VIDEO: LAND EXPROPRIATION TAKES MORE THAN JUST LAND AND COULD LEAVE BANKS EMPTYDate: 2018-03-01
The words have been thrown around a lot in the last two years, some with fear, others with resentment and, of course, with excitement for the changing future of South Africa.
Land expropriation with compensation is here but has it been thought out so that it doesn't result in any side losing out? The government is carrying out this law in an effort to uplift South Africa's economy, produce more jobs in the farming sector and create a more profitable farming market – but will this actually happen?
There are certainly upsides to the law if it is implemented properly but, the main concern being raised is, what happens to the property loans that need to be paid off by farmers who now can't afford to pay them because they don't have the land to use?
It seems like an infinite loop leading nowhere, causing panic as the National Assembly adopted the notion of section 25 with 241 supporting votes and 83 against the notion. If the farmers can't pay, do the banks lose out? The banks are waiting patiently for the expected decisions to be made which may mean R160bn could be lost if they aren't compensated. If the banks feel there is a risk of ownership of the land, they would have to encompass this into the loan which alters the price of the land. The bank isn't able to abandon the loan on the land as the land becomes state-owned.
In turn, the farmer loses a portion of potential profit as they are unable to use the land and therefore cannot be expected to pay the loan. The bank loses any guarantee that the loan will be paid back and the farmer loses land and an income source. The bank will be stuck between a rock and a hard place as they are not able to reclaim the money from the government or the original owner.
The banks haven't laid out a specific plan to date but say they plan to discuss the impact. Standard Bank said it would work with the government to drive transformation in the agricultural sector while promoting food security and social prosperity.
Niehaus explained: "The loan by the bank is a separate obligation from the mortgage obligation. The expropriation would result in a commercially untenable situation in that the property owner would still be contractually bound to the bank to repay the loan while having been deprived of the property used for residential, farming or business activities which would, in many instances, generate income to repay the loan. But, the question that needs to be answered by the parliamentary committee investigating the issue is whether the bank loses its rights to claim repayment of the loan by the property owner as well and how it fits in with the rule of law.”
Although the situation is highly sensitive for the time being, more negotiation will be needed to find a way forward.