The Expropriation Act, recently enacted by President Cyril Ramaphosa, has sparked retaliatory measures by the United States. Domestically, the Institute for Race Relations (IRR) warns of disruptions in the banking sector’s practice of using property as collateral for home loans. Anlu Keeve told Biznews in an interview that the loss of stable property value as collateral could have a ripple effect throughout the economy. Higher credit risks for financial institutions may lead banks to tighten lending criteria, raise interest rates, and limit credit availability. Keeve also highlights the risks of increased investor nervousness and potential capital flight. Addressing criticisms that the IRR’s warnings are alarmist or fear-mongering, Keeve points to historical precedents, citing Zimbabwe and Venezuela as examples of the economic chaos that can follow expropriation measures. “In Zimbabwe,” she adds, “houses in Harare weren’t confiscated, but their value still collapsed.”
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Highlights from the interview ___STEADY_PAYWALL___
Linda van Tilburg (00:01.1)
The recently signed Expropriation Act by President Cyril Ramaphosa has become a highly contentious issue, drawing attention even in the United States, where former President Donald Trump issued an executive order inviting South Africans to immigrate.
One major concern highlighted by the Institute for Race Relations (IRR) is the potential negative impact this law could have on banks’ ability to extend capital. To help us delve into this issue, we have IRR researcher Anlu Keeve in the Biznews studio.
Linda van Tilburg (01:10.254)
You flagged something really important. So how does the expropriation act cast doubt on, was it the market value of property?
Anlu Keeve (0O.53.158)
So, essentially what the Expropriation Act does is it weakens the certainty that banks rely on when they assess your property as collateral. What that means in the simplest terms is that traditionally banks will give you a loan, but on the assumption that if you can’t repay that loan, then they’ll be able to recover their losses if they sell your mortgaged home at market value.
But then this act comes in and it completely disrupts the certainty. Before I mention how it disrupts the certainty, or this assumption that the banks can rely on, is the fact that when I speak of property, property is not only limited to land or a house, as we’d normally think of it in general terms. It can be anything from a gold coin to your bicycle, if you own a bicycle.
I just use the example of a house or land because it’s the most widely applicable and it is simplest to understand. So, to get back to how it breaks up or disrupts the certainty. The act introduces the risk that now the government can come, and they can take your property for less than its market value or your land for nothing and according to the act, then you as the owner of that land or house you’re still responsible for any debt that you made to purchase that property.
Read more: Magnus Heystek: Expropriation without Compensation – what investors should do
So, if you receive compensation from the state, then yes, generally, some of that would be used to help repay your loan or your outstanding debt. But while you’re still responsible for it. If your compensation is small, you still have to repay the full loan. So, what this means is that you can end up in a situation where you’re paying for your house or piece of land, but you no longer own it which just sounds like a nightmare to me.
You not only now lose your property, but you also have to look for new accommodation, you still need to repay your old debt, and in many cases, the property was generating an income. If it’s a rental unit, you now lose that stream of revenue too. So, to answer your question, when I say it causes doubt on the market value of property, it creates a sense of uncertainty in the property market.
Just the mere risk of expropriation of property, the mere risk that your property can be taken away, it makes property a less reliable investment and it completely disrupts the market confidence. So, if banks tighten their lending and buyers start to actually hesitate, then property values could drop.
I think it’s important to draw attention to one specific point. I’ve heard quite a few times people say that, okay, but I’m renting. Surely, I’m fine. I have very bad news for you. You are not safe. None of us are because now the property owner must deal with increased risk on their property. So, rent will just become more expensive. Simply put the expropriation act just completely rest destabilising the entire property market.
Linda van Tilburg (04:15.00)
Have you seen any signs in the property market or from banks that this is a risk?
Anlu Keeve (04:22.942)
Well, so what we’ve heard is that even back dating back to 2020, we’ve heard from the Banking Association of South Africa (BASA), they very clearly stated, back then it was a statement made directly to Parliament a warning that they extended, in which they said that it can certainly cause a long-term effect on the banking sector and the stability of banks.
You as the owner, you are still responsible for paying back your loan. So, at the risk of sounding repetitive, even if you receive compensation from the state, you still have to repay it, compensation is null, you still have to repay it.
So, people are more unlikely to be able to afford their outstanding debt and the risk of them defaulting is much higher. This will leave banks in a very bad situation, where they now have bad debt, and they have no collateral to recover these losses. The more cases that this starts happening in, the bigger the risk at the end of the day for financial institutions to start writing off massive losses and for weaker bank liquidity.
If this escalates, struggling banks will start to put direct pressure on the National Treasury who will then need to start stepping in to rescue failing banks. The problem here is, we haven’t seen many instances of expropriation. There’s a rare instance or two that has come up in the media where this mentions of maybe an expropriation here and there. But the mere fact that property can be expropriated, the mere fact that it is law, introduces such a sense of uncertainty into the market that the consequences are almost unbelievable.
It’s incredibly hard to deal with. At the end of the day, the person who will bear the cost of this, yes, the banks and yes, the financial institutions, but it’s the ordinary South African.
Linda van Tilburg (05:55:00)
So, we haven’t seen signs of this yet. Do you think we are going to see that? Because, well, the government says they’re not going to wide scale expropriate land and they’re not going for people’s houses. When do you think this might be a risk?
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Anlu Keeve (07:16:568)
So yes, I think banks operate on risk assessment and when the risk increases, they are forced to adjust their lending criteria. Banks forced by legislation to tighten the lending conditions will at the end of the day mean higher interest rates. So, on an individual level, that means your loan costs more. It will mean stricter requirements. The person who will bear the burden of this is the first time home buyer, the small business owner, or whoever has a weaker financial profile.
