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Jerry L Margolius & Associates
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Valuation for land restitution purposes

Over the past years, I have assisted the Land Claims Commission and the Department of Land Affairs, together with some of our other colleagues in trying to identify the problems that we face when undertaking valuation under the auspices of land restitution.

The solution is not so simple and I view one of the main problems as being the lack of jurisprudence to enable us to follow the guidelines laid down by the Land Claims Court. Yes, the process has been slow but, when operating within the system of restitution, you begin to understand why, and as Valuers, we will have an important role to play. We will need to assist the Government Departments in ensuring that cost effective valuations are undertaken and where possible, suggest the batching of claims within an area be included in your brief. Clearly, it is not cost effective for single valuations to be performed.

The maintaining and most importantly, sharing of information amongst your colleagues must be ensured. Compassion must be shown to the claimants, yet objective valuations must be performed at all times. We will divide this paper into two sections. Firstly, we will need to understand land restitution, to whom it is applicable and the functions of the statutory bodies.

Thereafter, we will discuss the valuation process, what can be expected and the problems you are likely to encounter.

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Understanding Restitution

Since 1913 and in fact prior thereto, rights to land have been controlled by some form of racial discriminatory laws and practices.

Why do we need to understand this process from such early days? Well, the valuation of land set aside by the Queen Victoria (Sir George Cathcart) by means of Land Grant to little Namaqua Hottentots in about 1854 may very well have been part of your valuation research. This would have resulted in extensive Deeds Office search and land knowledge in order to perform what is inevitably an historical valuation.We are all familiar with the term Group Areas which will form the basis in the majority of urban valuation briefs. You would be required to acquaint yourself with this legislation and many other discriminatory laws in order to understand the process. These Acts could include:

  • Native Land Act of 1913
  • Native Administration Act of 1927
  • Development Trust and Land Act of 1937
  • Asiatic Land Tenure Act of 1946
  • Group Areas Act 1950 & 1966
  • Rural Coloured Areas Act of 1963
  • Community Development Act of 1966

In particular, the 1950 Group Areas Act addressed the provisions on how to control ownership and occupation of land. However, it did not adequately address the aspect as to how people were to be removed, as the Act simply provided the title of disqualified persons and disqualified company for those who resided in demarcated areas. Disqualified persons were able to retain ownership of their property in their lifetime but their heirs would be required to dispose of the inherited property to a member of the applicable race group. Properties owned by disqualified companies were required to be disposed of within ten years.

The Group Areas Development Act of 1955 was subsequently passed. This Act dealt with the disposing and acquiring of disqualified properties now termed affected property. The Act could apply to any group but its application was not mandatory. However, once applicable all affected property would at first have to be offered to the Group Areas Development Board. Only when the Board waived its rights could a sale take place. The State refused to acknowledge that disqualified owners were entitled to compensation. The Board placed a basic value on the property. If the property was sold below the basic value, the Board would pay 80% of the difference between the basic value and the selling price. However, in the event of the selling price being higher, an appreciation levy of 50% was payable.

The first group area proclamation after the Group Areas Development Act was Proclamation No.190 of 1957. The Department of Local Government and housing has advised that the basic values prescribed by regulation (Community Development Act, 1966 (Act 3/1966 Government Notice R734 dated 11th May 1962) required this value to be the market value as at 9th February 1961.

The introduction and legislated provisions of the Group Areas legislation could certainly not support the existence of an open market. But, it must also be understood that sales of property owned by other race groups were also controlled and therefore, the sales of all property in South Africa until the 1990s were controlled.

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Who is entitled to restitution

The Constitution of the Republic of South Africa, 1993 (Act No. 200 of 1993), provides for the restitution of a right in land to a person or community dispossessed under or for the purpose of furthering the objects of any racially based discriminatory law S25(7) A person or community dispossessed of property after 19 June 1913 as a result of past racially discriminatory laws or practices is entitled, to the extent provided by an Act of Parliament, either to restitution of that property or to equitable redress.

The Land Restitution Act 1994 provides for the restitution of rights in land in respect of which persons or communities were dispossessed under or for the purpose of furthering the objects of any racially based discriminatory law; to establish a Commission on Restitution of Land Rights and a Land Claims Court and to provide for matters connected therewith.

This legislation promotes the protection and advancement of persons, groups or categories of persons who are disadvantaged by unfair discrimination, in order to promote their full and equal enjoyment of rights in land.

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The task of the Land Claims Commission

The Land Restitution Act provides for the establishment of a Land Claims Commission. The task of the Commission for the Restitution of Land Rights (CRLR) is to investigate and mediate land claims. It has drawn up guidelines, procedures and requirements for the lodging of land claims and other related matters. All land claims were to be lodged by 31 December 1998.

