National Housing Finance Corporation, Mortgage Default Insurance updates; Housing Development Agency & Social Housing Regulatory Authority 2012Annual Reports

Meeting report

Mortgage Default Insurance progress report: National Housing Finance Corporation briefing
The representatives from the National Housing Finance Corporation (NHFC) updated the Committee on the progress of the Mortgage Default Insurance Company (MDIC) proposals.

It was noted that this was in line with Government Outcome 8 – improvement of the property markets in the affordable housing sector. There had been three proposals for solutions, but at this stage the NHFC was concentrating on two. Firstly, there had been developments by the Mortgage Default Insurance Company (MDIC), which was specifically meant to increase, expand and provide access to people who would have been otherwise left out on this segment of the market because of their affordability levels. The scheme would allow banks to lend to a larger segment of the market than they would normally have been able to do. Secondly, the Financed Linked Individual Housing Subsidy Programme (FLISP) was meant to assist the households whose income levels would not normally allow them to qualify for housing finance. These households would be assisted to acquire a house with a maximum value of R 300 000.

These two instruments had been announced, and work on them was ongoing. The third instrument mentioned – the fixed rate instrument – had not yet started as there was a need to address the solutions carefully in light of the current economic situation. There was currently no indication that interest rates were going to spiral, so a fixed rate was therefore not in demand. According to the economists and the Minister of Finance, there were no expectations that interest rates would increase in the next 18 to 24 months, and they could in fact decrease. If the conditions in the markets changed, the fixed rate solution may also come into effect.

Requirements to establish the MDIC were the capitalisation of R1 billion, the Company had to obtain an insurance licence as it operated in the financial services sphere, and lender support from the banks to actually support this instrument, and also to set up the IT infrastructure. The National Housing Finance Corporation (NHFC) had had interactions with National Treasury (NT), who advised that it preferred to capitalise the institution rather than to provide a guarantee. A Task Team comprising of officials from NT, Department of Human Settlements (DHS) and NHFC was appointed to work on the cash injection proposals. NT had appointed PriceWaterhouseCoopers (PwC) to assist with the overall review of the business case. Work was supposed to be finalised in mid-October 2012, but PwC had only submitted its report in mid-November 2012.

The review of the business case by PwC had highlighted the concern that the financial model was not resilient enough to potential adverse changes in the economic environment. MDIC, in terms of the financial model, could present a solvency assessment and management report to the Financial Services Board (FSB), but it was suggested that the model could be made more sustainable if it was appropriately designed. PwC would be presenting the final report on the re-worked model to the joint meeting of the Department of Human Settlements (DHS), NHFC and National Treasury on 20 March 2013.

The refined business case would include a revised premium structure, based more on the risk side, taking into account the income levels of the targeted group. The refined business model was expected to be resilient to expected adverse economic changes, and would also be sustainable over a long period of time. Other than that, the overall construct of the MDIC business case remained as initially proposed.

After meetings with MDIC, NHFC and the Financial Services Board, there was still one critical outstanding issue, and that related to the insurance licence application. The FSB wanted confirmation that the entity would be capitalised by the shareholder.

There had been discussions with the four major lenders who were banks, and one or two non-bank lenders, and the mortgage default instrument had been welcomed by all. Discussions with the big four banks were ongoing, and they had been kept updated on the changes to the business plan as re-worked. They had remained supportive of the principles. However, they had cautioned that if it took too long to conclude or establish the institution and get into business, this would delay or have other impacts on their capital allocation for projects from their own governing structures. The lenders themselves needed to set up structures and systems, to accommodate the MDIC, including alignment of their IT systems with the MDIC systems. Before the lenders could sign contracts with the MDIC, they had to ensure that the MDIC was compliant, had an insurance licence and permission to operate as an insurance entity, and was also adequately capitalised. The Reserve Bank had ensured that the lenders would enjoy capital adequacy relief on insured mortgage loans.

It was noted that MDIC was a registered institution with Companies and Intellectual Property Commission. It had a functioning board, consisting of the Chief Executive Officer, two board members from NHFC and one independent member who operated in the insurance industry. MDIC would be staffed when it was capitalised and the licence was approved; there was currently no need to employ people as there was no work to be done as yet.

In regard to the IT implementation, it was noted that the initial structure had been designed and the procurement process to appoint a service provider to develop the system had been finalised. However confirmation of that appointment had been withheld, pending confirmation of capitalisation.

