First encounter with the regulations to the Valuation Act. They provide for the manner in which land, to be acquired by the State for land reform purposes, should be valued. It works like this:
1. Determine the current use value of the land. To do this you take the nett cash flow
1. Determine the current use value of the land. To do this you take the nett cash flow
i.e. income less expenses and multiply that by a capitalization rate. In the case I am looking the rate was 13% (God knows where that number comes from) to give the current use value. So let’s assume a nett cash flow for a small farm of R250k per annum times 100/13= R1.9 million.
2. That amount is added to the market value, which in this case is R6 million, and divide by two. So 6+1.9=R7.9 million then divide by 2 to give a price of R3.95 million or a little more than R2 million below market value.
This, the Minister of Land and Rural Development fondly imagines, strikes an equitable balance between “the public interest and the interests of those affected by the acquisition”.
What it means in practice is that if you are farming at break even the state proposes to acquire your property for 50% of its market value. The average return for the average farmer is about 4% on capital invested.
This means the nett return on a R5 million farm is say R200 000 per annum. On the formula used as described above, government proposes to expropriate that farm for R3.769 million or at a 37% discount to market value.
It’s crazy and arbitrary and doubtless the regulations are unconstitutional.
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