Budget Vote 17: hearings

Meeting report

HOUSING PORTFOLIO COMMITTEE
29 April 2002
BUDGET VOTE 17: HEARINGS

Chairperson: Ms Z Kota (ANC)

Documents handed out:
Servcon Housing Solutions - Report to stakeholders - 31 March 2002
Servcon Housing Solutions presentation
National Housing Finance Corporation power-point presentation
Budget Vote 17

SUMMARY
Three different housing-related institutions delivered presentations. These were Servcon Housing Solutions, National Housing Finance Corporation, and the North West Housing Corporation.

MINUTES
The Chair asked members to observe a minute of silence for the late Mr Steve Tshwete. She handed over to Mr Denis Creighton representing Servcon for his presentation.

Servcon Presentation
Mr Creighton's presented a brief background on Servcon. Servcon is a joint venture between the government as represented by the Departments of Housing, Safety and Security, Justice and National Treasury and the Banking Council. It's role is to deal with the properties repossessed by the Banks in low-income communities according to specific criteria.

Servcon was established in 1995 by the Banks through the Banking Council and the Department of Housing. After 1994, the incumbent government wanted to deliver housing and discovered that Banks were not prepared to service high financial risk areas with mortgage bond loans. In 1998 Servcon was restructured and received a new mandate from the Banks and Government to deal with "ring fenced" portfolio incorporating properties in default prior to 31 August 1997 (cut-off date).

He said the portfolio under the Servcon administration was initially just over 33 000 with a value of R1 280 000 000 (at original loan amount). The Servcon rehabilitation programme offered to the occupants contains the following elements:
Subsidised rental option
Buy back or loan reschedule
Rightsizing option (assistance towards an alternative affordable house)
Special Assistance to the Aged and Disabled

Mr Creighton said that Servcon's prime objective was to normalise the situation and specifically to dispose of the portfolio over an eight-year period from 1 April 1998 to 31 March 2006.

Servcon's progress and performance up to 31 March 2002
Mr Creighton explained to the committee members that the 40% target set for Servcon to get rid of or reduce portfolio had been exceeded by 1.8% to 41.8%. He said Servcon had disposed of bout 14 000 properties. About 2000 people had been rightsized (accommodated) as a result of the rightsizing programme.

He pointed out the fact that one of Servcon's objectives was to have those who had to pay, paying. He said that with regard to that the good book was approximately 58% and the bad book 48%.

With regard to the one of Servcon's objectives - the reduction in problem areas - he said that some of the common areas identified were:
Breakdown of law and order, defiance thereof.
Unemployment and poverty.
HIV/AIDS and other health issues resulting in parentless households.
Lack of education and understanding of housing issues.

He said Servcon had proposed to government a package of measures to address each issue within a holistic context in order to create an enabling environment and re-establish the secondary market within which housing could be delivered; and uplift communities.

Job creation/ Community Development Projects
He said one of the purposes of Servcon was to assist clients to re-establish themselves economically; and contribute to community redevelopment. He said that could be achieved through:
Recycling of plastics, cans and bottles.
Baking, sewing and knitting
AIDS Project through counselling, education, home-based care and taking care of the AIDS orphan problem.

Resolution
In terms of resolution, Mr Creighton said that the following areas had been "normalised" or at least improved to a status in keeping with the norm for Servcon areas or had been removed as they were relatively insignificant from a Servcon perspective:
Zola, Wedela, Gelvandale, Bultfontein, Kanana, Drieziek, Bethelsdorp and Kwa Dabeka.

Problem areas remaining were:
Vosloorus
Evaton North and Lakeside
Khayelitsha
Tokoza and Katlehong-Self Help
Crossroads
(for full list see appendix)

Evictions
Mr Creighton said that the issue of evictions was an emotive and difficult one as people resisted it in all possible ways. His belief was that people should not be evicted but also pointed out that the problem was compounded by people who refused rightsizing and did not respond or sign new repayment deals and those defaulting on new payment agreements. Nonetheless, he said the Sheriffs were generally able to do their work. But the problem was that people moved back to reoccupy houses immediately after eviction.

Issues
He said the cut-off date was 27 April 1997 - thereafter it was not their responsibility but the Banks'. New rules had not yet been signed and a contribution was required from the applicant.

