Social Housing Foundation, Rural Housing Loan Foundation; National Home Builders Registration Council Annual Reports 2008/09; Committee Report on Eastern Cape oversight visit

Meeting report

Mr A Steyn (DA) said that the National Home Builders Registration Council’s (NHRBC) Annual Report had not yet been tabled in Parliament, and therefore questioned whether it would be appropriate to have them do a presentation.

Mr Morris Mngomezulu, Director: Housing Institutions, Department of Human Settlements, said that a letter had been sent to the Speaker and was forwarded to the Chairperson of Committee to explain the delay by the Office of the Auditor-General. Printing was therefore delayed. This was completed the previous week and could not be tabled the previous week. Members now had a copy which they could peruse.

Mr Steyn (DA) added that the report was still not formally tabled and therefore, according to Parliament’s rules, it should not be entertained. He suggested that to save time and money they go ahead and listen to the presentation. He wanted to know when it would be tabled.

Mr Mngomezulu said that it was difficult to say when it would be tabled. It would however be sent in the current week.

National Home Builders Registration Council
Mr S Mashinini, CEO of the NHBRC, addressed the Committee according to the PowerPoint presentation. He added that the aim of the NHBRC was to protect the consumer and ensure that quality homes were built. He explained that the warranty which the NHBRC provided had an upper limit of R500 000.

Mr Courteney Thorp, Executive Director: Financial Services of the NHBRC, continued and explained the financial report of the Committee. He pointed out that the Council was R256 million rand under budget, as far as revenue was concerned, this was largely due to the decline in the housing market. At present however, home enrolments were increasing. He explained that the expense to income ratio was becoming a problem. Things were in place however to address this.

Mr Mashinini continued to explain that the fixed costs to revenue ratio were also high. This was a challenge for the Council as it might mean that one would have to reduce staff. They were presently spending 20% more than they were earning on a month to month basis.

Discussion
Mr Steyn (DA) pointed out that the NHBRC was not a developer, yet they had found on their oversight visit that the NHBRC was acting as a developer. He was also concerned that the NHBRC was not heeding the advice of its inspectors even though the NHBRC had mentioned that the number of inspectors had increased. On their site visit, they had seen floor levels which were not the required height above the ground, These had been reported by the inspectors, but the NHBRC had not done anything. He wanted to know if the warranty also applied to the non-subsidy houses and what percentage of claims were finalised. He was also concerned that the Council had a huge amount of money in cash and wondered if this was wise and wanted detail about the rectification process in the Eastern Cape.

Mr Mashinini said that the NHRBC was not a developer and would never be one. The NHBRC was requested to project manage certain rectification projects since it was interested to see that the houses were done properly. The construction however was outsourced. By managing the project, it was also mitigating risk. He added that at present each inspector was seeing 400 units per year. The Council was aiming at reducing this particularly in the rural areas as distances were huge. Inspectors were assigned per project. The Department of Housing has specified that every subsidised house had to be inspected. To increase inspectors however, would increase the Council’s fixed costs. At present this was being outsourced. This was being done in the Eastern Cape where the number of engineers was also being increased. Regarding the floor height of houses, Mr Mashinini explained that inspection was done when the foundations were laid. This included the floor height which had to be 150 mm above the ground. Further building could not proceed until it had been approved. Home owners however laid soil around the house so that the height was not correct. This caused damp problems in some cases. He pointed out that the warranty for non-subsidy houses was high as the value of the house was much higher. He added that dealing with complaints took time as sometimes it was difficult to trace the builders. The turnaround time for complaints was less than a year.

Mr Thorpe explained that the amount of cash held was high as it was less risky considering the high interests. The bond and equity market had collapsed in the last year and therefore it they had decided to keep more cash.

Ms M Borman (ANC) said that the quality of the houses that they had seen in the Eastern Cape was a point of concern. She wanted to know if there were ongoing inspections in this area. She inquired why airbricks were not used anymore in houses and what the proportion of subsidised to non-subsidised house was.

Mr Mashinini said that the technology was changing and therefore air bricks were not being used that much. There were cases however where they was used.

Mr Steyn (DA) questioned whether the NHBRC had teeth. On their site visit, they had noticed that the NHBRC inspectors had made certain recommendations, but contractors had not done anything about these.

Mr Mashinini suggested that the NHRBC be called back to report in detail on the rectification process particularly in the Eastern Cape.

The Chair thanked the delegation from the NHBRC and said that they would have them back in future. By then the members would have had a time to read the report in detail and might raise other issues.

