Explaine d: SA’s new land policy
President Jacob Zuma’s statements on foreign ownership of South African land were either widely misinterpreted or expressed poorly.
Whatever the case, rural development and land reform minister Gugile Nkwinti has stepped in to clarify, and Zuma’s statements appear not to be what they seemed.
In his State of the Nation Address last week, the president said quite specifically that foreigners would not be allowed to own land, prompting a massive response and raising fears that South Africa was sending increasingly strong signals to foreigners not to invest. Almost a week after Zuma’s speech, Nkwinti indicated to SABC reporters that the land the president is referring to is productive/ arable land and not residential property.
Land reform got a relatively large amount of airplay during Zuma’s address, and he has set his sights on farmers and foreign property owners.
Some of his main points were:
That land claims now total more than 36 000, with a cut-off date for further claims set at 2019. More than 90 000 hectares have been allocated to smallholder farmers, farm dwellers and labour tenants through the Land Reform Programme.
That government is looking at a contentious 50/50 policy framework for people who live and work on farms, and will pick 50 farms as a pilot project.
Land ownership will be restricted to 12 000 hectares.
Foreigners will no longer be allowed to own land but can get long-term leases instead.
The Regulation of Land Holdings Bill will be submitted to Parliament this year.
The state will no longer buy farmers’ land using the willing buyer, willing seller method. Government is establishing an Office of the Valuer-General.
Agri SA president Johannes Möller said many of these issues have been discussed or announced, like the move to a valuation method.
One contentious issue is the announcement regarding the 12 000-hectare restriction. Möller said the majority of farms that exceed 12 000 are macro farms or farms in arid areas, where there are large tracts of land, only some of which are productive. Cutting off land ownership in terms of acreage doesn’t take into account user patterns of the land, he said. Agri SA would prefer an approach similar to that used on BEE deals, where turnover is used as a benchmark rather than land size.
He said the abolition of willing buyer, willing seller principle had been
“We send a delegation to Davos, saying that we are open for investment and business, but then follow this up by saying that foreigners cannot own land. These inconsistencies do not help our cause in any way.” – AJ Jansen van Nieuwenhuizen, tax partner at Grant Thornton
announced previously, and Agri SA is not against this as long as the values that are determined are done so in terms of transactions in the free market.
Only about 2% to 3% of agricultural land belongs to foreigners, he said, and “it is a no-brainer that to try [to] regulate that scares off investors”.
“It is no use restricting in agriculture and scaring off other parts of the economy,” he said.
Agriculture is a low-profit business, and it is far better to invest for growth and spread the profit than to divide it up, Möller said. Farmers use collateral to get loans. The value of farmland in SA is R190bn and the debt on that amounts to between R120bn and R122bn. “Are you promising people capital that belongs to farmers or something that belongs to banks?”
Pam Golding Properties CEO Andrew Golding, who had only just heard that the foreign ownership ban could only apply to agricultural land and not to residential property, said: “It is just the uncertainty – you can deal with anything once you have clear idea.
“All we know is there is a prospective announcement about leasehold. This is not something crazy, it is done elsewhere, but we need to understand the rules,” he said.
“The difficulty is the extent to which the South African public would need to be educated. If you are a South African selling to a foreign buyer buying leasehold, you need to know what you are doing – and we also need to know what we are doing.”
Golding said his company had not been consulted on the issue of foreign ownership. “This issue reared its head on multiple occasions since 1994, and it continues to pop up. In the last 20 years there have been one or two occasions where we have taken part in a forum, but never formally.”
With no clarity on whether residential property will be affected, Golding said: “I can only presume that the issue is about land reform rather than foreigners owning property. You want them to buy property − it is investment and they will employ people, and often buy businesses, it is what every country is looking for.
“I am not sure we really talking about residential homes here, I hope we are not, it is illogical. I think it’s agricultural land and there is some concern that foreigners and foreign institutions are buying up large tracts of land. From our own point of view, we are not selling large tracts of land.”
On the perception that foreigners push up property prices, Golding said there is such a shortage of stock in the residential market and prices are naturally going up. “Are foreigners affecting prices? By adding to the buying pool and with their strong currency, one can argue that are, but relative to the total market, not. At the very top end, we are into a global market there anyway,” he said.
John Loos, household and property sector strategist as FNB Home Loans, said there is very little benefit to the restriction on foreign ownership. Foreigners “are not a big player” in the residential property market and it is unlikely there will be a significant effect on demand or on price.
The reason why foreigners collectively are not a big player, he said, is that SA does not attract many skilled immigrants, largely due to immigration policy and the undervalued rand. While reports of record sales of properties in Clifton or Sandhurst suggest foreigners are spending huge amounts, these represent a very small part of the property market.
“But the legislation is more negative than positive, and could be interpreted as a trend towards a more and more restrictive economy, and not just property rights. This could affect foreign investment, which in turn affects the wider economy as well as the property market,” he said.
The extent of foreign ownership of South African property is difficult to determine. According to FNB’s January property barometer of foreign buying of domestic residential property, foreign buying has been increasing, from 2% of total buyers in 2010 to 5.5%. This does not, however, mean that 5.5% of property is owned by foreigners. That estimate varies, depending on who you speak to, from about 1% to 3%.