AGSA on Audit of Predetermined Objectives; Briefings by Department of Human Settlements, Rural Housing Loan Fund, National Housing Finance Corporation, Housing Development Agency & Estate Agency Affairs Board on 2013 Strategic Plans

Meeting report

Briefing by the Office of the Auditor-General of South Africa (AGSA) on the Audit of Predetermined Objectives
Mr Andries Sekgetho, Senior Manager, AGSA, presented on the audit of predetermined objectives. The AGSA had a constitutional mandate and as the Supreme Audit Institution of South Africa, it existed to strengthen South Africa's democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

Mr Sekgetho said that there was an oversight body which included Parliament, provincial legislature and municipal council. Entities of the government were to have a strategic plan. When there was strategic planning, it would be then linked to the budget and divided by how much goes to what and when. This linking strategy to budgets would help people understand where their money was going.  After targets were made there would be the allocation of resources then this would lead to the implementation of the strategy and in year reporting. The office of the Auditor General was now at the end of year reporting as the financial year (FY) was coming to the end. There should be assessment and adjusting. The Portfolio Committee also played a critical role.

The presentation highlighted the legislative requirements. With regards to the AGSA, the Constitution of South Africa, Chapter 9, Section 188, stated that auditor-generals would audit and report on accounts, financial statements and financial management of government institutions. There was the Public Audit Act No. 25 of 2004, Section 20, which stated that AGSA would audit a report containing opinion / conclusion on financial statements and financial positions, compliance and financial management and assess or give opinions on performance. There was the Public Finance Management Act No. 1 of 1999, Section 38 (1) (a), which had and maintained effective, efficient and transparent systems of financial and risk management and internal control. 

With regards to departments there were also the Treasury Regulations Chapter 5, strategic planning, guidelines, instruction notes and practice notes which were issued by the National Treasury. Public Service Regulation (PSR) part IIIb, which was only applicable to departments 1 (a)-(f), (g). The Framework for Managing Programme Performance Information (FMPPI) issued by National Treasury in May 2007, Chapter 5 and the Framework for Strategic Plans and Annual Performance Plans.

An audit consisted of the following main criteria: compliance with regulatory requirements, which included existence and timeliness; usefulness, which included presentation, consistency, measurability and relevance; reliability, which included validity, accuracy and completeness.

Suitable indicators needed to be specified to measure performance in relation to inputs, activities, outputs, outcomes and impacts. Indicators had to measure things that are useful from a management and accountability perspective. In terms of reliability, the indicator should be accurate enough for its intended use and respond to changes in level or performance, there would be an activity linked to an objective. The indicator should have a clear, unambiguous definition so that it would be collected consistently and be easy to understand and use. In indicator should be: verifiable, it had to be possible to validate the processes and systems that produced the indicator; cost effective, the usefulness of the indicator had to justify the cost of collecting the data; appropriate, it had to avoid unintended consequences and encourage service delivery improvements and not give managers incentives to carry out activities simply to meet a particular target; and finally, relevant, it had to relate logically and directly to an aspect of the institution mandated and the realization of strategic goals and objectives.

Once a set of suitable indicators had been identified for a programme or project, the level of performance the institution and its employees would strive to achieve this. Suitable performance targets relative to current baselines were specified. The smart principle stated that the nature and required level of performance could be clearly identified. The required performance could be measured. The target should be realistic given the existing capacity thus it should be achievable. The required performance was linked to the achievement of a goal. There would be a time bound. The time period or deadline for delivery would be specified.

AGSA's audit process included five steps. The first step was to understand and test the design and implementation of the performance management systems, processes and the relevant controls. The second step was to test the usefulness. The third step was to test the measurability, relevance, presentation and consistency of planned and reported performance information. The fourth step was to test reliability; this was when they tested the reported performance information to relevant source documentation to verify the validity, accuracy and completeness of reported performance information. Then lastly there had to be the conclusion of reliability of the reported performance for selected development priorities or objectives.

