NHFC & SHRA 2019/20 Annual Reports, with Minister

Human Settlements, Water and Sanitation

26 November 2020
Chairperson: Ms R Semenya (ANC)
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Meeting Summary

Video: Portfolio Committee on Human Settlements, Water and Sanitation, 26 November 2020

2019/20 Annual Reports

The National Housing Finance Corporation (NHFC) and the Social Housing Regulatory Authority (SHRA) presented their 2019/20 Annual Reports and both obtained unqualified report with findings. The National Housing Finance Corporation noted that the Bill to establish the Human Settlements Development Bank will be tabled in Parliament shortly. There are nearly 40 000 units under the responsibility of SHRA. This number more than doubled since 2014/15. SHRA had 30 targets for 2019/20 with 20 targets achieved thus 67% of the planned deliverables.

Members asked NHFC and SHRA why had not obtained clean audits and why the irregular expenditure had not been prevented and what is being done to rectify this. Members stated that more needs to be done about transformation and finding private partnerships as both of them cannot solely rely on government grants, but rather leverage the grant to raise more funds elsewhere.

Meeting report

National Housing Finance Corporation (NHFC) presentation
Mr Sizwe Tati, NHFC Board Chairperson, gave an introduction. The strategic objectives included expanding housing finance activities to enable gap market households to meet their housing needs; facilitating increased lending by financial institutions to the lower end of the housing market for a transformative change in the affordable housing sector; providing timely research and market analysis; and changing the strategy of NHFC to assume the role of the Human Settlements Development Bank (HSDB).

Loan approvals for the year amounted to R939 million, which was 74% of the target. Disbursements amounted to R724 million (62% of target). BEE funding and disbursements amounted to R566 million (97% of target). A total of 353 56 impact housing units and loans were facilitated (52% of target). A total of R1135 million funds were leveraged (88% of target). There was an improved Cost to Income Ratio of 46.7%, and credit loss ratio of 1.5% (target of 63% and 2.5%). This is a very good achievement and shows how efficient the corporation is. They have managed to leverage R1.1 billion from the private sector resulting in the delivery of 2 972 housing units.

The priorities for the year included an ICT strategy, establishing a sustainable funding model for NHFC to support the Human Settlement development expansion, skills audit to determine employee competency levels post consolidation, deployment of fast cross-functional teams, and operationalising of the modified Finance Linked Individual Subsidy Programme (FLISP).

The responses to the operating environment centred a lot around Covid-19 as it is very topical currently. NHFC developed and implemented COVID-19 relief interventions in the form of repayment moratorium, thereby preserving delivery channels. It prioritised the health and safety of its employees ensuring employees have resources to work remotely at level 5 and 4.

The aim is to leverage the private sector. For every R1 that they put out and invest, they would like to attract at least R4 from the private sector. This is to crowd the private sector in and to also ensure that the money received from the shareholder can be spread. The entities where they have taken investment and loan funding include Trust for Urban Housing Fund (TUHF) which is their single largest client, with an exposure of R582 million in the form of equity and debt capital exposure, attracted R3.2 billion. They are receiving dividends from this investment, where they own 32.6% of the ordinary shares which is now over 10 years old. There is Housing Dividend Partners, in which NHFC owns 33.3% of the ordinary shares. Their investment of R270 million has further attracted an additional R1.1 billion from various investors. NHFC has invested R247 million worth of equity into International Housing Solutions, and this capital has been matched by an additional R1.8 billion in equity and quasi-equity capital from other institutional investors. The Cape Town Community Housing Company is a wholly owned subsidiary of NHFC that has undergone a major restructuring of its operations to ensure it achieves a turnaround in financial performance. NHFC has a 20% equity investment in Lendcor, a provider of incremental housing loans to low income borrowers. NHFC mandate is to lend in all provinces. The national footprint is through intermediary and direct partners who have developed loan distribution channels in all provinces.

The Chief Financial Officer noted there had been a restatement of prior period results and the reason for this is due to the first-time adoption of a new accounting treatment for loans disbursed to equity and quasi-equity investments. They have had to reclassify these out of loan and advancements into investments in controlled and non-controlled investments, which results in a consolidation of the investments in controlled entities. The investment income has increased over the year as a result of more available cash on the balance sheet allowing more interest income. Their credit loss came to about 1.5% and this is as a result of the reversals. There was a negative fair value adjustment on company profits as a result of the company having to write down some of their investments. Their debt capacity has increased, and this is as a result of the consolidation of the controlled entities in the group account. During the current financial year, they received a capital contribution from a shareholder for about R15 million.

