At the State of the Nation Address (SoNA) last week, President Jacob Zuma made the contentious statement that foreign nationals will no longer be allowed to own rural land in South Africa. Zuma added that land ownership in general would be capped at 12 000 hectares.
This proposal is not a new concept. Countries like Australia, Thailand, Cambodia, the Philippines, Kenya, Ghana and certain South American countries, also prohibit foreigners from owning land. Rather they allow foreigners to lease land instead.
However, in South Africa, the response to the proposal has generally been negative.
Bad for investment?
"It's a huge mistake on the part of the government and it will have serious repercussions on investor confidence, which is shaky as it is. The impact on the perception of South Africa will be far greater than will be the impact on the real estate industry, because foreign land ownership by overall percentage is very small – only about 4%.
"But the foreigners who own land here are generally captains of industry, large international corporations and social influencers of one sort or another and we're effectively telling them that they're not welcome," said Lew Geffen chairman of Lew Geffen Sotheby's International Realty.
Thomas Walters, the DA shadow minister of rural development concurs:
"It will discourage investment in South Africa because it will make investing money in South Africa less attractive by raising the cost of business. It will therefore limit the ability of South Africans to use their property to access overseas funding and skills to grow our economy. It will also negatively impact on land values thus hurting our financial sector," said Walters.
Walters added that destroying the value of property destroys the financial sector too.
"We therefore will both damage our current economy and future opportunities of growing it," said Walters.
Walters believes that the cap on land ownership will "most definitely" hurt the agricultural sector, which is also linked to job creation.
"This proposal not only caps land ownership, it caps investment and caps job creation. This includes preventing investment in black-owned agri-businesses that have grown beyond a certain point," said Walters.
Property problems
The proposal for foreign nationals to not be able to own land in South Africa will also have an effect on the property market, said Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
"While we recognise the fact that a bill will be implemented later this year limiting foreign land ownership, which is a concern to the real estate industry, the more concerning issue is the lack of stability displayed at the State of the Nation Address, which in turn could impact on foreign capital investment into the country," said Goslett.
Goslett added that this could stifle development in the country, and agreed with Walters that it could affect job creation.
"This in itself could lead to a lack of infrastructure development as well as a lack of employment opportunities for South Africans," said Goslett.
Geffen pointed out that succession in the agricultural industry would be hampered as well because of this insecurity over land.
"Food security is paramount to any country and that rests with a healthy agricultural industry. What incentive is there for people to enter the industry under these circumstances, and what incentive is there for the children of farmers who have farmed the same land for generations, to stay on and take over from their parents? It's a potential economic catastrophe."
Geffen advises foreigners thinking of buying land in South Africa to do so as soon as possible.
"Legislation is yet to be promulgated so my advice to any foreigners interested in property in SA is to 'make hay while the sun shines'. If this legislation is passed there will be a cut-off date and people should buy now before that date is announced."