Rural Housing Loan Fund
Mr Jabulani Fakazi, Acting CEO: Rural Housing Loan Fund (RHLF) addressed the Committee according to the PowerPoint presentation. He added that the leakage which was seen on the financials was as result of people not using the loans for housing. He pointed out that the RHLF targeted people who earned R7 500 and less per month. Women made up the highest proportion of borrowers.

Mr H Potgieter, the CFO at RHLF, continued to explain the financial details. He explained that the financial downturn with high interest rates and high inflation had affected their target market the most. They had less disposable income. The intermediaries, that the RHLF used, had also been affected by the economic climate. There had however been a growth in income as a result of the increase in the loan book.

Discussion
The Chair noted that only three areas seem to benefiting: KwaZulu-Natal, Gauteng and the Eastern Cape. He felt that the Foundation should reach more rural areas.

Mr Fakazi admitted that they were not distributed across the provinces. There were some placed where no inroads had been made. Part of the problem was that there was a problem with the intermediaries.

Ms M Borman (ANC) referred to the 22% leakage and asked how the RHLF picked up that the money was not used to build houses. She also asked for an explanation of the mezzanine funding which the presenter had mentioned. She was also concerned about one of the board members, Mr Pule, who did not seem to attend many of the meetings.

Mr Fakazi replied that the intermediaries reported to the RHLF on a monthly basis and the disbursements of funds. In this way they were able to monitor the leakage of funds. Control measures were difficult to do. He added that they did not have a problem with people using the money for education as long as they paid back the loans. Applicants were also required to indicate on the application forms what they were going to use the funds for. At present, the RHLF was using intermediaries such as building material merchants. In this way as well they could ensure that the money was used for building purposes.

Mr Potgieter added that the mezzanine funding was used by only four of their clients. This was funding where the clients only paid back the interest on the loan. This was the strongest of their clients so there were less risks of bad debt. This was granted in the same way the other loans were given. It was approved by a credit committee. He explained that the intermediaries would carry the risk of bad debt. The RHLF however did make a provision for bad debt. At present there were four clients who were finding it hard to repay them. This was due to the tough economic climate. Their end users were also finding it hard to pay so RHLF had to carry the bad debt.

Mr Steyn (DA) also referred to the leakage and wanted to know if this money was repaid. He wanted to know whether the annual disbursements were linked to the resources available. The RHLF showed that it had reduced its employment costs. He asked how this was done and also how the cost of finance compared with that of the banks.

Mr Potgieter replied that resources were taken into account when the budget was drafted. He continued to explain that the cost of credit to the end user was at a rate of 40 to 45% on a housing loan. The RHLF realised that this was very high and was concerned about it. This was charged by the intermediaries who had to cover themselves as they normally had 25% bad debt. Community organisations were now targeted as intermediaries and in this way funds could be ring fenced for specific purposes. An agreement had just been signed with a red meat producer, NEDPRO, which 45 000 members. The rate given to them was much lower. This was the strategy for the coming year as well.

Ms B Dambuza (ANC) wanted to know how far RHLF was with the housing vouchers. She also wanted to know how long Mr Fakazi had been the acting CEO and when the position would be filled.

Mr Fakazi said that they had done everything that they needed to do, regarding the vouchers. It was now in the Department’s hands. On the appointment of the CEO, he said that the board had concluded the selection process and had made a submission to the Minister.

A representative of the Department added that that in the previous year they had undergone a process to identify the risks that were involved with the vouchers. This had taken about three to four months. Some of these issues were the capacity to deliver in all of the provinces and the possibility of using non-traditional service providers. At the end of October a final decision would be taken.

Ms M Njobe (COPE) asked if the borrowers were from a high or low income level. She also noted that the RHLF’s surplus was rising very fast and wondered if this was due to overcharging. She also inquired if the loans were just for residential buildings or business as well.

Mr Fakazi explained that the majority of the beneficiaries were people in the public sector who earned R7 500 or less per month. He added that the mandate of RHLF was not cast in stone and that it could be expanded to include other buildings. This question had been raised with the Department concerning the definition of human settlements.

Mr A Figlan (ANC) wanted to know why facilities were not completely drawn. He also wanted to know if the Fund was using backyard dwellers as well and how many people had been helped in the 2008/2009 financial year.

Mr Potgieter explained that the growth in the surplus was because of the growth in the book. The clients did not draw all the money but would receive the money in tranches and the money seen in the financials was money from the previous financial year.

Mr Fakazi said the number of loans given in the last financial year had been 40 507. This number was not necessarily the number of beneficiaries as some took more than one loan. On the question of backyarders, he said that some people took loans in order to build extra rooms so that they could generate extra income.