No one will be able to claim land without substance. A claimant will have to prove that he or she was dispossessed after 1913 without adequate financial compensation or alternative land. Where legitimate claims are lodged for dispossessions that took place before 1913, the Minister of Land Affairs will consider giving preference to such claimants in terms of the redistribution programme.

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The Land Claims court

The Land Claims Court was set up in 1995, in terms of the Restitution of Land Rights Act, 1994 (Act 22 of 1994). Where the CRLR fails for whatever reason to successfully mediate a claim, it will be referred to the Land Claims Court for a ruling.

The Court has the status of the High Court, and any appeal on a Land Claims Court decision will be handled by the Constitutional Court. The Government will not be able to interfere with the workings of the Court.

The Land Claims Court will be responsible for determining restitution and compensation to those who lost land as a result of forced removals. Requirements of the Court are that it must be accessible to the poor and illiterate, and it must establish processes that will enable it to make speedy decisions. In order for the court to function effectively, constitutional rights to restitution must be guaranteed.

In all cases of restitution, the State, usually the Department of Land Affairs is the respondent. The Department of Land Affairs also has a mandate to enter into negotiations with the Claimants in order to reach a settlement on the issue of compensation before proceeding with the matter to Court.

The members of the Court are: Mr Fikile Bam, President of the Court, Mr Antonie Gildenhuys, Mr Alan Dodson, and Mr Justice Moloto and Mrs Shanaaz Meer.

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Property Clause

A brief understanding of the property clause is essential. Unfortunately, little jurisprudence has in fact been made and therefore, the negotiation process will still continue. Of particular importance to valuers will be S25 (3), which deals with the circumstances relating to the compensation that was paid and other factors which need to be taken into account when dealing with this issue. You will note that the market value of property is only one of the factors which needs to be taken into account.

Property Clause 25

(1) No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.

(2) Property may be expropriated only in terms of law of general application (a) for a public purpose or in the public interest; and
(b) subject to compensation, the amount of which and the time and
manner of payment of which have either been agreed to by those affected
or decided or approved by a court.

(3) The amount of the compensation and the time and manner of payment
must be just and equitable, reflecting an equitable balance between
the public interest and the interests of those affected, having regard
to all relevant circumstances, including

(a) the current use of the property;
(b) the history of the acquisition and use of the property;
(c) the market value of the property;
(d) the extent of direct state investment and subsidy in the acquisition
and beneficial capital improvement of the property; and
(e) the purpose of the expropriation.

(4) For the purposes of this section (a) the public interest includes the nations commitment to land reform, and to reforms to bring about equitable access to all South Africans natural resources; and
(b) property is not limited to land.

(5) The state must take reasonable legislative and other measures, within its available resources, to foster conditions which enable citizens to gain access to land on an equitable basis.

(6) A person or community whose tenure of land is legally insecure as a result of past racially discriminatory laws or practices is entitled, to the extent provided by an Act of Parliament, either to tenure which is legally secure or to comparable redress.
(7) A person or community dispossessed of property after 19 June 1913 as a result of past racially discriminatory laws or practices is entitled, to the extent provided by an Act of Parliament, either to restitution of that property or to equitable redress.

(8) No provision of this section may impede the state from taking legislative and other measures to achieve land, water and related reform, in order to redress the results of past racial discrimination, provided that any departure from the provisions of this section is in accordance with the provisions of section 36(1).
(9) Parliament must enact the legislation referred to in subsection (6).

In addition, Section 33 of the Restitution of Land Rights Act, 1994 (Act 22 of 1994) provides for the Land Claims Court in addition to relevant provisions of the Constitution, to have regard to the following factors:

(a) The desirability of providing for restitution of rights in land or compensation to people who were dispossessed of their rights in land as a result of or in pursuance of racially based discriminatory laws;
(b) the desirability of remedying past violations of human rights;
(c) the requirements of equity and justice;
(d) the desirability of avoiding major social disruption;
(e) any provision which already exists, in respect of the land in question in any matter, for that land to be dealt with in a manner which is designed to achieve the goals contemplated in section 8(3)(a) of the Constitution; any other factor which the Court may consider relevant and consistent with the spirit and objects of the Constitution and in particular the provisions of section 8 of the Constitution.

