NHFC & NURCHA & RHLF & SHRA 2018/19 Annual Performance Plan

Human Settlements, Water and Sanitation

18 April 2018
Chairperson: Ms N Mafu (ANC)
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Meeting Summary

The National Housing Finance Corporation (NHFC), the National Housing Finance Corporation (NHFC), the Rural Housing Loan Fund (RHLF) and the Social Housing Regulatory Authority (SHRA), presenting their respective annual performance plans (APPs) and budgets for 2018/19 to the Committee.

The NHFC said that with its business model, it had a better proposition on the demand side through assisting the household to improve its affordability. They did this through intermediaries and through banks, whereby they facilitated what the banks could give as a mortgage. On the supply side, the NHFC financed projects that did development across the housing spectrum, especially in the inner cities. Up to 2017, it had invested R7.4 billion into the affordable housing sector, and had been able to leverage R19 billion from the private sector as well as multilateral agencies. This meant that in total, they had invested around R26 billion into the affordable housing sector through their interventions. They had created 514 000 housing opportunities since their inception in 1996.

The Committee asked about the uptake on applications and its influence on the loan book, and about its outreach programme, since this would indicate its efforts to make their facilities and resources available to the market that they claimed to have.

NURCHA said its mandate was financing small and medium contractors and developers that were delivering subsidy housing and affordable housing. This required it to have innovations to penetrate these markets. It was developers who had land who presented their plans, and NURCHA financed these plans. They worked with the banks because it was the banks that had to supply the mortgages. 90% of the loans were given to black contractors. 80% of its loan book subsidised developers of affordable housing, while the balance went to financing subsidy housing.

The Committee wanted to know more about new contractors and where they came from. They also asked about the dissemination of information to developers in rural areas and the role played by municipalities to ensure that before anything about housing took place, the developers within that municipality were aware that they could get assistance from NURCHA.

The RHLF said their mandate focused on rural households and giving them housing finance so that they could build their homes incrementally. Their target market was borrowers who earned an income of R15 000 a month. To deliver on their mandate, they had identified intermediaries who accessed funds and carried the credit risk when they lent funds and marketed to clients. There were two types of intermediaries, commercial and informal, which the RHLF used to reach clients in all sectors and areas, but mostly in the informal and rural areas, who found it difficult to get funding. With regard to the loan requirements, when the lenders offered funds they did not require any form of security, so when a borrower could not pay the rent, he did not lose his home. This was why it was important for the intermediaries to do thorough credit checks beforehand.

The Committee asked questions about the repayment of these loans, whether they were made available to women, the loan repayment rate, what recourse there was when rent was not paid, and the qualification criteria.

SHRA said the biggest pressure it faced was to deliver housing in the designated time, so they had beefed up their project management capacity and strategy by appointing two new recruitment managers, and were midway through the process of recruiting new managers. The industry was mainly male orientated, so their aim was to appoint more females, which they hoped to do in the next two months.

The Committee sought clarity on the expected delivery with the rural approach as well as the new projects that the SHRA had in the pipeline, and also asked about the challenges they faced. They wanted to know about the expected delivery of current projects -- whether they were expecting to fall short or not, and if this was related to the performance in the provinces. Why was there a need for an increased use of consultants? The Chairperson said the Committee was still not happy with the pace of the transformation, and the SHRA might have to come back, so that the transformation issue could be dealt with on its own.

Meeting report

Annual Performance Plan and Budget

National Housing Finance Corporation (NHFC)

Mr Samson Moraba, Chief Executive Officer: NHFC, said that the NHFC had been set up in 1996 initially as a self-sustaining institution, and as a Development Finance Institution (DFI) they had only recently gone back to shareholders. As an institution, the NHFC was credit rated, and that put them in a better position to borrow funds. Their main business was to broaden and give access to affordable housing.

The NHFC was a national institution, with three significant objectives:

  • To present a choice in respect of household income levels. They have a choice to either buy their homes or renting;
  • To facilitate for the renting of homes through giving the household grants and top up financing; and
  • To offer the household the choice of incremental housing, where the NHFC would provide them with funding to buy home building materials, in order for them to incrementally build their houses. This option was available for those who could not afford to buy a house, or pay rent.

With its business model, the NHFC had a better proposition on the demand side through assisting the household to improve its affordability. They did this through intermediaries and through banks, whereby they facilitated what the banks could give as a mortgage. On the supply side, the NHFC financed projects that did development across the housing spectrum, especially in the inner cities. Up to 2017, it had invested R7.4 billion into the affordable housing sector, and had been able to leverage R19 billion from the private sector as well as multilateral agencies. This meant that in total, they had invested around R26 billion into the affordable housing sector through their interventions. They had created 514 000 housing opportunities since their inception in 1996.

