THE LAND QUESTION CLARIFIED

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I’m grateful to a friend who let me have this newsletter this morning [11 February 2020].

I am very reluctant to copy articles into my blogs but there are times that I simply cannot do justice to a critical subject about our property industry like an expert has done. I have often referred to JP Landman in that regard. In this case, the Land question is so sensitive, has become the political soccer ball of both Left and Right, and may have led to my own oversensitivity in the way I express myself. In the latter regard, I’m acutely aware of words having influence and would never like to leave a wrong impression where it is not justified.

So, with clear and sole reference to JP Landman, I send you his important perspective verbatim.

Land Expropriation Without Compensation

3 February 2020

Changing the Constitution to allow for expropriation without compensation has certainly ignited South African politics for 2020. It is worthwhile cutting through the noise.

Current Position

Currently, expropriation is allowed and is governed by both the Constitution and the Expropriation Act. Section 25(2) of the Constitution (the property clause) is quite clear: Expropriation is allowed subject to compensation, which must be just and equitable. Expropriation decisions are taken by the Executive (government) and the courts can review those decisions and make a binding order. Considerable jurisprudence has been developed on how expropriation should be done, and compensation calculated. These rules bind all parties, including the Executive.

The decisions on expropriation are taken by the Executive branch of government, in practice mostly the Departments of Public Works and Land Affairs. In the last few years a specialist agency, the Valuer-General, was developed inside the Department of Land Affairs with the specific responsibility to advise on the value of land. The Valuer-General is part of the Executive and is subject to the authority of the Constitution, legislation and the courts.

So, the current legal position is clear: The Executive branch can expropriate, subject to the criteria of the Constitution, legislation and general jurisprudence; and the Court has the final say on whether the Executive has met those criteria or not.

Suggested Changes

What then has changed and why is the land expropriation issue now so hot?
Expropriation without paying compensation has become a policy plank of the ANC. After the 2019 election, the new Parliament appointed a committee to handle the amendment of section 25.

In assisting the committee, Parliament’s legal services drafted a short Bill that amends the Constitution in three ways: It provides that ‘… a court may … determine that the amount of compensation is nil’; that the R nil compensation must (still) be ‘just and equitable’; and lastly that national legislation must be enacted spelling out the ‘specific circumstances where a court may determine the amount of compensation is nil’.

Political Differences

The Parliamentary Committee met on the 3rd of December to discuss this draft. According to the minutes of the meeting the honourable members disagreed on, amongst others, two issues.

Firstly, DA and Freedom Front Plus members wanted the specific circumstances where R nil compensation can be paid to be spelt out in the Constitution itself and not in accompanying national legislation. Advocate Van der Merwe from Parliament’s Legal Services argued for separate legislation. The committee agreed to reflect on the issue and then come back to it.

Secondly, members disagreed on the role of the courts. DA and Freedom Front Plus members felt the courts had to be involved in the decision itself (not just the review of a decision), particularly where R nil compensation is payable as it is so serious. ANC members agreed that ‘The courts had a role to play as forums to mediate on disputes’, however, they did not want to make the courts responsible for deciding on expropriation. That is a function of the Executive. The issue was left there. The Draft Bill was published on 6 December for public comment without resolving the differences between the parties.

On 21 January, in his concluding remarks after a four-day ANC National Executive Committee (NEC) Lekgotla, President Ramaphosa said: ‘We are encouraged that the Lekgotla endorsed the recommendation that the power to determine the quantum of compensation for land expropriation should reside in the Executive.’

Then all hell broke loose.

So, What Has Changed?

The current position on expropriation is that the Executive decides and the courts review. Nothing in the Draft Bill, the president’s remarks, nor the comments of ANC members in the committee suggest that this will change. Any person who is not happy with any expropriation amount, including R nil, can still approach the courts and ask for relief based on the ‘just and equitable’ test of the Constitution, or any other legal prescripts in our law.

In that sense, the current hysteria over the ANC making a U-turn and changing its position is clearly overdone. It is clear from the committee minutes what the ANC’s position has been all along. The hysteria that the courts are being cut out is also wrong – they retain the right to review and can amend or set aside any Executive decision (including R nil decisions) that do not meet the requirements of our law.

