NHBRC; RHLF; NHFC & National Urban Reconstruction and Housing Agency on their strategic, annual performance plans and budgets

Meeting report

Chairperson’s Opening Remarks
The Chairperson started the meeting by apologising to the officials, particularly to the entities, for the change in the time of the meeting arising from a very short notice, which some of them did not get. She informed the Meeting that the Minister could not attend due to an urgent Cabinet meeting taking place at the same time as the Portfolio Committee meeting. The initial agenda did not did include the National Home Builders Registration Council (NHBRC), but the agenda had since been amended. The first entity to present would be the NHBRC.

Presentation by the National Home Builders Registration Council (NHBRC).

Acting Chair of the NHBRC, Mr Abbey Chikane gave the opening remarks. He expressed pleasure at the work of the entity, despite the fact he had just assumed office at the entity. He said that he was pleased to be associated with the young team running the entity and satisfied with the work so far.

Mr Mongezi Mnyani, the Chief Executive Officer (CEO) of NHBRC, said the NHBRC was positioned towards making NHBRC a leader in knowledge creation, technical and technological building solutions through strategic partnerships. NHBRC in this sector had a footprint, but did more in research and development. It also provides diversified services and products in line with changing building requirements and needs. (See Document).

One of the objectives of NHBRC was to strengthen NHBRC operating processes, systems and procedures. They had made certain commitments. They had also turned around the organization and operate at an optimal level. The key products and services of the NHBRC are basically enrolment of new homes, home builder registration and renewals. They are also involved in home building inspections, forensic engineering investigations and assessment of houses for rectification. The NHRBC had also been able to suspend some builders, which disproved the notion that the NHBRC was a toothless organization.

Mr Mnyani stated that as an organ of government, NHBRC's work had to be aligned with the Medium Term Strategy Framework (MTSF). It had looked at the National Development Plan (NDP), the manifesto of the ruling political party, the State of the Nation Address (SONA), the Finance Minister’s budget speech, and had decided on where to stand as the NHBRC.

The NHBRC would be assisting the Department of Human Settlements (DHS) in rolling out 1.5 million housing opportunities in the next five years. It had seen a need to strengthen the inspection mandate through increasing the inspection staff to 199 and ensuring maximum representation in all the nine provinces. The Business Services division had been restructured to ensure maximum synergy within the organization. The technical section had been combined with the inspectorate section to reduce the span of control and ensure maximum delivery in order to offer maximum protection to the stakeholders. The entity was building internal capacity of competent staff -- both technical and administrative -- in order to meet the needs of housing consumers and the stakeholders. Through the training and development section, the NHBRC aimed to enhance the building skills of home builders and would develop relevant course materials to promote excellence in the home building environment.

Mr Mnyani further stated that the NHBRC would be establishing a school for inspectors and a school for homebuilders to ensure that competent inspectors and homebuilders were produced in order to improve quality delivery on the ground. The Business Management Solutions section was in the process of implementing a new Enterprise Resource Planning unit in order to improve the efficiency and efficacy of the organisation in running its daily business. 

The Project Management Office (PMO) had taken off and its main objective was to ensure that all the projects were enrolled. It also sought to enforce project management standards on all projects of the NHBRC. The PMO would focus its attention on the identification, monitoring and tracking of all NHBRC projects to ensure that these were completed within the specified timeframes and budget. A Centre for Research and Housing Innovation had also been established.

The NHBRC aimed to promote housing consumers’ rights and responsibilities and disseminate housing consumer information, especially in the subsidy and gap markets. There was a lack of understanding by consumers as to their rights and responsibilities. When one gave people houses, they did not ensure maintenance. It was difficult for these people to repair windows or ensure that the house was painted. They wait for the government to do this. When those houses are given out, housing consumer education should be undertaken. The NHBRC would also enhance partnerships with provincial human settlements departments, municipalities and other key stakeholders. 

The NHBRC sought to increase its visibility and service excellence to customers through its Customer Service Centres. There were about 22 offices all over the country, and nine provincial offices. There was provision for a customer care centre so that people did not have to travel to the provincial offices. 

The annual performance plan (APP) set targets for non-subsidy and subsidy Valuable Final Products.
These covered the registration and re-registration of homebuilders, the training of youths, women, people with disabilities and military veterans, and the training of inspectors and artisans. (See document)

Much was being done to create awareness among new entrepreneurs that if they want to be a builder, they must join NHBRC. There must be registration and renewal. The NHBRC was working with the Department to design a programme for artisans. The NHBRC Act required that anyone who builds a home must register with the NHBRC. There was a projected rise in enrolment of homes. The inspectors have been charged to approach any builder and demand the enrolment of the homes they are building. If they cannot produce a certificate, the inspectors have been mandated to stop the building of the homes.

A number of builders come to NHBRC with unapproved plans. The entity can not enrol the houses if not approved by the Municipality. Looking at the number of Inspectors per province, there was the temptation to conclude that the number of inspectors was not enough. The projections per province showed that Eastern Cape had the highest number; this was because this was the area where the greatest number of houses was being constructed. A glance at the number of inspections showed that each of the 199 inspectors must conduct 2 280 inspections per annum as an individual, or 190 per month, 10 per day or two per hour. They had been given gadgets to indicate how many kilometers they covered called a Personal Digital Assistant (PDA), which would confirm whether the Inspectors had actually inspected the houses or not. The inspectors were not office based, and came to the office only on Mondays and Fridays. 