The audit outcomes of 2011/12 on AoPo stated that 20% of targets were not achieved for both the National Department of Human Settlements (NDHS) and the National Home Builders Registration Council (NHBRC). The reason for this was because there was no monitoring or the plan was flawed. Root causes which were: inadequate systems and processes, lack of understanding of the principles of FMPPI and lack of monitoring and oversight over PDO processes. Leadership were said to be not taking responsibility for problems. AGSA was pushing for alignment of performance to strategic plans, accountability, achievements of targets and improved service delivery.

The three phases that would provide oversight assurances were: management`s assurance role, oversight`s assurance role and the role of independent assurance. In terms of management`s assurance role there was senior management which took immediate action to address specific recommendations and adhere to financial management and control systems. Accounting officers held officials accountable to the implementation of plans and report quarterly and annually on progress. The executive authority monitored the progress of performance and enforced accountability and consequences.

In terms of oversight, the National Treasury and the Department of Public Service and Administration (DPSA monitored compliance with laws and regulations and enforced appropriate action. The internal audit's duty was to follow up on management`s action to address specific recommendations and conduct audits on the strategic plans and APP and quarterly progress. The audit committee monitored the implementation of commitments on corrective action made by management as well as quarterly progress on the plans. The Portfolio Committee reviewed strategic and performance plans as well as the accounting officer`s quarterly reports on performance. There was a public accounts committee that exercised specific oversight on a regular basis. There were also external audits which provided independent assurance on the usefulness of plans and the reliability and credibility of reported performance information and identify instances non-compliance.

The audit of predetermined objectives was important for public reforms. It would also improve public reporting and provide better information on what taxpayers were getting for their taxes. Measuring results would determine whether there had been failure or success so that if they were successes they would be rewarded. It was also necessary because seeing success would mean the public sector would win public support as they would be able to deliver services.

The presentation also highlighted the audit of predetermined objectives as opposed to the performance audit. AoPo basically referred to the annual assurance on the credibility of an audit reporting of their performance. A performance audit was a factual report on whether goods and services acquired were applied economically and efficiently and were managed effectively towards achieving the desired goals.
Work was still to be done on the movement towards clean administration and reporting on service delivery. There were a number of different focus areas, which included ensuring that the strategic plans conformed to the National Treasury Smart Criteria: specific, measurable, attainable, relevant and time-bound. Other focus areas were the supply chain management, HR management, IT control and materials amendments to Audited Financial Statements (AFS).

The way forward included departments ensuring that 2013/14 strategic plans were updated with findings reported; adequate preparation of complete monthly AFS with full disclosures notes; preparation of monthly key controls by entities; focused quarterly key control assessments and discussion; action against transgressors (consequence management); and lastly timely implementation of action plans.

Discussion
Ms M Borman (ANC) commended the Department on a fantastic job with their presentation. The Committee had been talking about this since 2009 but now understood everything. The Committee could not monitor something that was not quantified. AGSA had given the Members valuable information.

Ms D Dlakude (ANC) agreed with Ms Borman that the presentation was excellent

Mr S Mokgalapa (DA) thanked the AGSA for their presentation. He commented that under spending without using the smart principle set unrealistic targets. He asked why they should reward people with bonuses when they were under spending.

Ms P Duncan (DA) was glad that AGSA was now engaging on a quarterly basis not annually. She agreed with Ms Borman and Ms Dlakude that presentation was outstanding.

The Chairperson said that after all the five goals were discussed there should be outcome.

Briefing by the Rural Housing Loan Fund
Mr Jabulani Fakazi, CEO, Rural Housing Loan Fund (RHLF), presented the first part of the presentation and Mr Bruce Gordon, CFO, RHLF, presented the fiscal matters. The RHLF mandate was to facilitate access to incremental housing finance for low-income households in rural areas. Their main focus was rural areas and small towns outside metros. They looked at households that earned less than R9,800 per month, with a bias towards borrowers earning R3,500 per month.

Census 2011 in reference to RHLF market size and coverage showed that there were close to five million households that lived on tribal and farm areas in each province. With the funds it has available RHLF is able to reach less than 1 percent of rural households on an annual basis. However, 80% of the RHLF’s loans reached rural households. Small towns were not included in these statistics. There were reasons to why households in tribal areas were inadequately serviced. These included funding shortages, loan distribution channels and economic conditions for example low affordability levels and high unemployment.