The representatives reiterated that PwC must still make its final presentation. Between April and May, National Treasury would make a decision on the capitalisation. A number of other steps were dependent on the finalisation of capitalisation, including the licence application and engaging with the Reserve Bank about the capital adequacy relief. However, before engaging with the Reserve Bank, the premium structure had to be finalised and it would be necessary to prove to the Reserve Bank that MDIC was a compliant institution, in order to sign up any lenders. One lender had indicated its willingness to sign as soon as the MDIC complied. The MDIC hoped that business would commence by the third quarter of this year.

The Chairperson asked if National Treasury had anything to add.

The representative from National Treasury noted that there were two key issues, around affordability and sustainability. The issue of access to finance was not a major one. The MDIC had to make houses affordable to those who were currently unable to buy them. There were still some concerns about the financial sustainability model, but it was reiterated that on this point PwC had still to present a final report.

Discussion
The Chairperson said that the main concern of Members of this Committee was affordability for the beneficiaries. If NHFC could address that, then the Committee would be satisfied.

Ms M Borman (ANC) said progress on the MDIC was very slow, but this was understandable as there were high risks involved and everything had to put in place properly to ensure that the project would be sustainable and would not fail within the first months of operating. Mortgage Default Insurance was an instrument that would allow banks to do the lending because the high risk would be covered. She asked for more clarity on how the MDIC and FLISP worked together. She also asked if the R1 billion proposed bank guarantee had fallen away, as the presentation had referred to capitalisation. She also asked how a person on the street could access this instrument, and would even be informed that it existed.

The representatives from the DHS noted that after NT had been given the business model, NT had indicated that government would prefer to follow the capitalisation route rather than a guarantee. This was because a guarantee was reflected in the books as a contingent liability to government, whereas capitalisation was based on a cash injection for the insurance licence.

Mr S Mokgalapa (DA) asked how the MDIC would operate. He wondered if it would be an entity, together with FLISP, within the NHFC. If it fell under the NHFC then he questioned why there were different boards. He noted that another important issue was that of financial sustainability. The problem with many entities in the past had been that if they became financially unstable, they would return to the consumer and charge them more – a case that had happened with Eskom. Since the people targeted by this programme earned between R 3 501 and R 15 000, their income would already be stretched too tightly to contemplate the premiums being increased.

Mr Mokgalapa noted that the earlier references to a “guarantee” meant essentially that the mount of the mortgage would be guaranteed. However, this progress report now reflected a change of policy, to capitalisation, which was something else. MDIC had to make sure it was financially sustainable, to avoid the need for any bailouts, similar to South African Airways (SAA). He wanted more specific reasons why NT had moved from the guarantee principle to capitalisation.

Mr R Bhoola (MF) also asked for clarity on the guarantee issue, and asked what would happen with instances where people were blacklisted. The whole idea was that nobody should be prejudiced. The mention now of “capitalisation” seemed to be commercialising the initiative, whereas the guarantee was intended to address the issue of the gap in the market.

Mr K Sithole (IFP) sought clarity on the process of the insurance. He also noted that the presentation mentioned that the model could be sustained if it were appropriately designed, and asked how that would happen. He also asked what final report PwC would be presenting to the joint meeting.

Ms D Dlakude (ANC) asked who the four lenders were and which was willing to sign now.

The Chairperson said that the Committee needed a meeting with National Treasury on the question of moving from a guaranteed fund to capitalisation.

The Department’s representative tried to explain the matter. He said that the business model was being simplified. MDIC hoped at least to advance the minimum deposit required by the bank to get a bond for the house that the individual wanted to buy. Most people in this income bracket would not have readily available the 10% to 20% of the purchase price that the bank required upfront. Normally, in such cases, the bank would advise the customer to get a short-term loan for the deposit, so the customer would end up with two loans. MDIC was attempting to ensure that the purchaser at least was able to put down the lowest deposit in order to be granted the rest on loan.

Members found this explanation of the process to be confusing.

The Department’s representative tried a different way of explaining, saying that if an individual applied, for instance, for a mortgage for a house worth R300 000, the bank, depending on the risk profile of that individual, could ask for anything between a 10% to 20% deposit. In most cases, the individual would not be able to put this up front, and in such cases, the bank would reject the application for the mortgage. MDIC was now offering insurance for the loan, so that the individual would only have to put up 5% - ultimately the individual must make some contribution. Insurance was not a default occurrence in the sense that so long as the individual then continued to honour the repayments on the mortgage, there would be no need to call up the insurance. MDIC would decrease the interest rate that the individual had to pay to the bank, because the insurance that MDIC offered was in effect also decreasing the risk profile of the individual. Both of these aspects would help to deal with issues of affordability.

