NHBRC, HDA & SHRA 2020/21 Annual Performance Plans

Meeting report

Briefing by the National Home Builders Registration Council (NHBRC)

Mr Otsile Maseng, Acting Chief Executive Officer, NHBRC, gave the presentation. The three pillars of the NHBRC were to protect the housing consumer, enable home builders to achieve the industry standards, and regulate, influence and enforce compliance to building standards.

By the end of 2024/25 the NHBRC will have improved cost and internal efficiencies and ensure a sustainable warranty fund. The NHBRC is introducing an e-Services platform in order to broaden access for its clients in line with our mandate. Further, the NHBRC shall ensure that all the homebuilders who engage in the activities of homebuilding are registered. The homebuilders who do not adhere to the norms and standards shall be disciplined from practising in the sector. The NHBRC shall train homebuilders, youth, women, people with disabilities and military veterans in construction-related programmes in order to broaden access in the construction sector

By the end of 2020/21 the NHBRC will have improved cost efficiencies by savings of 10% on annual budget – in line with the capable, ethical and developmental state MTSF priority.

Further, the NHBRC shall ensure that it encourages home enrolments even in rural areas – in line with the MTSF priority to create safe communities, human settlements integration.

In light of declining revenues and to encourage compliance, the NHBRC will establish partnerships with traditional leaders (to encourage rural enrolments), training institutions (transformation through training and capacitate sector), and CIPC to speed up registrations.

The entity’s biggest risk in this MTSF is the declining performance of the construction sector which affects its revenues. To mitigate this, planning is done in line with the sector growth projections to ensure NHBRC always has sufficient consumer education programmes. In addition, promulgation of the Housing Consumer Protection Bill offers opportunities for alternative revenue streams.

The key outcomes the entity wanted to achieve were improved visibility of NHBRC products and services, financially sustainable organisation that promotes economic inclusion, improved regulatory compliance, competent homebuilders and technical professionals and the reduction in greenhouse gas emission.

Mr Songezo Booi, Chief Financial Officer, NHBRC, presented the financial/budget considerations. The presentation contained the income statement which reflects their revenue from enrolments and their expenditure. The presentation touched on inspection costs as well as the costs of training youth, women and homebuilders. The operating profit that the NHBRC will be operating on for the next five years, which amounted to around R48 million, was also discussed. The NHBRC was also generating investment income from its various investments.

The net profit is budgeted to grow to R549,5 million in 2020/21. Research and development costs have been budgeted at R 7 million. 96% of 2020/21 Revenue is expected to be generated from three sources namely non-subsidy enrolments, subsidy home enrolments and subsidy project enrolments

He noted that over the last five years the revenue of the NHBRC had been on a decline and that the sustainability of the organisation was important.

Briefing by the Social Housing Regulatory Authority (SHRA)

Mr Rory Gallocher, Chief Executive Officer of SHRA, and Ms Alice Pudane, Corporate Service Manager at SHRA, made the presentation.

SHRA’s two goals for the 2020-2025 period was firstly, a transformed, compliant and sustainable social housing sector. Then secondly, integrated, quality and affordable social housing. SHRA identified that social housing was a powerful instrument for South Africa to address spatial fragmentation, economic integration, social development, urban efficiency, and inclusivity. It acknowledged that it needed to work better with municipalities and provide support. Grant funding was of critical importance to the continued existence of the social housing sector. It was noted that there needed to be a specific focus on the participation of black women in the sector through the identifying and unlocking of obstacles. Bankruptcy in the sector was also discussed with the impact of the Covid-19 pandemic being of concern.

The entity listed various risk factors and action taken to mitigate against this:

Ineffective organisational performance arising from insufficient and inadequate resources

Mitigation: Automation of processes;Implement a culture of performance management; Implement knowledge management process to improve organisation memory; Review and capacitate organisation structure and upskill as required; Enforce contract management, including but not limited to, evaluation of accreditation assessors, contractors, etc.

Insufficient resources to meet delivery targets

Mitigation: Engage and motivate for additional sources of funding; Use of Project Review Consultants (PRCs) to monitor performance during construction; Benchmark, review and capacitate organisation structure; Strengthen the due diligence capability and procedures within the SHRA.