In terms of the RHLF market, Eastern Cape and KwaZulu Natal had the highest percentage of people that lived in traditional dwellings, structures made of traditional materials. Gauteng had the highest number of informal dwellings, for example shacks.

Market conditions showed low economic growth outlook; unemployment rates were likely to remain high. The Rand was deteriorating at the time and this would likely cause inflationary pressure. The level of consumer indebtness remained high following astronomical growth of unsecured lending. Despite the challenges posed by market conditions, government policy interventions presented an opportunity to focus on areas where the government is undertaking strategic infrastructure projects, this would be when projects were implemented and commissioned which would serve as a basis for growth and job creation.

Increased demand for housing loans was forseen as a result of implementation of infrastructure plan. In terms of the Outcome 8 targets, from April 2009 up to the third quarter of 2012, the RHLF had provided a total of 156 219 loans against the outcome 8 target of 181, 811 incremental loans set for RHLF for the same period. RHLF is on track to exceed their cumulative target to 2014.

The National Development Plan (NDP) was an approved government plan to provide guidance to service delivery. RHLF was well positioned to support implementation of the NDP, especially in two key areas which were inclusive rural economy and transforming human settlements. A number of things in the NDP fitted the RHLF mandate. In terms of land reform beneficiaries, the RHLF would finance housing for beneficiaries who wanted to resettle land. In terms of secure water and food supplies the RHLF would fund for the connection to utilities, for example water, sewerage and electricity.

The RHLF's main challenge was a shortage of intermediaries, and the response to this was to provide additional facilities to existing intermediaries with scale to deliver on the mandate. The RHLF would also continue with efforts to identify community based organizations. The three that had been approved in that financial year were Sasekisani Cooperative, Shiyendelde, and Amajuba Livestock Association. The RHLF would continue efforts to sign new intermediaries and partner provincial Development Finance Institutions (DFIs). So far partners being considered included: Risima Housing Finance in Limpopo; Mpumalanga Economic Development Agency; Free State Development Corporation; and Bashumi Banking Services. However, adding more intermediaries to scale up access to incremental housing finance would require more funding and this would be a problem without finance.

Funding constraints presented another major challenge. In light of the huge market that RHLF had to serve, funding resources were limited to fully respond to market needs. They had a shortfall of R98 million in meeting the demand for additional facilities from existing intermediaries, which was a credibility issue for RHLF and government. In terms of action there was the application for additional capital injection from RHLF shareholders. This was critical for meeting long term development objectives. RHLF had applied for the relaxation of liquidity covenant on KfW/DBSA/RHLF loan from 30 percentage to 10 percentage of total assets. The Fund was exploring raising loan funding from private and international institutions. However, costs may be high given the RHLF mandate to facilitate unsecured incremental housing loans and this would defeat efforts to offer lower cost of credit for borrowers. The RHLF was awaiting feedback from KfW Germany which would assist a great deal, although it would be a short-term solution.

The presentation discussed raising awareness and developing a new footprint. The RHLF was going to participate in the DHS capacity development programme for municipalities. They use relevant media in raising awareness of incremental housing finance offered by RHLF and intermediaries. There were building merchants that were willing to partner the RHLF intermediaries as loan distribution channels and these had been identified in Limpopo, North West, Free State and Northern Cape. In 2013/14 RHLF was to facilitate partnerships between its intermediaries and identified building merchants. There were going to be opportunities for joint marketing.

There was limited funding, and thus limited resources for business growth and development impact, thus RHLF was looking for ways to acquire funding. Human resources are maintained on a lean model in line with the wholesale business model, and to build capacity in core business areas, such as operations. The appointment of one new client executive intern was upcoming. The development monitoring department would appoint the two current interns on a permanent basis.

The presentation discussed the implications of situational analysis. Targets were set in the context of economic realities. Targets for 2013/14 were still lower than desired because of funding constraints. RHLF enhanced audits of compliance with the human settlement mandate. Their focus was more on supporting intermediaries with sound infrastructure to achieve impact. Additional effort on Community Based Organisations (CBOs) was undertaken.