Discussion
Ms T D Lee (DP) cited the problem of structural defects, which is often used as the reason for a bond payment not being met and asked about the kind of co-operation Servcon was receiving in that regard in areas such as Katlehong and Thokoza.

Mr Creighton in reply said that Katlehong and Thokoza were not product-defect areas. He, however, acknowledged that there were product-defect areas. He said that Servcon would, in the event of a structural defect, have structural defects corrected, but also mentioned the fact that people would rather have financial benefits than have their defects corrected. He explained further and said that houses bought were bought "voetstoots" and that most of the defects were cosmetic and repair issues.

Ms M P Coetzee-Kasper (ANC) wanted to know about the length of the period of hiring process and whether there were any measures in place for those people renting houses to buy those houses.

Mr Creighton replied that people who qualify to buy back were those with stop-orders, and regular employment. Otherwise rent was the only option.

Mr S D Montsitsi (ANC) raised the issue that prospective buyers would in future have to make a contribution before buying and wanted to know if Servcon was planning to take that up with the Minister of Housing. He also wanted to know of the 33 000 cases of defaulters Servcon was dealing with, how many had they succeeded with.

Mr Creighton said that Servcon's primary channel was with the Department of Housing and not the Minister. He said the he believed that their clients should be differentiated and the people on Servcon's book should be excluded from the requirement of a contribution. He said he believed that to be a political issue, though. On the last of Mr Montsitsi's question, Mr Creighton said that about 14 000 of 33 000 cases of defaulters had been disposed of. He also mentioned that Servcon were not taking any new defaulters.

Ms M N Buthelezi (ANC) cited Mr Creighton's reference to lack of education and poor community leadership as one of the reasons for the slow delivery on Servcon's mandate, and wanted to know if Servcon had any plans to educate people. She also wanted the reasons for the delays in people's housing projects.

Mr Creighton, replying to the first question, said Servcon did have its own programmes to address. He said they were also contracting professional people to educate affected communities and were responsible for their payments. With regard to delays in the people's housing projects, he said that was caused by the fact that people were building the houses themselves. He agreed that this was taking time and pointed out that there were only a small percentage of houses already built in this area.

National Housing Finance Corporation
Mr Samson Moraba's presentation hinged around the NHFC's perspective on its past performance and future challenges.

Mr Moraba said that the NHFC was given a mandate to, in partnerships with the broadest range of organisations, search for new and better ways to mobilise finance for housing sources outside the state. He said when NHFC was formed there were no financial institutions catering for such a market in low-income housing. There was also no capacity in the mainline market to cater for that category of people. Banks were not operational in the market.

He said NHFC's mission was seeking to create housing opportunities for the low and moderate income families by:
Funding or underwriting the funding of intermediaries and institutions to promote broader access to housing and housing finance.
Facilitating the building of adequate and sustainable capacity within the organisations and institutions that it was funding.
Partnering organisations and institutions to deliver innovative housing finance solution options.

NHFC primary responsibilities
Stimulate the primary and the secondary market in the low and moderate income housing sector.
Undertake the funding as a wholesale intermediary and act as a fund manager.
Specific in identifying, assessing, monitoring and managing the risks associated with the placement of funds.
Partner with established institutions in providing innovative housing finance solutions options.
Successfully implement the Presidential Job Summit Housing Pilot Project.

NHFC secondary responsibilities
Research and Product development.
Improve access to housing finance.
Build/support housing finance capacity.
Specialise - develop, align and implement credit and other standards in the Low Income Housing (LIH).
Pilot funding programs that would improve the performance of the sector.

Implications for NHFC
Sustainability of both Niche/Retail Lenders and Housing institutions - Capitalisation and capacity building issues.
Facilitate entry of the private sector into the Low Income Housing - risk-enhancement mechanisms.
Effective linkage of subsidies to housing programmes - Subsidies, savings, equity and credit to deliver better affordability levels and draw developers to this market.
Diverse and highly skilled work force.

