Fiona Rollason: Group Head, Legal and Group Insurance, and Mpho Molopyane: Chief Economist, at Alexforbes

President Cyril Ramaphosa has signed the Expropriation Bill into law, now known as the Expropriation Act (the “Act”), repealing the pre-democratic Expropriation Act of 1975. This new legislation outlines how organs of State may expropriate land in the public interest for various reasons. As a multi-manager overseeing both retirement (non-discretionary) and discretionary savings for our clients, we understand there may be concerns about how this Act could affect your savings and investments. Our goal is to ensure you feel confident about your financial future amidst these legislative changes. This note aims to provide a clear and concise analysis of the Act and its potential impact.

Key points of the Expropriation Act

Legislative approval

The Act was passed by both houses of Parliament (the National Assembly and the National Council of Provinces) on 27 March 2024.However the effective date of the Act is still to be announced in future by a government notice.

Checks and balances

The Act introduces several checks and balances to ensure that expropriation is conducted fairly and transparently. It primarily targets idle land and requires proof of public interest before expropriation can occur.

No unconditional expropriation

The Act does not allow for unconditional expropriation as formulated in the Constitution[1]. Instead, it mandates that compensation must be just and equitable, adhering to constitutional provisions. There must be an attempt to reach an agreement before the state decides to expropriate, and there is an opportunity to object to the intention to expropriate. Mediation is also provided for in disputes over compensation.

Nil compensation

The Act prescribes five circumstances in which nil compensation may be paid, namely where:

• Land is held for speculative purposes[2].
• Land is held by an organ of the state and is not being used for its core functions.
• Land has been abandoned.
• The market value of the land is less than the state investment or subsidy in the acquisition of the land.
• The land poses a health, safety or physical risk.

Implementation

The success of the Act will largely depend on its implementation. The Minister of Public Works and Infrastructure Minister, Dean Macpherson, has been tasked with crafting the implementation plan, and there is confidence that it will be managed rationally to protect property rights and prevent abuse. Furthermore, the Act grants no powers of expropriation to anyone other than the Minister of Public Works and Infrastructure for purposes connected to the mandate. Powers to expropriate for various purposes already exist in over 200 other pieces of legislation and may be extended by legislation such as the proposed Redistribution Bill.

Various major stakeholders have expressed their readiness to proceed with legal challenges to forbid the implementation of the Act and/or certain provisions particularly those concerning the decision-making powers granted to the so – called “expropriation authority” in terms of the Act.

Affected parties

The Act will affect the “owners” of or “holders of unregistered right” to property. Whilst there is no definition of a financial institution in the Act however, amongst other things, the rights of the mortgagee (i.e bank that holds the mortgage over the property) are also recognised and if the property was registered under a mortgage, compensation may only be paid to the mortgagee.

Impact on investments and savings

The Act aims to align expropriation with the Constitution, ensuring that compensation is just and equitable. This should result in minimal negative impact on the governance of property rights. The introduction of checks and balances ensures that expropriation is conducted fairly and transparently, which is crucial for maintaining investor confidence. This positive outlook should reassure investors about the stability of their investments and savings. While there are concerns about potential impacts on the ZAR/USD exchange rate, the Act’s focus on fair compensation and public interest should help mitigate significant currency fluctuations

Although the new Expropriation Act now explicitly allows for nil compensation to be awarded in certain circumstances, this must be justifiable and constitutional. The Act clarifies that nil compensation is not automatic and will involve a thorough calculation considering all relevant factors, and the state must justify its decision. Each case will require a detailed assessment to ensure the outcome is just and equitable. This process is expected to lead to significant litigation, which will help define what is considered just and equitable over time. While the introduction of nil compensation may initially cause concern, the emphasis on fairness and transparency is expected help mitigate long-term negative impacts on investments.

Overall, the Expropriation Act is designed to address historical land injustices while maintaining a fair and transparent process. The sentiment post-signing is generally positive, with optimism that the implementation will be balanced and reasonable, supportive of both land reform and economic growth. The introduction of checks and balances, along with the requirement for just and equitable compensation, should help safeguard property rights, preserve investor confidence and maintain market stability.

ENDS

[1] In terms of the Constitution of South Africa Act, 1996,”no person may be deprived of property arbitrarily but for public purpose and public interest only and the amount of compensation must be just and equitable (own emphasis).

[2]i.e where the land is not being used and the owner’s main purpose is not to develop the land or use it to generate income, but to benefit from appreciation of its market value. The state will have to prove that this is the case.