There were three strategic objectives which were: the broadening and deepening the reach of rural housing finance, building landing capacity and the preservation of real value of capital so that profit would go back to lending money.

In 2013 there were 38 202 end user loans disbursed. The budget for 2014 was 34 231. The average end of user loan size in 2013 was 6000 and the budget for 2014 was 5 800. The qualifying housing use target was 80 percent and it would be going into housing. 60 percent of the money went to people earning below R3500. The RHLF did not lend to metros but efforts were being made to move funds to intermediaries who granted lower loans so that the RHLF touched more people. Leakage targets considered adequate as cost of enforcing higher would lead to more funds on enforcement less on human settlements.

The value of loans in place for 2014 was R378 189. Disbursements to retail intermediaries that were needed in the coming financial year were 104 000. The number of retail intermediaries in 2013 was 13 and the budget for 2014 was 14. In 2013 there were 5 community based intermediaries but there were 9 anticipated in 2014. This budget was based on current funding constraints and efforts were being done to overcome them. Impairment expectation remained constant as risks were needed for rewards.

Income had increased as most funds were distributed for a full year. Expenses as a percentage of income had decreased as RHLF maintained its cost base while improving revenue. This led to improved profitability. In terms of capital funding, in 2011 RHLF received R49.5 million, 2012 R49.5 million and in 2013 R32 million from the government. The RHLF also got a loan from the Development Bank of South Africa (DBSA) some years ago, which was regarded as a soft loan at the time. The repayment would start in December and was repayable in 41 half yearly installments. The RHLF were in the initial phases of exploring new funding areas. No government guarantees would be sought.

Travel and accommodation had increased to enable more support to CBOs in remote areas. As RHLF sought to increase its presence in rural areas marketing costs needed to increase. Consulting fees were budgeted to increase as the focus shifted to CBO development and research. Employment costs had increased by 6 percent.

The RHLF had a board of directors which had full and effective control over the company. It monitored management and decisions on material matters which were in the hands of the board. There were six non-executive directors, one non-executive chairperson and one executive. The board met four times a year. There were also the board committees, including the human resources ethics and remuneration committee, the credit and development committee, the audit and risk committee, and the internal audit which was outsourced.

RHLF would meet its targets which had been so low, due to limited funding resources. However the market was huge and it was not serviced. Market conditions would remain gloomy due to largely subdued economic growth. If government initiatives for job creation materialised and general economic conditions improved the NDP implementation provided a scope for the RHLF growth, assuming additional funding was required during the Medium Term Expenditure Framework (MTEF) period and beyond.

Discussion
Mr Morris Mngomezulu, Settlement Director, National Department of Housing, acknowledged that the Department knew that the RHLF had funding constraints, and that they were going to the Treasury again in August. Treasury was cutting down on expenditure but hopefully because of good work the RHLF might find favor.

Ms Dlakude said that the presentation was depressing. People in rural areas were the ones suffering, especially from floods. She asked why the entity was not given enough resources to do the job. She said that people get comfortable after migrating from rural areas to urban areas. She appreciated the work the entity was doing. The Department should look into the budget of the entity, and made a plea to the Department to take people in the rural areas seriously. She asked what the target of the RHLF was as they only managed to deliver seven percent.

Mr Fakazi responded that there was no target set against which seven percent is measured and clarified that 7 percent was an indication of the proportion of number of loans granted since RHLF’s inception against the number of households as reported in Census 2011. This shows that RHLF has a huge market, yet still have a long way to go to meet the demand of the market.

Ms Duncan said that the focus on members, the Department and RHLF working together was very important. The entity was 17 years old, the Committee needed clear reports on how much was done in the 17 years. There should be a discussion to merge the National Housing Finance Corporation and RHLF.

Mr Mngomezulu said that merging had been underway and the Department would give the Committee feedback on the way forward with regards to merging. The entities were focusing on different things but the Department was looking at this issue.

Ms Duncan also said that the Department had to pay a distinctive role. She was very angry because some institutions and entities were sitting with money while not meeting targets.