NHFC's performance
Primary Market Stimulation
With regard to Primary Market Stimulation, Mr Moraba said that, since inception, there had been increased access to housing through micro-finance products. He said NHFC had succeeded in creating capacity of alternative/niche lenders in the Low-Income Housing sector totalling about 25 new intermediaries. He also mentioned as well the fact that in 1999, NHFC established GATEWAY Home Loans to deliver home ownership at scale using the secondary market process. Currently, he said NHFC was continuing with its bid of stimulating the primary market by improving liquidity and supporting capacity building in the sector.

Partnership
Mr Moraba said NHFC had not succeeded in securing sustained partnerships as yet due to the perception that the market they were operating in was risky. And the 100% guarantees were needed by the finance institutions before offering finance.

Undertaking wholesale funding
Mr Moraba said NHFC had approved R1.5 billion so far for wholesale funding. For 2002/3, their target was R1.9 billion. R1 billion had already been targeted, with R1.5 billion being targeted for 2002/3. He said the number of houses delivered up to now was 80 397. For 2002/3 they were targeting to increase that number to 90 500. About 195 043 loans had been issued so far. The targeted number of loans to be granted by 2002/3 was 205 000.

Environmental challenges
Successfully attracting a risk-sharing private sector.
Integration and co-ordination within the housing sector.
Integrating capacity across government.
Integrated support of financing initiatives of government.
The dysfunctional primary market.

NHFC specific challenges
Demise of small banks with potential to deliver in this market - like Saambou. FBC etc.
Market consolidation results into loss of capacity - Cashbank is an example.
Inadequate capacity of alternative lenders to take-over the gap created and be responsible custodians of the monies channelled though them.
Tendency to dump housing stock.
The housing backlog keeps on increasing, yet there is inadequate capacity to deliver.
Accelerated delivery on the Job Summit.

Priorities of the NHFC
Prudently grow the leading business of the Corporation and thus improve on its housing delivery impact.
Continually enhance the Corporation's Risk Management capacity and competency.
Attain accelerated delivery on the Job Summit Pilot Project.
Effectively implement the Corporation's processes and systems - drive speed, flexibility and impact.
Focus on the need to challenge, develop and retain the best people in the Corporation.
Improve the Corporation's Marketing and communication with all its stakeholders.

Budget Overview 2002/5
Deliver housing finance to a cumulative total of 334 000 households (of which 30 000 are new and 7, 500 are existing houses) in most provinces.
Facilitate the building of capacity in the housing and housing finance sector by supporting 11 new and emerging housing finance intermediaries and housing institutions.
Change the housing finance environment through promoting new loan products, relevant delivery channels, supporting appropriate regulatory and policy frameworks and new housing options.

Discussion
Ms M Coetzee-Kasper (ANC) raised the fact with Mr Moraba that the NHFC was not accessible to the people at grass-roots level. She asked Mr Moraba if the NHFC had a way of stopping banks from charging interests upon interests thus barring government's aim of housing delivery.

Mr Moraba replied that the interest rate issue was a difficult one as different banks had different ways of approaching it. The NHFC's influence on the banks was on the delivery of the market.

Ms T Lee (DP) enquired about the percentage of bad debt that the NHFC had.

Mr Moraba, in his reply, said the bad debt ratio was below 6%.

Mr S Montsitsi (ANC) said he welcomed the input made. He raised his concern with the problem of non co-operation of the banks and said that the latter seemed to look at the NHFC as a competitor which, he said, was resulting in no meaningful partnerships between the NHFC and the banks. He inquired about the percentage of banks' representation in the NHFC's board.

Mr Moraba agreed that that there was an element of competition in the past but also said that as from last year things had begun to change. He said they were looking at co-funding with the banks. In respect of the question on the representatives of the banks the NHFC's board, Mr Moraba explained that the board members were nominated by the Minister. He said initially there were 3 banks' executives in the board and that one had recently resigned, leaving only two of them in the board. He said that the Minister had said that they would not appoint a person on the basis of the sector he was representing.

Mr Montsitsi followed up and said that he appreciated the response.

North West Housing Corporation (NWHC)
Delegation members were Mr Aopakwe Louw (Board member), Mr Samuel Monali (Chairperson of the Board), Paul Mosimang (Acting CEO) and the MEC for Housing (North West Province).

Mr Mosimang explained that the North West Housing Corporation was a province-based institution. He said that after the Portfolio Committee on housing had visited the North West Province, a need was felt that the corporation had to brief the Committee on its operations. As a corporate which existed before 1994, he said that the NWHC had some corporate governance problems.