Separation of Powers

What will be a change is if the courts are made responsible for administering R nil decisions, ie taking a decision on when an expropriation should be R nil. It all comes down to the doctrine of separation of powers.

The Constitution protects democracy by separating the power of the state into three parts or ‘arms’: the Legislature (Parliament, the nine provincial legislatures and local councils), the Executive (ministers and government departments that run the country from day to day), and the Judiciary (the courts).

Constitutional lawyers like Professor Elmien du Plessis from Potchefstroom argue that giving that discretion to the courts ‘…is not without problems. It is not for the courts to administer the legislation. They should only mediate disputes, and in doing so, they can lay down principles and guidelines for decisionmakers. The power to expropriate stems from legislation …’ and ‘The Executive executes the legislation’. In short, one does not want judges acting as civil servants.

Under What Conditions Can R Nil Compensation Be Paid?

The answer lies in the new Expropriation Bill that was published for comment in December.

The Bill lists five instances where land can be expropriated without compensation (clause 12). These are:

1. Land occupied or used by a labour tenant (as defined in the legislation);
2. Land held for purely speculative purposes;
3. Land owned by a state corporation or state entity;
4. Land that has been abandoned; and
5. Land where the market value is equal to or less than money the state has already spent on it.

Clearly there are some major definitional issues. When, for example, is land held for purely speculative purposes?

Patricia de Lille, Minister of Public Works, will be responsible for taking the Expropriation Bill through the Parliamentary process.

Timeline

The one thing on which the Parliamentary Committee agreed is that the process of changing section 25 must be completed by the end of March. That looks completely unlikely as the deadline for submission has already been extended to the end of February. Allowing for the normal slippage, we can only hope for closure and certainty on this important matter in the second half of the year.

So What?

  • The current system of expropriation where the Executive takes the decisions and the courts can review them will remain. Nothing has been proposed to change that.
  • Some political parties want a change that will put that decision-making with the courts. The ANC is unlikely to accept that.
  • The separation of powers doctrine requires that executive and judicial decisions are taken by different arms of government.

The recent explosion of emotion around this issue again underlined how important it is that this matter is finalised, and certainty created. The lingering of this issue and constant emotional explosions undermine confidence, investment and economic growth. It is lingering too long.

JP Landman
Political & Trend Analyst

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Yours in Property.

DR ANDREW GOLDING ON SONG

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I had the pleasure of attending a Pam Golding function in Hermanus. In greeting Andrew, I complimented his Mother who was the Founder of Pam Golding Properties over 40 years ago. An outstanding lady and businesswoman who drove a powerful ethos into Pam Golding estates over her many years. I believe she also oversaw the transformation of Pam Golding from an elite-area agency to an agency for “the normal man”, bringing all the class and expertise to that market’s operation without detracting from the sophisticated positioning of the Pam Golding brand.

She also oversaw the transition from her own dynasty to her son as the guardian and driver of the business into the future. I’m sure she was tough on her “boy” as he too transferred from Medicine to Property to take his place in an arena he had no doubt grown up in around the dinner table. With genuine praise, he has done that very well indeed, continuing to uphold Pam Golding as one of the iconic businesses in our industry.

He had a team thereof himself, Golding’s economist and Strauss Daly, the attorneys. Here’s a synopsis of what they spoke about. A little parochial but I’ll add some comments at times.