The NHBRC dealt with erring inspectors. In 2015, there had been 232 disciplinary hearings across the country. It had suspended 193 inspectors. Some had been found not guilty and some others had fines imposed on them.

There was a value chain which the NHBRC had created between its inspectors, investigators and prosecutors. The inspectors go on site and if they see there has not been compliances, they issue a seven-day notice. As a builder, compliance is expected within the seven days to correct what was wrong. If the fault is not corrected, the builders are stopped. The matter can then be escalated to the investigators to investigate, and hand it over to the prosecutors, who would prosecute and the chairperson of the district hearing the matter would evaluate and issue a verdict of guilty or not guilty. 

The inspectors conduct research-based inspection. They also make sure that quality standards are maintained, and the buildings comply with norms and quality standards. They also ensure that homebuilders comply with the homebuilding manual and national building regulations as well. They examine buildings before, during and after construction, and investigate complaints of unsafe structures
 
The entity had developed an internal training programme to assist graduates, youth, and unemployed artisans to ensure that technical standards, as set out in the NHBRC Home Building manual, were understood and applied in similar ways across the country. Inspectors appointed through the programme would be mentored by experienced NHBRC inspectors and internal engineers for a period of six months.

In addition, the NHBRC would provide similar training to its current employed inspectors to ensure that they were equipped with knowledge and were up to date with changes within the construction industry. It would also aim to create an internal pool of accredited home inspectors that could be utilised within the construction industry, and companies appointed to undertake inspections would only be allowed to source from the same pool. The training programme was going to be accredited by the Sector Education and Training Authority (SETA). It was expected that the qualification would be accredited this year.

Mr Mnyani said that a formal SETA accreditation programme had been completed and was currently pending approval. The NHBRC had been accredited by the Construction SETA to offer a course in the National Certificate in Construction Contracting (accredited in October 2013). The presentation listed the courses and modules at the national qualification level (see document). He asserted that in the whole of South Africa, there was no formal qualification for a home builder. No such qualification was available from a university or technikon -- all the builders were either engineers or artisans, with no formal qualification. The NHBRC had done research and come to the conclusion that indeed all its inspectors could be registered in the construction sector as management professionals. It was in the process of having an accredited Home Building Inspector qualification with the Construction SETA. The technical support NHBRC provided was evident in the assessments of enrolments on dolomites and problematic sites, as well as the evaluation of structural claims.

The NHBRC had established a Centre for Research and Innovation. Its main functions include research and development, promotion of innovative building technology and alternative building technology. The houses the Minister had indicated were to be built could not be built only with brick and mortar. The NHBRC had to investigate and make sure all products being used within the sector were actually accredited. There was a partnership with Agrément South Africa, the only authority in South Africa that may authorize any product other than brick and mortar to be used in South Africa. At the centre, the NHBRC conducts testing of materials, research and innovation, geographical information systems services, actuarial services, statistical modeling, training of inspectors and home builders, and offers architectural services
 
The core pillars of the centre revolve around transformational leadership training, and technical excellence through research and development. Standards are maintained through intellectual leadership. The entity supports the entire homebuilding industry. One innovation was the development and monitoring of an energy-efficiency star-rating system for new residential houses, in collaboration with other stakeholders. South Africa does not have the energy star-rating system, and as one could not always rely on the ESKOM grid, there had to be a process to ensure that houses conformed to energy efficiency standards. 

The NHBRC was also looking at promoting innovation in sanitation technologies. Specifically in rural areas, one can not rely on water and sanitation that comes from formal infrastructure. The NHBRC works with agencies to look at all these innovation technologies in its water and sanitation programmes. 

The core pillars also involve homebuilder training and a homebuilder development programme for those that are already in the sector, in terms of what skills they required to further their knowledge. The NHBRC also provides homebuilder training courses targeted at bricklayers, plumbers, carpenters, painters and plasterers.

The NHBRC has signed memorandums of understanding (MOUs) with partners it works with. They include the South African Bureau of Standards, Council for Geoscience, Green Building Council of SA, the Swiss Agent for Development Corporation, Agrément South Africa, the Centre for Scientific and Industrial Research and the Engineering Council of South Africa.

There was a women’s empowerment programme in place. It was an NHBRC initiative launched in March 2014 to celebrate 20 years of democracy. There were about 100 women with existing businesses with entrepreneurial support, and the programme aimed to assist them to build and grow their enterprises. 20 of them had graduated and were going through a mentorship programme. One of the women had just received a tender worth R20 million from the North West Province. Eight participants were based at a training programme at the Gordon Institute of Business Science (GIBS). Hopefully by May/June, they would be able to graduate and after that they would go through a mentorship programme. 