The Chairperson said that some institutions do not get money from the government although they were established by the government, thus the discussion should go back to 1996. The process was not clear. NFHC was not receiving grants from government. What was government doing about these entities it had formed?

Ms Borman said that this whole thing was centering on money. The RHLF should put figures in their presentation and go back to the Treasury. What was RHLF`s bad debt?

Mr Gordon responded by saying that RHLF's bad debt was 18 percent, and it was being recovered. 2013 was written off while in 2013 R9 million was bad debts.

Ms Borman asked if the risk policy was adequate to cover fraud.

Mr Gordon responded by saying that with money there was always a risk of fraud. RHLF had good systems in place and there had been no fraud ever as yet.

Ms Borman asked if the attendance to the meetings of the board members of RHLF was good.

Mr Gordon responded that the attendance was close to 100 percent. Two board members were not attending and they had been told they should either resign or attend. Since then one of them had resigned and the other had started attending.

Ms J Sosibo (ANC) asked if rural people were aware of RHLF and its functions.

Mr Fakazi responded by saying that RHLF did not market itself to rural people directly because people would be less willing to pay back government's money. Marketing was done by intermediaries. There were too many risks if people thought they were borrowing from government. So RHLF is very careful in its marketing efforts that it promotes incremental housing finance and channel potential borrowers to intermediaries.

Ms Sosibo asked about the criterion which was used in terms of lending money to people.

Mr Gordon responded that RHLF was working with intermediaries who set criteria in terms of the National Credit Act requirements. These helped the entity to lend money to the rural areas.

Mr K Sithole (IFP) asked where offices were and if they were accessible.

Mr Gordon responded that travelling was expensive. The offices were in Johannesburg and staff travelled from there. However, the intermediaries had offices everywhere.

Mr Sithole asked about the statistic of 5 million households per province and why they did not include small towns.

Mr Fakazi responded that market mandated to service was higher than 5 million since RHLF mandate includes small towns. RHLF has only used figures that indicate the number of households on tribal and farm areas to illustrate the size of the market and how RHLF’s under coverage of the market.

Ms Dlakude asked how much interest was paid in loans.

Ms Sindiswa Ngxongo, Chief Operations Officer (COO), NDHS, emphasized the capitalisation of RHLF and indicated that the Board of RHLF had met with the Minister on this issue.

Ms Duncan added that the Minister should attend the meetings and proposed that the Committee should write a letter to the Minister.

The Chairperson said that the budget debate would be held separately. The Minister should come to discuss issues before the budget debate.

Briefing by the National Housing Finance Corporation
Mr Samson Moraba, Chief Executive Officer (CEO), National Housing Finance Corporation (NHFC), presented on behalf of the NHFC. He told the Committee that the NHFC had been established in 1996 as a development finance institution. It was 100 percent owned by the South African government although it was self-sustaining. It generated its own revenue and paid income tax. He said the board had made an appeal not to pay this tax; they believed that they would then have more funds for housing finance.

Its long-term credit rating was AA-, short-term A1+. The main business was ‘broadening and deepening access to affordable housing finance for the low- to affordable-income South African
households'. This responded to Outcome 8, Output 1. There was a move to prioritise inner city housing. One of the strategic objectives was facilitating private-sector finance. Admittedly, this was one of the most difficult aspects. Lending by private banks had declined since 2008 because of the financial crisis. The experience of Marikana had prompted the President to ensure adequate housing for employees, in the mining towns, inter alia.

Ms Nomsa Ntshingila, acting Chief Financial Officer (CFO), NHFC, said the planning and growth were in line with what was happening in the market. The NHFC had borrowed R440 million from foreign lenders. A historical analysis of the pricing and return on advances revealed that it had been below the inflation rate. This fact had begun to affect the sustainability of the corporation. This was playing a developmental role. They would need to approach the shareholder, in order not to price themselves out of the developmental space. There had been 14 000 housing opportunities in the current financial year rising to 21 500 in the next one. Fifty-three intermediaries had been funded, rising to 64 in the next financial year. There had been 53 000 beneficiaries, 81 500 expected and 7 500 created, 11 750 next financial year. The value of disbursements towards women-managed/owned companies had been R80m, rising to R98m next year.