Mr Lawrence Lehabe, Executive Manager: Projects Funding Programme, NHFC, said that there would be bigger disbursements this year. There would be R127 million for social housing, R198 million for private rentals and R102 million for affordable housing.

Through its partnership with companies such as Old Mutual, Housing Investment Partners and the Trust for Urban Housing Finance (TUHF), this programme would generate 3 973 housing opportunities and over 15 000 beneficiaries. The value of the funding contributions from the various partners would be R782 million. R372 million would be allocated for rental housing, and R410 million for affordable housing. The housing opportunities would be made up of 3 154 rental housing units and 819 affordable housing units. There would be 7 753 new job opportunities and R269 million would go towards black economic empowerment (BEE), women and emerging young entrepreneurs.

Mr Zola Lupondwana, Chief Financial Officer (CFO), NHFC, said that since the NHFC was a funding institution, a key aspect to consider when looking at its performance would be the growth in the loan book, the pricing of the loan book and its quality. In a nutshell, the NHFC was set to have a good financial year, in March 2018, there was a profit of R90 million before tax. The budget of the NHFC was set to grow by 10% in the following year.

In conclusion, Mr Lehabe said that the NHFC had pioneered the financing of social housing, as well as inner city housing. They were the biggest inner city funder in the county at the moment.

Discussion

Mr M Malatsi (DA) asked about the uptake on applications and its influence on the loan book. He wanted to know about the outreach programme, since this would indicate the efforts the NHFC was making to make their facilities and resources available to the market that they say they had. He also asked about the budget for the outreach plan and how this had affected the uptake on applications and subsequently the disbursement of loans.

Mr K Sithole (IFP) questioned the inner city regeneration and the progress made in this sector. He wanted to know what the problem was with the city of Johannesburg. He also wanted to find out about the education system they were using in the rural areas, because the programme used in these areas was not the same as the one used in urban areas.

Ms B Mabe (ANC) referred to the disbursements, and asked if they anticipated any challenges. She also inquired about the number of housing opportunities created specifically in the inner cities and metros, as well as what happened with people who could not afford to pay rent.

Response

Starting with the issue of transformation, Mr Moraba said that through the NHFC’s 33% ownership of TUHF, most of the financing had gone to traditionally white entrepreneurs in the inner city, and part of the NHFC’s development strategy was to push them to the areas of development in terms of a change in the complexion of those who participated in rental ownership in the inner city. This change was a process, and the necessary steps were being taken. It was true that one needed risk capital to support transformation, so that was something in the design of the budget that they would like to increase going further.

As for women and youth, he said that the NHFC could give the committee a detailed breakdown of who the beneficiaries were just to indicate that women and youths were being funded. The inner and urban city regeneration was working in tandem, and that besides Johannesburg, Port Elizabeth, Cape Town and KwaZulu-Natal were also being involved now through the TUHF.

Mr Lawrence referred to the issue of outreach. He said that the NHFC had lowered the requirements for participants. This meant that they were saying to the participants that the money coming out of their pockets would only constitute about 5% of the total budget, and that would be it. He also said that a BEE programme had been put in place to put a focus on black entrepreneurs and urban areas. The Corporation had a marketing department, but the challenge was that their product was not marketed to the man on the street -- their product was delivered through intermediaries. The main source of their applications was through a programme run by the Social Housing Regulatory Authority (SHRA). They could supply their list of developers and were prepared to open up their books. The challenges with regard to the disbursements had to do with the economy and timing when it came to processing applications and finishing projects.

Mr Neville Chainee, Chief Operating Officer: Department of Human Settlements, focused on three important issues. The first one was social housing. He said that if there were challenges with transformation, then the government should hold the mirror closer to themselves and say that if they were having problems with transformation and they made excuses, then there should be major questions asked. One needed to be careful and mindful of the balancing act between financial stability and sustainability. Referring to what was happening in the City of Johannesburg, he said that Government had led the investment, and the private sector had followed. However, the private sector had followed in a very untransformed manner, so there needed to be more focus on changing that.

National Urban Reconstruction and Housing Agency (NURCHA)

Mr Viwe Gqwetha, Managing Director: NURCHA, said that the mandate of NURCHA was financing small and medium contractors and developers that were delivering subsidy housing and affordable housing. This required it to have innovations to penetrate these markets

Because of the size of the company and its balance sheet, they focused on the short term balancing of their finance sheet. It was developers who had land who presented their plans, and NURCHA financed these plans. They worked with the banks because it was the banks that had to supply the mortgages. 90% of the loans were given to black contractors.

