Property Valuation Bill [B54-2013]: Departmental briefing

Rural Development and Land Reform

30 January 2014
Chairperson: Mr J Thibedi (ANC)
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Meeting Summary

The proposed presentation of comment by the Department of Rural Development and Land Reform (DRDLR) on the public submissions on the Restitution of Land Rights Amendment Bill was deferred to the following week. DRDLR briefed the Committee on the Property Valuation Bill, which sought to implement policy proposals from the Green Paper process. It was recognised that land and property were vital resources through which government pursued socio-economic objectives. Over the last 18 years, there had been several challenges to the land redistribution process, with the major problems being the pace of land reform, and escalating prices, as only market value was used for the purpose of valuations in the willing-buyer willing-seller transactions. It had been assumed that government was in the same position to willing buyers, but this was not so, since government had constitutional obligations, including the purchase of land for re-distribution. It was clarified that presently, valuers determined a value based on the market price, but the final price was negotiated between seller and buyer on the basis of that valuation. However, this Bill specified that market value was not to be the sole determinant in relation to properties that the government wished to acquire in the public interest, but instead that other factors, such as current use, history of acquisition and use, market value, the extent of any subsidy and purpose of acquisition, should be taken into account when fixing a fair value for transactions linked to land reform.  For the purpose of these property transactions, a new Office of the Valuer-General (OVG) would be set up, with the mandate of undertaking valuations that specifically took these factors into account. A regulatory impact assessment had been done by two independently-operating teams, who had independently come up with very similar proposals on valuations. The business case for the establishment of such office had been presented to and approved by the Department of Public Service and Administration.

DRDLR then took the Committee through the clauses of the Bill in more detail. This Bill would not apply to valuations in terms of the Municipal Property Rates Act. The OVG must develop criteria and procedures for valuation of properties identified for land reform, and must monitor the proper, efficient and effective valuation of land. A procedure was set out for appointment of a Valuer General and Deputy, with the latter to be the accounting authority. There was provision for outsourcing of some work until the OVG was fully capacitated. “Value” in the context of the Bill was fully explained. DRDLR had consulted extensively on both policy and legislature. It was anticipated that government funding required for the first three years of operation would be respectively, R75 million, R60 million and R50 million.

Members asked if National Treasury had yet approved the proposals on funding, and if money was already budgeted. They asked for an assurance that the Restitution of Land Rights Amendment Bill, Property Valuation Bill and Expropriation Bill were aligned. Members wondered if the OVG could be seen as a way for government to value land at whatever it wanted, asked whether a seller was entitled to get a private valuation, and what would follow in the event of a dispute. The DRDLR stressed that a valuer was a professional, bound to professional ethics, to deliver a fair value, and this Bill simply required that additional circumstances be taken into account. The price was still negotiable between seller and buyer, but government departments would not be able to negotiate for a price higher than fixed by the OVG. The distinction between sales and expropriation, and the procedures should government eventually decide to expropriate, were set out. Members asked about the role of the Institute and the Council for Valuers, asked for more elaboration on the concept of independence of the OVG and noted that it would be accountable to the Minister. They cautioned that valuations should be done in-house wherever possible, that experienced staff  must be recruited to the OVG, and asked about its national footprint.  

Meeting report

Chairperson’s opening remarks
The Chairperson said that although the Department of Rural Development and Land Reform (DRDLR) had initially hoped to present its comment on the public submissions on the Restitution of Land Rights Amendment Bill today, this had been deferred to the following Monday, at 14h00.

The Property Valuation Bill (the Bill) was another very important piece of legislation, complementing the land restitution process, and although he noted the fact that many Members had tendered their apologies, he emphasised the importance of this briefing, whereafter the Bill would be advertised for public comment.