Inability to upscale the delivery of social housing

Mitigation: Engage participation of private sector as the developers for social housing, with SHIs coming in at the tenant and property management stages.

Failure to implement social housing policy - public policy is not aligned with economic forces.

Mitigation: Policy reform process to be instituted.

Unavailability of strategically located land

Mitigation: The SHRA to participate in the spatial targeting initiative of the National Department and HDA; Proactive approach to request proposals to mitigate spatial planning issues.

The performance and budget of SHRA was also discussed in the presentation.

The operational grant has increased from R46.81m to R58.2 m representing an average annual growth form 2017/18 to 2020/21 of 7.5% with the outer years of the MTEF reflecting a constant amount or decrease in real terms.

The total revenue of R817.553m in 2020/21 to R946.06m in 2023/24 represents an average growth of 5% over the MTEF period.

During FY2018/19, R47.584m of over-expenditure was reported. R31.016m was attributable to capital expenditure and R16.568 on operational expenditure. The significant operational cost drivers, include recurring items and directly linked to regulation in terms of professional fees to conduct tenancy audits and building conditions assessments. Also directly linked to delivery would be fees linked to assessment of institutions and projects submitted to the SHRA as project applications. The implication of the 2020/21 budget allocation is that certain resources, identified as critical success factors in the strategy, have not been sufficiently resourced (e.g. HR, IT, Marketing and Comms, Regulatory aspects)

Briefing by the Housing Development Agency (HDA)

Mr Lucien Rakgoale, Manager: Land and Property Acquisitions, HDA, made the presentation. The HDA mandate is to support the activities of municipalities and provinces that are not able to meet the human settlement objectives and targets by complementing their delivery efforts and fast-tracked spatial planning, land identification, acquisition, rezoning, packaging and housing development.

Some of the key annual targets of the HDA for 2020/21 included 11479 Housing Units delivered, 9256 serviced sites delivered, 23 municipalities provided with technical and implementation support for distressed mining communities, 50 % of HDA procurement spend on BEE Level 1-4 companies, 375 informal settlements supported for upgrading to phase 3 and 7058 title deeds delivered.

The entity listed various risk factors and action taken to mitigate against this:

Misalignment between National Priority Programmes and the priorities of Provinces, Municipalities and Sector Departments 

Mitigating: Review of Planning Regime; Fiscal alignment and coordinated budgeting between Provinces/Municipality and HAD; Signing of Implementation Protocols and MOAs

Accepting unfunded mandates

Mitigating: Approval of additional functions mandated to the HDA by the Minister and Board;
Funding agreements and terms and conditions relating to the functions must concluded; Inability to provide supporting and spatial information for decision making

Mitigating: Develop GIS Strategy for new MTSF period and communicate it to stakeholders to address time frames, resource limitations, data governance, data quality and security.

The consolidated budget is based on confirmed grant funding from the Department of Human Settlements and funds received from provinces for operational expenditure in the respective offices based on agreed Medium Term Operational Plans (MTOPs). Total projected consolidated budget for the financial year is R378m, a reduction compared to prior year budget of R475m. The reduced budget is driven by a reduction in MTOP funding from R211m to R107m based on signed funding agreements. The Agency, excluding regions, is budgeting a negative balance of R26m which is then covered by management revenue.

Discussion

Mr R Mashego (ANC) asked what the NHBRC was going to do to incorporate unregistered builders into the agency. What were they going to do to unregistered builders? He said that there was a target for houses being built. What would happen if those houses were not built? He then moved to the SHRA. He was confused why the cost of their targets was R8 billion but they only had R4 billion in their budget. Why was SHRA not basing their targets on the amount of money they actually had? He commended the HDA and said that their targets seemed achievable.

Mr L Basson (DA) asked the NHBRC how more builders and houses would be registered. It was a concern that there was a decrease in registrations. Was it because there were less houses being built? He wanted reasons why people were not registering their houses?

Ms R Mohlala (EFF) asked the NHBRC why the target of training military veterans was lower in 2020/21 than in the previous year 2019/20. The strategic plan of the NHBRC indicated that the anticipated draft budget allocation for 2020/21 was R892 million. What were the reasons for the reduced allocation of R858 million as contained in the ENE of National Treasury? What was the reason for the CEO of the NHBRC holding an acting position?

