PROPERTY VALUATIONS BILL [B54-2013]

1. PROPERTY VALUATIONS BILL [B54-2013] PRESENTATION TO THE PORTFOLIO COMMITTEE ON RURAL DEVELOPMENT AND LAND REFORM 19 February 2014

2. OVERVIEW • WE THANK THE COMMITTEE FOR GIVING US AN OPPORTUNITY TO COMMENT ON THIS BILL • BASA IS THE TRADE ASSOCIATION FOR ALL REGISTERED BANKS IN SA (REGISTERED IN TERMS OF THE BANKS ACT, 1990) • OUR MEMBERS ARE KEY STAKEHOLDERS, WITH NEARLY R1 TRILLION IN EXPOSURE TO IMMOVABLE PROPERTY. OF THIS, THERE IS AN APPROXIMATE R120 BILLION EXPOSURE TO THE AGRICULTURE SECTOR • WE WELCOME MANY OF THE CHANGES THAT DRDLR HAS MADE TO THIS DRAFT BILL FOLLOWING PRIOR PUBLIC ENGAGEMENTS • WE DO HOWEVER STILL HARBOUR SOME MATERIAL CONCERNS WHICH WE WOULD LIKE TO HIGHLIGHT TO THE COMMITTEE

3. MATERIAL CONCERNS • DEFINITIONS “LAND REFORM” THE DEFINITION IS TOO WIDE AS IT INCLUDES NORMAL STATE ACQUISITIONS, DISPOSALS AND LEASES OF PROPERTY. SECTION 25(3) OF THE CONSTITUTION RESTRICTS “PUBLIC INTEREST” TO THE NATION’S COMMITMENT TO LAND REFORM AND REFORMS TO BRING ABOUT ACCESS TO SA’S NATURAL RESOURCES. RECOMMENDATIONS: • DEFINITION TO BE AMENDED TO EXCLUDE NORMAL STATE ACQUISITIONS, DISPOSALS AND LEASES • SECTION 25(3) - “JUST AND EQUITABLE” COMPENSATION DETERMINATION TO APPLY TO LAND REFORM • MARKET VALUE TO APPLY TO NORMAL STATE ACQUISITIONS, DISPOSALS AND LEASES

4. MATERIAL CONCERNS (CONT.) • 1. DEFINITIONS (CONT.) • “MARKET VALUE” • “IN THE ABSENCE OF CREDIBLE DATA, PRICES PAID BY THE STATE FOR ANY ACQUISITION OF PROPERTY CAN BE CONSIDERED” • GIVEN CONCERNS WITH THE ACCURACY OF PAST STATE ACQUISITIONS, ONE SHOULD NOT RESTRICT VALUERS TO PERPETUATING AN INACCURACY • RECOMMENDATION: • VALUERS ARE PROFESSIONALS WHO ARE REGISTERED WITH THE VALUERS COUNCIL AND WHO SHOULD POSSESS PROFESSIONAL INDEMNITY (PI) COVER. THEY SHOULD BE GIVEN THE LATITUDE TO DETERMINE WHETHER A PAST STATE VALUATION WAS REASONABLE/ACCURATE OR NOT: • IF REASONABLE/ACCURATE: USE THE STATE PURCHASE COMPARABLE FOR VALUATION PURPOSES • IF INACCURATE: APPLY AN ALTERNATIVE VALUATION METHODOLGY E.G. THE DIRECT CAPITALISATION METHOD