Property Valuation Bill: Department of Rural Development and Land Reform briefing
Mr Thapelo Motsoeneng, Chief Director, Department of Rural Development and Land Reform, (the Bill), noted firstly that the Green Paper on Land Reform was finalised at the end of 2011 and in the 2012 year, the Department of Rural Development and Land Reform (DRDLR) had engaged with a number of labour, government and civil society institutes. The proposals out of the Green Paper on land reform were quite varied, and a multi-pronged approach was needed. Property valuation formed one part, and this led to the Bill. The process went through the usual cluster system in government, Cabinet, and the policy had been approved. Further consultation was done after Cabinet had approved the policy that informed the Bill.

Access to and proper use of land resources were essential to the social and economic well-being of South African society, and the policy made it clear that land and property were the vital resource through which government would pursue socio-economic objectives. The market mechanism was founded on pricing and valuation, and thus there was a need for proper determination of property values.

Over the last 18 years, the State had not been able to significantly redistribute productive assets to the historically marginalised people, and income inequality, poverty and unemployment had escalated. The Office of the Valuer-General (OVG) would be at the cutting edge of the redistributive outlook. There were two major problems that had been identified; firstly, the slow pace of land reform, and secondly, the escalating price. Market value was largely based on willing-buyer, willing-seller principle, which compared prices paid for similar properties in the market. However, the difficulty was in the past that valuations had assumed that government, despite its special mandate, was in the same space as a normal “willing buyer”. The DRDLR thought that it should not be so perceived, because government was required to buy, in order to fulfil its objectives. There was significant money in the fiscus being allocated to this end.

There were currently gaps in the regulatory and legislative framework underpinning the valuation industry. Valuers would say that they merely determined a value, whereas parties agreed upon a price. However, the reliance that the buyer placed on that valuation was such that there was a need to understand what lay behind that number. There were also gaps in the capacity of government to interpret the price dynamics of land and property markets at various scales. In this Bill, it would be made clear that market value was not the only determinant behind valuations. The Constitution empowered government to look at a range of other factors when acquiring property in the public interest. There had been various attempts to give effect to section 25 of the Constitution, but with limited success.

The main policy proposals that found expression in this Bill were that:
- Government should implement the constitutional requirement of just and equitable compensation
- Government should made greater use of exploitation in its land acquisition strategy
- Government should establish an autonomous Office of the Valuer General (OVG)
- Government should enhance land market information analysis, and policy formulation.

A regulatory impact assessment (RIA) had been done, with separate teams independent of each other. The two processes, however, resulted in very closely-aligned proposals on valuations. An in-principle decision was taken to approve the establishment of the OVG. A business case was compiled and presented to the Department of Public Service and Administration (DPSA).

Ms Tshepo Mahlaela, Chief Director: Legal Services, DRDLR, took the Members through a brief outline of the Bill (see attached document). Chapter 2 provided for the OVG and this office would be responsible for valuation of properties for land reform, which covered restitution, land reform and land redistribution. In addition, it would be a service provider for government requesting valuations. The Bill would not apply to valuations in terms of the Municipal Property Rates Act. The OVG must develop criteria and procedures for valuation of properties identified for land reform, and must monitor the proper, efficient and effective valuation of land.

Part 2 provided for appointment of a Valuer-General (VG) and Deputy Valuer–General. The VG must be experienced in public administration, public finance or legal and constitutional issues affecting public administration. The VG would be responsible for the overall performance of the VG. However, so as not to unduly burden this individual, the Deputy Valuer-General would be the accounting authority.

Chapter 3 prescribed how valuations of property would be conducted (see slide 12 for full details.) The OVG may in-source for a while, until the office was fully capacitated.

The definition of value was linked to section 25(3) of the Constitution. When determining value, there must be an equitable balance between the public interest and price, and the values must take into account matters such as current use, history of acquisition and use, market value, the extent of any subsidy and purpose of acquisition. Market value would thus not be the primary consideration. Furthermore, this chapter also covered the acquisition or disposal by the DRDLR, the powers, conduct of registered valuers, preparation of reports and imposition of valuation fees.

Chapter 4 of the Bill spoke to financial and other matters, and covered the funding of the office, and auditing of statements and records, delegation of powers and duties, regulations, and the short title and commencement date.