Mr Shafeeq Abrahams, Chief Financial Officer, NHBRC, said the five-year budget was aimed to enable the strategic plan of the NHBRC to be achieved through the alignment of financial resources with strategic objectives. Key aspects of the budget were:

• To set the direction in ensuring the financial viability of the NHBRC – appropriate risk management in cost structure and balance sheet management;
• Actuarial warranty fund losses to be reduced over the five-year planning period;
• Warranty fund assets and related investment activities to be used to cover warranty fund liabilities and economic capital requirements
• Operational requirements to be funded out of revenue generated for period, and aspire for a break even position on operating activities;
• The budget to embed a culture of accountability, efficiency, value and innovation

 Mr Mnyani said the staff was geared towards delivering the Minister’s goal of 1.5 million housing opportunities. All homes built in South Africa were enrolled with NHBRC to make sure they were covered within the warranty fund, and also to ensure that all the builders delivered quality products. The NHBRC would continue to capacitate itself by focusing on key critical areas to ensure quality and deal with poor workmanship. There had been growth in terms of staffing, and there was a desire to grow more. The entity was not just looking at employees, it was looking at the critical skills it required. This was a challenge because there was ongoing competition with the bigger construction companies. The skills required were quite expensive to find in the market.

There was a need to improve the turnaround times of the entity. As people came in to do enrolment, strict adherence to turnaround times was ensured. The most important task was to improve planning and coordination. The entity had deployed engineers to provincial Departments of Human Settlements and local authorities to ensure all the projects undertaken were enrolled with the NHBRC in this regard. They were there on a full-time basis and were equipped.

Discussion

Mr L Khorai (ANC) showed concern over the number of zeros evident in the “inspectors per region” column. He was more concerned about his province, where there were fewer Inspectors. He asked whether the NHBRC had any programmes for home builders that were not registered, especially in the rural areas. There were “builders” who roamed the streets and they were offered work without verifying their authenticity.

It was worrying that some people from Lesotho and Zimbabwe were some of the builders of houses. He asked what the penalty was for non-registered builders. In the past, when one built an NHBRC house, the owner of the house signed a “Happy Letter.” Most of these houses had been built and the owners had signed the letter without understanding it. He asked if there was any education programme able to cover that aspect of the “Happy Letters.” Houses were built in three months, and the windows and doors did not open properly. This happened a lot in the rural areas. 

Mr K Sithole (IFP) wanted to know how many assessments of the rectifications had been carried out. He also asked whether the entity had any existing policy to help a municipality to implement its mandate. He also had noted that there were zeros in some provinces, and wondered whether that had to do with a lack of capacity in the municipalities. The entity had indicated that there had been empowerment of women but only 20 were competent -- what about the eight?

Ms T Gqada (DA) spoke on the alignment of the NHBRC with the objectives of the Department. She wanted NHBRC to be more specific, because the Minister was talking about 1 million housing opportunities, and more than half of that went to informal settlements. She asked for the involvement of the NHBRC in that area. On the issue of consumer education on housing being an issue for the Department, she said that it needed to be made compulsory. There should be information so that before someone got a house they were educated on what his or her expectations and responsibilities were.

She reminded the entity that in the past, they had boasted about being well-off in terms of registration of home builders. That meant they did not depend on any department. However, looking at the figures as presented under the number of enrolments, she noted that they were very expensive. She cited her example of how much she had paid to get her property enrolled. She wondered if the entity had any programmes to assist contractors who did not have money to build. How did the NHBRC assist the contractors? Was there a subsidy in place? How did the NHBRC help people who did not qualify for subsidies to make sure that when they enrolled with the NHBRC they were paying a reasonable amount? Did the entity explore all avenues before reaching the stage of suspending contractors? The most important thing to her was how to assist the contractors in ensuring that they complied.

Mr S Gana (DA) focused on the rural areas. He noted that the targets made sense in an urban area, where there were lots of housing developments. In rural areas, one may find that there was only one house to be inspected. He wanted to know how that was managed. He also sought clarification on the targets that were aligned to where the inspectors were stationed. With regard to houses that were not being sold, especially in the rural areas, he wanted to know what became of the involvement of NHBRC. There were lots of big houses being built in the main rural areas. As part of the education programme, those in the rural areas should be informed that there were inspectorates that could come and check that the houses were built correctly.

Mr N Capa (ANC) noted that 18 disciplinary hearings had been left hanging. He asked how long they would have to wait before something was done on the cases, knowing full well that they were still in business. On the inspections, he asked at which stage the work of the inspectors became preventive in a way that it would prevent people from continuing or starting the house. Did the entity envisage any possible collusion between some senior inspectors with the consultants?

Ms L Mnganga-Gcabashe (ANC) asked whether the plans approved by the municipalities were submitted mostly by private home builders. She inquired about the government subsidies. At the moment, the policy did not compel the metros’ planning division to approve the subsidy houses. Some metros had a full housing consumer education programme. The issue was to deal with the mindset of the people and to take responsibility. It was not that the people did not know. They were not taking responsibility for the maintenance of their houses. She wanted to know why the entity was not building many government subsidy houses.

Mr H Mmemezi (ANC) said that in many provinces, houses were standing unfinished. He wanted to know if there was any role NHBRC played in that. For him it was worrying. He also asked about suspension of inspectors. If the NHBRC suspended inspectors, were they the ones who left thousands of houses uncompleted?

