It’s one thing to hold a big, wide-angle, noisy view on something that is distant and conceptual. It’s often quite another to take that view on something specific, imminent and concrete.
This is a disjunction that is central to politics and policy making; and it is a reality that is rapidly going to confront South Africa.
At issue is the Expropriation Bill, the passage of which seems increasingly likely. This legislation is central to the move on property rights – the Expropriation without Compensation (EWC) agenda – that has been so much a part of the agenda of the government, the African National Congress and its allies on the issue. And while the potential for this to exercise a damaging impact on South Africa is understood in general terms, its specific consequences are less so.
For millions of South Africans, this will come down to one issue: bonds.
Long-term financial security
The desire to own a home is deeply rooted in South African society, and households take on enormous liabilities to do so. This is invariably the largest investment they will ever make, and as well as a place to live and nurture a family, it is often the centrepiece of a household’s long-term financial security.
According to the South African Reserve Bank, the value of mortgage bonds in the country amounted to some R1.6 trillion in 2020.
This is an enormous sum of money; it illustrates just how damaging to the economy it would be if property-based lending should suffer the sort of shock that large-scale expropriations would deal to it. But within this number are thousands upon thousands of individual loans – a few hundred thousand to a few million – each of which denotes the commitments and obligations of ordinary South Africans.
Every one of these bondholders stands to lose personally should the EWC agenda be directed at him or her. It will mean being deprived of a major asset, and possibly financial ruin. This may well be the case even if the expropriation is not carried out at "nil" compensation – the Expropriation Bill proposes a formula that seems primed to produce below-market compensation as the norm, while the formula employed by the Valuer General for land reform purposes grants the state potentially huge ‘discounts’ when taking property.
What will become of the debts incurred in the event that bonded properties are seized? The Expropriation Bill suggests that bonds will be terminated, but that may not necessarily resolve the issue of the debt. This has been a perennial concern, and one that will probably soon have to be faced.
It seems unlikely that the state will pick up the tab for anyone. Doing so would defeat any rational (so far as it goes) purpose that EWC can claim to have. Besides, with the fiscus in the state it is in, and little confidence that government policies will change, it is unlikely to have the resources to do so anyway.
Banking industry view?
Would banks be willing to cancel the debt? Comments from within the industry suggest not. Former head of the Banking Association of South Africa, Cas Coovadia, said in an interview: "Where land is being expropriated, government needs to guarantee repayment to the banks." Note that the stress here is on the interests of the institutions, not those of their clients – and the proposed "guarantee of repayment" could well come at the clients’ direct expense.
Indeed, while financial institutions have for the most part been silent or ambivalent about their stance on this, there have been some indications that they envisage passing the burden onto their clients. A tweet by SA Home Loans in January last year put it thus:
"In the event of expropriation, the bond repayments would still remain owing to the mortgage lender. However, we understand that the rights of all parties will be considered in any expropriation processes and have no reason to believe that residential properties will be affected."
So from this perspective, losing one’s property to state action would not absolve the dispossessed owner of responsibility. This would inflict a triple blow. First, whatever funds have been paid to service the loan would essentially be lost. Second, the property itself would be lost, destroying the planning it embodied, and the benefits drawn from owning it. Third, an essentially pointless debt burden would be imposed, possibly lasting for years and foreclosing the possibility of recovery.
This would be a grotesque case of citizen abuse.
It is frankly not satisfactory to dismiss this by declaring that there is "no reason to believe that residential properties will be affected". On the contrary, with the Expropriation Bill as a guide, there is no reason to believe that they will not.
Positions must be made known
Nor is it satisfactory to say, as FNB CEO Jacques Celliers recently did, that "we’ve got comfort that the right things will happen". Policy certainty, he said, was the issue, "then we can all… move on". For the scale of this danger is significant, and for many of the bank’s clients, it is existential. They do not have the luxury of "comfor", nor the option of simply "moving on".
So what to do? At the very least, it is incumbent on the state and South Africa’s financial institutions to declare their positions unambiguously. If they are intent on washing their hands of responsibility to their clients on this issue, they must be clear about it. This position may not be a comfortable one for those affected (though it might provide the "certainty" that is so much a part of government and business rhetoric), but their responsibility to South Africa’s people – as citizens and as clients – demands no less.
- Terence Corrigan is a programme manager at the Institute of Race Relations (IRR).