The DRDLR had consulted extensively on both policy and legislature, and a full list was given on slide 14.The consultations included universities, banks, government departments, organised agriculture, a national reference group, farmers unions, professional valuers, and professional bodies and associations.

The initial indication was that government funding for the first three years of operation would be required of, respectively, R75 million, R60 million and R50 million.

The Chairperson said it was interesting that the proposal to have this office was generated from the RIA. Every time he read a newspaper there seemed to be emphasis that the RIA recommendations revolved around other aspects, so it was important to stress that point.

The Chairperson asked if National Treasury, particularly in regard to the financial indicators, was “on board” with the DRDLR. The point had frequently been made that whilst the imperatives must be recognised, commitment must also be given to finance any initiatives.

Another Member asked if the money was already budgeted.

Mr Motsoeneng said that the Director-General of National Treasury was a member of the Cluster and in principle National Treasury (NT) had confirmed that money would be made available, as also confirmed by the Minister of Finance at the Cabinet cluster. Whether it was budgeted for at the moment he was not sure.

The Chairperson said that the Restitution of Land Rights Amendment Bill, Property Valuation Bill and Expropriation Bill acted in combination to try to reverse the legacies of the 1913 Native Land Act. He wanted an assurance that they would be aligned, and able to respond to the issues. He liked the explanation on why government could not simply be regarded in the same position as a willing buyer. He thought all the elements needed to be completely linked, and noted that the Committee would of course still be considering the Bill and its import in more depth.

Mr Motsoeneng noted that the Departments of Cooperative Governance and of Public Works had been included in the consultation and the DRDLR team was working also with the team from Department of Public Works dealing with the Expropriation Bill. There were some references in that legislation to structures to deal with valuations in government. The focus on this Bill was specifically on valuations of land intended for land reform, but the OVG would be available as a service provider to other departments and its position would be important particularly for expropriations.

Mr M Swathe (DA) asked if, for the purposes of land reform, DRDLR would accept valuations done by an independent valuer. He also asked if the OVG would be determining the price of a property or land presently under private use.

Mr Motsoeneng noted that valuers were instructed by their clients – who might be government, a bank or an individual – to do valuations. Although they were acting for the client they must be guided by professional ethics. When doing valuations for the DRDLR they would be instructed to do the valuations in a particular manner that took into consideration other matters, as listed earlier in the presentation, such as the history of acquisition, current use, extent of state investment and so forth. The private valuer would be expected, in the case of these valuations, to consider all these matters instead of focusing only on market valuation, as they would in other instances.

Mr Swathe followed up on this; he wanted to know if people were allowed to opt to use a private valuer rather than the OVG.

Mr Motsoeneng responded that if that a property owner wanted to sell to government, or if that property had been identified as one that government wanted to acquire in the land reform space, the owner was at liberty to approach a private valuer to assist him/her in the negotiation of the price. However, the government department would be using the OVG and would not be in a position to step outside the value, as determined by the OVG, when negotiating a price. There could be negotiation, but not over the maximum value as determined by OVG. If the negotiations really deadlocked, then the expropriation legislation could be used, that allowed the State to take occupation, pay a portion of what was determined by the OVG and then a court process would be invoked. 

The Chairperson asked whether the South African Institute of Valuers exercised any control over valuers and whether there was any prescribed regulatory mechanism and or process to measure standards. He asked what the role of the Institute was.

Mr Motsoeneng explained that the Institute of Valuers was a voluntary body. However, the South African Council of Valuers operated in the public works space and occupied a position and function in relation to valuers similar to that of the Health Professional Council over health professionals. However it had adopted the international valuation standards to which valuers must adhere. There was no valuation standard that was actually unique to the South African environment. The DRDLR wanted special standards for the land reform space and that was why it was asking for the OVG and for the specific Constitutional requirements to be taken into account.

Mr Swathe followed up on this by asking if perhaps the OVG’s powers would be similar to those, for instance, of the Chapter 9 institutions, and at what kind of level it would operate. He wondered if people might be worried that the values being determined were not truly independent.