Ms Borman asked if the application would follow the normal kind of procedure, apart from the deposit requirement. She also questioned if the 5% deposit would be the standard that the banks would charge to these customers.

The Chairperson intervened at this point to suggest that the issue could not be adequately explained in this meeting, and instead all the implications of this initiative must be thoroughly examined during a half-day workshop.

Mr Sithole asked for the next report to be more detailed, as the current one merely gave highlights.

Mr J Matshoba (ANC) seconded the Chairperson’s suggestion also that the Committee needed to have a meeting with National Treasury before the Committee could move forward on any of the issues.

Financed Linked Individual Housing Subsidy Programme Update
A representative from the Department of Human Settlements noted that the Financed Linked Individual Housing Subsidy Programme (FLISP) was an existing programme of government which had been in operation for some time. It was approved in 2005, but took off in 2011. FLISP was meant to provide a down-payment assistance to qualifying households, to assist them in getting a bigger loan to afford better-quality housing.

Initially, the income to qualify for the FLISP was capped at R7 000 per household, but this had now been raised to R15 000 and the value of the house was also capped at R300 000. The subsidy amounts were changed also, so that it now applied for amounts between R10 500 and R 87 000. NHFC was requested to implement the project together with provinces.

In November 2011, MinMEC had approved the revised FLISP strategy. The State of the Nation Address in February 2012 had announced that FLISP’s revised policy would come into effect in April 2012. NHFC negotiated implementation protocols with provinces, and they were asked to re-prioritise their budgets to allocate funds for FLISP. The State of the Nation Address of February 2013 again noted that FLISP was a priority programme.

Since the announcement of FLISP, eight provinces had signed Implementation Protocols, there had been a Memorandum of Understanding concluded with FNB, and 13 projects were accredited across the country, with an estimate of 6 737 units expected from these projects. For the 2012/2013 financial year, the provinces allocated R172 million to FLISP, of which R42 million was directly linked to approvals that had already been given. 835 subsidy applications were being processed, and 57 had been approved and had secured a mortgage loan. For the 2013/2014 financial year the budget was R189 million.

Given the importance of FLISP, both politically and socially, provinces were asked to go back and revise their budgets. The Department would be more comfortable with a R500 million budget.

Discussion
The Chairperson said the Committee needed to know what had been happening as there had been money set aside for the programme, and enquired how much was actually spent on FLISP. She noted that the report indicated that FLISP seemed to be linked to rentals, but this did not serve the initial purpose of the initiative to promote ownership. She noted that if the policy had changed, the Committee should have been informed, with the reasons, and told how the change affected the intended purpose.

Mr Mokgalapa said it was disappointing to see only 57 approvals under FLISP since its announcement. This programme was addressing a very serious and important market. He suggested that the Committee should go on oversight visits and do inspections in the provinces on the FLISP, as it appeared that, despite what provinces had said, they were not in fact implementing the programme. Only 835 applications were received, out of the 15 million South Africans, and only Eastern Cape and Gauteng appeared to have done any work, and even then the projects may not even be operational on the ground, but only on paper. He also felt that the programmes had not been properly communicated to the people, which made them vulnerable to scams. FLISP was not being used and implemented as a solution.

Ms Dlakude asked for the application process for FLISP to be unpacked and simplified, so that Members could convey it to the people on the ground. She noted that there had been spending, but wanted more details on the numbers of beneficiaries, and in which provinces, and asked if those provinces not highlighted were participating.

Ms N Mnisi (ANC) said there was high demand for the programme, but its pace was very slow and had made no impact on the ground. She also asked for more clarity on where the 13 accredited projects were. She asked if the FLISP programme had a website so that people could access more information.

The Department’s representative said that FLISP had a call centre, to reach a wider audience, as the website was not accessible to everyone. The number was 0860 011 011.

Mr Matshoba asked where the money budgeted, and the interest, were going.

Ms A Mashishi (ANC) asked how the R189 million budgeted for FLISP for 2013/2014 would be spent, and whether the amounts budgeted in the previous year were all spent on FLISP projects.

Mr Bhoola also asked for clarity on the numbers, asking if only 57 of the 835 applications were approved because they met the criteria. If this was the case, then the issues had to be unpacked and the guidelines made clearer for communities. Members needed up to date and correct information to pass on to their constituents. He noted that the MEC of KwaZulu Natal had said the projects were up and running in the province, but they were not mentioned in this presentation.

