Housing Institutions: briefing

Meeting report

PUBLIC SERVICES SELECT COMMITTEE
12 June 2002
HOUSING INSTITUTIONS: BRIEFING

Chairperson: Ms P Majodina

Documents handed out:
National Home Builders Registration Council: Strategic Corporate Plan (2002-2005).
National Urban Reconstruction and Housing Agency
Servcon Housing Solutions: Normalising the Housing Environment
Servcon Housing Solutions: Report to Stakeholders- 31 March 2002
Thubelisha Homes
National Housing Finance Corporation
Social Housing Foundation

SUMMARY
The National Housing Builders Registration Council introduced a warranty scheme in terms of which housing customers are able to report defective structural work to the Council and have the defect remedied by either the contractor or the Council itself. Contractors are required by legislation to register with the Council and enrol each home fifteen days prior to the commencement of its construction.

The National Urban Reconstruction and Housing Agency facilitates finance for emerging contractors. They guarentee up to 70% of the loan by the bank. The Agency also offers a National Savings Programme to assist low-income groups to save using bank accounts. They emphasised financial literacy as being an important way of empowering people.

The rationale behind the establishment of the People's Housing Partnership Trust is that South Africans build their own homes. Government has decided to use this as an important housing delivery mechanism. The Trust provides these people with skills, as well as technical and advisory services.

Servcon was established to deal with properties in default since before 1997. They aim to prevent evictions of people who default. They work in conjunction with Thubelisha Homes. This organisation is responsible for the procurement of the 'new' home.

The National Housing Finance aims to give all working persons the opportunity to buy, rent or build their own homes by mobilising finance for low and medium income households, those who earn between R1000 and R7500.

Due to time constraints the Social Housing Foundation was unable to make its presentation.

MINUTES
The Chair stated that the purpose of the meeting was to determine the role the different parties were playing in poverty alleviation.

Presentation by National Housing Builders Registration Council
Mr Mosalo, the Gauteng Regional Manager of the National Housing Builders Registration Council (NHBRC) read through the document and pointed out the following:
With regard to the NHBRC Vision, he stated that the concept of the 'warranty scheme' would be adapted to suit local conditions.
One of the primary objects of the Act is to establish and promote ethical and technical standards in the home building industry.
The Provincial Customer Care Centres are particularly important to ensure the accessibility of the Council to people throughout SA.
With reference to the budget, the sources of income include registration fees. The fee of R750 is a once-off fee while R600 is payable annually on renewal. An enrolment fee of 1.3% is payable. Enrolment of a property should take place fifteen days prior to the start of construction.
A Valuable Final Product (VFP) is a product or service that can be exchanged for goods or services. In the case of the NHBRC, the Valuable Final Product (VFP) would be what the NHBRC gives to the client in return for enrolment fees, registration fees, renewal fees, etc.
The VFP of the registration process is a registered builder able to meet the obligations of consumers in terms of NHBRC's requirements. The number of builders registered has increased between 1995 and 2002, as failure to register would constitute contravention of the Act.
The VFP of the renewal process is the renewal of membership of the builder who is able to meet obligations in terms of NHBRC's requirements. After 2001 there was a drop in the renewal of memberships, as saturation point had been reached.
The VFP of the enrolment process is home enrolled with the necessary engineering input from competent persons to assist the builder to take the necessary precautions in structural design and to reduce risk to the NHBRC fund. The process serves to enable the Council to evaluate the technical competency of the builder, as well as the quality of the structure.
The VFP of the late enrolment process is to accommodate those builders and housing consumers who commenced construction prior to enrolment. After 1999 everyone enrolled on time. This was due to awareness campaigns, marketing, roadshows and the fact that action was taken against those who enrolled late. Many defective structures resulted from late enrolments, as workers used the process to take short cuts.
The VFP of the inspection process is an inspection service to the builder to assist in building homes with structural integrity, which would result in fewer complaints from housing consumers.
The VFP of the complaints handling process is a complaint professionally and speedily processed for the housing consumer.
The VFP of the conciliation process is a professional service of conciliation covering all items of concern of the consumer and clarifying the builder's responsibility.
The VFP of the remedial works process is the repair of major structural defects on enrolled homes by the builder or, where the builder is unable to carry out the repairs, by the NHBRC.
The VFP of the suspension process is to suspend a builder who fails to meet obligations in terms of NHBRC requirements.
The VFP of the withdrawal process is the removal from the register of the builder who has failed to meet obligations in terms of the Act.

Discussion
The Chair asked what disaster management plans were in place to deal with destruction or damage of a project that was close to completion.

