There is a quote by Chris Murray. Perception is reality. How someone perceives you is their reality. There are other quotes, too; Tom Cruise stated that perception is not reality. We in South Africa may argue amongst ourselves about the reality of Expropriation without compensation and how it will ultimately play out, but in the meantime we need to take cognisance not only of the perception of countries like the USA but also of our own citizens and most of all our Banks.
1. One of the cornerstones of the Constitution of the Republic of South Africa is the Bill of Rights; The rights contained therein form the cornerstone of South African democracy and, as such, they reaffirm the democratic values of human dignity, equality, and freedom. These values are promoted by the establishment and maintenance of a well-functioning economy. The basis upon which an economy is established is the concept of the private ownership of property. The protection of the right of private ownership of property has always been entrenched in Section 25 of the Constitution. In its current form, Section 25 of the Constitution provides that:- “25(1) No one may be deprived of property except in terms of a law of general application, and no law may permit arbitrary deprivation of property.”
The above arrangement has now been complicated since President Cyril Ramaphosa has signed into law the Expropriation Bill which repeals the pre-democratic Expropriation Act of 1975 and sets out how organs of State may expropriate land in the public interest for varied reasons.
This legislation has thrown the cat amongst the pigeons, to put it mildly. Even the USA has expressed concern.
2. The vital organs of private property ownership rely entirely on the availability of mortgage loans for individuals to acquire long-term bonds (20 years) over residential properties. Bonds are also commonly utilised in commercial property funds, which typically would gear their portfolio to the extent of 50% and sometimes even higher.
Mortgage lending, as the longest-term lending arrangement with customers, was impacted by increasingly negative risk perceptions resulting in more stringent credit assessments. Concerns around the realisation of collateral were more relevant than concerns around economic activity. Terms and conditions for mortgage lending were made more stringent with stricter credit scoring and loan-to-value ratios, and higher interest rate margins, especially on riskier loans.
Secured lending. The credit stance towards secured lending is significantly more stringent on the perception of increased risk. The creditworthiness of consumers is the main driver combined with negative perceptions relating to economic activity and growth.
3. Commercial property.
The vacancy rate relative to total space appears small although not insignificant for property owners. In light of the uncertainty following the Expropriation Bill, there may be some dark times ahead for further developments and existing valuations.
According to a publication the total value of commercial property in South Africa exceeds R1,9 Trillion (R1,900 000 000 000) A conservative indebtedness of 50% of this value indicates how vulnerable these lending institutions are to underlying values of the properties. Should either reality or perceptions drive these values down our entire banking system is at risk of total collapse. I state this not to induce fear-mongering but entirely as a reality as our banking and investment institutions rely on perceptions of risk and values. This is evident from the examples stated above as to how banking institutions make decisions. There have been a number of large-scale property implosions in the world over the last 20 years. The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis.
Several issues can now be considered. Developers of Social Housing would typically pay R4,000 per potentially convertible square meter for a vacant building mostly in inner cities. The law will now threaten such owners of a vacant building as they will not be able to sell the building as the developer would rather be appointed by the state to deliver a conversion after expropriation. There are numerous such buildings in South Africa. But it is not that easy. There was a case on SABC this week relating to a vacant building, the previously Johannesburg Fire Station, that was allowed to become uninhabitable (a story in its own right). The building abandoned by the municipality, was invaded by illegal tenants (some foreigners and some others from other provinces). Who refuse to vacate. They are protected by courts that burden the City to find alternative accommodation for them. The city pleaded with the magistrate to do an inspection and familiarise himself with the bigger picture. We need a holistic approach, not just a one-liner legislative sentence. Just like many state organs that have failed our justice system, leave much to be desired.
4. Farmland
Land-related inequality is a central component of the wider inequality that is one of the burning issues of our society today. In South Africa, the concept of distributing land to emerging farmers has not been adequately developed. There have been many new farms established, but they have not been successfully turned into productive units. We need to invest more effort into resolving this basic requirement. The Landbank as an institution has failed just as the Post Office, Passenger Rail Agency of South Africa (Prasa), and many other parastatals. As per a statement from the Landbank: “Following the signing of legal agreements and the fulfilment of all conditions, the debt restructuring solution will take effect on September 16, 2024, effectively ending Land Bank’s debt default position. The Finance Minister, Mr. Enoch Godongwana acknowledged the reduced socio-economic impact of the bank owing to the temporary halt of its lending activities, but emphasised the government's measured approach.”
The last thing we need is for “perceptions” or reality to undermine the underlying security of land to lead to a drop in the security offered to lending institutions and for them to tighten the lending taps.
5. Property in imminent danger of expropriation.
The Villa shopping centre in Pretoria has been empty for 15 years and is slowly deteriorating. However, the owners plan to complete the construction and fill it with stores. But the danger of expropriation may scare off already scarce potential investors. The Villa shopping centre was intended to be an R3.5 billion development and was set to be one of South Africa’s largest malls. It comprises a gross building area of 302,744 square meters, of which 111,285 square meters are zoned for offices, conferencing facilities, education, training, and retail.
One thing is for certain, the legal fraternity will welcome the new business as we can foresee the already clogged-up courtrooms finding many more cases to hear. Taxpayers should perhaps insist on an upper limit that the government can spend on legal fees. We must ask ourselves, does the latest Expropriation Bill bring us closer to a solution or are we moving backward? Illegal occupations of buildings and akin thereto, the hijacking of buildings can quickly spread to land grabs of residential and commercial properties and even farmland. The state of our train stations is clear, we now have dilapidated buildings and even illegal occupying of the properties. The entire financial backbone of the country is at stake.
Everybody is currently putting on a brave face. But as Mike Tyson said: “everyone has a plan until he is hit in the face.”
* Kruger is an independent analyst.
** Views expressed in this article do not necessarily reflect the views of Independent Newspapers.
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