Ms J Sosibo (ANC) asked how the provinces were reacting to the initiative. She agreed with the proposals that the Committee should do oversight in provinces and assess their implementation of FLISP. She also wanted an indication of the total amount used to date, where it was spent, and on what.

Ms Borman thought the targets were unrealistic. The current delivery did not give a good picture. FLISP had good potential, but there needed to be answers and more quantifiable and measurable information for the Committee to follow up. The amount of R126 million had been committed by provincial departments, but of that only R70 million was spent, which was most surprising, given the desperate need in communities. She asked how ready the provinces were to accommodate the beneficiaries of these programmes, how people were being told of the process, and if they knew how to apply.

She added that the most recent State of the Nation Address said that by 2014 there should have been be 6 000 units developed. So far, only 57 had been approved. It seemed that the most needy had been denied access. If the implementation was project-based, that was a problem, because there were needs also in the rural areas, where there were no projects. She questioned again how people would be able to get information if there was no website. The fact that in Eastern Cape there were two approvals after four months was a clear indicator that people knew nothing about it. FLISP was linking itself to social housing, which made things confusing. A developer in the Eastern Cape claimed that after completion this project would comprise of 347 rental units, and that was a FLISP project. FLISP should have its own clear programmes, not be confused with others.

Ms Duncan said that she had managed to source some information on the NHFC website related to FLISP.

The Chairperson said the NHFC had its own mandate, not funded by government, to use intermediaries and give loans to the people. Only after that had FLISP been offered. She wanted to know how that had happened and how FLISP was being managed.

The Department’s representative said that after the FLISP earlier proposals were revised, the NHFC was asked to be the administrator of FLISP. One of the main challenges at this time was that provinces were not specifically addressing the issue. The DHS was also not happy with the figures in the report. The President had actually committed to providing 600 000 units, but this was the number noted by national, provincial and local government, to make available houses for government employees of teachers, police and nurses. The NHFC had done everything it needed to do. As an entity of the DHS, it was appointed to work for the Department on this project. There were systems and it had established relationships with the bank to manage the programme. This was not to be confused with the NHFC lending mandate. FLISP was intended to facilitate a subsidy. When provinces made their allocations, they were expected to make the money available to the NHFC when requested. NHFC would then link with the bank on the transaction.

It was further noted that the DHS wanted to ensure that FLISP was not linked to any projects. However at the moment, all applicants were all confined to projects. The ideal situation would be that if someone qualified for FLISP, that person should approach a bank and make an application to purchase the property, that the bank would then liaise with the NHFC, and the subsidy would then be paid to the applicant’s bond account. Each province had to state that it would be giving out a certain number of subsidies through the NHFC.

The Chairperson interjected to note that the implementation process, as described, was not happening. Members had been contacted by numerous people asking about the programme since they had heard of it through the State of the Nation Address. There was not consistent information. The report just given said that the programme was project-based, yet the DHS said that it was not supposed to be. The Committee needed clear and logical information to popularise this programme.

Mr Matshoba suggested that the Committee should give the Department time to formulate a proper report, as he felt that nothing was being achieved by Members asking questions.

Mr Mokgalapa said FLISP was supposed to be about choice; people should be able to choose where they purchased, as long as the property value was under R300 000 and it should not be confined to development projects. If the implementation was project-based, and was limited to certain complexes, that could be one reason why it was not taking off.

Ms Dlakude said it should be compulsory for provinces to participate in the programme and to budget for it. The President addressed the whole nation, and not only certain provinces.

The Department’s representative said that this issue was being taken seriously. The policy had been amended, and a substantial amount of pressure was being put on provinces to increase their allocations. The DHS took the feedback from the Committee seriously. The implementation was a partnership, where FLISP stood between the bank and the province. The banks had to have confidence that when they granted someone a loan, FLISP would be able to transact. He reiterated that the provinces had to budget for FLISP and also allocate available funds so that the NHFC could pay the bank. An account was set up through National Treasury for each province, but this was a FLISP, not an NHFC account, and any money left over and interest accrued would be left there. There should be ability to report on it at any given time.

Ms Borman asked about the levy imposed on provinces, questioning if this was a percentage of the amount they were involved with.

The Department’s representative said it was a percentage of the operating capital, and there was a clear directive from national to provincial departments on how it must be determined.

Ms Borman proposed that the national DHS must ask the provinces to report on the number of units they would be making available, and how they would publicise them.

The Chairperson added that there should be vigorous marketing of the programmes.