5. MATERIAL CONCERNS (CONT.) • 1. DEFINITIONS (CONT.) • “VALUE” • DEFINITION WITHIN THE BILL IS A DIRECT EXTRACT FROM SECTION 25(3) OF THE CONSTITUTION. “JUST AND EQUITABLE” COMPENSATION COULD THEREFORE BE LESS THAN MARKET VALUE. • BANKS ACT, 1990, AMENDMENTS THERETO AND REGULATIONS REQUIRE FINANCIAL INSTITUTIONS TO DERIVE THE SECURITY VALUE FROM MARKET VALUE ONLY (GLOBAL REGULATORY REQUIREMENT). IF COMPENSATION IS BELOW MARKET VALUE AND LOSSES ARE SUFFERED BY FINANCIAL INSTITUTIONS THEY WOULD: • PRICE FOR THIS RISK (ON NEW LOANS, CAN’T NECESSARILY CHANGE EXISTING LOANS); • WITHDRAW FROM THE MARKET; AND/OR • ADOPT A MORE CONSERVATIVE APPROACH (LOWER LOAN TO VALUE RATIO) • THIS COULD IMPACT NEGATIVELY ON THE CAPITAL ADEQUACY REQUIREMENTS AND STABILITY OF FINANCIAL INSTITUTIONS (GLOBAL FINANCIAL CRISIS REFERS) • THIS HAS MAJOR ECONOMIC AND FOOD SECURITY IMPLICATIONS FOR SA

6. MATERIAL CONCERNS (CONT.) 1. DEFINITIONS (CONT.) “VALUE” (CONT.) DRDLR PROPOSED AND RECEIVED CABINET APPROVAL FOR THEIR DOCUMENT “A POLICY FRAMEWORK FOR LAND ACQUISITION AND LAND VALUATION IN A LAND REFORM CONTEXT AND THE ESTABLISHMENT OF THE OFFICE OF THE VALUER GENERAL” (DATED 18.10.2012), WHICH INCLUDED: • THE NEED TO DOMESTICATE AND LEGISLATE THE INTERNATIONAL DEFINITION OF MARKET VALUE INTO APPROPRIATE LEGISLATION, AND FOR THIS TO BE INTERPRETED TO SPECIFICALLY EXCLUDE PRICES PAID BY GOVERNMENT AS EVIDENCE FOR MARKET VALUE • TO PROVIDE A BLANKET GUARANTEE TO FINANCIAL INSTITUTIONS THAT THEY WOULD NOT INCUR LOSSES SHOULD “JUST AND EQUITABLE” COMPENSATION BE LESS THAN MARKET VALUE RECOMMENDATION THE ABOVE EXTRACTS FROM THE CABINET APPROVED DRDLR DOCUMENT SHOULD BE INCLUDED WITHIN THIS CLAUSE AND WITHIN THE BILL

7. MATERIAL CONCERNS (CONT.) • 2. CHAPTER 2 • 2.1. CLAUSE 5.(C) - OFFICE OF THE VALUER-GENERAL (OVG) • “MUST BE IMPARTIAL AND MUST EXERCISE THE POWERS AND PERFORM THE FUNCTIONS OF THE OFFICE WITHOUT FEAR, FAVOUR OR PREJUDICE” • WE BELIEVE IT CONSTITUTES A CONFLICT OF INTEREST IF IT IS ACCOUNTABLE TO THE MINISTER DRDLR, AS DRDLR HAS A VESTED INTEREST IN THE QUANTUM OF COMPENSATION PAID • WE NOTE THAT THE OVG WILL UPON REQUEST UNDERTAKE VALUATIONS ON BEHALF OF ALL STATE, NATIONAL AND PROVINCIAL DEPARTMENTS IN RESPECT OF ACQUISITIONS, DISPOSALS OR LEASES • RECOMMENDATION • WE RECOMMEND THAT THE OVG SHOULD BE ACCOUNTABLE TO THE MINISTER OF PUBLIC WORKS

8. MATERIAL CONCERNS (CONT.) 2.2. CHAPTER 2 POWERS CLAUSE 7.(C) MAKES PROVISION FOR THE OVG TO “ENGAGE IN ANY ACTIVITY TO PROMOTE THE PROPER, EFFICIENT AND EFFECTIVE VALUATION OF PROPERTY…” THIS CLAUSE NEEDS TO BE QUALIFIED IN ORDER TO ALIGN IT WITH CONSTITUTIONAL PRINCIPLES SUCH AS THE RULE OF LAW (DAWOOD CONSTITUTIONAL COURT CASE HELD THAT AN ADMINISTRATIVE ACTION WHICH AFFECTS A PERSON’S FUNDAMENTAL RIGHTS IS UNCONSTITUTIONAL) RECOMMEDNATION WE RECOMMEND THAT THE CLAUSE BE QUALIFIED TO REFLECT THE ABOVE COMMENTS