Social Housing Foundation (SHF)
Mr Brian Moholo, Managing Director of the Social Housing Foundation (SHF) addressed the Committee as in the PowerPoint presentation.  Mr Andrew Higgs, the company secretary, added that the auditors had given them an unqualified audit report. There was however a matter for emphasis which was linked to the future of the SHF. The number of directors had fallen below the minimum as stated in the statutes in the articles of association. This would be rectified at the AGM where the articles would be adjusted. He also said that the foreign grants which they had received from the EU, for the last seven years, had ceased.

Discussion
Ms Dambuza (ANC) stated that they had asked the Department for a copy of the Act but had still not received it. She wanted to know what the staff complement was and if there were any challenges since the announcement that the SHF would be terminated. She enquired how involved the SHF was in the establishment of the Social Housing Regulator Authority (SHRA). There was also concern that the SHF was concentrated in the big cities and wanted information about the institutions that were in distress.

Mr Moholo said that the SHF had a staff of eleven and had other professionals on retainer. There had been no major turnover in staff since the announcement that the Foundation would be terminated. The SHF was not involved in the establishment of the SHRA at the moment. The institutions that were in distress were the ones in King Williamstown, Port Elizabeth and the N2 Gateway Project in Cape Town. He explained that the rental housing policy was biased towards the cities. The SHF had been instructed to focus on the cities. The policy also had a bias towards the restructuring zones identified by the Department. Not many of these zones were in the rural areas. It is however, the provinces’ role to develop policy around rental housing.

Mr Steyn (DA) asked when the SHF would deregulated and expressed concern since the MTEF plan extended over three years. He wanted to know what role the SHF would then play in the projects and if SHRA would continue with these projects. There was also concern about the implementation of the policies of the SHF even though they were very good. He also noted that the SHF’s deficits of the last two years had increased and asked whether there was a plan to turn this around since it would eat into the surpluses and whether the matters of emphasis only related to the articles of association.

Mr Higgs confirmed that the matter of emphasis was only in relation to the articles of association. He agreed that the deficit would eat into the surplus. He also explained that when they draft their budget, they aim to break even. Some years they made a surplus and in others they had a deficit. In the current year they were on target to break even.

Mr Moholo explained that the transition of the SHF to the SHRA was in process and a draft closure plan had been drafted but it had not been approved yet. The SHF was due to close on 31 March 2010. They were working on the phasing in and phasing out and hoped that it would not disrupt any of the projects. He added that the developers of the SHF projects had to be registered with the NHBRC. A workshop would be held in the following week to discuss the implementation of the SHF policies.

Mr Steyn (DA) wanted to know what the reason was that there was a 300% increase in the salary of the Interim Social Housing Programme (ISHP) manager.

Mr Higgs explained that the figure shown in the annual report was for three months for 2008. The figure in the 2009 financials showed the salary for the full year.

Ms Dambuza (ANC) wanted to know from the Department why the SHF was not involved in the establishment of the SHRA.

Mr Moholo responded by saying that the SHRA was still in its infancy. The Minister still had to approve the plan. A task team had however been identified to do this. The SHF would be invited to participate. He added that a technical advisor had also been seconded from the Dutch government to assist them. The project manager had not been appointed yet. The closing of the SHF and opening of the SHRA was a delicate process particularly because of the ISHP projects. It was hoped that there would be as little disruption as possible. The SHF however was in involved in developing the regulations.

Ms Dambuza (ANC) said that she was not happy with the response. The plan had already been submitted to the Minister, and wanted to know at what stage the SHF would be involved. She felt that they should have been involved already. She suggested that a full explanation be given in writing to the Committee.

The Chair agreed that another meeting be held to discuss the matter.

The Chair thanked the delegations for attending.

Committee Report on oversight visit to the Eastern Cape.
The Chair said that it had been good to see activities on the ground during the visit. Since the visit to the Eastern Cape, there had been some movement which showed that the visit had been fruitful.

Ms Dambuza (ANC) commended the support staff for the work done on the report and said that the recommendations were important. It was important for Parliament to make a follow-up visit. She also suggested that the report be debated in the House.

Mr Borman (ANC) agreed that the resolutions were very important but added that there was still some work that needed to be done on the report before it could be sent to Parliament.

The Chair suggested that a sub-committee be established consisting of staff and members, to finalise the report.

The Committee decided that the sub-committee would consist of Mr Steyn (DA), Ms Borman (ANC), Ms Dambuza (ANC) and Mr Mdakane (ANC).

Ms Dambuza proposed that the report be adopted with amendments.

Mr Steyn said that members needed to submit any further suggestions to the Committee secretary. The Committee could then consider it.

The Chair suggested that Ms Dambuza decide on the dates when the sub-committee would meet and would inform the relevant members. He added that the report was important as it showed that the oversight function of Parliament was done properly.

The meeting was adjourned.