Mr Mosalo explained that there was no provision in the Act on this issue. However before construction builders anticipate and take precautions against storms. There is however no provision dealing with situations like earthquakes and hurricanes.

The Chair asked how many people were aware of the NHBRC. She asked what their marketing strategies were and whether they had a toll free number.

Mr W Windvoel (ANC-Mpumalanga) pointed out that disputes were not resolved amicably in practice. He also wanted information regarding the accessibility of the Council.

Mr M Maimane, the Executive Director of Corporate Services of the National Home Builders Registration Council stated that there were nine customer care centres in SA. In each centre a regional manager was responsible for the implementation of the marketing plan introduced at national level. The Council, which had previously just worked with the bonded market, was now allowed to deal with the subsidy sector as well. Thus the use of radio as a marketing tool was now advisable. Managers will be able to interact with the audience. This will take place on 1 July 2002. This was more effective than newspapers in reaching the subsidy sector. The Council could however not neglect the bonded market, which provides the greater part of the Fund. Thus television will be used to access this sector. The Council also holds roadshows where they communicate with stakeholders in different provinces. Their toll free number is 0800 200 824.

Ms J Vilakazi (IFP-KZN) requested more information regarding the warranty.

Mr S Jansen, the Western Cape Regional Manager explained that the consumer contacts the Regional Centre and lodges the complaint. The conciliation process follows. The result is that either the builder or the Council then undertakes remedial works. Mr Mosalo continued that the occupant of the house would have three months to report defects after which the builder has to perform remedial work. The customer also has a one-year warranty against roof leakage. The consumer then has a five-year period to report core structural damage to the Council.

Mr Windvoel referred to areas where buildings were erected on swampy lands. He asked how these managed to pass inspection.

Mr Jansen explained that the local authorities do inspections as to the suitability of land for building. The only inspections done by the Council at this stage was to determine the type of foundation to be used based on the soil of an area.

Ms B Thompson (ANC-KZN) asked what the Council did about houses that were falling apart all over the country. She referred specifically to KZN in this regard and suggested that the Council may not be marketed adequately in this region.

Mr Mosalo explained that these houses fell under the subsidy scheme. The Council had only become involved with the subsidy scheme on 1 April 2002. The involvement of the Council has at this stage been minimal in this sector.

Mr P Moatshe (ANC-North West) asked for the causes and significance of late enrolment.

Mr Mputhi, the Legal and Customer Care Manager of the Council, explained that the Act required a builder to enrol the house he intended to start building. This should be done fifteen days before building commences so that the inspection route can be planned ahead of time. If the builder only notifies the Council once the house is at window level, there is no way of inspecting the foundation properly.

Mr Moatshe asked if all sub-contractors were registered.

Mr Maimane replied that the Council registers builders. If the sub-contractor has registered action could be taken against him if he contravened the Act. Mr Mosalo said that the Council encouraged sub-contractors to register so that they could acquire independence.

Dr P Nel (NNP- Free State) asked if the Council appointed its own inspectors or if they use local government inspectors.

Mr Mputhi answered that the Council outsourced inspections to independent companies on a tender basis.

Ms Thompson suggested that it was unwise to use private company inspectors as opposed to Council inspectors.

Mr Maimane replied that the use of private companies' inspectors had been the practice when the Council dealt solely with the bonded market. The Council is negotiating for the use of Council inspectors under the new system.

Mr Moatshe asked why builders alone were blamed for a poor structure when the inspector approved every step of the building and should therefore also be held accountable.

Mr Maimane replied that the Council only registered inspectors who have indemnity insurance. The number of inspections held has therefore been increased. If the inspector was at fault he was in fact held accountable. The Council also employed people to monitor the inspectors.

Mr M Sulliman (ANC) asked if the Council had a role to play where the contractors took off with the money leaving incomplete building projects all over the country.
Mr Mosalo pointed out that the five-year warranty operated from the date of occupation. Thus incomplete houses were not covered by the Act.

Ms Thompson asked if there were programmes in place to get emerging contractors qualified.

Mr Maimane replied that the Fund has been allocated R10m in order to develop contractors.

Presentation by the National Urban Reconstruction and Housing Agency
Attracting Bank Finance
Ms N Mncube, the Executive Director of the National Urban Reconstruction and Housing Agency (NURCHA) explained that NURCHA facilitates finance for contractors. If a contractor therefore approaches a bank for a loan NURCHA will guarantee up to 70% of the amount. NURCHA only assists contractors who are not yet established, such as women and blacks.