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Departmental Research

Once a claim has been received and researched, it will be validated by the Commission.
Researchers will conduct a research into the ownership of the property and the dispossessed parties. This will usually include obtaining copies of Title Deeds and meeting with the claimants to discuss their individual claims. They may identify the problems in the area but will almost certainly confirm the racially based legislation that gave rise to the claim and dispossession of the property. Documentation which is likely to be available in the research reports, although not essential will include:

Title Deed of the dispossessed party prior to dispossession;
Transfer to the relevant purchaser which could be the Department of Community Development;
Subsequent sales (if available);
A research report including an interview with the claimant Details of the property prior to dispossession.

I have endeavoured to arrange that the original GC 169 valuations indicating how the basic value was determined etc. to be included in the research.

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Valuation Tendering and the Brief

The brief that you will receive will set out exactly what is required from you. If there is any uncertainty at this stage you should discuss this with the instructing party.

I would suggest that should you feel that the brief falls beyond your expertise, that you decline to accept it. Remember you will always be respected for declining a brief due to the complex nature thereof rather than accepting one that could be to your detriment and that of our profession. This must also be borne in mind when tendering. On the issue of tendering, the Department maintains a database using a Props system. You should ensure registration with the Department and I refer you to the September 1998 issue of the SA VALUER which possibly lies unopened on your desk, for further information. Incidentally there is also an article on Land Reform.

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Valuation Research & Suggested Procedures

Having accepted your brief, you should endeavour to obtain a copy or at the very least peruse the applicable files pertaining to your valuation assignment. These files are either with the Land Claims Commission or the Department of Land Affairs.

The first item you need to confirm is the effective date of the valuation. Beware, researchers have often used the date of registration as the date of dispossession.

Secondly, an area map would need to be obtained. Some Local Authorities would be able to assist you with the old historical cadastral maps will prove most helpful. I usually try and make tracing copies thereof.

Aerial photographs, zonings and town- planning schemes in place at the time of dispossession will prove useful. Municipal records including field forms or building records as well as building plans should be obtained. If not available from the Authorities, try the Archives where you will usually find the old valuation records. You may also try and view some of the old photos that they have in their files.

Familiarise yourself with the legislation that was applicable at the time. A visit to the Surveyor Generals office will enable you to note the Group Area boundaries that were applicable. You may also need to locate the properties you are valuing and therefore, noting sheets and site diagrams will be included in your research.

Inspect the property, hopefully it still exists. If not try and locate similar properties in the vicinity to enable you to appreciate the buildings that existed at the time. Peruse the research report and obtain a description of the property therefrom.

At this stage, you may like to interview the claimant. Prepare yourself for what could be a very emotional interview. The Claimant is likely to be extremely subjective, understandably so. I usually ask the claimant to draw a rough sketch of the property which I feel often helps. Ascertain the condition of the property as at date of dispossession and whether there was any other potential highest and best usage that needed to be considered.

It is my opinion that cities usually have a natural growth. Certainly, superstores, shopping malls, sectional title schemes etc., were not the norm of development in the 1960s. As such, the site potential or plottage that may have followed 10 years later should be pursued with caution.

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Valuation Methods & Calculations

The purpose of this item is not to teach you how to value property merely to highlight some of the pitfalls when carrying out the valuation and applying the method which you have selected.

Comparable method is always the first prize. Beware of selecting sales of property that may not have been at arms length transactions. Sales between the same and different race groups should be carefully analyzed especially when utilising sales within the affected areas. Although the comparable market method of valuation approach has wide implications as a method of estimating value and is of primary importance where applicable, there are factors that may limit its usefulness.

Examples of these are the following:

  • No provision is made for arriving at an estimated value in cases where there are no current sales or comparable properties or where there is no active market.
  • No two properties are identical since they vary in location even if they are alike in other respects.
  • All differences must be considered. The more factors to be compared and adjusted the greater the number of decisions and judgements necessary.
  • Minimal adjustments tend to increase reliability.
  • Intangible qualities are difficult to compare.
  • Ascertaining the exact conditions applicable to each sale is essential so that the validity of the sale as comparative data may be established.

In this regard we would need to establish if at the time the owners were informed sellers or the buyer an informed buyer, either being aware of the current market value.

Many motivations lead to the transfer of real property at figures unrelated to the property market value. Tax situations may affect the sale price. Transfers between relatives or even auctions may not give a true indication of market value.
The adjustment process is subject to many inter-relationships among the factors considered and may over or under account for dis-similarity. (Source: Appraisal of Real Estate).

We will need to deal with the exceptional circumstances that affect the property. Prices are affected by the abundance of property becoming available on the market and sales taking place within the period of dispossession. Therefore, it remains extremely difficult when investigating into the circumstances of utilising comparable sales to ascertain whether there were any voluntary sales that were made or sales made under or within normal or usual terms and conditions.

