There has been much commotion recently around South Africa’s new Expropriation Act, which was passed by Parliament on 27 March 2024 and signed into law by President Cyril Ramaphosa on 23 January this year. The commotion includes the Democratic Alliance challenging aspects of the Act in an application to the Western Cape High Court and, more sensationally, the claim by the Trump administration in the US that the Act discriminates against white farmers and the issuance of an executive order offering the farmers “asylum” in America.
Financial experts from Momentum and Alexforbes have, in recent articles, argued that reaction to the Act may have been overblown and that investors should not be unduly alarmed.
First, it is worth mentioning that, although the DA has stated that “no government in a democratic country should be given such sweeping powers to expropriate property without compensation”, its court challenge does not question the Act’s essence. One objection is on the irrationality of a clause concerning compensation in the event of a dispute; another is on the constitutionality of how the Expropriation Bill proceeded through Parliament.
Following Trump’s executive order, news reports quoted DA leader John Steenhuisen as saying it was not true that the Act allowed that land could be seized arbitrarily by the State, noting that it required fair compensation for legitimate expropriation in terms of the Constitution.
Addressing clients’ concerns
In an essay “Expropriation – what it means for your finances”, Warren Wilkinson, franchise principal and financial adviser at Consult by Momentum, says concerns have surfaced from clients about property rights, investment stability and a potential rise in wealth emigration.
In countering the alarmist reaction, he argues that expropriation is not unique to South Africa – there are several countries, including Namibia and Brazil, with similar frameworks in place.
He says the new Act “refines existing regulations rather than introducing new far-reaching expropriation powers”.
Section 25 of the Constitution allows for expropriation with compensation based on just and equitable principles. “The new Expropriation Act does not overhaul these compensation rules, but provides for nil compensation in specific cases, such as abandoned properties or land held for speculation,” Wilkinson says.
“At the same time, the Act strengthens protections for landowners by enforcing a structured process, greater judicial oversight and placing the burden of proving fair compensation on the State. Landowners also now have more rights to object, mediate and challenge expropriation in court.”
Wilkinson says land can also only be expropriated for public purposes, such as for infrastructure, or when it is in the public interest, such as for redress or restitution.
Checks and balances
In their article “The Expropriation Act and its impact on investments”, Fiona Rollason, Group Head, Legal and Group Insurance, and Mpho Molopyane, Chief Economist, at Alexforbes, say 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.
“The Act 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,” Rollason and Molopyane say.
They list the five circumstances in the Act in which nil compensation may be paid:
1. The land is held for speculative purposes.
2. The land is held by an organ of the state and is not being used for its core functions.
3. The land has been abandoned.
4. The market value of the land is less than the state investment or subsidy in the acquisition of the land.
5. The land poses a health, safety or physical risk.
Stay grounded
Wilkinson says that while fears around property rights and asset security appear to be largely unfounded, such uncertainty “has real-time investment implications, and is linked to heightened market volatility”.
He recommends staying diversified in your investments and that you speak to your adviser if you have ongoing concerns.