The problem is that many sub-contractors have never run their own businesses. They therefore need assistance with technical issues and issues of process. NURCHA advises them on how to structure their projects to ensure bank finance and also on how to manage their budgets. NURCHA advises contractors to be registered with the NHBRC or other such recognised institution, as this is often a bank requirement. Failure to register also means that the contractor will struggle to find work.

Banks are reluctant to lend to emerging contractors due to (1) their lack of experience (2) the fact that banks do not customarily grant loans outside the established market and (3) the high risk involved. NURCHA therefore has to motivate banks to get involved with this market. Many companies have emerged with NURCHA and are now able to obtain finance without NURCHA's assistance. Not all female and black contractors should be classified as 'emerging contractors'. Women have a good track record with repayment of loans. In fact there has not been one case of a female contractor assisted by NURCHA defaulting on her loan. NURCHA is now working together with three banks that are servicing its clients with loans. It is NURCHA's responsibility to ensure that contractors perform, as banks will not provide further loans if clients default.

Joint Venture Fund
Contractors do not apply for loans from banks under this scheme. Instead the contractor may only have half the money for a project. NURCHA will then provide the other half, but will monitor the project closely. This is not used often, as not many have the cash available.

National Savings Programme
NURCHA wishes to focus on those without payroll deductions and Provident Funds. They aim to assist those who earn R3500 or less to accumulate money to either buy a house, improve their existing house or top up their subsidy.

Not all banks are compatible with small savers' needs. NURCHA is working toward forming partnerships with banks. Some of the benefits are that banks will charge these clients minimal service charges and will make banking more accessible to those who had not had bank accounts. The aim is to show banks that if a person is able to save R100 per month s/he is able to repay a loan of R100 per month. This programme was launched in September 2001 and NURCHA now has 35000 savers. The aim is to link up with the housing industry so that savings lead to housing opportunities. This is beneficial whether the person wishes to link their savings with credit or whether the person prefers to utilise only saved cash to purchase a house.

Discussion
The Chair asked what the risks were when NURCHA guaranteed a loan.

Ms Mncube replied that people often could not manage the money that they were granted. Once they received the money many of them decide to spend it on other things and retained just the bare minimum for the completion of the project. This impacted on the standard of the work and this in turn affected the way in which banks perceived low-income housing building contractors.

The Chair asked what NURCHA's marketing strategy was to reach the 'poorest of the poor'.

Ms Mncube said that while it was easy to reach the big contractor this was not the case with the small contractor. Many of them did not or could not read and do not listen to the radio, as they were on site. NURCHA therefore went on roadshows to talk to the local authorities. They run workshops in communities where there are backing partners such as the banks.

The Chair asked if there were legally binding documents involved when NURCHA guaranteed an amount to the bank.

Ms Mncube answered in the affirmative.

Mr Windvoel asked if NURCHA provided orientation for contractors.

Ms Mncube replied that NURCHA could provide orientation on project and cashflow management.

Mr Windvoel asked what guided the recruitment drive.

Ms Mncube said that it depends on where NURCHA had backing partners. One could not work in communities to encourage them to save if the banks in that area refused to work with NURCHA. Also, NURCHA would not use officials from NURCHA itself to bank money on behalf of the people, as this could lead to corruption.

Mr Moatshe asked how NURCHA assisted with the management of funds.

Ms Mncube said that the country as a whole did too little to assist with the financial literacy of its people. NURCHA and the Department of Housing were investing in financial literacy programmes, which were not just important with regard to housing, but assist in creating better citizens.

Presentation by the People's Housing Partnership Trust
Mr M Tshabangu, the Acting Chief Executive Officer of the People's Housing Partnership Trust (PHPT) read the document. He said that the reason behind the establishment of the trust is the belief that South Africans build their own houses. The government recognised and supported this practice and therefore decided to use it as an important housing delivery mechanism. In terms of the vision of the PHPT communities should remain masters of their own development, particularly with regard to their housing development.

The Communications programme is one of the most important programmes, as it aimed at ensuring that everyone is aware of the assistance that the Trust provides. In Johannesburg workshops are held in the countryside. They also work with municipalities and non-governmental organisations. Although there is already much awareness about the work of the organisation, there is still much to be done.
The training programme provides contractors with building and management skills. Qualified persons conduct the workshops.
The Trust also provides builders with technical advisory services. Persons wanting a subsidy are required to form a legal entity or use the nearest municipality, which will provide management and supervisory support.
The Trust also has a research and development programme. They create a bank of information from which others can learn.

There is a gap in the management of the organisation at the moment. They have been forced to revisit strategies and restructure the management system in the light of recent changes in the housing industry.