80% of the loan book subsidised developers of affordable housing, while the balance went to financing subsidy housing.

Mr Sindisa Nxusani, CFO, said that income from operations had dropped by a significant amount as a result of the programming fund management portfolio performing poorly. As a result of this, the fees that they received had fallen from R53 million to R7.6 million. Administration expenses were down from R90 million to R68 million. In the previous year, there had been a significant increase of R47 million in the level of permits.

Discussion

Ms N Hlonyana (EFF) wanted to know more about the new contractors, and where they came from.

Mr M Shelembe (NFP) asked about the dissemination of information to developers in rural areas and the role played by municipalities to ensure that before anything about housing took place, the developers within that municipality were aware that they could get assistance from NURCHA.

Ms Mabe enquired about the mandate of NURCHA. She wanted to know how they planned on improving financing for contractors, and asked about their relationship with the NHFC.

Mr Malatsi also wanted more clarity on the mandate of NURCHA, and echoed the concerns of Ms Mabe.

Response

Mr Gqwetha said NURCHA adjusted the credit requirements in order to increase their closure on projects which had high densities. The issue of vulnerable groups and the question of collaboration went hand in hand. There was no other way of getting new contractors other than engaging with the association of contractors that they found in their data bases. There was a stream of contractors and developers who were financed.

In Mpumalanga, there were three affordable housing projects that were currently being funded. One in was Nelspruit, the other in Evander and the third in another mining town. The bulk of affordable housing was in Gauteng, and NURCHA was saying in their five-year plan that they could live with the fact that 60% of the loan book would be in Gauteng, because that was where the bulk of demand was.

The challenges in the small and secondary towns included the uneven spread of developers across the small towns. They struggled with approvals of land for developers. The situation in these small towns was unacceptable, and was something that had to change.

With regard to the dissemination of information, NURCHA had just finished a round of engagements and each of those engagements had been run in conjunction with the provincial offices and by engaging with contractors. There had been 80 contractors present at each of these forums who had been briefed on what was required of them.

Mr Chainee raised a few of his concerns. One issue that needed to be addressed was the expansion of the contractor development programme. Another was the issue of wanting to be able to declare a dispute with surrounding provinces. If one removed NURCHA from the equation, then one would have a serious problem with delivery.

Rural Housing Loan Fund (RHLF)

Mr Jabulani Fakazi, CEO: RHLF, said the RHLF had been established in 1996, and their mandate focused on rural households and giving them housing finance so that they could build their homes incrementally.

Their target market was borrowers who earned an income of R15 000 a month. To deliver on their mandate, they had identified intermediaries who accessed funds and carried the credit risk when they lent funds and marketed to clients. There were two types of intermediaries, commercial and informal, which the RHLF used to reach clients in all sectors and areas, but mostly in the informal and rural areas, who found it difficult to get funding.

With regard to the loan requirements, when the lenders offered funds they did not require any form of security, so when a borrower could not pay the rent he did not lose his home. This was why it was important for the intermediaries to do thorough credit checks beforehand.

Mr Bruce Gordon, CFO, RHLF, said that they had a pricing policy where instead of charging based on the risk to their bonds, RHLF priced their loans to the intermediaries, based on what they charged the user. 70% of their loans had an interest rate of 15%, which was well below the maximum of 33%. Incremental lending was cheaper, and there was a three-year plan. The target for this year was to issue 37 000 loans, and at least 88% of those must be used for housing. 70% of loans went to people who earned R3 500 or less. They had developers who checked up on their intermediaries, and also checked on the building phases of the houses. R196 million would be spent on disbursements. There was a fairly high training budget, as all of the employees received training. They received R33 million back from the South African Revenue Service (SARS), as well as a tax exemption.

Discussion

Mr Sithole wanted to know about the repayment of the loans. Were they repaid already or were they in the process of being paid? He also asked about the loans paid to women.

Mr Malatsi wanted a sense of the loan repayment rate. He asked about the rates and what recourse the RHLF had in the instances where there was a lack of rent payment. What was the maximum amount one needed to qualify for a loan? The issue of outreach was raised again.

Ms Hlonyana asked for an exact break down of how many beneficiaries there were in each area.

Ms Mabe addressed the issue of accessibility as well as recourse. What was being done to develop rural areas into areas which were desirable for the average person? Did the RHLF fund reconstruction and development programme (RDP) housing as well?

Response

Mr Fakazi said that they did not track the amount they used to provide for loans to the disabled. They had started including loans that went to women in their targets in 2014. Regarding what happened with repayments which can not be made, they may not take the houses back, which was why it was important to do thorough checks.

The RHLF had done its best to make sure that the company was known. They had made use of various media platforms to market themselves, and had also worked with other government institutions to raise money.