Housing Development Agency Annual Report 2011/12
A representative from the Department of Human Settlements noted some highlights from the Annual Report of the Housing Development Agency (HDA) for the 2011/12 financial year. In this year, the HDA had managed to achieve financial stability and diversify income. The majority of funding came from the National DHS grant, with some from the services provided by the provinces. A number of Implementation Protocols were also signed with provinces and local authorities and this was increasing in the provinces and local authorities where the actual work was going to be happening. Currently, the HDA had five operating offices and was planning for a sixth.

The major issue was that in all cases, somebody else owned the land, and HDA had to obtain it from the original owner. A lot of work had been done with the Department’s National Upgrading Support Programme (NUSP) and a number of HDA publications had also been launched. The Agency continued to deliver at high standards in the two major projects of Zanemvula and N2 Gateway.

It was noted that in this year, the HDA had a target to identify 8 000 hectares of public land and property for release for human settlements, but it had gone way beyond that, having identified 35 000 hectares of land, and the delivery rate of the identified land had substantially increased from what was in the Annual Report in the intervening months. The targets for property to be acquired was 30 portions, and last year the HDA had identified and taken registration of two portions, with another two now in the process of being transferred directly to the HDA instead of local authorities. The HDA was currently working with and supporting 42 provinces, municipalities and national departments, providing capacity and technical support for them. This was in excess of the original target of supporting 20 programmes and projects. Intergovernmental protocols formed the basis of the HDA's mandate, as it was to enter into agreements with various local and provincial authorities. It had achieved 12 of the projected 15 targets.

The HDA received an unqualified audit report, although it was noted that it must pay particular attention to the issue of supply chain management, which was a concern across government as a whole. Since the date of the report, there had been improvements in reporting, systems and procedures. The units had been strengthened by the new appointment of Manager for Corporate Services. Performance management systems remained in place, and evaluations were conducted twice a year.

HDA employed 103 full time staff members, of whom 50% were women and 85% black, and 98% of the executive and board were female.

The Intergovernmental Relations and Strategy Alignment Unit was re-established as a core programme, though the operating format had changed this year. A range of meeting was held with provincial Departments of Human Settlements and municipalities, particularly to finalise protocols with the North West and KwaZulu Natal.

It was reported that the current direction of the HDA had altered slightly, as it was not only identifying the land but also measuring the impact of that land, noting how many units would be produced, and the land identified had to be linked to a programme that the province or local authority had identified, to ensure speedy delivery of the end product. The Bela Bela project in the North West was in full swing.

The HDA, working with NUSP in a range of provinces, had also established emergency housing solutions and inner-city development projects, and had assisted with blocked projects, managing to get two of these moving again.

In both the Zanemvula and N2 Gateway projects there remained difficulties that arose from significant conflicts in the communities and the development in Boystown was being constantly supervised under the City’s security unit.

From a financial point of view, the assets of the HDA had moved from R150 million to R209 million in 2012, and these were all allocated funds for projects. Operating revenue had also gone up. Any surplus was put back to the acquisition of properties.

Discussion
Ms Dlakude said the HDA was doing well and congratulated it on the unqualified audit opinion, something that the Committee wanted to see from all entities. She wanted further clarity on the references to 42 “provinces, municipalities and national departments”. She noted that there were two regional offices in the Free State and Limpopo, but asked about the HDA offices in other provinces, some of which covered huge geographical areas.

A representative from the HDA noted that, in relation to the NUSP support, there was one national department, six provinces whom HDA was supporting on an ongoing basis, and 35 municipalities. Where the HDA had agreements with provinces, it would work with the districts and municipalities in those provinces closely. There were two regional offices, in the Free State and Limpopo, which provided all the HDA services. The office in City of Cape Town was specifically dedicated to the N2 Gateway project, but there had been discussions with the Western Cape province and Cape Town City that this office should also offer all the HDA services in the province for projects in addition to the N2 Gateway. In the Eastern Cape, there was a project office in Port Elizabeth (Nelson Mandela Bay Municipality), which dealt primarily with the Zanemvula project, but there were also discussions with the Eastern Cape Province, Buffalo City Metro and Nelson Mandela Metro for additional support work by HDA. Ultimately, the Eastern Cape and the Western Cape offices would become regional offices and offer all the HDA services. The Northern Cape had recently concluded and signed an agreement with the HDA, so there would soon be an office there too. As the provinces signed up and conclude contracts with the HDA, the HDA would then proceed to establish regional capacity so that those areas would render the services. Other provinces not separately mentioned were serviced from the head office, to ensure they were not left out of the process.

