EWC emerges from the shadows – and those who own little will be most vulnerable

Big things can have imperceptible beginnings. Sometimes the most profound changes are rung in not by announcements from the presidential palace, but by the signature-and-stamp of a civil servant whose name may be unknown outside his office.

A name to remember is Pelekelo Mwiya. He is the Acting Valuer-General – having recently succeeded Christopher Gavor – and heads an institution of which most South Africans will be only dimly aware. It doesn’t even have a website.

The Office of the Valuer-General is a creature of the Property Valuation Act of 2014. The office is tasked with determining the value of property which is targeted for land reform. The Act also briefly reminds the office of the need to find a ‘balance’ between the public interest and that of the existing owners.

This is a weighty responsibility, speaking to a long-standing issue attending South Africa’s land reform programme. The country’s constitution sets out a broad framework that requires compensation to be paid in an amount and within a timeframe that is ‘just an equitable’ (a popular opinion having recently become that this can mean zero). It then sets out a list of considerations which may influence the determination, such as the history of the acquisition, the use to which it is currently put, the market value, the extent of state subsidy and the purpose of the expropriation – and in principle any number of others.

What this meant for the state’s liability to pay compensation on expropriation was always a contested point. How would the state deal with the average property owner – a farmer, mine owner or homeowner – whose assets it wanted to take? What would a guiding figure, or an indicative proportion, be when the state seized people’s property? The answer was uncertain until 30 November last year, when the regulations were gazetted under the Property Valuation Act – an event that few would have noticed.

We now know that the answer – at least when it involves land reform – is around half of market value. Possibly less.

In a nutshell, the regulations required, as a first step, adding market value to ‘current use value’. The latter is a hitherto unknown concept, certainly not found in the constitution, which is defined as the ‘present value, as at the date of valuation, of cash inflows and outflows, or other benefits and costs that the subject property generates for the specific owner’. In other words, the net income it generates on the day of valuation.

The result of this sum would, as a second step, be divided by two. This is not explained or justified. It is merely a discount that is gifted to the state.

From this, as a third step, other factors might cause a further reduction, as in the case of a property having benefited from state subsidies or where the owner had enjoyed ‘acquisition benefits’, the latter being circumstances around the acquisition which may have assisted in its acquisition being at below-market value.

So, think about a residential property worth, say, R1.5 million. It has a garden cottage that operates as a popular BnB, and pulls in R900 a day – word-of-mouth and rave reviews online have made it popular with tourists and business travellers from the UK, Germany and China. The government wants it for a land reform project, and so the formula kicks in: R1.5m plus R700 (it had a guest on the date of valuation, less the cost of breakfast, toiletries and cleaning services – invoices provided), divided by two, leaves R750 350. That is the foundation for compensation.

However, the owners of this property inherited it from a much-loved but sadly deceased grandparent. The cottage was also renovated a few years previously partly with a small municipal grant aimed at encouraging tourism enterprises. Each of these would allow the Valuer-General to make a further downward adjustment. It’s not clear at this point just how far down that would push the offer, but the direction is clear.

So are the consequences for the owners. It is a ruinous taking of their property – expropriation without compensation of more than half its value, as well as the income-generating BnB for a derisory sum.

The Valuer-General seems quite enthusiastic about the potential – for the government – of all this. Addressing Parliament’s ad hoc committee on amending the Constitution, Mr Mwiya called for the constitution to be amended from recognising the general principle that the ‘use of the property’ is a consideration for determining compensation to recognising the concept of ‘current use value’. This is no mere technicality, since factoring in compensation for the loss of the ‘use of the property’ would by any reasonable definition consider its role in the owners’ income streams and livelihood.

In this case, the BnB is a business activity in which the household has invested a great deal, and which can bring in R20 000 a month or so – which, in turn, enables the family to pay for the therapy that their special-needs child requires, as well as the Mandarin classes the manager-spouse is taking to position the business better to serve their Asian clientele. Factoring in the ‘current use of the property’ would raise a legitimate claim of several tens or even hundreds of thousands; ‘current use value’, no more than a few hundred.

Indeed, the Valuer-General also told the committee that through his formula ‘one could get to zero compensation’. This, in other words, is a path to Expropriation without Compensation, one that strengthens the government against its people.

Of course, it might be argued that people can turn to the courts to protect themselves. This is true, in theory. In reality, the costs of doing so – against the awesome resources of the state – will foreclose this option for most.

What is being set in motion here by a relatively obscure agency within the state has implications for just about every property owner, or aspirant property owner, in the country. And most of all, it is those who own little – whose modest house is the totality of their wealth – that will be most vulnerable. The threat this poses needs to be taken seriously.

Terence Corrigan is a project manager at the Institute of Race Relations. Readers are invited to take a stand with the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).