National Urban Reconstruction Agency & National Housing Finance Corporation 2011 Strategic Plans

Meeting report

Briefing by the National Urban Reconstruction Agency (NURCHA)
Mr Morgan Pillay, Managing Director, NURCHA briefed the Committee on the Agency’s business plan for the period 2011 to 2014 (see attached document).

The presentation included the mandate of the Agency and a summary of the prevailing environment in which NURCHA operated.  Five key objectives were identified, i.e. collecting outstanding debt; re-focusing the subsidised housing programme; increasing lending to the affordable housing market; maintaining the volume of loans for the infrastructure programme and augmenting the revenue stream.  The implications for the organisation were summarised.

Mr Sindisa Nxusan, Chief Financial Officer, NURCHA presented the preliminary income and expenditure statements for 2010/11 and the budget for the 2011/12 financial year.  Budgeted income from operations for 2011/12 amounted to R49.8 million and administration expenditure was R48.5 million.  Provision was made for project and operational losses and NURCHA anticipated a deficit of R42 million for 2010/11 and R5.5 million for 2011/12.  Total equity and liabilities increased from R422 million to R599.2 million.  A comparison of the administrative expenditure items for 2010/11 and 2011/12 was provided.

The budget assumptions, budget statement of financial position and budget income statement for the medium term expenditure framework (MTEF) period 2013 to 2015 were included in the presentation.  NURCHA forecasted a surplus of R1.9 million for 2012/13, increasing to R13 million for 2014/15.  The budget outputs for 2011/12 for the subsidy housing, affordable housing and infrastructure and community facilities programmes were summarised.

Mr Pillay concluded the presentation with photographs of a selection of the projects supported by NURCHA.

Discussion
Mr A Steyn (DA) expressed concern over the impairment amounting to R40 million (i.e. the amount of bad debt deemed to be unrecoverable by NURCHA).  He queried the intention to re-deploy personnel as such an action could result in a deviation from the core business of the entity.  He asked for clarity on the funding provided by the PIC.  He asked for an explanation of the anticipated project losses amounting to R18.4 million in the statement of comprehensive income for 2012/13.  He noted that NURCHA rejected 70% of development applications received but municipalities did not report a similar rejection rate.  Given the low standard of certain developments, he was of the opinion that municipalities should screen contractors more thoroughly.  He asked for an explanation of the fee-based opportunities mentioned in the presentation.  He asked for clarity on the involvement of NURCHA in the upgrading of informal settlements.  He queried the planned training of small scale developers and wanted to know what would happen once training was completed.

Ms A Mashishi (ANC) asked what the timeframe was for the collection of the amount of R41 million considered to be recoverable and if any targets had been set.  She referred to the statement that NURCHA intended to select employers and contractors with good track records and asked how the Agency would ensure that these entities were the best candidates.

Ms M Njobe (COPE) was concerned over the costs incurred in appointing external consultants.  She noted that NURCHA was freezing vacant posts and asked why the Agency did not rather reconsider the appointment of external consultants.

The Chairperson referred to the issue of training and the database of trained persons.  She asked for clarity on the type of training provided and the utilisation of trainees.  The Committee was concerned over the retrenchment of lower level personnel rather than top management that failed to carry out their duties.

Mr Pillay explained that NURCHA used to recycle funds but this practice was not sustainable unless outstanding loans were recovered.  There was a degree of acceptable risk in the construction industry that certain projects would fail but NURCHA was sensitive to the fact that many employers were Government entities.  The PIC funding was a recent development and was linked to assisting small developers.  The high rejection rate was a matter for concern but NURCHA applied higher criteria and had become more selective in lending to contractors and employers.  The Agency refused loans to employers and developers with a bad repayment record.

Mr Pillay advised that the fee-based opportunities were within the mandate of NURCHA.  The Agency made the skills and expertise based at its six regional offices available to assist developers with the implementation of projects and programmes rather than laying off the staff.  The upgrading of informal settlements was linked to the subsidised housing programmes and NURCHA assisted developers specialising in this sector of the housing sector.  A distinction must be drawn between small scale developers and contractors.  Small scale developers tended to have assets and collateral and were in a different risk category than contractors.