  1. Properties are moving given that Sellers are getting realistic as regards the value of their property in the current market.
  2. Prices are down about 20% compared with one year ago. Secure estates flying in the range <R2.5m. This is attributable to the continued perceived security threat but also due to downscaling from larger properties.
  3. Stellenbosch is flying with this town being the #1 Pam Golding office in the country.
  4. The value of a house that lingers on the market declines at 1.5% per month. This was an amazing comment that I have heard but never taken too seriously. I can now understand why friends have removed their homes from the market and then put them back on.
  5. House prices slowing are slowing which we all know but seemingly at a slower rate according to the latest research. 
  6. 7% (14% in my opinion) of house sales are for the purpose of emigrating. But, according to Andrew, many sellers are not actually leaving but are rather renting and then investing in golden VISA countries eg Malta and Mauritius. Apparently, the latter country is very active indeed.
  7. Semigration has slowed to Cape Town. People are now choosing PE and Durban for similar lifestyles but with much more property value. PE is now the top growth market for house prices, whilst Cape Town has been declining rapidly
  8. Hermanus [I knew we would get a mention ☺] is now attracting young buyers in the <R2.5m price range. As I experienced in George many years ago, many people place their families here but then fly to work in Joburg or internationally. Hermanus is beginning to carry value in all price ranges but I can attest to the 20% reduction in asking prices. I have two examples this month of sellers of newly built or renovated homes just getting their cost price or a little less after commission.
  9. Andrew agrees with us that a primary underpin of sales these days is the willingness of banks to lend. Their growing or defending of market share is driving sales.
  10. This slide caught my imagination. Consumer Confidence = The Great Depression. That is really sobering and I’m not sure how we’re selling anything if that is empirically true.
  11. First-time homeowners are changing the structure of the market. Millennials are moving to growth points eg Claremont.  Pods, which I experienced at the new Dubai airport some time ago and read about in Japan, are being built and sold. R1m buys you 24m2!! A parking bay then sets you back a further R250000. Point is that if you have a hectic social life or choose to avoid the traffic every day, such an investment may be realistic. Rental pools exist in these apartments if you wish to “timeshare” your unit.
  12. The Retirement market is robust which is quite obvious for two reasons: We’re ageing and many people cannot consider going offshore. KZN is repositioning itself to these buyers but the Western Cape is still outperforming all other markets. 
  13. 10 of the top estates are in the Western Cape.
  14. House prices remain at an absolute premium within 500m of the sea.
  15. The Coronavirus has the potential to infect 58% of the global population.  The only good news on this point is that deaths from infection are only 1%. Small comfort ☹
  16. Ramaphosa is not as strong as we need him to be, neither as a leader nor as a politician. We are advised to watch the upcoming ANC NGC.
  17. Asked about property values, we are all waiting with bated breath – to downgrade or not to downgrade, that is the question. However, Andrew is realistic when he says that a downgrade will have negative sentiment value if nothing else. The hope is no downgrade but if so, it will affect property values.
  18. A fascinating statistic from Japan: 30% of houses are empty as older people move out to smaller properties. 


Andrew was asked about EWC. His answers were sensible. Firstly, that he hopes the matter will be settled between the Executive and the courts in such a way that recourse to the courts is allowed so that sensitive matters can be handled properly. Secondly, that we should not expect residential property to be included; it is occupied and used-for-purpose and any attempts to do so would be sensational. Thirdly, that land redistribution is an unfortunate consequence of our past but if handled correctly by ALL, he would hope it contributes to a lasting solution and economic prosperity in our country. The question is obviously on his mind and he answered it in a very level-headed manner as any business leader should.

In closing, the presentation was a privilege to attend and a feast of information. It is quite obvious that the global property market is experiencing enormous change. A friend of mine who is emigrating to the UK has been watching the guesthouse market very closely. Many of them, up to 11-bedroom, B&B’s of about UKP500000, have been on the market for 18 months or more. It seems that kind of money is not readily available, but on the other hand, perhaps Brexit has been hurting tourists and landlords alike.

Yours in Property.

EVERYWHERE

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News is everywhere at the moment. When I worked, I read a lot but in a very restricted sense: Business, Banking and Academics. It was more than enough to be conversant and skilled.

Now, I read on two or three platforms and then try to piece together some coherent trend that may be of interest to you. It needs to be positive as far as possible but also informative and at least from a property perspective, assist you given that your busy days may not permit that much reading.