The Chairperson asked whether the NHBRC had been able to achieve the target of 2 000 set for it in terms of training for youths, women, people with disabilities and military veterans in the past financial year. She sought clarification on whether experienced inspectors were being allocated to the high end of the property market, while the inexperienced ones were allocated to the lower segment. The Committee’s understanding was that the emerging contractors were found in the lower segment, so most of the people doing things incorrectly would be found there. Why would the NHBRC put the experienced ones where the chances of finding faults were rare, and put the inexperienced ones where the masses were?

Response by NHBRC
Mr Mnyani responded that when he joined NHBRC, there were staff members who were on contract, and to absorb them into the NHBRC, processes and procedures had to be followed. Some of them were part time, and were still in the employ of the NHBRC. This would require more internal administrative processes.

He explained the zeros in the presentation. This indicated that the inspectors had been there before, but had now been absorbed formally into the NHBRC. The column in the presentation would not have been there, because all of them would have been absorbed on a full time basis. They were not going to lose their jobs – the NHBRC just had to follow its policies to the letter.

On the Senior Home Inspectors (SHIs) and Home Inspectors (HIs), the SHIs were those that had been with the NHBRC for a number of years. They were well qualified engineers. Some are QS registered with various associations. The NHBRC had taken the 66 to mentor and oversee the 114, and in that way the NHBRC was growing them. Some of these HIs were artisans. They were hired from advertisements targeting youths, which were placed across the provinces. The 114 had to undergo a gradual process of growing into SHIs. The subsidy sector was not taken lightly, but there were risks. If there was a HI who had just joined the NHBRC and he was expected go and inspect a house valued at R35 million, that would be too risky. The social housing projects were quite complex. There were stairs, slabs, plumbing that were complex, and that would need someone with experience. The NHBRC had a training and development programme for HIs to actually grow and become SHIs. There was competition amongst them, and there was an individual development programme that said, “having joined the HI three years down the line, I am now an SHI.”

M Mnyani said the deployment strategy of inspectors differed. Rural areas were different from urban areas. The NHBRC took into account the traveling times. In some areas it took one day to move around and the issue was to say how many houses were to be expected to be inspected. That was why the Department and municipalities shared a construction schedule, so that an Inspector would not just go and inspect one house -- when they went to an area, they had to know what was expected. They inspected houses based on what the schedule said. One could imagine driving hundreds of kilometers to inspect one house, but it had to be done, so the NHBRC had asked its developers to work together so that many houses could be inspected. Indeed, the NHBRC’s deployment strategy differed in the urban and the rural areas.

The NHBRC had a target to register home builders that were not registered in the rural areas, If they registered, there was incentive. In the APP, the entity would be spending R26 million just on training, which was compulsory for the NHBRC. For non-registered builders, there had to be penalties. Unfortunately, the NHBRC was hamstrung by the Act that had established it. The maximum penalty that could be imposed was R25 000. That was why there was a process to amend the NHBRC Act. Violators must feel the pinch. Fines imposed were based on the value of the house. Otherwise contractors would continuously do the wrong things.

The NHBRC was working on the “Happy Letter”. The Minister had instructed that Members should look at the letters, the title deeds and the warranty certificate of the NHBRC. As the entity handed over the houses, there should be consumer education that explained what the document meant? People should not just sign the letter for the purpose of signing. For all provinces and municipalities a portion of the subsidy allocation must go to consumer education.

Mr Mnyani declined to answer the question of assessment, so as to avoid giving any wrong information. However, he promised to respond formally to the Committee.

Regarding women’s empowerment, the NHBRC had started with 20. The Minister had said 20 was not enough, and should be increased to 100, so the NHBRC had added another 80. By the time the Minister had said it should be increased, the 20 were already undergoing training. They had now graduated, and were undergoing mentorship. They were currently doing their courses at the GIBS. The formal part would be finished between May and June.

The enrolment fee was about 1.5% of the total value of the house. It was an insurance being paid, and it was not much. Houses need to be insured for the next five years, to cover any structural defects that might come about. It was a reasonable amount being charged, compared to other insurance companies.

There were disputes over of the suspensions the 18 builders, where fines are imposed. Unfortunately the NHBRC was restricted by the Act, where the maximum was R25 000. If a builder was suspended it meant they could not work. On the NHBRC website, there was information about builders, whether they were active or not.

The NHBRC had an owner-builder programme. There was a risk when people wanted to build their own homes. They had to have the technical skills. The issue was that the house would not be enrolled in the NHBRC, even if there was a belief that technical skills existed and therefore one could build for oneself, but there had been a lot of problems. The NHBRC had seen much non-compliance, with houses falling apart, especially in the rural areas. NHBRC wanted to help people with the necessary skills, but also to oversee the construction part and protect housing consumers. The Act did not allow the NHBRC to cover any alterations or extensions, only the enrolment of new homes.

The NHBRC had trained 1 600 youths as of end of December. It should be able to meet its target of 2 000 by the end of March this year. It had increased its capacity. The entity had also increased the number of accredited number of service providers it was using, and they were accredited by SETA. The numbers were not actually off the target. 

The Chairperson asked the CEO to talk about metro inspections and comment briefly on the ratification that had been outsourced.

Mr Mnyani responded that the entity had tried to coordinate the inspections processes between the NHBRC, provincial Inspectors and the municipal inspections. It had developed an inspection protocol. This would talk to the roles of the different bodies and how the inspection was going to be carried out. What were the roles and responsibilities for what was going to be done? In terms of plans approved and the subsidy part, it was a requirement that all plans of the subsidy sector must be approved by the municipalities. They had to conform to standards or else they would not be approved. A general plan could not be submitted. 