Mr Viwe Ciqwelha, Director: Operations, NURCHA added that NURCHA saw an opportunity to add value to Government housing programmes by offering its fee-based services.  NURCHA was able to identify risks and weaknesses and assist with the improvement of systems.  It was easier to finance predictable programmes as it was more likely that the funding provided would be recovered.  NURCHA was in a position to utilise its own capacity to strengthen emerging contractors, who would ultimately benefit from the programmes.

Mr Pillay said that the risk mitigation support provided by NURCHA included the tracking of the progress made in the development and providing assistance to get the project back on track.  NURCHA did not provide basic construction skills training.

Mr Nxusan explained that the impairment provision was 25% if the debt was outstanding for 90 days, increasing to 50 % if outstanding for 180 days and 100% if outstanding for longer.  The Agency hoped to recover the full recoverable amount of R41 million in the 2011/12 financial year.  The external consultants were appointed to provide information and communication technology (ICT) support to the six regional offices, to develop a new project management system, to provide human resource services, to develop a customer relations system and to provide debt collecting services.

Mr Neville Chainee, Deputy Director-General, Department of Human Settlements supported the recovery of outstanding debt as the first priority of NURCHA.  The Agency was engaging with the provincial housing authorities to provide project management assistance and developing contractors to become developers.  NURCHA played a role in creating job opportunities within local communities.

Ms Mashishi asked what the trend was for women in the construction industry.

Mr Steyn queried the budget projections for project losses for 2012 to 2014 and wondered if the projected figures were too optimistic.  He asked how the actual 2010/11 revenue and expenditure compared to the budgeted figures.

Mr M Mdakane (ANC) asked how many persons were assisted by NURCHA, how many of these persons were the youth and how many had become self-sufficient.  He wanted more details of the actual impact of NURCHA’s operations.

Mr Pillay replied that NURCHA had systems in place to track the progress made by contractors.  The Agency had found that not everyone could become a good contractor.  NURCHA worked closely with the DHS in the development of programmes aimed at the youth and women but had no direct influence over the actual implementation and impact of these programmes.  He conceded that the experience during the current fiscal year had not been good but the Agency had noticed an improvement in the financial performance of the sector.

Mr Nxusan replied that the forecasted project losses for 2012/13 amounted to R18.4 million but a surplus of R1.9 million was projected for the following year. 

The Chairperson thanked NURCHA for the briefing and said that the information provided was useful to the Committee for oversight purposes.  She said that the issue of skills development in South Africa remained a serious matter and the country had invested a significant amount in the development of artisans.  There were a number of projects under way in KwaZulu Natal but the project management unit had not yet been established in that province.

Mr Mdakane was of the opinion that Government agencies such as NURCHA were not sufficiently advertised and few people were aware of the services provided by NURCHA.

Briefing by the National Housing Finance Corporation (NHFC)
Mr Samson Moraba, Chief Executive Officer, NHFC briefed the Committee on the Corporation’s strategic plan for the MTEF period 2012 to 2014 (see attached document).

The presentation covered the NHFC’s mandate, vision and mission and outlined the current housing finance environment.  The interventions of the NHFC in the human settlements sector were summarised.  The Corporation identified five strategic objectives, i.e. to expand housing finance activities; to facilitate increased lending by financial institutions; to mobilise funding for human settlement programmes; to ensure the ongoing sustainability of the NHFC and to stimulate the low- to middle-income housing sector.  The desired outcomes for 2012 and the contribution to Outcome 8 were quantified.  The number of housing opportunities, the total disbursements and the funding requirements for the MTEF period were summarised.

The presentation included details of the key performance indicators for each objective.  The introduction of Mortgage Default Insurance (MDI) was a significant initiative to facilitate increased lending by financial institutions.  The approval of the National Treasury for the MDI programme was awaited.  A major challenge in the low- to middle-income housing sector was the escalation in the cost per housing unit.  The NHFC was investigating alternative building methods and materials to mitigate this risk.

The NHFC had invested in the Cape Town Community Housing Company (Pty) Ltd (CTCHC), the Housing Investment Partners (Pty) Ltd (HIP) and the Trust for Urban Housing Finance (TUHF) and had formed strategic partnerships with other housing and financial institutions.  The Corporation was in discussion with the Department of Human Settlements (DHS) to utilise the Job Summit (JS) funds to expand the rental component of the housing sector.  The potential impact (i.e. number of units) in each province for the MTEF period was illustrated.