So let’s kick off…

Bloomberg is telling us that the JSE is set to come good this year, even outperforming other markets. That’s amazing news especially seeing that the stock market has moved sideways for the last 5 years. As a general rule, [read: balanced funds] the market has been very close to static whilst the S&P has super-performed at about 30% growth including the Nasdaq, in 2019. The latter is already up 7.26% year-to-date and February is yet a pup. Did you miss the boom in USA stocks – no pity here, join the club ☺ As regards the JSE which has been outperformed even by Cash fully taxed, I have no idea where Bloomberg is coming from. I understand that shares are looking decidedly under-valued, but I thought that that was because we’re almost in recession. I really hope they’re right and the JSE flies; nothing like the national feeling of wealth to promote that invisible gem: consumer confidence.

Then Corona. The name on every TV screen and normally limited to SciFi. Superbugs are no joke. Saturday recorded the highest number of deaths at 89, bringing the total to 811. Last I heard, about 30000 people are affected which has probably increased since then. The best advice I’ve read is forget facemasks, wash your hands frequently and don’t touch your face.

That said, cities in lockdown have the feel of Bruce Willis in Armageddon movies; quite eerie and surreal. Very frightening for those trapped and hugely inconvenient for cruise ships and aeroplanes. But beyond our creature comforts, trade is shutting down as countries prohibit cross-border travel and the movement of goods. Frankly, if Corona was in Cambodia or the likes, it would have about as much impact on global trade as an outbreak of Ebola in Mali. But China, that’s another story; a huge trading story. I thought Shares would be more rattled but not so thus far. So let’s hope they are able to contain it and treat it to insignificance for everyones’ sake.

Fresh from Sydney this morning on WhatsApp…”Looks like SA, UK and Australia all had terrific storms. We had a year’s rain over the weekend.” “Shew! Fires out? I replied, and “Yep, well doused” was the answer. That’s stunning so now the animals can begin to get cared for. One thing I think I’ve mentioned before, last year’s 18000Ha fire though Bettys Bay has stimulated a massive repair and construction project in the area to rebuild properties. I think Australia has 2000 houses destroyed so the same will happen there.

The Rand is the cheapest currency in the world. That’s according to the Big Mac Index. So, all you McDonalds burger-loving people, go home this evening with a Family Pack; according to the world-famous Index, you’re eating cheaply. But what is interesting is how Oil has declined and we’re enjoying a welcomed respite in Fuel prices despite the Rand moving from R13.80 in late-December to R15 recently. I see Iran is now mothballing some Oil fields in order to stimulate the global price of Oil so probably expect a rise in price next month.

The Bank Rate is decreasing, and I remain surprised as I said last time. But it’s good news and 0.5% starts to be meaningful in most households. On a R1m bond, that’s R400 per month less. Point for me is not the saving for clients used to paying about R8775 per month but for those who are battling to pay it’s welcome relief. The other sector positively affected are those First-time homebuyers who are considering entering the market. Right now, they’re a big part of what’s moving and encouraging them is very positive for the industry.

Eskom is load shedding… De Ruyter has his job cut out but at least he’s keen and has moved on the divisionalisation of the mammoth structure to make it more manageable.

On Wednesday I’ve been invited to The Marine, one of our 5-star hotels, to hear Dr Andrew Golding. Very exciting for the sleepy coastal town of Hermanus and we’ll get to eat free canapes with the Jones ☺. I’ve asked my neighbour, one of the most successful estate agents who invited me, to ask him to give us his opinions on EWC. Right now, that stands for: Eish We’re Contracting but it seems the President is intent on forging ahead. The very fact that he’s doing that in concert with implementing other Nasrec 2017 resolutions in order to maintain his support in the ANC, is symbolic of the potential downside.

I am sensitised to the need for redistribution of land, however, was seemingly lulled into thinking that the land would be dormant and unused and that anyone who queried the decision to get Nothing for it had recourse to the Courts. But now there is a real concern that residential property is incorporated in the definition by default and that the State may have the say. It’s speculation right now as the deadline for commentary has been extended [Have you given input to the government?] to end-February 2020 but given the trust deficit between this government and its citizens, there’s no smoke without a fire.