One of the key findings of the Auditor-General (AG) was a matter of emphasis for the restatement. This did not change the audit opinion because the AG was in agreement with the accounting treatment that had to be undertaken. The financial statements submitted to the AG included some errors and these were corrected prior to the completion of the financial statements. Another key finding was supply chain as effective steps were not taken to prevent irregular expenditure. The 2018/19 irregular expenditure has not yet been condoned by National Treasury. This is because in the initial submission NHFC had not provided evidence that they had investigated the transactions and had taken action against the responsible officials. This has now been corrected. The investigations have been conducted and necessary action taken against officials. They have resubmitted the 2018/19 request for condonation to Treasury and are expecting condonation. The current irregular expenditure is a result of the continued use of expired contracts. What they have done to remediate this includes the procurement of a contract management system which has gone live to improve the management of contracts. This system alerts officials when contracts are up for renewal so they can prepare in due time. They are also reviewing all contracts. The SCM policy framework was beefed up.

Mr Samson Moraba, NHFC Chief Executive Officer, stated that the draft legislation for the HSDB is in its finalisation process. They are gearing towards driving scale, hence the integration into all the Strategic Infrastructure Projects driven from the Office of the President and to strengthen their digital technology platform to improve efficiencies. They want to be the bank of choice when it comes to affordable housing. To this end, they will need to strengthen partnerships with the private sector and other international and local development funding agencies. A sustainable funding model to support the Human Settlement development expansion needs to be established.

Social Housing Regulatory Authority (SHRA) presentation
Mr Rory Gallocher, SHRA Chief Operating Officer, noted the indicators for its four programmes: general management, sector development and transformation, delivery of housing projects and regulatory. There are approximately 40 000 units under the responsibility of SHRA. This number more than doubled since 2014/15. The number of new units constructed is 17 000 units. They have approximately 50 signed Consolidated Capital Grant (CCG) contracts which are at different stages of the development of the units.

In 2019/20, they spent more on capital funds than they have spent in any year. SHRA increased expenditure on the CCG to R 1 202 831 411 in 2019/20 which comprised a 166% performance against budget. The total deficit of R413 million has reduced the retained surplus from R989 million in 2019 to R576 million at end of 2020. Operating expenses were 6.4% of the Total Programme and Operating Costs of R1.3 billion.

SHRA had 30 targets planned for 2019/20: 20 targets were achieved. 10 targets were not achieved so it achieved 67% of the planned deliverables. Out of the 30 performance indicators, 8 indicators (27%) related to transformation. Staff vacancy rate at the end of the period was 15% with a headcount of 47 full time staff.

One of the concerns is SHRA systems are too complex and so they have invested in an automated system using remote portals so that they may engage with applicants using digital portals. Over the period, there have been a total of 16978 units completed and 32396 units approved. There are 39407 units and this represents a 92% increase from the 2014/15 period, and an 8.5% increase year on year. SHRA has for the second time in the past five years experienced an operating deficit, the last being R45.69 million in 2015/16. The 2019/20 deficit was R413.39 million. The staff count has doubled since 2014/15, with 47 employees dedicated to a programme that manages R1.3 billion in programme and operational expenditure. SHRA had an unqualified audit with findings.

Ms Alice Puoane, Corporate Services Executive: SHRA, stated that for the first time in four years they have managed to have their budget variance below 15%. They have indicated that they need a pipeline that is fully transformed. The pipeline currently indicates a 68% transformation. She went through the target achievement for 2019/20.

The 2018/19 State of the Sector Report was not published which led to the annual target not being achieved. This was due to limited internal capacity and availability of information needed to finalise the report. Going forward management will ensure that there is sufficient capacity to meet the target. They did not reach the target for the Student Housing Programme proposal to serve MinMec. It was decided that SHRA Student Housing proposal be considered by the Minister who has administrative authority to deal with the matter, and not MinMEC. Going forward, SHRA will aim to manage indicator dependencies on the National Department of Human Settlements through deepening the consultative process.

The biennial stakeholder perception survey conducted in 2019/20 was achieved. There was an 80% achievement of the milestones of the approved stakeholder relations management plan.

The target to have 13 fully accredited Social Housing Institutions (SHI) had only 12 fully accredited. This is due to the accreditation process that might not have been understood by applicants. The CAR Programme will invest resources to educate the sector on the accreditation process.

Of the targeted 3300 subsidised social housing unit tenancy audits, 3406 subsidised social housing units were audited. Of the targeted 3300 subsidised social housing unit building condition audits, only 3803 were conducted. This was because service providers could not secure access during March 2020.

For the target of 28026 social housing units that needed to be accredited (approved for capital funding) over the 2015-2020 period, only 27042 were accredited. This is due to the fact that the majority of projects that applied for accreditation did not achieve project readiness status to go through to approval stage. Going forward, further project facilitation and support work will be undertaken to ensure that these projects can be accredited by the fourth quarter of 2020/21.

There was a target to get 8 project applications into the project pipeline by conditionally accredited first-time applicants. Only 8 applications were received, and this was because most conditionally accredited SHIs do not necessarily have access to land. Communication and information dissemination work will be conducted to educate potential applicants on the accreditation process and requirements. The accreditation policy has also been revised, to include access to land as criteria for obtaining accreditation.

There was a target to have 65% of projects in the pipeline from capital grant applicants that are black majority owned or controlled. They achieved above the target at 68%, with 26 of the 38 projects.