Ms Borman said she sensed tremendous pride in the work the HDA was doing, which made a huge difference, and congratulated it on a clean audit. She noted that the DHS had, in its 3^rd quarter report for 2012, reported on spending on the National Upgrading Support Programme (NUSP), and asked about the involvement of the HDA. She finally noted that there were still provinces and municipalities not working with the HDA, and asked how people were told about it, and informed about the resources that it could offer.

The HDA representative confirmed that DHS and HDA worked on all the NUSP activities together. HDA was specifically responsible for supporting Limpopo and Free State, and for joint support with  North West and Northern Cape. The HDA was responsible for rapid assessments, enumerations and project pre-preparation, and would assist the provinces to do all the necessary preparation activities so that they could achieve improvement of tenure, and basic service upgrading. It helped the provinces to get all the necessary documentation, to conduct pre-investigations for the work and also looked at issues of livelihood involving economic development and job creation. To date, in Limpopo, the HDA had done rapid assessment on all 49 NUSP municipalities, as well as an additional 13 municipalities that the province had identified. It had also compiled full reports and profiles on each of the settlements and the NUSP municipalities in Limpopo province, and now had a fair sense of the profiles, whether those in the settlements were likely to qualify for subsidies, their economic activities, the number of vacant shacks, how they were creating jobs, and adult basic education requirements. This information would be shared with the municipalities. HDA had also developed draft upgrading strategies that the municipalities must now take through their processes of approval, as well as draft provincial strategies that the provinces must approve.

HDA was busy with a similar process in the Free State. However, there had to be a clean-up first, to clarify the processes.  Work had started with the Mangaung Metro. Another similar process was also taking place in the Northern Cape.

He explained that in each of these, certain methodologies and templates were used and gathered, and HDA had done quality control on the information to ensure that there was consistency, and to allow for proper rollout and replication, and give support where it was required. HDA did not allocate and spend capital money for provinces, but assisted the provinces with the behind-the-scenes preparation work. It was in fact the provinces who had the capital, and they must decide how they wished to spend it, after the HDA had given all the background information to assist them with their planning and programming for spending their capital.

In relation to marketing, he explained that marketing was done on the basis of actual achievements, so that it publicised its successes, and the people with whom these had been achieved, rather than taking out newspaper advertisements or holding conferences.

Mr Mokgalapa said the HDA was managing its internal affairs well, and noted the mechanisms put in place to address supply chain management, which he agreed was the Achille’s heel in DHS processes.  He asked if HDA employed consultants, and asked for clarity on the line item for “other operating expenses”.

The HDA representative confirmed that details of the spending on consultants were in a report given to the Committee. Out of the R35 million for operating expenses, R5.6 million was spent on consultants. 21% was spent on internal audit fees, 10% on evaluations, 32% was spent on technical support that the HDA did not have in-house and the remainder was spent on strategy and business consultants who were helping with frameworks and policy.

Mr Mokgalapa asked where the land, totalling 6 880 hectares, was. He said that it seemed that HDA was not getting prime land in the larger cities of Pretoria, Cape Town, and eThekwini, and this seemed to be a challenge.

The HDA representative noted that there had been progress, since the Annual Report, on the figures, and there had, to date, been 6 896 hectares of land released from the State departments. This was in North West, Limpopo, KwaZulu Natal, Gauteng and Free State. The land was released when the relevant ministers signed off and agreed that the land could be used for human settlement purposes. What the HDA then sought to do was to work directly with the municipalities concerned, to establish the process for releasing that land for development purposes. Some of the state land released in the North West had already been developed and occupied. It was unlikely that all 6 000 hectares would get housing on them, but HDA tried to work with the municipalities to match this land with their housing targets. The assessment of land that had been mentioned earlier provided a key indicator of where the demand for land for housing purposes was. In cases where land was owned by the private sector, which might well include prime land in urban areas, the DHA’s choices were limited by availability of capital to purchase. However, by getting involved in partnerships with provinces and municipalities, the HDA hoped that the poor would not be discounted, when purchasing prime land.

Mr Sithole asked for clarity on how much land was actually released from the Department of Public Works for human settlements, as the figures were confusing. The Department of Public Works claimed that 61 000 hectares of land were released for human settlements, but the HDA reports said that 1 068 hectares were transferred.

Ms P Duncan (DA) asked how much land was released in each province for human settlements, and an indication of the projects to which it was released, to try to link with spatial development frameworks.