Rural Housing Loan Fund (RHLF)

Mr Jabulani Fakazi, Chief Executive Officer (CEO), Rural Housing Loan Fund (RHLF), said section 26 (1), (2) of the South African Constitution stipulated that everyone had the right to have access to adequate housing, thus the RHLF facilitated the opportunity of people to own houses. The entity facilitated access to housing finance for low income rural households (earning less than R15 000 per month) in order to enable them to improve their housing and living conditions. It also facilitated access to a government housing subsidy for qualifying beneficiaries through the Individual Rural Housing Voucher Programme (approval of implementation of the pilot was imminent). A diagnostic overview of development challenges facing South Africa included high unemployment, and high levels inequality and poverty. Other challenges showed that poor people lived in rural and remote areas, as well as far away from their places of work (spatial challenges).

The graphical presentation in the slide showed that the RHLF gave around 44 610 loans to rural households in the year 2013/14 year. This was just under 1% of the households.

Outcome 8 was a key document of the MTSF, so the Fund’s loans were in line with the Minister’s aim to achieve the targets set out under the MTSF. The RHLF would contribute to the delivery of adequate housing and improved quality living environments in line with its mandate, enabling low income earners to access loans in order to incrementally improve their living conditions. The implementation of the Voucher Programme would enable qualifying people living on communal land to be adequately housed and thus improve their living environment. 

Informal settlements presented an opportunity for the RHLF to facilitate access to housing loans for top structures for those households which did not qualify for mortgages or subsidy finance. RHLF intermediaries were positioned to help address housing needs in mining towns and labour- sending areas by facilitating housing loans, targeting these markets. Other policy imperatives indicated that SMME development should support entrepreneurs venturing into housing micro finance. Some of those companies had grown bigger.

The RHLF was expected to contribute to local economic development through local labour, an active building materials supplies industry, and minimal financial leakage. It operated in an environment that was sensitive to economic conditions. There had been slow economic growth. The situation still looked gloomy. Unemployment remained stubbornly high, the exchange rate was volatile and this weakened the rand. Inflation affected disposable income and affordability levels. The interest rate affected the affordability of loans. The indebtedness levels in the microfinance industry remain high. This had led to the tightening of credit extension by lenders.

Mr Fakazi provided details of the RHLF’s funding situation (see document). He said that additional funding was critical for scaling up delivery by the entity. RHLF relied on its intermediaries to deliver on its mandate. It also increased its staff capacity in line with the growth in business activity. The entity was participating in the development finance institution (DFI) consolidation process. The implications of a single incremental housing finance entity made this strategic plan half the story. The RHLF and the National Urban Reconstruction Housing Agency (NURCHA) were tax exempt, while the NHFC was not – a point that needed to be taken into account in the consolidation. 

RHLF achieved its target by using current existing intermediaries. Also it signed up new intermediaries who were willing and ready to learn in the market. RHLF was working with alternative business channels like community-based organizations (CBOs), and was also targeting employee organizations and unions. New strategic initiatives would also be explored, such as the role that the RHLF could play in supporting the development of sustainable rural human settlements, in addition to facilitating housing loans.

Mr Bruce Gordon, the Chief Financial Officer (CFO), emphasised the strategic oriented outcome goals of the entity. The MTSF targets showed the housing loans disbursed, as well as qualifying housing use targets, the percentage of loans issued to households earning up to R15 000, or less than R3 500, the number of loan verification visits, disbursements to financial intermediaries, and training expenses. (See document).

Mr Fakazi concluded that the essence of the presentation was that the RHLF would deliver 233 636 housing opportunities by the end of the financial year 2018/19. With that number, the entity still believed it had a long way to go to scale up the delivery of housing loans in the target market. He emphasised that approval of the voucher programme would require the appointment of staff to drive its implementation.

Discussion

Ms Mnganga-Gcabashe asked about the RHLF’s funding allocation, and whether it was visible in rural areas in relation to the allocation of funds in the last financial year. She also wanted to know more about loans being used for homes built in a different area. The consolidation of DFIs had been raised the previous day with the Department -- the pace was too slow and delays were affecting the RHLF’s performance and restructuring. 

She disagreed with the notion that metros were not required to submit general plans for the development of their government houses. She affirmed that after the building plans had been submitted to the development planning department of the metro, the law exempted the government-built houses from being inspected by building inspectors. Inspectors of the planning department of the metros were able to monitor extensions done to government subsidy houses by the individual beneficiaries so that they did not collapse during the extension.

Ms T Baker (DA) sought clarification on the inconsistencies in the presentation. In the Department’s mandate it had been stated that there must be access to finance for low-income rural housing. In their NSTF target report, a part showed figures for R15 000 or more, although there was also an indication of R3 500 or less.

Mr Capa wanted to know how and where RHLF clients in the rural areas could access the law. He was concerned about the statement that informal settlements presented an opportunity for people to access housing loans. He wanted to know if informal settlements were challenged. 

