National Housing Finance Corporation & National Urban Reconstruction Agency Annual Reports 2008/09

Meeting report

National Urban Reconstruction Agency (NURCHA) Annual Report 2008/09
Dr Morgan Pillay, Managing Director, NURCHA y introduced NURCHA’s Chief Financial Officer, Mr Sindisa Nxusani, and its Chief Operations Officer, Mr Viwe Gqwetha.

Dr Pillay gave a brief history of NURCHA and outlined its annual plan for the financial year 2008/09. He explained that NURCHA was a partnership between the South African government and the Soros Economic Development Foundation (SEDF), which was founded in 1995 under the leadership of former president Nelson Mandela. The organisation had a unique capital structure with elements of both commercial funding and grants and had become specialised in construction finance and its inherent risks. NURCHA’s role as a development finance institution was also sensitised to the socio-economic needs of the South African environment. NURCHA continued to expand and extend its financing efforts down market. It was committed to serving the integrated Human Settlements sector and to exploring options for financing housing and community residential infrastructure. NURCHA used both private and public finance to leverage its mandate of providing finances for housing and residential infrastructure for the South African population. NURCHA provided various products in the form of bridging finance for housing and residential community infrastructure, as well as intermediary services that worked with contractors and developers.
Dr Morgan made reference to the increased number of houses approved, and suggested that there had been sound growth, from 20 000 houses last year to 29 000 houses in 2009. 18 000 were completed in the last year, another increase from the previous year of 13 000. He also tabled slides referring to steady growth in the number of housing loans financed, of about R412 million for 2009, seen against the figure of R262 million in the previous year.

NURCHA’s involvement with black and emerging contractors, promoting Black Economic Empowerment (BEE), was satisfactory, but involvement of females was not quite as good.

Mr Sindisa Nxusani, Chief Financial Officer, NURCHA, briefed the Committee on NURCHA’S financial performance. He explained the figures on the balance sheet (see attached document), and said that the cash and cash equivalent account stood at R91 million, about half of what it had been in the previous year, because NURCHA had decided in this year to use its own cash resources to finance project and other costs. The equity and liabilities section of the balance sheet showed total accumulated reserves of R285 million, and also a loan liability from the SEDF, which would become repayable in 2016 (see document). An OSI Specialised Loan figure of zero was reflected on the non-current liabilities, because this had been converted to a grant now reflected in the income statement. Another loan from FMO would be repaid with effect from 15 November over a period of 18 months. The Bank Loans figure of R108 million reflected finance sourced from First National Bank (FNB) to finance various projects. The income statement showed that NURCHA had generated R49 million from money market investments, and R53 million was earned on interest and fees on projects that formed NURCHA’s core business. The cash flow statement was also presented.

Dr Morgan then made some concluding remarks. He noted that because NURCHA was a development funding institution, it would make a slightly positive difference if the South African banks treated it differently to any other institution. Currently banks considered NURCHA in the same light as other institutions, which made it difficult for it to raise finance for projects with favorable bank conditions. He also stated that, given NURCHA’s mandate, much more could be done if the co-operation of banks could serve as leverage for the mandate. He acknowledged the importance of closer relationships with provincial and local government structures, in order to speed up the delivery of housing and residential projects that had been halted or blocked. He then recapped the growth points that NURCHA had achieved, as stated in the presentation.

Discussion
Mr A Steyn (DA) asked why the presentation contained less information than the actual report, since a person having access only to the presentation would miss a lot of the information being given in the report. He also asked about the great difference between the figures for approved housing loans and those for completed houses.

Dr Morgan noted that there were two documents, namely the annual review and the annual financial statements. The presentation attempted to summarise both and was intended to be brief. He noted that because NURCHA processed so many loans it was possible for some of them to overlap because they could be in certain phases of approval for loans, although not being in approval phases for construction, and could, for this reason, fall into both categories.

Mr Steyn referred to the intermediary services provided to contractors in the form of project management assistance and asked how much the intermediary service providers hired by NURCHA to give this assistance were being paid, in relation to the rest of the open market.

Dr Morgan said the training was conducted with intermediaries and was intended to allow the contractors to understand contracts and technical requirements in construction. He admitted that he had no knowledge of the exact figures of the expenditure relating to intermediaries.

Mr Viwe Gqwetha, Chief Operations Officer, NURCHA ,stated that the support for contractors was necessary, as it helped them to manage projects. There might be little presence in offices in other provinces, but there was certainly some form of contact when talking to contractors in these projects.

Ms M Borman (DA) asked about the effects of the downturn in the economy and how it could affect the budget for next year. Secondly she asked how the bad debt account was monitored and managed.

Dr Morgan explained that because the focus of NURCHA was on providing bridging finance for housing, this meant that NURCHA would always consider the overall financial requirements of projects. It would assume 40% of the bridging finance. The remaining 60% was financed from elsewhere. The effects of the downturn on the economy and on the projects would therefore always be in relation to the bridging finance responsibility assumed by NURCHA.

Ms Borman also asked why there was lack of presence in certain provinces.

Mr Gqwetha said that the lack of physical presence resulted from a lack of sufficient business demand in those provinces to justify a physical presence.