Financial Overview
Assets
Mr Mosimang said that the North West Housing Corporation had an existing Housing Stock of about R210 million, flats amounting to R20 million and serviced stands of about R39 million (all at book value which is on average 50% below market value.

Liabilities
Long term loans - R77 million (Public Investment Commission)
Wintersveld Trust - R5 million.
Accounts payable - R22 million (South African Trust).
Retention - R1 million.

Financial overview - Opportunities
Serviced stands
2836 residential stands of which 700 was developed as part of low cost housing and the rest as affordable housing.
60 Business stands
Total value stands - R39 million.

Work in progress of R42 million
Part of the 13 low cost housing projects that the Corporation implemented affected by the repeal of Proclamation R293.
No title can be registered - some beneficiaries have passed.
P5 cannot be paid.
Business stands cannot be developed.
Corporation's money tied onto the properties and cannot be revolved.

Challenges
Policy
Transformation and repositioning.
Eliminate legacy problem.
Role of the Province - to adjust and implement mandate - e.g coordination and support of municipalities.

Financial
Unlock the potential.
Turn assets into liquid.
Reduce liabilities.

Housing Delivery
Increase the number of units delivered.
Improve the quality and size of the units constructed.
Offer those who have benefited an opportunity to improve and enlarge their homes.
Improve access to housing finance.
Implement the discount benefit scheme and where applicable pass ownership.

Unlocking the Potential
Policy
Complete the transformation process.
Transit to the new company.

Financial
Obtain short-term finance to pay current liabilities.
Collect accounts payable especially from government institutions.
Become a primary market lender.
Resolve barriers related to Work in Progress.
Resolve the Proclamation R293 problem.
Land transfer.

Contributions from the National institutions
Portfolio committee
Help resolve the Proclamation R293 problem by creating a new regulation proclaiming all affected towns as towns in terms of a new dispensation.
Help facilitate the transfer of land among government spheres.
Help by supporting the idea of negotiations between the North West and Free State governments over Corporation's properties in Thaba Nchu.
Help advance the cause that the loans incurred by the North West Housing Corporation from the old dispensation to be turned into grants especially in the light of Corporation not receiving annual grants anymore.

Department of Housing
Help facilitate an immediate legislative solution to the problem of Proclamation of R293.
Help by seeking the co-operation of the Department of Provincial and Local government, the State attorney, and the Surveyor General to speed up the opening of the new township registers.
Help by seeking the intervention of the Department of Provincial and Local government in the matter of rent that was collected by municipalities on behalf of the Corporation but was never paid over to the Corporation.

Social Housing Foundation
Help by utilising corporation's experience in rental housing.
Help by forming partnership with the North West Housing Corporation to develop capacity among municipalities.
Help turn some of the corporation's existing flats into social housing projects.

Nurcha
Help with bridging finance for low cost projects.
Help by entering into Joint ventures with the North West Housing Corporation for non-subsidy projects.

National Housing Finance Corporation
Help with a short-term finance of R10 million for operational expenses.

The Future
The North West Housing Corporation stills believes that it has a role to play in the property management. And intends converting into a Section 21 company.

Discussion
Ms Coetzee-Kasper (ANC) wondered about the fact the North West had not begun with the issue of transfer of old stock. She also asked if the Thaba Nchu issue had not been resolved in the local government forum.

Mr Mosimang's reply was that the houses could not yet be transferred because there were no title deeds because the area where the houses were, were considered a farm and not a town. He said also that the Thaba Nchu issue had not been resolved as yet.

Ms Semple (DP) suggested that the provincial government also develop a legislation to change the status of the areas from farm to into towns.

The MEC said that changing status was not a problem, the problem was the land on which houses were built. He further explained that the problem was not that the municipalities could not effect the transfer of status but that the difficulty lay in the land on which houses were built not belonging to municipalities.

The Chair enquired about the eligibility of the NWHC's existence in the new political dispensation.

Mr Mosimang said that the NWHC had developed a lot of affordable houses and there was therefore still a need for it. He said as a province-based corporation the NWHC could be of great help. He also argued that there was still stock to be sold.

The meeting was adjourned.