9. MATERIAL CONCERNS (CONT.) SECTION 9 DEPUTY VALUER-GENERAL OVG IS A SPECIALIST VALUATION AND ADVISORY FUNCTION. IT FOLLOWS THAT THE DEPUTY VALUER-GENERAL IS REQUIRED TO HAVE THE SAME SKILLS SET AS THE VALUER-GENERAL, INCLUDUNG BEING A REGISTERED VALUER, WITH SUITABLE EXPERIENCE AND KNOWLEDGE OF PUBLIC ADMINISTRATION AND PUBLIC FINANCE MATTERS RECOMMENDATION WE RECOMMEND THAT THE REQUIRED SKILLS SET OF THE DEPUTY VALUER-GENERAL SHOULD INCLUDE THE ABOVE SKILLS

10. MATERIAL CONCERNS (CONT.) • CHAPTER 3 VALUATION OF PROPERTY • CLAUSE 11.(2)(B) • WE DO NOT UNDERSTAND THIS CLAUSE.WITHIN THE PROPERTY VALUERS • PROFESSIONS ACT AND THE SA COUNCIL FOR PROPERTY VALUERS • PROFESSION, THE REGISTRATION AND USAGE OF CANDIDATE VALUERS IS • CATERED FOR. WE RECOMMEND THAT THE LAW DRAFTERS MAKE • SPECIFIC REFERENCE TO THESE SECTIONS OF THESE ACTS AND THAT THEY • CLEARLY DEFINE WHAT ASSISTANCE MAY BE PROVIDED BY SUCH • “ASSISTANTS” • RECOMMENDATIONS • AS PER THE ABOVE COMMENTS • SHOULD A VALUATION BE QUERIED WHERE AN “ASSISTANT” HAS • PROVIDED INPUTS THIS SHOULD BE RE-ASSESSED BY AN • INDEPENDENT VALUER

11. MATERIAL CONCERNS (CONT.) CLAUSE 13(3) GENERAL VALUATION POWERS “A WRITTEN NOTICE MUST BE DELIVERED TO THE OWNER OR PERSON APPARENTLY IN CHARGE OF THE PROPERTY” WE SUBMIT THAT HOLDERS OF REGISTERED RIGHTS HAVE REAL RIGHTS AND THAT THEY SHOULD THEREFORE ALSO RECEIVE A DELIVERED WRITTEN NOTICE RECOMMENDATION WE RECOMMEND THAT THIS CLAUSE BE CHANGED TO READ “ A WRITTEN NOTICE MUST BE DELIVERED TO THE OWNER OR PERSON APPARENTLY IN CHARGE OF THE PROPERTY AND THE HOLDERS OF REGISTERED RIGHTS…”

12. MATERIAL CONCERNS (CONT.) • CHAPTER 5 FINANCIAL AND OTHER MATTERS • SECTION 19 PERMITS ALL “FUNCTIONS AND POWERS” TO BE DELEGATED TO STAFF BUT EITHER THE VALUER-GENERAL OR DEPUTY-VALUER GENERAL MAY “CONFIRM, VARY OR REVOKE ANY DECISION TAKEN …” • ONE CAN DELEGATE RESPONSIBILITY BUT NOT ACCOUNTABILITY • ANY DECISION/ACTION TAKEN BY STAFF WILL BE BINDING ON THE OVG • WE DO NOT BELIEVE THAT ALL FUNCTIONS SHOULD BE ABLE TO BE DELEGATED • RECOMMENDATION • SECTION 19 SHOULD BE AMPLIFIED TO CLEARLY DEFINE WHICH FUNCTIONS AND POWERS MAY/MAY NOT BE DELEGATED TO ALL STAFF

13. ANY QUESTIONS