[There is a lot of debt in South Africa. I used to work in the property section of one of the biggest banks that loaned monies. I wrote a lot of software there. One of my systems that I was responsible for, was one which had all the property valuations of all the properties they either loaned money for, or were looking at issuing loans to. I looked after that system by myself. Another system that I took over and finished writing it, was the property repossession system for the bank. These banks have enormous amounts of money at stake, all tied up in loans. Some of the loans are good and others are bad. There are thousands of people in these banks working with customers. This is huge.
Now the bank I worked for LOVED lending out as much money as possible for buying property of any kind. The bank I worked for was responsible for about 22% of all property loans in South Africa. At one time, round about 2006 I think, the property division was doing incredibly well. In fact, it experienced a massive property boom from about 2000-2006 at least. We were loaning monies on a massive scale.
The bank LOVED lending money for property because property is an ASSET to the bank. It does not matter if the people loaning the money fail to repay the loan because the bank just seizes the property. The bank even maintains the property while it looks for buyers. And its not in a great hurry to find buyers either.
The loaning of money for buying property was so critical to the bank that this division alone was basically building an enormous asset base for the bank’s other activities. That is how solidly property was viewed. Property was a solid investment that nobody ever doubted.
But now with these Govt seizures of property without paying for it … we now have something really new which has MASSIVE ramifications. The banks will bend over backwards to work out something that the Govt will like. But there are also limitations to what can work.
In this article you’ll see that “radicalism” scares the banks. Almost the entire South African property market is controlled by the 4 big banks. I worked for one of them. These new laws are going to cause real problems. These proposed changes are huge and it will have a negative impact on the property market in the long term for sure. Jan]
A lot is at stake for South Africa’s commercial banks, which have loans of about R148 billion in the agricultural sector and R1.6 trillion in property, if expropriation of land without compensation is executed badly by the government.
The Banking Association of SA (Basa) – a body representing the banking sector – has quantified the staggering amount of bank loans, which have the potential to fuel much-needed economic activity in the country and create wealth for people.
“If this land debate continues in the way that it [is] and we don’t reach a constructive resolution, those figures of lending will start coming down,” warns Basa MD Cas Coovadia. SA is weighing up the merits of amending Section 25 of the Constitution – also known as the property clause – to expropriate land without compensation.
There is an information vacuum about the type of land targeted, with government saying that expropriation will be done in a manner that doesn’t undermine economic growth, threaten food security or promote land grabs. Land already owned by the state or abandoned without any known owner might be up for expropriation, but no facts have been provided.
This creates an environment fraught with uncertainty and conjures up images of SA’s land reform dispensation mirroring that of Zimbabwe or Venezuela.
“The last thing we need in this country is rhetoric that gets investors jittery and stops us from moving from the pedestrian growth,” says Coovadia. “The critical issue for SA is attracting investment and growing the economy.”
He admits that there is no clarity on what happens to bank-held loans, which are collateralised by land and properties, in the current expropriation debate.
Despite the uncertainty, figures from the big four banks that Basa relies on indicate that banks have not necessarily cut back on their lending. Loans to commercial farmers increased to R148 billion at the end of June 2018, from R133 billion during December 2017. “We can’t allow this debate to continue in a way that has radical leftist or radical rightist stances. We need to arrive at a pragmatic solution.”
Arguably, a populist and bad expropriation policy could damage the lending books of banks and agricultural investments by commercial farmers. Pierre Venter, Basa’s general manager for the human settlements cluster, says because commercial banks use depositor’s money and savings to extend loans, most banks would restrict their lending activities.
“If there is a bad execution, there will be uncertainty for a number of years. It will impact on investments, economic growth and job creation,” says Venter.
And the closure of loan taps might be negative for commercial farmers, who rely on loans from banks to invest in their farms to remain competitive. This would have bad implications for the country’s food security. “Without investments in farming, we won’t be able to feed the growing population.”
Coovadia doesn’t believe that a bad expropriation scenario will materialise. Basa is positive that the political administration – led by President Cyril Ramaphosa – will reach a pragmatic resolution.
Basa has made several proposals to salvage SA’s land reform process, including not changing section 25 of the constitution but fast-tracking the release of title deeds to existing property owners, so they can use their properties as collateral to secure loans.
Coovadia says the state must release unutilised land for the development of human settlements, host a land summit to review the land reform programme and create a comprehensive land audit and electronic national database on land ownership. Basa will present these proposals before the constitutional review committee, which is tasked with holding public hearings on changing section 25, on September 7.