It’s ironic that those are typically the people who rely on credit to enter the property market in the first place, but it just means less lending overall. So, in fancy language, yes, we haven’t technically seen it play out, but a credit squeeze is inevitable. It doesn’t happen overnight. But as risk perceptions grow, it is certain that we will start seeing a decline in home ownership, less construction activity. so even before expropriation happens, just the mere fact of this law that exists, it will set in motion an entire sequence of tightening lending conditions.
Linda van Tilburg (08:48.829)
Well, also, do you think we could see a wave of defaults?
Anlu Keeve (13:37.362)
Yes, very easily. So, I’ve explained it already, but it’s important to explain the concept. It’s important to turn back to the first principles of this. You as an owner, you’re responsible for paying back your loan. You receive some compensation from the state, you can use that and pay off your loan, but otherwise you’re still responsible for it. So, people start failing, they’re not able to pay off their debt, they can’t afford it, they default, banks are sitting with bad debt. When this happens, there’s a bigger risk of more institutions having to write this off and escalate these five or six times. You have a struggling banking system and that places a direct pressure on national treasury. It can likely be in the form of some form of bailout, which we as South Africans are very tired of by now. But I mean, the moment the state needs to step in to start rescuing bailing back.
It just places an unplanned burden on a budget that really can’t be stretched anymore. We then must also contend with the risk of further credit rating downgrade. And we’re just starting to be hopeful for a better credit rating this year. There are very serious consequences. But the important point I want to reiterate and make again is that the biggest loser of this act is the ordinary South African. It’s them who will bear the cost. Yes, the bank will see a wave of defaults, but it will at the end of the day, cypher through to the ordinary South African.
Linda van Tilburg (10:27.033)
You’ve had a couple of aggressive interviews today, so what are you saying to people replying, this is alarmist? I mean, this is not going to happen.
Anlu Keeve (10:4.306)
There’s too many instances and examples of this that we can still say that it is alarmist. Examples are so common around the world. mean, we take history as just shown, and I’ll give a more specific example in a moment, but history has shown us that if you take places like we witnessed in Zimbabwe and Venezuela, both places where the government started taking people’s property without paying for it. It came at the cost of economic confidence, a term I think often neglected. Economic confidence is the basis of a stable and a growing economy. So yes, some argue that South Africa will be different, that the banks and the businesses will remain secure.
No, they won’t come to take your house. But I mean even in Zimbabwe there was houses in Harare that weren’t expropriated, but their value still collapsed. It collapsed anyway. So yes, I suppose it might come across as fear mongering but it certainly isn’t. We don’t have to speculate. Zimbabwe and Venezuela and many other instances have already shown us the outcome.
Read more: Who really owns the land?
If South Africa goes down that same path, the damage is not going to be theoretical. It will be very, very real. And again, the average South African, every single one of us will bear that burden. Just as a note, on investors, to state it very simply, if the government doesn’t do away, with the newly introduced legislation as it relates to the Expropriation Act, there are many other legislations, but investors should stay away. That sounds alarmist and that sounds fear mongering, but it would be irresponsible for an investor to let themselves be reassured by government assurances while the Expropriation Act remains in place, in its current form at least.
Linda van Tilburg (13:06.101)
So, what steps do you think could be taken immediately to reassure both domestic and international investors in light of these changes?
Anlu Keeve (17:55.234)
Well, quite simply, repeal the expropriation act, send it back to Parliament. The IRR has made a series of recommendations, if it needs to be amended, which it does need to be amended, but if it gets to the point where it is only amended, then there is IRR recommendations. There’s a series of eight of them that we’ve put forth in a petition to the president himself.
I’d be happy to go through some of that, but it’s available on our website to whoever is interested. But the government needs to publicly communicate that private property is their top priority. I say that because property rights is, for any economy that wants to grow and attract investment, getting property rights right is the very first foundational step that they need to take.
So, the best way to avoid this kind of financial disaster that we’ve spoken about in this session, ensure that the Expropriation Act follows clear and predictable rules. Government needs to send a clear message that property rights are respected. if banks and investors and homeowners, again, the individual, if homeowners know that the rules won’t suddenly change, then financial stability can improve, and the economy can start growing.
Linda van Tilburg (14:48.277)
Okay, I wanted to ask you about lessons from other countries, but you said that. you know, mostly this debate is currently framed in terms of due political risk and because, of the comments of Donald Trump. Do you think we should look at it more domestically? what changes could it bring in South Africa than concentrate on statements that we are being bullied by the West?
Anlu Keeve (15:55.227)
So, I think the comments that came from the US. They pointed to a very real issue in the country. Although I should mention it is a very sensitive topic, so it is important to mention that everything said was not true. But what is true is that there is a very real issue of race related legislation. As long as that and any risk at a person’s private property rights is in place the country will not be investable.
As I said earlier, investors would be irresponsible to bring their money here. So yes, I understand that Trump made a statement, and I understand that much of the statements made in an international arena certainly does have an influence on South Africa and our investment and our trade. i’m pretty sure we’ll see that play out over the longer term.
But immediately what we need to focus on is getting hings right domestically. It is important for South Africans to speak out. I’s important for me to mention here that it’s not only the privilege that’s affected. It’s simply not true.
South Africans, we who live here, if our economy collapses, it is the poorest and most vulnerable of us who will suffer. Take note of the geopolitical sphere, but adjust our policies locally, so that our economy can start growing and stabilise.
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