Ex­plaine d: SA’s new land pol­icy

Finweek English Edition - - FRONT PAGE - BY MAR­CIA KLEIN ed­i­to­rial@finweek.co.za

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%.

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