Mr Gana wanted to know in which part of Gauteng the RHLF operated. In the loan verification process, there was money and targets for the entity – how did it choose which loans to allocate, or which recipients to verify, and which ones not to be verified? On the issue of intermediaries, he asked if the RHLF had had an instance where a chosen intermediary had conducted its business contrary to the agreed ways of operating.

Mr Sithole expressed concern over the effort to access additional funds. He asked for the details of the negotiations between RHLF and the Department of Public Service and Administration (DPSA) as regarding payments included in their mandate. There could be progress if the Department helped them. 

RHLF’s response

Mr Fakazi responded that the issue of visibility of the RHLF in rural areas was a continuous process of trying to raise the awareness of the entity, and it did this through various mechanisms. It participated with the Department in capacity building through presentations at various municipalities, and also used local media in African languages to advertise and promote the rural housing finance that it facilitated. 

RHLF had received various calls from people enquiring how they could access financing. The entity tried to be careful that this was explained fully when it advertised. RHLF intermediaries also promoted the housing finance product. There was a gap where the entity could not do enough. It needed to look continually at people within its target market who needed to access the housing finance to improve their housing conditions.

On what the entity had done about houses built outside peoples’ places of work, there were certain areas which were rural, in places like Gauteng. Gauteng was the economic hub of the country. There were many people who worked in Gauteng and lived in rural areas. For mining employees, the entity wanted to look at people who had access to loans but built in the rural areas where they came from. What it was trying to do was to encourage its financial intermediaries to change their application forms. There must be in the application forms the place of work and the place of investment. The place of investment became very important when one did loan verification – then the RHLF could send its team to the rural area where the applicant actually invested. It was a cumbersome process, but it was a task that needed to be done.

The RHLF’s mandate in terms of upper income limit was households earning up to R15 000, so it was a typo in the presentation which needed to be corrected. Regarding the below R3 500 household earning level, when the upper limit was increased, the temptation should not be to lend to the upper incomes. The RHLF needed to make sure it set the targets at 6% of loans going to people who were earning less than R3 500. Since the RHLF also focused on rural areas, the income from rural dwellers was very low, except when you looked at vocations like teachers and nurses. Hence the entity had needed to apply for an upper limit, so that those people could access finance and build houses.

On informal settlements being an opportunity, Mr Fakazi conceded that this was a challenge the country was facing. From a business perspective, the RHLF had a product that it delivered to the market. The informal settlements were a solution to the challenge.

The CFO responded on verification. He said the entity received a list of loans granted by an intermediary, checked the number of loans they had got, and went into a selection process to make sure it received a statistically significant selection. The RHLF then randomly selects 50% above the necessary sample and calls the borrowers to ensure it actually reached the correct number it needed for its significant sample to be done before going into the field. The reason the RHLF selects 50% was because people changed their phone numbers frequently and thus became uncontactable. Others did not want the RHLF to come and have a look. Those are the ones who concern the entity, but there was nothing it could do about that. It made sure the intermediaries were doing their job. 

Last year, the RHLF had cancelled an intermediary who was lending in Gauteng and really not making any effort to make sure the loans were not going out of the area. One intermediary had made a mistake on interest calculations, and was refunding all the interest overcharged to the borrowers. If it had been deliberate, the RHLF would have pulled the loan back from them as well.

In terms of negotiating a mandate change with the Development Bank of Southern Africa (DBSA), they had just gone through a complete restructuring process. They were now focusing on infrastructure. The main link was with municipalities. They could only make exceptions for the RHLF in as much as they were not going to take any risk. They were not prepared to make any changes, neither were they prepared to give the RHLF any rejection in writing for some reasons. So the entity was focusing on direct borrowing. 

National Housing Finance Corporation (NHFC)

Mr Samson Moraba, Chief Executive Officer, NHFC said that the essence of his presentation was to clarify the main business of the entity. The current mandate was broadening and deepening access to affordable housing finance for low to middle income South Africa households. It could be judged from two angles. Firstly, there were the households which earned between R15 000 to R20 000 monthly. The NHFC ensured banks did more and approved loans that were reasonable. This market segment was able to contribute towards its housing costs, but unable to access housing finance from financial institutions. The NHFC’s role was to facilitate other sources of money to help people in this segment of the market. Secondly, the larger part of its money went to the construction of houses.

The performance of the NHFC had been affected this year due to restructuring. There was a staff complement of 60. What was important was that the strategic work of the NHFS was aligned to the Medium Term Strategic Framework (MTSF). The lack of infrastructure was significantly hampering economic growth and socio economic development. Inflation had moderated, but the GDP growth forecast was on a downward trend. Furthermore, rating agencies had downgraded South Africa’s sovereign rating and household indebtedness remained high, aggravated by rising living costs.

The NHFC, through its programmes as well as other interventions, such as its equity investments, was supportive of the National Development Plan’s commitment to revise the housing system. Examples of these were: the provision of housing finance options (private and social rental, home ownership, instalment sale agreements, incremental loans); inner-city developments; and leveraging of private sector funding into the affordable market. Critical to the success of the imminent DFI consolidation was the establishment of a consolidated entity that was optimally capacitated to further support effective and efficient delivery on a “radically revised housing finance regime”.