Ms Mohlala questioned the SHRA. Slide 17 says the target over five years was 27000 houses but they have only delivered 13000. There was also a statement saying they had a surplus of houses but she was confused what that meant. She asked for clarity on the matter. Further, in SHRA’s strategic plan it stated that the budget allocation over the medium term from Treasury was R4 billion which would allow for the delivery of 15000 social housing by 2024. However, according to Treasury they would only allocate R2.6 billion to the entity over the medium term. What was the reason for this difference in figures being presented?

Last year when the HDA reported to the Committee, the CEO stated that there were still cases of corruption under investigation. How far were those cases from being completed? Could the Committee receive reports on the status of all the incomplete cases of corruption? She was concerned that a budget allocation of about R78 million was going to consultants. She was worried about money being paid to consultants. Why has the agency not encouraged internal institutional capacity? They needed to stop relying on external consultants.

Ms S Mokgotho (EFF) addressed the SHRA. In the strategic plan, it was stated that during 2018/2019 the entity spent R778.2 million in the Consolidated Capital Grant (CCG) against the approved budget of R743.6 million which represents an over-expenditure of 5%. By the end of the third term of 2019/20, SHRA had exceeded its CCG budget by 34.9% having spent R976.2 million against an approved budget of R723.7 million. What are the reasons for the continued over-expenditure on the CCG? What steps are being taken to reduce the expenditure? The budget allocation for programme two decreased from R781.3 million to R725.7 million. Why the decrease yet in other programmes the budget has not been reduced?

Ms Mokgotho noted that the HDA is faced with a risk of not meeting its annual key targets due to the delays in the acquisition of land through the expropriation of land and potential price escalation. Why is the agency not requesting the Minister of Human Settlements and the Government to expedite the process of expropriating land without compensation so that they could expedite the process of informal relocations?

Ms Mokgotho addressed the NHBRC. During 2019/20 it had targeted a huge number of subsidy houses and non-subsidy houses to inspect but in 2020/21 the inspection target was low. Why was the inspection target so low? In 2019/20, NHBRC had a liability of R1.665 billion. How did it plan on eradicating this liability? There were huge amounts of liabilities that it was predicting. Why was the NHBRC already predicting that it was going to have liabilities in the future? Why did the NHBRC not change the way it ran its affairs so that it did not have any liabilities in the future?

Ms N Sihlwayi (ANC) noted that one of the objectives of the NHBRC was to maintain building standards. Was it satisfied with the standard of buildings? She was worried that they only intervened after problems arose.

Ms Sihlwayi noted that the SHRA was going to capacitate 12 municipalities. Which municipalities were selected and what was the criteria in choosing them?

Finally, she remarked that in some provinces the HDA was perceived in a negative way and as a result was not progressing in terms of housing development. What problems were the HDA confronted with?

Mr Maseng responded that the NHBRC was faced with a challenge of unregistered builders. The NHBRC was strengthening its enforcement tools to help ensure that it identifies unregistered builders. It is working with municipalities to ensure that when structures are erected in municipalities they are able to identify them. Even illegal or unregistered structures will be able to be picked up. The entity was also working with the National House of Traditional Leaders to ensure that they expand their reach into traditionally administered areas. The NHBRC based its targets on projections. When projections were not met that was a risk and that was why it was currently revising its Bill. The revising of the bill will expand the reach of the NHBRC. The entity will not only be focused on new houses but also be looking into mixed-use developments. The NHBRC had a mixed response as to whether it was satisfied with building standards. When building standards were not up to standards it normally sanctions that builder and ensures that the construction of that particular structure is stopped. The NHBRC ensures the law is followed whenever its building standards are not complied with. There were many South Africans who comply with building standards but the NHBRC was aware that illegal structures were being erected. It was true that the entity had a revised downwards the number of inspections but that was informed by economic trends. Legislation only allows the NHBRC to inspect newly built houses that was why they were revising the Bill. If the economic projections are low then they revise the number of houses they inspect.