Mr Lawrence Lehabe, Programmes and Finance Linked Individual Subsidies Programme, NHFC, said eight of the provinces had signed eight implementation protocols. The Western Cape was the only one outstanding, but it was almost complete. However, of the eight, only five were active. The process was a result of a MinMec decision of which all the provinces were party. The financial transfers had been late because at the time of the decision, budgets had not been re-prioritised.
The Chairperson interjected saying that the provinces should not be defended because they had known all along and should have made provision, precisely because citizens were waiting for finances to get houses.

Mr Moraba presented the challenges, chief among which was funding, gross domestic product (GDP) growth and resultant growth in employment levels. The private sector also faced many challenges, both market-related and regulatory. The NHFC would stimulate the affordable housing market through: FLISP, which would improve household affordability, and the Mortgage Default Insurance (MDI), which would expand access to finance.

Discussion
The Chairperson suggested that the members not discuss MDI yet, because it was more complex and would be discussed separately later. FLISP was more straightforward.

Mr Mokgalapa said the presentation was depressing because the projects that were under-performing were being funded and vice-versa. FLISP had been announced by the President. If something was announced by the President, it should get priority. Why was FLISP linked to projects, instead of individuals? The FLISP market was a critical gap market. The corporation was moving slowly on it, which is how the Lenasia debacle was created.

Ms Borman said FLISP was an absolute priority. She wondered about the total number of units to be produced. How was the protection of customers guaranteed? Why were there such fluctuations in the various projections? What exactly was Basel 3?

The Chairperson asked about affordable rent in the private sector. Even the Department did not have a rental strategy. The Committee needed clear targets for the implementation of FLISP. There needed to be a clear process for the application for FLISP. How were people meant to apply? This lack of clarity delayed housing. She was emphatic that the Committee did not approve project-linked financing for FLISP. The corporation was simply correcting a wrong with a wrong. The Department was wholly and solely responsible for the failure of FLISP. The President had made the call for FLISP, but the government was not responding.

Mr Moraba said that regarding Outcome 8 targets there were 600 000 plus 80 000 units. The balance would come from the private sector. The intermediaries were providing private rental, in the sense that there was no social housing subsidy.  The rental was affordable – R3000 to R6000 depending on number of bedrooms in the unit.

The Chairperson interjected and said even the affordability was questionable. How was this rated in the private sector?  How could it be said that R3000 was affordable? The Department should do homework to explain how they would deal with the rental issue. She emphasised that the Rental Bill was very important to the Committee and would be its one legacy this term. It would be definitely be passed by the end of the year.

Ms Borman said affordability needed to be defined. Was R6000 affordable in this market? There had to be a means to keep record of how many units were being produced by the various entities. Perhaps the Department, not the Corporation could answer.

Mr Moraba answered that affordability was determined as percentage of income; in this case, 30 percent maximum should be spent on accommodation, including mortgages as well. The National Credit Act was being used to prevent abuse of consumers. Each intermediary was audited regularly and follow-through with the end-user to ensure compliance. Basel 3 was a regulation that required banks to have cash reserves with the Reserve Bank – this was called a Liquidity Coverage Ratio. This was part of the learnings from the credit crunch.

Ms Sindi Ngxongo, Chief Operating Officer, National Department of Human Settlements, explained that the 80 000 target was in line with Outcome 8 – from 2010 to 2014. She admitted that she did not have information on whether the targets would be met. She would report to the Committee at a later stage.

Mr Mngomezulu said they were doing oversight, and not policy, so they did not have answers readily. They had noted the deliberations and would convey the message to the relevant stakeholders in the Department. The Rental Bill would be dealt with in the third, according to the legislative programme. The Chairperson insisted that no matter when it was expected, the Committee wanted it by July, and vowed that it would passed by December.

Mr Lehabe replied that the 57 were individual projects. The process could take up to three months. FLISP was dependent on home loans.

The Chairperson was concerned about the treatment of citizens by developers. Why did the government put such trust in developers? She urged them to go back and redraft the policy, because it was not what it was meant to be yet.