Mr Motsoeneng confirmed that the OVG would not be a Chapter 9 institution but it would be operating autonomously of the DRLRD, although reporting to the same Minister, and through the Minister, to Cabinet.

He added that the OVG was determining value, but out of that would come negotiations on the price. He cited the example of the OVG affixing a valuation of R2 million for a property and said that the accounting officer for the department wanting to acquire that property could not negotiate for anything more than R2 million. The purpose of the OVG was to enable government to determine a fair value for the land that took into account the specific purposes for which the land was needed.

Mr Swathe asked if the VG or his/her Deputy would be office-bound or attending to valuations.

Mr Motsoeneng responded that the VG must be a valuer by profession, and registered on the South African Property Valuers Council. As to whether that person would be operating full-time “in the field” he said that he thought it more likely that the team of valuers who would be appointed to the OVG would be those going out into the field. The Deputy VG was basically responsible for ensuring that the administration was running smoothly, that there was compliance with the Public Finance Management Act and administrative issues.

Ms H Matlanyane (ANC) referred to slide 7 and noted that the office was to be autonomous, but she would like further explanation on this, and how it would be accounting to government.

Mr Motsoeneng explained that the DRDLR wanted there to be a perception that the DRDLR was not actually exercising control over the OVG, but the  OVG would not to be entirely independent of the Executive, and would be reporting to the Minister of RDLR. However, it would not be a branch of the DRDLR, and there would be arms-length. It would not “take on a life of its own” in the sense of not being accountable to the executive.

Ms Matlanyane also referred to slide 12, noting that valuers must be a member of staff, or sourced from outside. She asked why, from the start, experienced people could not be hired. She would not like to repeat the problems of the past, with huge amounts being paid for consultants. Furthermore, she wanted to know how the payments would be controlled. She emphasised that all staff must be appointed with the necessary experience.

Ms N November (ANC) also wanted to express concerns about outsourcing.

Ms P Xaba (ANC) asked how the valuers would be communicating the values they set.

Ms November assumed that there would be a main office in Pretoria, but asked how the provincial offices would function.

The Chairperson asked if the OVG would be given the capacity to conduct valuations throughout the country, or what else might be envisaged in terms of its functions. He also asked what the staff component of this office might be. It seemed that there were numerous disputes and he wondered how the Department would ensure that it had the necessary capacity to deal with those.

Mr Motsoeneng agreed that the OVG needed to build its own capacity eventually, but it may take some time to attract qualified valuers and grow its own staff. Mr Motsoeneng confirmed that the office would have a national footprint. The Bill allowed the VG to determine the requirements on numbers of permanent staff, and those who might be needed from outside. It was accepted that it was preferable to build internal capacity. However, he emphasised that even if OVG did employ a valuer in private practice, on a consultancy basis, the manner in which that person performed the valuation would still be determined by the legislation. He reiterated that valuations for land reform purposes would be done differently from those for a willing-buyer, willing-seller sale, taking into account the Constitutional imperatives.

The Chairperson asked if there would be any appeal procedure in a situation where a property owner might dispute the decision of the valuer.

Ms Mahlaela confirmed that a valuer would determine value, but a separate process would follow for making an offer, which the seller could accept or decline. The DRDLR always reserved the right to expropriate in cases where there was no agreement between DRDLR and seller on land needed for land reform purposes.

The Chairperson cited that a problem could arise if there was any problem between outsourced valuer and property owner.

Mr Motsoeneng said that part of the reason why valuers were being used was that they were required, in terms of their professional body and the legislation, to conduct themselves in a certain ethical way. The DRDLR would, if it found any wrongdoing, invoke the penalties, which could include a valuer being removed from the roll of valuers. DRDLR was in discussion with the Council for Valuers, and was confident of its support.

Ms Matlanyane noted that the presentation mentioned budget for only three years after the Bill came into operation, and asked if funding would be required thereafter, or whether the OVG would be generating its own funds.