Sadly, as much as the incumbent President may give reassurances to us, even Mcabesi Jonas in his book, After Dawn: Hope After State Capture, states that an ANC about to lose the next election may have the need to accelerate “structural reform” for votes. That is deeply concerning in my humble opinion. “Watch this space!”, as the President was wont to say in his early days. Dr Andrew’s comments will be very interesting…he’s an outstanding person.

By the way, if you’re economically minded, you will really enjoy Mcebisi’s book. He is obviously a huge asset to the country and his Foreword by Cyril Ramaphosa is heart-warming. His opening sentence is, “In October 2015, the Gupta brothers offered me the position of minister of finance in exchange for R600 million.” Thank you for saying, “No!”

So, let’s quote the man who is still the political head of Eskom, and “join the dots.” Looking at the above, so much is happening in the world and in our country. What we have mentioned is snippets of your daily macro- and micro-environments. Yet you and I labour in the overdose of news and find our optimism often despite it. There is one thing though with which I’d like to close this blog today and it comes from January’s Standard Bank House Price Index. I love it and I close with it and a few comments:

January house prices post 5.5%
But, sustained real house price growth still some way off

  • Nominal house prices growth, per our inhouse Standard Bank House Price Index (HPI), increased to 5.5% y/y in January, from a marginally downwardly revised 4.3% (previously 4.4% y/y) in December. The January HPI grew 1.0% m/m, after growth of 0.9% m/m in December, the first time since October 2018 that nominal house price growth has recorded more than 5% y/y. In 2019, house prices growth averaged 4.0% y/y, slightly below average headline consumer inflation of 4.1% y/y.

Outlook and implications

  • This may be the start of sustained momentum. Indeed, residential mortgage advances have supported house price growth, having averaged 4.8% y/y in 2019, from 3.5% y/y in 2018. The cumulative 50 bps rate cut since July 2019 and prospects of further easing should keep supporting nominal house price growth.
  • Nevertheless, house price real growth still seems some way off given that both lenders and borrowers remain cautious amid sustained economic fundamental weakness along with highly uncertain economic conditions. Specifically, both consumer and business confidence remain depressed, with all SA consumers remaining pessimistic about future economic performance. And, the country is on the brink of being downgraded by Moody’s to non-investment grade, which will lead to SA falling out of the WGBI, and power cuts will persist for at least the next 18 months. Even the expected global growth recovery now faces new downside risks such as the as yet unknown outcome of the coronavirus outbreak.

HPI in detail

  • Sectional title property price growth rose further to 7.2% y/y in January, from 6.0% y/y in December. Sectional title property prices growth had bottomed at 0.6% y/y in April 2019 but recently surpassed growth in freehold property prices. In contrast, growth in freehold property prices slowed to 5.7% y/y in January, from 5.8% y/y in December, having peaked at 11.7% y/y in January 2019.
  • Gauteng property prices accelerated to 6.8% y/y in January, from 5.5% y/y in December; Western Cape grew 3.0% y/y from just 0.3% y/y in December. KwaZulu-Natal property prices moderated to 7.7% y/y, from 9.4% y/y in December.

So, despite the lapse into negativity on the third bullet, here is what I garner from this research:

  1. Gauteng growth in HPI is starting to move and eclipses Western Cape by more than double. I’ve been calling that for years and I’m so glad for you guys. Long may it last!
  2. Security remains paramount as the sectional title continues to fly. I think First-timers are in there as well and many prices are in the “moving” range, say, <R2.5m.
  3. 5.5% growth is a real increase of 1.2% with this quarter’s inflation forecast at 4.3%. Little in the scheme of things but I’ll take real growth in house prices any month; so would you.

But the statement that got me going was this: “This may be the start of sustained momentum.” You see, when Standard Bank says that’s a possibility, I sit up and listen. They then go on to ground that in mortgage advances growth so it’s not a wish-list, its concomitant with the readiness of the banks to lend and the affordability of clients to borrow. I say again, I love that. And again, long may it last despite the current “everywhere” headwinds.

Lift your heads. In all of the news, there are snippets of information that portend some growth. How or where, I’m not debating but that there are many positives, I’m putting it out there. Think about it.

Yours in Property.