence in the land. On the flip side, South Africa's extreme left-wing party the EFF stated that this proposal is nowhere near enough to address past injustices.

Regardless of how opposition parties may feel, the ANC believe that this new proposal is a good enough compromise to what was proposed in 2016. While some legal experts continue to say that land reform is legally permissible within the current framework, the ruling party believes that issues surrounding property distribution should remain more open and explicit.

Final thoughts

There remains no doubt that land reform in its current state is a threat to investment interests within the country. Not because of the stated outcomes, but due to the haphazard processes in which our government deploys their policy schemes. This can affect both the property owner and the beneficiary as in many cases they are left with little to no support after their land rights have been restored.

And while land reform may present mitigation through a list of merited spectrums available, it cannot be reduced to claims-driven and litigious processes. A well maintained and efficiently devised policy which seeks to benefit both parties through initiatives and support programmes may create an avenue for this contentious issue to be resolved equitably and fairly.

Read our previous article here: https://www.hamiltons.co.za/news/nfts-the-pros-the-cons-and-the-environmental-impact/

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