Mr Motsoeneng said that the three years was mentioned because of the three year medium term expenditure framework. However, the OVG would be able to charge fees when working for State department wand would be generating fees. He added that at the moment the DRDLR was attending to valuations, so there was already a budget for to pay valuers in private practice. The budget may not cover everything, but DRDLR was confident that it would be able to fund also from the baseline.

Mr Swathe was worried that this Bill might create the impression that Government was simply seeking to acquire properties for whatever price it wanted, rather than taking into account the preferences of the private seller. He was worried about removing vested rights.

Ms Mahlaela said that the OVG would determine the value, not the price. However, when determining the value of land for the purposes of land reform, certain factors must be taken into account. The government could tell the seller that the OVG had valued at a certain value, and this was what it was prepared to pay. The value could be argued in court. However, there was no sense that the seller would be forced to sell. Of course, the expropriation route might follow.

The Chairperson said that the challenge of determining a reasonable price was the main reason for setting up the OVG. The VG, as pointed out, would determine value, in order to mandate a department to negotiate for no more than the value determined by the VG. If the land owner did not want to accept the price offered, the State could expropriate (because it had an obligation to acquire land for redistribution) but the Court could determine whether the price was fair. He stressed that just and equitable principles would be central – and that assumed that a win-win situation would be sought, whereby the State could acquire land for re-distribution, but the owner would also get a reasonable price tallying with the valuation made by the VG. During the public hearings, there had been expressions of support for the OVG, which was seen as the quickest way of resolving disputes around prices of land. If the country wanted to reverse the legacy of inequity, this Committee should embrace processes and proposals and recommendations aimed at ensuring that the mandate was realised. He reminded Members that the ad hoc Committee on the Legacy of the 1913 Act had visited a number of areas to investigate what obstacles were standing in the way of land reform.

He noted that this was a section 75 bill, so the Committee would be advertising the Bill, for a period of two weeks. After that, the Committee would be engaging with the Bill, clause-by-clause, following a formal approach. There would be further chance for Members to engage in more detail with the issues. 

Mr Swathe asked whether the Bill was in fact moving away from willing-seller, willing-buyer principles to compensation for land.

The Chairperson answered that the presentation had emphasised that the VG would determine the value of the land by going through a number of steps, to reach, say, a figure of R5 million. That was not quite the same as compensation, as this valuation meant that R5 million would be a fair price for the seller that would not represent a loss for him/her. The reason for setting up the OVG was to avoid the over-pricing that had been a problem in the past. Where no rules were in place, the law of the jungle and survival of the fittest would take over. Determination of a “proper value” meant that nobody should lose out, and the value would also take into account any reasonable profit between the time of initial purchase and sale, by the private owner.

Ms Mahlaela confirmed that this was quite correct. The amount paid in a transaction valued by the OVG was not the same as compensation in an expropriation case. This was a transaction involving value paid for a sale.

The Chairperson asked for fuller explanation of how compensation worked, and why it would differ from an ordinary transaction. If the VG said that the land was worth R3 million and the seller refused to budge, yet the State was adamant that it needed to expropriate the land, the what would be paid?

Mr Motsoeneng said that a private property owner may wish to sell. In the case where a private buyer indicated interest, the bank from whom the buyer wanted finance would ask a valuer to determine the market value of the property, which might be R5 million. The seller and buyer would then negotiate around that figure. In the case where the interested buyer was a government department, who wanted to purchase the property for public interest, the valuer would not confine his/her calculations to market value only, but would also consider the amount of state investment in the land, and this could impact on what the value for land reform purposes would be. If this came up with a lower value than R5 million, the seller could always reject the offer and try to sell privately. However, eventually the State may wish to expropriate that land, and in this case, a court process would ensue to determine the adherence to the relevant legislation, and “compensation” would be paid. Compensation might not be the same as market value.

The Chairperson summarised that the market value process would continue for private transactions. .

Mr Motsoeneng added that other transactions involving the state might also still be based on market value; it was only for the land reform processes that the OVG process would be followed.

The meeting was adjourned.


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