Ms Zonia Adams, Chief Financial Officer, NHFC presented the budget overview and budget assumptions for the forecast period.  The NHFC anticipated an after-tax profit of R32.7 million for 2010/11.  The investments in CTCHC and HIP were expected to become profitable.  The NHFC planned to sell off its retail book during the period.

The NHFC estimated total revenue for 2010/11 to amount to R237.4 million.  Budgeted revenue increased to R282.7 million for 2012, R611.9 million for 2013 and R582 million for 2014.  The budgeted net profit was R48.5 million for 2012, R90.4 million for 2013 and R106 million for 2014.  The statement of financial position for the forecast period reflected total assets of R3.2 billion for 2012, R3.8 billion for 2013 and R4.5 billion for 2014.  Additional funding would be raised through external borrowings.

Mr Moraba concluded the presentation with photographs of a sample of the housing projects supported by the NHFC.

Discussion
Mr Steyn wondered why there were still problems with providing adequate numbers of affordable housing units.  He did not see the impact of the support provided by the NHFC on the ground.  The queried the contribution made by the NHFC to Outcome 8.  He asked why the NHFC had decided to sell off its retail book.  He asked if the 903 mortgage loans cited in the key performance indicators for 2011 would be made to individuals.  He asked if the risk of the MDI guarantee fund would be spread between the NHFC and the commercial banks.

Ms M Borman (ANC) wanted to know when the MDI would be implemented.  She asked how the initiatives aimed at the gap market (i.e. those persons earning too much to qualify for subsidised housing but not enough to qualify for mortgage loans from banks) would be made known.  She asked if certain priority projects in KwaZulu Natal and in Cape Town would accommodate the gap market.  She was doubtful whether alternative building materials were necessarily cheaper than the conventional products.

Mr Moraba responded that the THUF had delivered 17,000 refurbished housing units.  The impact was felt on the local rather than the national level.  The units were mainly in the inner cities of Durban and Port Elizabeth.  The best skills remained in the larger companies in the private sector and small construction companies generally had a relatively minor impact.  The introduction of the MDI would have a nation-wide impact and more use could be made of the capacity available in the private sector to provide affordable housing.  The definition of Outcome 8 provided for an improvement in the ownership of property.  The target was for 600,000 housing units and an amount of R1 billion was made available to achieve this objective.

Mr Lawrence Lehabe, Projects Executive, NHFC explained that the impact made by the NHFC was shared with other stakeholders.

Mr Moraba said that the housing project at the Impala platinum mine had been successful.  The retail housing projects required the provision of infrastructure and the units had to be affordable.  The NHFC had to borrow funds for the provision of retail housing but this was not sustainable unless funding was received from the fiscus.  The provision of retail housing was more viable in the private sector and the NHFC had decided to form public/private partnerships (PPP’s) instead.

Mr Moraba confirmed that the number of mortgage loans would be made to individual applicants.  The loans were negotiated through intermediaries.  The guarantee fund covered 100% of the residual risk when the bank repossessed the house if the loan was defaulted on.  The NHFC therefore guaranteed the shortfall between the bank loan and the selling price of the repossessed property.  The MDI would be implemented between January and April 2012.

Mr Lehabe confirmed that the Cornubia project in KwaZulu Natal and the Boys Town project in Cape Town mentioned by Ms Borman were included in the MDI programme.  The HDA had a number of projects in the pipeline and certain unblocked projects were coming on stream as well.

Ms Delca Malulele, General Manager: Marketing and Communications, NHFC advised that the NHFC was engaging with the commercial banks and with the Financial Services Board (FSB) on the MDI.  A marketing campaign was being planned but would be focused on the intermediaries rather than on the end user.  The end user will be informed by means of displays in shopping malls, mass media advertisements, road shows and by the banks.

Mr Mdakane pointed out that the NHFC was a Government-funded entity and communication with the population was critical.  The number of people demanding housing was increasing and it was debatable if the demands of the population were being met.  The Committee was interested in the big picture of housing delivery and encouraged innovative ideas that would have the biggest impact on improving the quality of life or ordinary citizens.  There was little difference between certain high rise inner city buildings and informal settlements.

The Chairperson thanked the NHFC for the briefing.  She gave the assurance that there would be further interaction between the Committee and the NHFC.  The Committee would like to see that the issues that were raised by the Members were reflected in the business plans.  She said that the involvement of the community in the planned developments was very important.

The meeting was adjourned.