13 February 1998


Thank you for the opportunity to Comment on the Current Land Reform Process, as set out in the White Paper on South African Land Policy. We have stated before this Committee on a previous occasion that "land" as a concept and physical resource encapsulates all that is good and bad in humanity: it is a finite resource of which only a small percentage is hospitable and arable, it contains mineral and fresh water resources to sustain life; it represents culture and history, and with limited exceptions is the primary cause of all armed conflicts between and within nations.

We therefore support wholeheartedly government's efforts to maintain a fine balance between all the conflicting vested interests to ensure that its Land Reform Process does not lead to instability in the land market.

This commitment by Government occurs throughout the Policy Document and in the practical actions already taken - e.g. "willing-buyer willing-seller", valuations based on a "market price", acknowledgement of existing property rights. The banking sector, in fact the whole financial sector, is absolutely dependent on the Continuation of a stable and certain property market. Commercial, industrial and residential properties are all financed by mortgage loans from the banks, life assurers, pension and provident funds. These loans, in turn are funded by the savings of the nation. There are ample international precedents - destroy the property market (or even introduce major uncertainty) and you destroy the financial sector. Destroy the financial sector and the whole economy is destroyed. Create uncertainty about property rights, and all other productive investment is uncertain and threatened.

The Policy Document highlights critical constraints affecting the whole redistribution process. Key among these is the lack of resources - both financial and capacity. Given Government's commitment to fiscal discipline and competing budget priorities, it can be accepted that the shortage of funds, of personnel and of skills in the Department will continue. A question which may need to be answered is whether the country can afford the parallel and duplicate structures being developed - specifically provincial departments and regional offices of the national department. It is absolutely essential that all available resources be utilised effectively and efficiently.

This leg of the Land Reform Process is probably the most complex of the three strategies. It would appear that the various Land Claims Commissions are woefully underresourced. Again, it is difficult to see how Government can resolve this. On the other hand, failure to speed up the process continues to generate uncertainty regarding all properties with a claim against them. The current debates and disputes over the privatisation of Aventura resorts in Mpumalanga is evidence of this. We urge the Department to do whatever it can to speed up the resolution of claims.

We support government's efforts to increase security of "legal" tenure rights. However, many elements of existing policy and new land reform legislation appear to, at best, take a lenient approach to the issue of land invasions and illegal squatting on private property. Property owners' rights to evict illegal squatters or illegal occupants are being increasingly curtailed, and we urge the Committee not to support this.

We again stress to the Committee and Government that the basic principle underlying the use of property as security for finance is the freedom in law and on the ground for the financier to take possession of that property in the event of nonpayment of the associated loan obligations. Non-repayment of mortgage loans together with an inability to evict illegal occupants continue in many residential areas. This threatens the very concept of mortgage lending.

Similarly, the various forms of Communal tenure, whether in rural tribal areas or communal property associations in inner city complexes, are not suitable tenure bases on which to lend to individual "owners" of the property, as the financier will be unable, or face severe restrictions, to exercise a right to evict for non-repayment. Therefore, while we support moves to increase security of individual tenure through these developments, it must be clearly accepted that "the leveraging of credit" to the individual on the basis of this security of tenure is not a viable option for the formal banking sector.

Credit is a facility which is only an option for those with the spare cashflow, and the intent, to repay the loan and interest. Credit can never be a panacea for social development requirements. We therefore fully endorse the view in the Policy Document that people "need to take care not to over-extend themselves financially..."

Similarly, subsidised credit via artificially low interest rates leads to a misallocation of resources. The agricultural sector is proof of this, where misguided interest rate subsidies and other financial assistance created a large number of dependent farmers, pushed up land prices, and substituted mechanisation for labour.

Conceptually, it is difficult to argue against a rural land tax, given the widespread prevalence of an urban land tax to finance local authorities. However, the implementation of such a tax should only be considered if it meets the following conditions:

- a low tax on all properties, without exemptions; exemptions will lead to unnecessary complexities and increase collection and administration costs;

- collection and administration costs must be as low as possible, to ensure that revenue collected can be invested productively;

- revenue collected must directly benefit the paying landowners; appropriate land valuation methodologies are agreed.

Our main concern is that collection, administration and personnel costs will totally absorb any revenue from a rural land tax, with the result that the payers will receive no benefits.

There are currently moves by two other Ministries to nationalise property rights. The Ministry of Water Affairs is currently proposing to nationalise water rights (although they talk of "deprivation"), while the Ministry of Mineral and Energy Affairs has just announced a proposal to nationalise private mineral rights (although they talk of "use it or lose it"). Both these rights are associated with land, and have the potential to create instability and uncertainty in the land market. We urge the Committee, and the Ministry of Land Affairs, to resist these developments, alternatively ensure that proper compensation is paid. This will reinforce Government's commitment to stable and certain land market and property rights.

Again, as before in front of this Committee, we commend both the Ministry and Department of Land Affairs and the Portfolio Committee for their openness to consult and negotiate on a complex but important issue. We believe that the Government should continue with its current approach, as outlined in the Policy Document.

General Manager