The Chairperson asked about the properties acquired or purchased from Gauteng, linking this question also to social housing. She wondered if any properties were purchased and prepared for cooperatives, and whether any decisions had been taken to remove property from cooperatives. She said that social housing  Social housing was a good government programme but was abused.

The HDA representative confirmed that there was no land on its portfolio that had been purchased from, or earmarked for, a cooperative.

Ms Duncan congratulated the entity on its gender equality, which was an imperative, and asked when the HDA was likely to reach the 2% disability target.

The HDA representative reported that it currently had 1% disabled staff, and hoped that in this year it would reach the 2% target.

Mr Matshoba sought clarity on the Zanemvula project, in view of the figure of 4 301, although the achievement to date by the HDA was nil.

Ms Borman appreciated the work the HDA had put into studying informal settlements. At a recent meeting with representatives from China, Brazil and India, the Brazilian delegates had given a presentation and spoken about South Africa’s attitude to informal settlements, which were widely regarded as a nuisance. This attitude had to change, and she was impressed by the amount of work that HDA had done to get the details and inform government what exactly what it needed to work on, and especially with the reference to the economic situation in informal settlements. Informal settlements should be seen as potential economic hubs to be developed. She congratulated the HDA and hoped it would assist the provincial departments to get going with what needed to be done.

The HDA said South Africa was underselling itself in regard to the work it was doing with informal settlements. A great deal had been pioneered and developed by the DHS, perhaps more than in other countries, although it was generally under-exposed.

Ms Duncan said if land was released just for the sake of doing so this could pose problems, and urged that state land in particular should be released for specific developments or projects.

The Chairperson said the land was acquired and identified only for human settlement development. It could not be acquired and used by HDA for something else.

Social Housing Regulatory Authority Annual Report
The representative from the Social Housing Regulatory Authority (SHRA) noted that this was a the first full year that the organisation had been operating.

In this year, the SHRA had been able to deliver and disburse money into real projects. It had investigated and done accreditation exercised on social housing institutions, awarding one full accreditation, refusing eight which were not up to the required standards to get government investment, and provisionally accredited seventeen. All projects were confirmed to be real projects. They were part of a pipeline that was formulated with the province and local authority partners.

The SHRA was initially staffed with nine people, but this had since risen to nineteen. It had achieved a clean audit, with the Auditor-General commenting only two issues, which had been dealt with. One comment related to the employment of someone who had been doing some other consulting at the time when he was employed. He had been told to finish up all these jobs. However, when the AG had done the audit, it was realised that he was still working on some projects. The person had since been removed from employment with the SHRA and the entity accepted fault for the oversight. The other issue was that in some instances, due to the pressure to meet certain deadlines, SHRA had not obtained three quotations. This had been brought to the attention of the Audit Committee, and it had, since then, been ensured that all policies were strictly adhered to and the processes were tightened.

The SHRA representative took note of the earlier question raised by one Member about cooperatives. In one case, an individual had claimed that the way that certain government projects were handled was contrary to the rights and interests of cooperatives. However, the Court had found that this individual had only pretended to represent the interests of cooperatives, but was in fact a building hijacker and was attempting to scam government out of money by pushing the correct political buttons. Since then, two other instances of building hi-jacking in social housing had been identified. In both of these cases the Court had also ruled in favour of the social housing institutions
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The Chairperson was emphatic that SHRA had to account for progress made with cooperatives and not just report on social housing.

The SHRA representative admitted that in the first year it had not done any work on cooperatives, but this would be reported upon in the report for the following year. The entity was mandated to invest in social housing and regulate the sector. The policy on social housing embraced the concept of cooperatives.

Operational highlights included the fact that the strategic plan was approved and supported by the Annual Performance Plan. In its first year of operation SHRA ensured that infrastructure was set up and an office and programmes put in place, which required attention to logistics. There had already been money set aside and SHRA therefore had to work fast to ensure that momentum was not lost.

He repeated that in this year, 17 Social Housing institutions were provisionally accredited, one was fully accredited and eight (which did include cooperatives) were declined. The 18 accredited fully or provisionally were monitored throughout the year. 4 127 units were delivered, which was above the initial target for Capital Investment programmes. Nineteen intervention grants were made available to assist the institutions that were not accredited. No cooperatives had requested intervention grants. It was pointed out that SHRA could not actually request people to ask for grants, but it must regulate who received them after request, and whether they were used correctly.