Ms Ntshingila admitted that the graph in the presentation was incorrect. There had been a mistake in the formula. The intermediaries were regularly audited to ensure compliance. Further, they were encouraged to register with credit bureaux, to ensure that clients were not over-exposed with mortgages.

Briefing by the Housing Development Agency
Mr Taffy Adler, CEO, Housing Development Agency (HDA) presented on behalf of the HDA. He showed a short promotional video, in response to a previous call by the Chairperson for the agency to market itself more. There would be a development of a national sector-wide land assembly strategy in partnership with organs of state and other key sector stakeholders to sharpen the HDA's focus and drive delivery. There would be a shift from head office to a strong presence in the regions.
The Chairperson requested that the video be translated into several languages and distributed to all MPs to show to their constituencies, this would go a long way to helping people understand the process.

The strategic goals of the organisation were narrowed down to two main goals.

An informational video on the National Human Settlements Land Indices was shown. This was an analytical tool for the planning and integration of human settlements. It was used to identify habitable land. It would be used by all levels of government and public to assess the overall habitability of land.

Discussion
The Chairperson praised the presentation. The HDA had done exactly what the Committee had asked in explaining exactly how much land had been released.

Ms Borman said this was the beginning of a pipeline. How closely were they working with the national department? This should be translated into a timeframe to ensure delivery. Kwa-Zulu Natal seemingly did not feature at all in the plans. If the provinces were not co-operating, the Committee needed to know.

Ms Dlakude wondered about the role of chiefs and traditional leaders in the acquisition of land. They often controlled land pockets, even though the land belonged to the State.

Mr Mokgalapa said the Committee would need an indication of the land developed, a step further from land acquired. Red tape was still an issue. What strategy was there to assist in eliminating it?

Ms Sosibo asked about plans in Mpumalanga and Northern Cape. In Kwa-Zulu Natal, there was land under the Ingonyama Trust; would the HDA re-negotiate?

The Chairperson wondered why no metros were seemingly involved. Land in rural areas belonged to the State, a plan had to be made. A grant had been made to the metros to advance human settlements. This needed to be addressed by the Department with the metros. They should stop buying land privately.

Mr Adler responded that the HDA was dependent on the provinces and local authorities and they could not dictate to them.

Ms Nellie Lester, General Manager: Land Assembly Management, HDA, said an implementation protocol (IP) had been completed with Kwa-Zulu Natal, but was not finalised yet. Land had been identified in all provinces. State-owned land was often not ideally located and readily available for development. More work needed to be done with local authorities to develop land. There was an effort to align land identified with the needs of local authorities to make best use of it. The process often moved slowly because there was an effort to make sure that the land was indeed suitable and to prevent any hold-ups in future. The Agency had focused on partnerships with the provinces all along, they were now moving towards having partnerships with the metros directly. It was not just about land, it was also about the total usage of land – the transport networks, tracts of communication. The focus would not be on houses built, but the integrated nature of the development.

Ms Odette Crofton, General Manager: Projects and Technical Support Services, HDA, said that additional capacity was provided to the provinces to alleviate red tape. Specialist services were provided to assist provinces. The issue was acquiring well-located land and aligning bulk infrastructure. There was a need for re-alignment of land, planning, resources and priorities across the board. The agency approached traditional leaders with the local authorities who were more familiar when acquiring land.

Mr Adler said there was a good working relationship with the Department. The agency saw itself as an agent of the Department. A major issue was that the land that HDA was trying to acquire was owned by the Department of Public Works, Public Enterprises and Rural development, it should be part of their Outcome 8 to release the land. It should part of their key performance areas (KPAs) to make it available. The agency was often a beggar to those departments in acquiring land. There needed to be alignment.

Ms Borman interjected and said she served on the Public Enterprises Portfolio Committee. She had brought it to them and they had asked for details. 

Ms Ngxongo added that there was a plan in the Department to share information more readily and broadly. There was an existing forum where all three departments were represented. There was a plan to enhance the work of that forum. A change of mindset was needed; where there was willingness, things happened. If the HDA had a problem, they were the problems of the whole sector.

Mr Mngomezulu added that the applications had been done, but the processes that needed to be followed delayed things, they needed to be improved.