The Chief Financial Officer spoke about the financial situation of the NHFS. It had gone through some restructuring due to a reduced capital allocation. The entity relied on some funding assumptions. These were that they were aligned to approved shareholder support; capital allocations were significantly lower than amount requested; a delay in the flow of R230 million virement; and no complementary debt funding expected. There were no approvals to borrow, due to the reduced allocation.

The basic point to note was the average asset growth movement over the next five years. The NHFC had planned for 14%, but it had been revised down to an average of 5%. This year there would be privatisation of social housing, and the capital allocation was linked to that. This influenced where the NHFC applied its capital. An overview of the strategic plan indicated that the NHFS sees itself delivering 47 897 housing opportunities. The NHFC conformed to the requirements of the King III Report and the Protocol on Corporate Governance.

Discussion

Mr Sithole wanted an explanations on the status of the inner city regeneration, because he thought that was a programme of the Public Works Department (DPW). He wanted to know the relationship between the NHFC and the DPW. The inner city regeneration was very slow. He also sought for clarification on the projects that were not budgeted for, and how NHFC was going to deal with the matter.

The Chairperson said that when the Committee had had a discussion with the Department, a question had arisen around the Financed-Linked Individual Subsidy Programme (FLISP) and the Committee was told the NHFS would answer for itself. The presentation seemed to be throwing the ball back to the Department. She also expressed appreciation for the presentation because it kept telling the Committee about its financial challenges. At the same time, the NHFC had exceeded its targets. What lessons could be learnt from this -- that in spite of the financial challenges, NHFC still exceeded its targets?

Response from NHFC

Mr Moraba said that the inner city regeneration which NHFS was doing was not linked to the DPW programme as such. The one done by NHFC had seen a company established: the Trust for Urban Housing Finance (TUHF). There was a lot of interest for inner city regeneration, primarily because the National Treasury had set incentives whereby people could depreciate assets quickly. The NHFC had set up TUFH to focus mainly on inner city regeneration. It had taken a stake in terms of equity investment, which was purely to attract capital to inner cities. Banks had flown out of the inner cities as they classified them as too risky. What the NFHC had done was managed to attract about R1.8 billion of capital into that programme, and there were many other institutional investors interested, although nothing had happened to date. 

The NHFC had experimented with FLISP in the past. The private sector was looking for FLISP. It leveraged their ability to lend to people, so there was a big demand for it. NHFC’s felt the programme should be streamlined and structured, and given some level of certainty. The current implementation of FLISP faced these challenges. It was at discretion of the provinces, and some would go for it, while others some would not make it a priority. Part of the NHFC’s proposals were to look at the different mechanisms to see how it could bring some certainty to FLISP delivery mechanisms. Part of this was that the FLISP allocation should be done differently from the way it was being done right now, where the process was taken through the structures of the Department. A revised model would make FLISP what everyone expected it to be.

The main issue was that there were legal issues to deal with. In the amendment to the law, some of the private funders were worried about the preemptive rights clause. If one was making a contribution as a private funder, it meant that the bigger part of the risk would be incurred by these funders and the preemptive rights clause was not protecting them. The second part was about the institutional arrangement. One was to top slice the capital component. Currently, the FLISP programme was not performing at the level the NHFC wanted it to perform. It was of the view that some of the provinces were not prioritising this programme. Three provinces had not budgeted for it this year. 

Presentation by National Urban Reconstruction Housing Agency (NURCHA)

The presentation by the National Urban Reconstruction Housing Agency (NURCHA) focused on its mandate, which was to finance small, medium and established contractors building low and moderate income housing and related community facilities and infrastructure. NURCHA’s business revolves around short term project finance within 24 months, to developers in the affordable housing segment. It also provided bridging finance to contractors. It had targeted programmes to finance and develop small contractors, focusing on youth and women. NURCHA worked on a ‘balanced budget principle’, and to this end, administrative costs had to be covered by budgeted income from operations. The sources of income were interest and fees from lending activities and fees from programmes and management support activities, as well as money market investments. 

The strategy for NURCHA was anchored on two pillars. One was to increase its development impact in line with its MTSF targets and mandate. It would achieve this by increasing lending towards delivery affordable housing, and improving access to finance for subsidy housing contractors. It also reviewed current lending facilities with financing partners, as well as employing programme and fund management capabilities to provide strategic support in human settlement development programmes. Secondly NURCHA restores organisational sustainability through sustaining positive financial results and improving sustainability of business streams. This happened against the socio-economic backdrops which were evident in the NDP and MTSF.

Some economic factors also affect the entity negatively. These included the performance of the economy generally and muted international and national growth projections, banks’ willingness to lend and affordability amidst high demand in the affordable housing market, and interventions to improve affordability – FLISP, Mortgage Default Insurance (MDI), and employer-supported housing schemes. The government intervention in mining and fast growing towns ensured forward planning and availability of land, bulk infrastructure, and speed of critical property development-related approvals.

NURCHA’s core business revolved around the lending business, where it financed developers and contractors to ensure affordable housing, as well as bridging finance to contractors. The business also ensured programme management. In terms of affordable housing objectives and targets, NURCHA was looking at financing loans up to R1.7 billion.