One assumes that a valuation in the open market is conducted under the normal or usual terms and conditions. Prices are however affected by exceptional circumstances. Justice Rosen in Groenewald and others versus Van Rooyen en andere (1960 (1) 244 C.P.D) held that the circumstances of exceptional nature would only relate to events such as war or major political unrest. Therefore, we consider properties which are affected by exceptional circumstances should not be used as comparable sales.

Certainly, the dispossession of property in my mind under the then Group Areas Act could fall into this category. The Judge did however point out that price fluctuations caused by normal economic cycles would not be treated as exceptional circumstances.

In the case of Todd vs. The Administrator of the Transvaal (1972 (2) S.A.876.A.D on page 881H:

It is obvious that when the situation arises where there is only one potential purchaser that is the expropriating authority itself, there can hardly be seen to be open -market in which the value of the property can be determined. On page 882 the only possible answer it seems to me is that the arbitrator who determined the value of the property, with such potential as it has, did so in the same way as he would have done had there been several possible purchases.

Bearing the above in mind, I am clearly of the opinion that where exceptional circumstances exist and clearly certainly no open market from which suitable comparable sales could be obtained alternative methods will have to be investigated.

I have found the replacement cost method less depreciation a good guideline in calculating values in areas where the properties have all been demolished e.g. District 6 in Cape Town and/or the area has changed identity. In establishing land values, work on the outer boundaries and try to establish a range within which the values will fall. When calculating the depreciation, work to tables such as McMichaels which is internationally accepted. You will exclude all the political influences that existed in South Africa. If you are likely to have to adjust, adjust in favour of the claimant.

Historical building cost indices are of great assistance. Even housing price sales may help you in your calculations.

Based upon the construction of a solid house, the following table based on the expected life of say 75 years, the recommended depreciation factors would be as follows:

Age Recommended Depreciation Factor
1 2
2 3.8
3 5.6
4 7.4
5 9.1
6 10.7
7 12.3
8 13.9
9 15.5
10 17
11 18.5
12 20.0
13 21.4
14 22.8
15 24.2
20 30.8
25 36.8
30 42.49
35 49.5
40 52.2
45 56.5
50 60.5
55 64.1
60 67.3
65 70.3
70 73.0
75 75.0

The above table is estimated structural depreciation for a building kept in an ordinary state of repair. Buildings still in use are not depreciated more than 75% of the cost of present day reconstruction. Allowances for obsolescence are not included in the schedule. McMichaels Appraising Manual is an international valuers handbook and used for the purpose of endeavouring to ignore political influences on depreciation factors.

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Compensation must be based on the principles of justice and equity.

Where land is expropriated the Claimant should not profit at the expense of the public but should instead be fairly compensated for what was paid and invested in the property. Special benefits will be taken into account and this could include low interest loans, rates exemptions etc.

Certain guidelines were contained in the 1995 Ministerial report regarding the determination of Land Values. The following may apply in particular circumstances:

The actual prices paid by the present owner at time of acquisition;

  • market value of the land at time of acquisition;
  • present day value of the land, excluding the improvements made by the owner;
  • the contribution value of beneficial improvements (i.e which adds to the value of the property) made to the property by the owner since time of acquisition;
  • the value of any special benefits which the owner received from the State (e.g low interest rates, subsidies etc)

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Valuation Report

In concluding the following are some of the data you may consider including in your report.

  • Contents
  • Instructions
  • Date of Valuation
  • Format, Procedure & Technique used in the Appraisal of the Property
  • Details of Claimant
  • Title Deed Description
  • Deed of Transfer
  • Details pertaining to property as at date of Dispossession
  • Surveyor General Information
  • Local Authority Information
  • Physical address
  • Property Reference Number
  • Map Numbers
  • The Municipal Valuation
  • Historical Background
  • Recorded Municipal Valuation
  • Determination of Site and Building Values: Site Value and Building Value
  • Zoning
  • Locality and Physical Description
  • Locality
  • Physical Description
  • Highest and Best Use
  • Commentary on Group Areas Act in relation to subject property Market Value
  • Methods of Valuation
  • The Market Data Approach
  • The Income Approach Method
  • Application of Market Data
  • The Use Of Comparable Properties
  • The Application of Municipal Valuation vs Market Valuation
  • Sales Record
  • Approach and Adjustment of Market Data
  • Summary & Conclusion
  • Valuation, List of Annexures, References

Lastly, remember that your valuation is likely to be reviewed by other valuers and your peers needless to say, the Land Court Judges and Commissioners will also peruse same. Most importantly ensure that your work is of an acceptable standard.

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