Dr Morgan added that presence in a province was determined by the amount of project work that the province demanded of NURCHA, and how much it could make as a profit from that work.

Ms T Gasebonwe (ANC) asked about the criteria used to select contractors or developers who were assisted to access funds.

Dr Morgan answered that the selection process of contractors and developers was done by the local and provincial government, while NURCHA only posed some key requirements that had to be met, such as ownership requirements and project experience.

Mr Gqwetha said the first condition of the criteria was that the contractor must have been awarded a tender, after which relevant due diligence was done to assess the viability of the project. The entity was also assessed to check its credit records, previous records and other previous projects.

Ms N Mnisi (ANC) expressed concern over the lack of involvement of female contractors, and asked what was being done.

Dr Morgan answered that NURCHA was also concerned about the lack of female involvement, and that it would be willing to grant bridging finances to women contractors, but they must first be granted projects. 

Mr Steyn expressed concern over the blocked or halted projects in which emerging contractors were involved, saying that some of the contractors lacked skills to manage these projects. He asked whether NURCHA was the core provider of skills to emerging contractors, or whether external consultants were being hired for this. He also asked about projects at local level, and whether the unblocking was assisted by the municipality, since some finances were raised through the municipality.

Dr Morgan said that the involvement of municipalities in blocked projects was something that NURCHA would work on by improving the channeling of funding.

National Housing Finance Corporation (NHFC) Annual Report 2008/09 Briefing by the NHFC
Mr Samson Moraba, Chief Executive Officer, NHFC, introduced his team. He outlined the mission, vision and goals of the NHFC, as primarily concerned with developing innovative ways of providing housing finance. In pursuance of this, new products were being developed, in partnership with the private sector, to allow the low end of the market to be able to acquire houses, by protecting them from the interest rate changes. One example of such an initiative was the strategic partnerships that the NHFC had developed with the private sector, named Trust for Urban Housing Finance (TUHF). This was a company formed to facilitate the development of the inner city regeneration projects, which initially serviced Gauteng but which was now being rolled out into other provinces. The NHFC had also worked with ABSA bank to train 400 black estate agents, to encourage empowerment in that segment of the housing market. The credit crisis greatly affected the work of the NHFC in the housing market, as its risk had increased, together with risk sharing, and the exposure to such greater risk was seen in relation to provision of funding for projects, commercial and retail property. The high level of indebtedness of the market had also made it difficult for the end users, also making it difficult for NHFC to properly execute its strategic objectives. The 2008/2009 performance of the NHFC should be evaluated against this background.

Ms Zonia Adams, Chief Financial Officer, NHFC said that the NHFC had managed to maintain growth. She cited the increase in loan assets from R929 million in 2008 to just over R1 billion in 2009. The liabilities account noted that the amount reflected was a consolidated account of the other entities that had merged into the NHFC’s group company structure. Operation expenses had been managed to their minimum in relation to previous years. The profit before tax was 82% above budget. Profits for the year were at R108 million. A positive profit growth trend could also be seen in NHFC’s financial performance (see attached document for full details).
 
Ms Delca Maluleke, Assistant Manager: Corporate Communicationsrations, NHFC, presented the various projects with which the NHFC was in various provinces in the country. The NHFC’s provincial footprint was largest in Gauteng, at 48%. NHFC had experienced its first irregularity in its purchase of certain shares. He concluded with a description of the corporate governance of the organisation, as well as setting out its organogram showing the various levels of management.

Discussion
Mr J McGluwa (ID) asked for some clarity over the training initiatives and whether they were intended for Johannesburg beneficiaries, or for the whole country, including the Eastern Cape and other provinces that were less represented in the NHFC’s provincial footprint.

Mr Moraba explained that although training took place in Gauteng, this did not mean that the training was done solely for the Gauteng region. Efforts were made to include trainees from all across the country.

Miss V Magwanya (ANC) asked about the exclusion of rural areas from the footprint, and whether  these initiatives were intended for the sophisticated cities.

Mr Moraba replied that the NHFC used intermediaries to reach out as part of its footprint. There were therefore partnerships that NHFC fostered with various entities across the provinces, to provide them with bridging finance, but the problem could be that these kinds of partnerships with NHFC in the less represented provinces tended not to be matters of common knowledge.

Ms Borman asked about the irregularity mentioned in the report, and how it happened that an irregular transaction could be approved.
 
Mr Moraba replied that the issue was just one incident of irregularity, and that NHFC had worked hard to ensure it did not happen again.

Mr Mziwonke Dlabantu, Deputy Director, National Department of Human Settlements, also clarified that the irregularity was made known, and was investigated by the Department, and it was found that this was a genuine mistake that could have happened to anyone.

Mr Steyn asked whether it was true that the NHFC was being changed into a bank. He also enquired about the interventions that NHFC was making in Eastern Cape.

Mr Moraba answered that the conversion of NHFC into a bank was in line with making it a financial instrument for the raising of housing finance. There were questions about naming it as a bank, because this would imply that it would takes deposits, which it did not wish to do. That was still to be  debated. However, the mandate of transforming into a vehicle similar to the bank was certainly ongoing.
 
The meeting was adjourned.