NURCHA took into account the risks and the enablers. Economic conditions affect its performance against its targets. If it were to exhaust its lending capacity, it may reach a point where it had to reject applications. The risks and enablers influenced by economic conditions were evident in affordability and creditworthiness, as well as the traction of state interventions to counter the impact of economic constraints and stimulate the market. The financing capacity to meet anticipated lending demand from developers and contractors remained an issue for the entity. The management of the DFI amalgamation process was making sure that there was a continuation of funding partnerships through the transition period. There needed to be a drive for a positive future with DFI to ensure talented staff did not leave in the intervening period. As the change processes were driven across the three organisations, it was going to be the common message.
 
Discussion

Mr Sithole asked for clarifications on student accommodation. How many had NURCHA constructed and in which provinces were they situated. He said NURCHA’s financial projection was questionable. The statement of financial performance for the period 2014/2015 was R25 million, but in 2017/2018 it was R58 million.

Ms Baker asked what percentage of NURCHA’s contractors was women-owned, or owned by a majority of women. With regard to its funding alternative building solutions, she wanted to know if this was a growing trend, since it had not been mentioned when discussing more energy-efficient building solutions. She wanted to know if there was a growing trend or whether the entity was inclined to funding, as she felt companies were trying to do “greener” developments.

Mr Capa sought clarification on the projections, which went down and up. He also wanted the asset and liabilities equilibrium to be explained in greater detail. 

Mr Gana wanted further explanations on the table of distribution between regular and non-performing loans, especially on the one dealt with affordable housing. There was a move from housing to human settlements. NURCHA was trying to scale down on infrastructure and facilities. The entity went into a place and all they did was build rows of houses, with no public amenities. NURCHA said it made loans to people who wanted to involve themselves in the infrastructure and facility side that it was scaling down. He expressed concern over this. He said that NURCHA would find contractors that built houses and were not providing any community facilities. He urged that contracts should be checked to avoid problems involving both the Department and NURCHA when contractors sought finance to build subsidy homes.

Mr Khorai said that Gauteng was the only province where everything was concentrated. In the presentation, NURCHA said it had 40% for all the provinces, which meant that Gauteng gets 60%. He wanted to know the reasons for this.

Response by NURCHA
NURCHA responded on rental and student accommodation, that it was a new project just put on the market. The limitation NURCHA had was that there was no trend for reporting on the programme, but it had financed a project in Gauteng. What it required was for the developer to say he wanted to build this asset and for NURCHA to finance the construction of the facility.

The synergies from the consolidation of DFIs, when there would be long term and short term finance in one house, would result in a better product. NURCHA’s model in project management was that it resourced programmes as they came. If the entity projected a certain income and the programmes did not come, there would be a corresponding reduction in cost, so there was always a direct relationship between income and costs, so the entity did not lock itself into a high cost of running.

The statistics on women contractors were not available now, but what could be said was that there had been approvals in this financial year. On subsidy housing, NURCHA had approved R112 million in loans, and 62% were to women contractors. Those statistics were based on the approval on NURCHA’s credit processes. Some of those loans had not been accepted by the contractors, so NURCHA would wait to see what percentage was ultimately accepted. 

Energy efficiency was not basically alternative. It may be conventional, but the way in which it was built would be factored into the efficiency of a building. NURCHA was not seeing a growth in alternative building. It had financed some which had gone well but it did not have influence on projects that came to it. What NURCHA had found was that the major influence was the banks. The actual end users decided whether they were comfortable with the alternative building methods, based on perception or realities.

NURCHA had moved into infrastructure in 2005, embracing the human settlement concept. In the strategy, NURCHA emphasised close collaboration with provinces and municipalities. The priority for this financial year was within the human settlements sector. When NURCHA went into infrastructure, this means going into water and sanitation and public works, which brought a different type of dynamics. There were retentions, variations and final accounts, which were poorly administered. The contractors would then default, and therefore the entity had to become stricter in its lending to protect itself against some risks.

On subsidy housing, there was an instrument called an “irrevocable undertaking to pay.” which was an instrument sited with the Province. This was an agreement that mitigated the risk because there was a dedicated account for that project, for which payment was due. That was what the entity wanted to strengthen. When the risk arose was when a contractor collaborated with an official to divert money from coming into the account, and into another account. It became a fraudulent act and NURCHA took legal action against it. NURCHA wanted to be proactive in managing those risks before it got into litigation issues.

Concerning historical trends, NURCHA was coming from a restructuring of its business, where it relied on intermediaries to mitigate risks. Now it financed directly. NURCHA managed its risks directly so it had tightened its credit rules. With the projections, there were assumptions about the economic outlook going forward.
 
On the issues of FLISP and the financing by employers of employees, NURCHA saw a market likely to improve in performance. NURCHA had made its projections on the basis of the positive assumptions it was making. NURCHA would not exclude smaller projects at the expense of mega projects.

By the very nature of the economy, Gauteng dominated in the area of affordable housing due to migration patterns and the demand. High demand for affordable housing in Gauteng occurred frequently. Besides, developers were not keen to go and initiate projects in the rural areas. An area NURCHA was looking at was the capacity of municipalities to do plan and the ability to attract developers. Looking at subsidy housing holistically, Gauteng was not dominating. The cities that dominated were in KwaZulu-Natal and the Eastern Cape. 

The Chairperson thanked everyone for attending.

The meeting was adjourned.