Mr Booi responded to the two questions that related to the budget. The NHBRC offers a warranty to all new houses enrolled with the council. The entity has obligations it has to honour on all those newly enrolled homes. Annually it has a service provider who does a solvency evaluation of all their obligations as far as the warranty fund is concerned. Those were the liabilities that they project and reflect in their books. As long as the NHBRC is in existence and provides a warranty cover on all newly enrolled homes they will continue to disclose those liabilities.

He then responded to the question of the revision of the ENE numbers. Last year the NHBRC did the projections on the ENE based on assumptions. The reality was that those assumptions were overtaken by events. The events that occurred meant that they had to revise their numbers. Specifically looking at their declining revenues they had to revise their numbers and ask what cost were they going to commit to that revenue line. That was why the numbers on the ENE are different to the numbers on the budget presented today.

Ms Julie Bayat, Chairperson, NHBRC, explained that the reason why the NHBRC had an Acting CEO was because Mr Mziwonke Dlabantu, Chief Executive Officer of the NHBRC, was seconded to the Department of Water and Sanitation until July and they were expecting him back immediately after that. He was there to assist Water and Sanitation with their issues and financial issues.

Mr Gallocher responded to the question of how SHRA can achieve 30000 units with a budget of R4 billion. The Committee needed to realise that the MTEF budget is projected on a three year basis and they are indicatives. The indicatives were not adequate but housing strategy and budgeting was not a stagnant process. SHRA plans year after year so on the policy reform side if they do not present proposals that will allow them to extract higher production with the resources at their disposal and if they do not attract a greater amount of funding, in the form of a grant, then they would have to revise back. They were doing their best to re-plan both on the policy reform side, as well as the strategy side and the budgeting side. They do not have inadequate resources at the moment. It was not uncommon for the public sector to need more resources to satisfy the needs of the public.

The surplus, on page 17 of the presentation, was compared to the previous term’s target of 27000 units. It was not a surplus of 8611 completed units. It was a surplus of accredited units. They signed contracts for 8611 units more than the 27000 units. SHRA’s budget was around R3.8 billion and they rounded it up to R4 billion. They do not yet have the indicative for year number 5. The CCG budget was increasing at a rate of about 5% per annum. The R2.6 billion was money spent previously; it did not relate to the five year available resources in the new term.

The over-expenditure was a planned over-expenditure and it was a correction of prior year underperformances. The entity did plan to spend more than their in-year budget because it had underperformed in previous years. Which made them commit money from previous years but not physically release it from their bank account. They paid for that over-expenditure through the retain of prior year commitments. SHRA had not taken steps to reduce the expenditure. It deliberately increased the expenditure to make up for underperformance in prior years. It was a planned event and was not as a result of poor planning. There was a decrease in the CCG budget from the previous year. It was a marginal decrease. The Human Settlements budget overall has decreased. The total loss in the Human Settlements budget was around R4 billion. The Committee should be made aware that the increase year on year was on average a 5% increase. It was not an adequate increase but it was at least an increase. The municipalities that they are currently supporting and who want support will still be supported. There was a policy proposal that will be presented to the Executive Committee on Monday that will probe the criteria that they use to select the municipalities that will receive support. It was too early for SHRA to tell how it will select the communities because it has not reached the committees yet. Once the council has approved the criteria SHRA will be able to answer that question.

Ms Bathabile Dlamini, Chairperson, SHRA, responded to the question related to programme 2. She explained that certain programmes that were being prioritised over others. She added that SHRA would be encouraging better partnership with other agencies and Government institutions to increase service delivery.

Mr Rakgoale responded to questions posed to the HDA. He acknowledged that there were negative perceptions towards the HDA. There was a concerted effort to correct issues of the past that related to poor governance in the HDA. He confirmed that all of the disciplinary cases have been concluded. On the R78 million spent on consultants, this was a significant reduction from the allocation made for consultants in the previous years. Consultants were mainly used in areas where the entity did do not have the relevant skills. He confirmed that the land assembly programme does not only focus on privately owned land but also focuses on publicly owned land.

Mr Neville Chainee, Acting Director-General, Department of Human Settlements, said that the SHRA was working together with National Treasury and the Presidency to get additional money allocated to meet their targets.

The Chairperson said that all unanswered questions and comments will be responded to in writing to the Committee. She said that the Department of Human Settlements also needed to make clear how it would contribute to job creation.

The meeting was adjourned.