Discussion
Mr Sulliman asked how communities could organise themselves in order to get access to the funds.

Mr Tshabangu said that persons should organise themselves into a legal entity. They should identify the piece of land (of which they have some form of tenure). They should then apply for the subsidies.

The Chair asked at what stage the Trust converged with NURCHA.

Mr Tshabangu explained that where persons were unable to provide value in the form of labour they would make a monetary contribution. Thus savings were very important. The Trust also encouraged saving via saving schemes (although not NURCHA in particular).

Mr Moatshe stated that training people to build their own homes would alleviate the need for them to acquire huge bonds, as houses could be built very cheaply.

The Chair asked what the strategy was to assist people in rural areas.

Mr Tshabangu replied that people from rural areas qualified for a subsidy by virtue of the fact that they had permission to occupy the land.

Ms Vilakazi suggested that the top structures should develop business plans so that contractors were able to access funds.

Presentation by Servcon Housing Solutions
Servcon was established to deal with properties in default since before 1997. They deal only with the bonded sector. The main reason for defaults is economic but there are cases where people simply refuse to pay.

The Servcon programme has four main elements: (1) a subsidised rental option in terms of which the payment level of the rental would be 13% lower than a mortgage bond. (2) a buy-back option (3) a rightsizing option where the ex-owner would be assisted to find alternative affordable housing towards which a subsidy would be paid. (4) Special assistance for the disabled and aged.

In terms of the rightsizing option the person is usually given a free house paid for by government. The 'new' house is procured by Thubelisha Homes. The previous home is resold back into the market. Problems arise as many refuse to accept any offer by Servcon. However if persons accept an option then all evictions can be prevented.

The socio-economic problem should be addressed instead of focusing on the symptoms of the problem. Thus Servcon has developed job creation and community development projects. The aim is to bridge the gap between the townships and the suburbs and to support activities that will benefit the broader communities. To this end Servcon clubs have been formed to improve environmental and living conditions. Clubs focus on skills training such as computer training, Internet skills, sewing and knitting, baking, recycling and vegetable gardening.

Discussion
The Chair asked who Servcon's clients were.

The presenter said that their clients were people who had defaulted on their loans before 1997.

The Chair asked how Servcon ranked their output.

The presenter replied that they managed to relocate the client on the one hand, while ensuring that the property was returned to the bank unencumbered by a non-paying client on the other.

Presentation by Thubelisha Homes
The presenter stated that Thubelisha worked closely with Servcon. Their mission is also to play a role the normalisation of the housing environment. They deal with properties in possession of persons who are not performing in terms of their loan agreements.

The original rightsizing portfolio is not evenly managed. It is close to the bonded book managed by Servcon. The presenter admitted that all the provinces were not yet treated equitably at this stage. They have only managed to work in six provinces. However it is a national organisation and no favouritism is intended.

In order for a person to qualify for a subsidy and relocation s/he will have to contribute R2479, 00. Thubelisha is opposed to this policy, as forcing its implementation could mean that they will never rightsize again.
With regard to their marketing strategy it is evident that they were not getting to the people. However the people often do not want to hear from the organisation, as people will often resist the idea of leaving a 60 square metre home for a 30 square metre home without electricity.
Thubelisha is also involved in contractor development. In fact it is the only organisation that actually provides work for contractors as opposed to merely acting as a facilitator.

The presenter read through the document but no discussion followed due to time constraints.

Presentation by National Housing Finance Corporation
Mr S Moraba, the Chief Executive Officer of the National Housing Finance (NHF) stated that their mandate is to seek new and better ways to secure housing finance. They aim to give all working persons the opportunity to buy, rent or build their own homes. NHF mobilises finance for low and medium income households, i.e. those who earn between R1000 and R7500. Their function differs from that of NURCHA, which deals with contractor development.
Among the external challenges NHF faces are:
-the volatility of the financial sector: small banks are being closed or swallowed up by bigger banks.
-unemployment
-the effects of HIV/AIDS
-the fact that the main banks perceive this sector to be high risk

Among the positive developments is the fact that there is no transfer duty payable on houses below R100 000. It is important that the NHF should come up with other strategies to provide finance in this sector. There is therefore a need for an increase in the amount of moneylenders. There has to be risk sharing between government and the private sector. The NHF is conducting housing finance research of the low-income sector since understanding the market may attract finance.

Due to time constraints Mr Moraba referred the Committee to the document and no discussion followed.

Presentation by the Social Housing Foundation
Due to time constraints the Social Housing Foundation made no presentation. They referred the Committee to their document.

The meeting was adjourned.