Mr Gordon said that pensioners seemed to be the most efficient rent payers. They had found that there was a bigger demand from intermediaries now. In terms of outreach, they had to focus on finding intermediaries in rural areas. As much as the idea of a branch network sounded good, it was too expensive, so finding a small intermediary was the most economically feasible option. This meant that people heard more about the intermediaries than about the RHLF.

Social Housing Regulatory Authority (SHRA)

Mr Rory Gallagher, Chief Executive Officer: SHRA, said the four major programmes of the SHRA had not changed from last year’s presentation because they were being entrenched and deepened this year. They were working well, so it made sense not to change them. As far as the structure was concerned, SHRA was in a much better situation than it was last year, and the vacancy rate was now less than 16%..

In order to project the SHRA to the outside world, policy and communication were needed. The one change in the APP was the increase in the number of employees, from 44 to 51. This increase had been accommodated in the budget.

The biggest pressure on the SHRA was to deliver housing in the designated time, so they had beefed up their project management capacity and strategy by appointing two new recruitment managers, and were midway through the process of recruiting new managers. The industry was mainly male orientated, so their aim was to appoint more females, which they hoped to do in the next two months.

The planned operational budget for the year was R52 million, while the capital budget amounted to R743 million. In the previous year, they had spent R654 million. The balance of what they would spend next year would come from the surplus that had accrued.

The SHRA had just over 11 000 completion certificates, and were hoping to get to another 5 400 completion certificates. Performance against the capital budget and unit completion were the challenges that put the SHRA under the greatest pressure. Planning approvals and the signing of loans usually created delays.

The SHRA were pleased that they had submitted an APP that was fully in accordance with legislation. This had been structured around regional areas, because taking a regional approach would be the best way to solve the SHRA’s problems. Great emphasis was put on CEO forums and peer learning forums. The other focus was on training. The stakeholders in the various provinces needed to be educated and trained on what was required of them. With regard to inner cities and small mining towns, the inner cities had received a lot more focus this year. SHRA had put brand new indicators and measures in place for the purpose of transformation.

New indicators in the APP included those which dealt with the way in which the SHRA had improved in order to make the company healthier as a whole. Other indicators dealt with changing the norms and standards, the stakeholder standings and units under regulation. The target number of social housing units they planned to complete was 34 700. In order to ensure that beneficiaries were not unhappy when it came to the maintenance of the social housing units, there was now a new Intervention Plan.

Discussion

Mr L Khoarai (ANC) sought clarity on the expected delivery with the rural approach as well as the new projects that the SHRA had in the pipeline, and also asked about the challenges they faced.

Mr Malatsi wanted to know about the expected delivery of current projects, whether they were expecting to fall short or not, and if this was related to the performances in the provinces. Why was there a need for an increased use of consultants?

Mr Sithole asked for a breakdown on the developments with various municipalities and whether they had a plan which would help them to assist those provinces which did not have projects in the pipeline.

Response

Mr Gallagher said that the expenditure on the Institution Investment and Transformation Grant had been R95,6 million up until March. With regard to Limpopo, applications had been coming in, and the restructuring zones were in Polokwane. There were two Polokwane projects that had been looked at. They were fundable but the specifications needed to be reconfigured because the units were too big and too expensive. However, these projects would be undertaken and completed in the near future. As far as the timeframe for the project pipeline was concerned, SHRA was not really satisfied yet, because social housing units had been in the pipeline for an average of 245 days, and they would like to have a turnaround of 90 days.

Regarding the expected delivery of current projects, falling short was only sometimes related to performance in the provinces. The reason why they would fall short on completion was really only because they ran out of time. They needed to go to each province and facilitate project approvals, and would do so in the upcoming week. The system they had, when there was no project in the pipeline, was to allocate various portfolio managers to their own particular provinces, and it was up to them to try and facilitate projects. Ultimately, however, it was up to the provinces to decide to approve projects or not.

The Chairperson asked the Department officials if they were happy with what had been presented.

Mr Chainee said that he was not happy about the retained surplus. The Department had previously indicated that they were unhappy with having to apply for a retention of the surplus for the third year running. It was a bad reflection on the SHRA, as well as the Department. The National Treasury would see them as a soft target because they were not spending all of their money. He wanted to know the percentage of women and blacks among the contractors at SHRA. He accepted the target of 60% black ownership.

The Chairperson said the Committee was still not happy with the pace of the transformation. She understood that they were trying, but felt that they could do better. She was not happy with the bulk of the shares being in one province -- Gauteng. The SHRA might have to come back so that the transformation issue could be dealt with on its own.

The meeting was adjourned.

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