Real Estate Investor Magazine South Africa May 2016 | Page 43

allows for expropriation on behalf of an individual
or private company. It is feasible that this right could
be abused in the years to come, notwithstanding our
constitutional right to protection of property contained
in section 25 of our Constitution.

The two material concerns within the
Expropriation Bill are, therefore:
• Can the current-drafting of the bill be abused by
the state so as unlawfully transfer ownership of
fixed property without appropriate and marketrelated compensation?
• Can the terms ‘public interest’ and ‘public purpose’
be loosely interpreted to benefit undeserving
beneficiaries under the guise of transformation?
Transformation is a necessary process in South
Africa but it needs to be conducted in such a manner so
as to avoid the destruction of wealth and the potential
to create sustainable wealth. It is for this reason that
land-transformation needs to be managed so that the
intrinsic-value in land-portions expropriated are not
destroyed irresponsibly.
Within the new bill, the term expropriation is
defined as ‘the compulsory acquisition of property
by an expropriating authority or an organ of state
upon request to an expropriating authority’: from
this definition, it is evident that the establishment
of the appropriating authority – an entity that will
administrate expropriation applications. This organ
of state may, ultimately, have extensive powers which
could frustrate investors’ protection if their rights are
abused.
The Expropriation Bill provides a mechanism for
the acquisition of agricultural land for redistribution to
people wishing to begin farming and related activities
and, also, provides an opportunity to potential landdevelopers for the construction of low-income housing
on expropriated land portions.
Although the bill does provide for the payment of
just and equitable compensation there is no formula for
the calculation of such just and equitable compensation
and it is probable that the state may choose to reduce
payment from what is considered to be market value to
compensate for historical imbalances in compensation.
The expropriating authority may also require that
a land portion be transferred to a custodian or entity
for which the property was appropriated to use the
property for public- interest and/or purpose. All this
creates policy uncertainty and a lack of clarity does not
bode well for a positive investment-environment.
The proposed legislation does, however, also provide
some protection to land-owners facing expropriation
www.reimag.co.za

of their land: the amount of compensation may be
determined by a court if there remains an unresolved
dispute in this regard (cf. section 21 of the proposed
act).
Property may only be expropriated if the procedures
in the bill have been followed and if it is for public
purposes or it is in the public interest. Public purposes
are defined as any purpose connected with the
administration of the provision of any law by an organ
of state.
The bill does not elaborate on the concept of public
interest except insofar as it states that the public
interest includes the nation’s commitment to land
reform. In this regard, it shall be interesting to see how
this concept develops in time.
It is possible that our government and courts will
be willing to accept this approach, especially if the
group to benefit from an economic endeavour were
historically disadvantaged by the previous government’s
exclusionary policies.
When an expropriating authority is investigating
the possible expropriation of property, the authority
must consider the existence of any unregistered rights
in respect of the property and the need for land, water
and related reform in order to redress the results of past
racial discrimination.
The question that property-investors face, then, as
the Expropriation Bill moves through the National
Council of Provinces and possibly faces further hearings
in the public domain, is whether it makes investmentsense to purchase fixed-property and develop fixed
property in an environment where expropriation could
become somewhat easier.
One sentiment that correctly echoes is that the
Expropriation Bill is, by and large, balanced and
necessary to creating an equitable economic advantage
amongst South African citizens.
The concern, therefore, lies mainly in government’s
true intentions: will the state use the bill – when it
becomes legislation – to justify land-invasions and
unlawful distribution of land (including primary and/
or holiday residences) in an uncontrolled manner or
will government regulate the redistribution of land
equitably?
In order to satisfy property-investor concerns in
this regard, it would be a good idea to develop a series
of alternative scenarios and to ask government how
they would, hypothetically, react if one or more of the
scenarios eventuated.

RESOURCES
Courtwell Consulting
MAY 2016 SA Real Estate Investor

41