Draft law allows property seizure without compensation – bankers aghast

by Paul Vecchiatto

Photo credit: OakleyOriginals / Foter / CC BY
Photo credit: OakleyOriginals / Foter / CC BY

(Bloomberg) – A draft law that would allow South Africa’s government to expropriate property without having to pay compensation at market prices would undermine the rights of owners and mortgage holders and deter investment, the nation’s banking industry has said.

The Expropriation Bill now before Parliament would give the state the right to seize property in the public interest and pay the owner “just and equitable” compensation. President Jacob Zuma’s administration says the measure is necessary to address racial disparities in property ownership dating from white minority rule, which ended in 1994.

The law would force banks to raise mortgage costs or reduce or withhold loans, the Banking Association of SA said in a written submission to Parliament’s Public Works Committee, which held hearings on the draft bill on Tuesday. While expropriation is sometimes necessary, the procedures must adhere to international norms and the constitution, it said, adding: “We are concerned that promulgation of the bill could lead to the further dilution of property rights. This has the potential to introduce unintended economic consequences and introduce systemic risk into the sector.”

The association’s 32 members include Standard Bank Group Ltd, Nedbank Group Ltd, FirstRand Ltd’s First National Bank unit and Barclays Plc’s SA unit. They collectively hold mortgages worth R2.3 trillion rand ($183 billion), including R70 billion in the agricultural industry.

The associations asserts: “We submit that such a bill must not result in discouraging local and international investment. The bill should restrict the definition of property to matters of land reform and equitable access to the country’s natural resources.”