Strategic objectives of SHRA included regulation of the sector and investment in the sector. A regulatory system was in place, with regulations being gazetted in January 2012. SHRA thanked the Committee for its assistance in that regard. The accreditation of Social Housing Institutions (SHIs) and assessment of accreditation applications were completed on time, by 1 April 2012. The website showed the register of SHIs. Through capital investment, 3 194 units were approved, double the target. Furthermore, SHRA approved and disbursed 12 institutional grants. It had assisted the DHS with demarcation and gazetting of restructuring zones, and provincial restructuring zones were gazetted in December 2011. The further engagement with provinces to determine their rental strategies had filtered down to restructuring zones for demarcation and the process would now be taken forward by the DHS. In terms of the Social Housing Act, SHRA had to enter into specific agreements, and during the year under review agreements were signed with four of the nine provinces, with a recent signing with the Western Cape bringing the number to five.

Discussion
The Chairperson commended SHRA for being an inspiring institution, since it had commenced working in 2010, and particularly for being so responsive to the Portfolio Committee. It had ensured that it complied with regulations and followed the legislation. She looked forward to the next audit, which should report that the items raised in the last one had been dealt with.

Mr  Matshoba noted that human resources was outsourced, and asked if SHRA was using labour brokers, whom he felt were destroying the nation.

The representative from SHRA confirmed that it was not using labour brokers, but since SHRA was a small entity and had required some assistance on matters like salary runs it had used an HR professional. SHRA fully understood the sensitivity around labour brokers.

Ms Mnisi said that she was very impressed SHRA that managed to double its financial targets, which indicated that it had done more than originally expected. She asked why eight institutions were declined accreditation.

SHRA said that there were five criteria that had to be met, in order to be accredited. These were : a requirement to be a legal entity, show good governance, have good tenant management, show sustainability of the project and good property management. The eight institutions were declined because they had fallen short on these.

Mr Mokgalapa asked what “conditional accreditation” meant, what terms and conditions were attached to that and how long the institutions would have conditional accreditation before being fully accredited. Mr Matshoba also asked how SHRA was making information available to those who could apply for the intervention grants, to ensure that they received them.

The representative from SHRA said the institutions that were conditionally accredited might have met three or four of the required requirements, and where there was a sense that they could address the other requirements, with assistance, SHRA would help it to do this and allow it, in the meantime to access funding for their project. Some of those had since become fully accredited and the revised figures would be updated at the end of March. All institutions were only accredited for one year at a time, so that they had to apply to renew, when progressive improvements and reassessments would be noted. The call for proposals and advertisement for intervention grants was advertised nationally. Where institutions had failed to get accreditation, they were informed of the capital grants as another available option. 

Mr Matshoba asked what “other payments” referred to and wondered if SHRA was using consultants besides those in respect of outsourced HR services.

The SHRA representative responded that there were HR consultants for administrative support and for recruitment purposes, and consultants were also used for technical support in the accreditation process. SHRA had used consultants for speciality services that were not available in-house. However, it was trying to build its own in-house capacity to reduce reliance on consultants. To avoid irregular expenditure, processes had been improved and systems invested to ensure minimal if not zero irregular expenditure. From a percentage perspective, there was not over-spending on consultants, in fact the proportion was small. He reiterated that SHRA was trying to get skilled individuals in the organisation. In order to get a good product it was necessary to buy experience and knowledge, so that consultants may still be used in the future, in critical areas.

Ms Sosibo asked if the eight institutions that were declined accreditation would continue to be monitored by SHRA.

Ms Borman said that this was a positive first year’s report. She asked for an explanation of why there was underperformance on the predetermined objectives. For instance, it was very important to have people attending meetings of the audit committee. However, one member attended only one out of five meetings, and another individual attended four out of nine council meetings.

The representative noted that the SHRA council was appointed in August 2010 and its first task was to appoint a Chief Executive Officer. The unequal attendance occurred in the first three to six months. Non- attendance of three meeting in a row would result in a report to the Executive Authority. There had been some resignations without new appointments. However, there had been discussions where problems had occurred.

In relation to the predetermined objectives, it was noted that the SHRA was obliged to submit an Annual Performance Plan (APP) in June, when a number of issues were highlighted, subsequently being fine-tuned with National Treasury. SHRA was not sure how to draw up the APP, and the auditors had given directions. SHRA then agreed with National Treasury on the objectives on which it needed to concentrate in the first year. The strategic plan was approved by all parties, and National Treasury had awarded SHRA additional funding. The auditors had provided a checklist for the next year.

The meeting was adjourned.