The Chairperson said the problems were not insurmountable. She wondered why things were not being done when there were forums on which all the relevant stakeholders and decision makers were represented. There were several meetings, but few outcomes and outputs. The time for mere compliance was over, what was needed now was action.

Briefing by the Estate Agency Affairs Board
The Chairperson welcomed the board. She highlighted the fact that the board had been transferred to the Human Settlements Department recently. The board was still under administration. The Committee was still to hear a progress from the Minister on the work of the administrator.

Mr Bryan Chaplog, acting CEO, Estate Agency Affairs Board (EAAB) presented on behalf of the EAAB. He said that the industry had been affected by the economic factors like the downturn and lower economic growth. The National Credit Act (NCA) was a factor too, compounded by stricter bank lending to property buyers. Up to eight million consumers had impaired credit records. Changing technology affected the way that agents did their work. Agents could take advantage of unsuspecting consumers by not advising properly and selling defective properties – this would have an impact on the Fidelity Fund. The mismanagement of trust funds continued to be a risk.

The EAAB was trying to align itself with government-wide priorities in the property sector by, inter-alia, supporting the Property Sector Charter Council in the implementation of Broad-Based Black Economic Empowerment (B-BBEE) Codes. Involvement in low-cost housing and Professional Development Institute (PDI) training was encouraged. Mr Chaplog was still acting in the office of CEO; but the process of appointing a new one was ongoing. There had been significant progress in the “Property Practitioners Bill” which would replace the existing legislation. The board managed the Fidelity Fund to re-compensate individuals who had been defrauded by estate agents. The board would fund the education and training of the trainee. This would cost R10 000, there were 11 100 estate agencies – the total cost would be R111m. Transformation in the sector was very slow and low. 90 percent of practitioners were white. There were still more women in the sector. The average age was 58; more young people were needed.

Mr Silence Mmotong, CFO, presented the financial position and performance. The board was not funded from the fiscus. It generated its own funds, which were public funds by virtue of being generated through legislation. Estate agents contributed when they renewed their fidelity fund certificates. Study guides were sold to generate funds. The board charged a fee to manage the Estate Agents Fidelity Fund. Estate agents were required to open trust funds, 50 percent of the interest income was paid to the Board. The funds were investing and interest was earned. The current value was R600m. Revenue streams were stable due to the pressure in recent years.

Mr Chaplog continued that the main strategic objective was to ensure compliance with the Act.
R25 million was paid out to consumer every year.

Discussion
Mr Mokgalapa said there were often complaints that certificates were issued late. Seemingly, there were means in place to deal with fraud. It was difficult to deal with transformation in the private sector. It would be interesting to see what programmes there were to deal with it, especially with youth. It was hard to deal with acting executives, if the Committee was to interact, it would need people with the power to implement decisions.

Ms Borman said a lot of work needed to be done on transformation. How would the gap be closed on one-on-one basis? She wondered about the process to appoint a CEO. Should there be more work or was there overkill on training? There was a huge drop in the surplus of the Fidelity fund. Was there a possibility that something was “pulled out” somewhere? The number of inspection also varied widely.

The Chairperson asked about funding sources. Who funded the training? There were complaints that people could not afford the training. What was the situation with the recognition of prior learning? The board was seemingly very pro-active and would useful to the Committee. Low-cost housing belonged to government. Estate agents did not have to sell them. It must be ensured that they remained government property.

Mr Chaplog responded that often people did not label submissions correctly, so monies were confused and this delayed the process of issuing certificates. The SETA paid a bursary, the amount was often not sufficient.

The Chairperson talked about the provisions for older persons.

Mr Chaplog responded that if one had been in the industry for more than five years, there was an exemption. There was also an exemption for people over 60 years. There was a need for greater awareness on the processes. There was an overlap in the Sectional Title Bill and the Property Practitioners Bill. The name of the board would change to the “Property Practitioners Authority” to include a wider range of stakeholders.

Mr Mokgalapa said FLISP should be prioritised and awareness increased to make sure people were able to buy houses.

Ms Ngxongo said the CEO position had been advertised. The board would meet on April 10^th 2013 to organise themselves.

The meeting was adjourned.