Expropriation without compensation, the phrase on everyone’s lips. On 27 February, the National Assembly passed a motion which mandates a Constitutional Review Committee to review Section 25 and the issue of expropriating land under the Constitution.

Section 25 of the Constitution provides property may be expropriated only for “a public purpose or in the public interest” and “subject to compensation” – the amount of which, and the time and manner of payment, must either have been agreed to by those affected, or decided by a court.

The motion was passed with an overwhelming majority in Parliament after the ANC and the EFF joined forces on the matter. The EFF has long held the view that land in South Africa should be expropriated without compensation, with the view that farm land in particular be nationalised and then leased out by the government.

The ANC’s policy on land expropriation without compensation comes with several caveats. President Ramaphosa stated that the process cannot harm the economy of food security in the country. This is one of the changes made to the motion, which replaced the EFF’s ‘radical land reform’ policy.

The motion has simply initiated the process to review the current land laws, and had not set anything in stone. The Constitutional Review Committee now has to engage with all stakeholders and propose a way forward in what is expected to be a multi-year process.

With a large number of property still bonded by the banks, it is imminent that the banks will be highly affected. Despite it being early days, markets have been unsettled by the news, with particular concern around the impact of changing the land laws on bond holders – the biggest of which being South Africa’s banks. The question of what will happen to banks’ debt is a difficult one and is not clear at this early stage of the process.

The biggest risk for the banks is, of course, they would be left with the debt on the land that is currently mortgaged in favour of mortgagors. It is also not clear whether or not the proposed amendments to section 25 of the Constitution would apply retrospectively or prospectively – it will be interesting to see whether or not bonded property will be carved out as an exception and not be expropriated without compensation and if so, can property owners who’s property is paid in full again bond their property.

Some other questions to consider is whether the state will have the money to make good on the debt sitting on the banks’ books and to what extent expropriation will take place, whether  it will only apply to just be agricultural land or whether or not it will include residential land too.

Whatever the final decision may be, the amount of debt at stake will run into hundreds of billions of rand.

There is a very fine line between achieving land reform, redistribution and restitution and expropriation without compensation and maintaining the health of the overall economy. Especially if we aim to maintain the rule of law and access to courts, without undermining the fundamental basis of the Constitution.

If the amendment would pass it is anticipated that the entire basis of property law and legislation built on the protection of private property rights will have to be repealed and also be amended, including the National Credit Act.

Expropriation without compensation – The impact on Banks and Mortgage Bonds