The target for cumulative number of units under regulation was 38288 and this was exceeded with 39407 units under regulation. The increase in units under regulation is due to an increased number of projects being accredited as well as improved reporting by delivery agents as a result of training on reporting requirement by the Compliance unit.

The targeted number of Institutional Housing Subsidy projects brought under regulation was 4, and this was exceeded with 5 projects. This was due to the Constitutional Court ruling against Cape Town Community Housing Company where projects are now brought back under regulation and reported on.

There was a target to have a percentage of pre-selected SHIs and/or Other Delivery Agent (ODA) without accredited projects supported through an incubation programme to have projects in the pipeline. 50% (5/10) of Incubation participants had projects in the pipeline by the end of the financial year.

Identified SHIs that received an Institutional Investment Grant (IIG) and maintained or improved their accreditation level within the financial year was 82.5% improved accreditation level and 100% maintained accreditation level.

 There was a target to have 77.5% projects recommended to the Technical Evaluation Committee (TEC) for capital grant award. This was exceeded with 100%. Positive variance of 22.5% due to project support work focusing on technical readiness and financial feasibility to achieve recommendations to TEC.

There was a target to have 65% of IIG recipients are majority black owned or controlled, and this was exceeded at 70%. Positive variance of 5% due to continuous engagement with IIG recipients to validate B-BBEE status as per evidence requirements.

There was a target to have 50% of grant recipients have adopted the Social Housing Sector Transformation Charter and this was exceeded at 53% (30/53). Positive variance of 7% due to continuous engagement with grant recipients to adopt the Social Housing Sector Transformation Charter.

The production of annual social housing sector transformation dashboard and report was achieved.

There was a target to have 19854 cumulative number of social housing units completed between 2014/15 and 2019/20. This was not achieved with only 16978 units completed. This is due to: blocked projects which have not broken ground 12 months since approval of project due to grant recipient not achieving prior contractual conditions; CCG cancellations of contracts due to non-performance which would have delivered units; projection of unit completion which had not materialised or fewer completed from these projects: Qhama; Hlalanathi; Goldenwest; Hillside View; Townlands; Carnival Gardens; Mogale Junction; and grant recipients’ challenges with their professional team, the impact of the construction mafia, community unrests causing stoppages on construction sites, the global impact of COVID 19 in March 2020. Each non-performing project's recovery plans, planned cash flow and resources on-site will be reviewed. The blocked projects are receiving specific intervention to resolve challenges including contract administration.

There was a target to have 4000 social housing units delivered and this was exceeded with 4012 units. Portfolio Managers pursued projects where tenanting was projected and, in many instances, received more units than projected which have been verified by Compliance, Accreditation and Regulation (CAR). The outlook is great in that units completed in the current year will be managed to meet tenancy in 2020/21.

The targeted percentage of annual Consolidated Capital Grant (CCG) allocation awarded to Other Delivery Agents (ODA) was 25% and only 9% was achieved. Of the total CCG award (R1 194 442 337) to 13 Grant Recipients, 3 were ODAs awarded R107.66m for 2019/20. This target was not achieved as the approval of 8 projects by ODAs pre-assessed by SHRA – for 3505 social housing units with a value of R952 893 835 – had not materialised by year end. Going forward, SHRA will actively pursue projects from ODAs to meet the 2020/21 target and consider project accreditation enhancements.

The CCG allocation awarded to black majority owned / controlled enterprises (>50% black) was 65% with this being exceeded at 95.45%. Of the total 13 CCG awarded to grant recipients (totalling R1 194 442 337) the majority were black owned and controlled with 12 grant recipients registered as level 1 and 2 B-BBEE amounting to R1 124 300 651. Going forward SHRA will continue to encourage project applications by transformed applicants.

The CCG allocation awarded to the collective of enterprises designated as majority owned or controlled by women, youth, persons with disabilities and military veterans was targeted at 30% and this was exceeded at 40.26%. Of the 13 accredited projects, 4 grant recipients were entities majority owned / controlled by designated groups with CCG value of R480.66m. SHRA will continue to actively promote such applications.

Financial information – R650 million cash and cash equivalents has reduced significantly compared to the R1 billion in 2018/19. The grant was reduced from 2018/19 and OPEX has increased. There is an operating surplus of R22.54 million. SHRA had recorded a net cash flow deficit from operating activities of -R454.4 million for 2020 compared to a positive of R37.3 million in 2019.

The 2019/20 audit opinion was unqualified with matters of emphasis. The material findings on annual financial statements (completeness of receivables, other income and provisions, commitments and contingent assets) identified and corrected. There was non-compliance in: a) expenditure management; b) annual financial statements, performance and annual report; and c) the appointment of Council. Material findings on usefulness and reliability of reported performance information in Programme 4 due to lack of completeness and accuracy of the recorded number of units tenanted. There was no fruitless and wasteful expenditure. There was irregular expenditure of R 225 663 337 (R59.91m 2019/20, R139.03m prior year – as a result of two projects not being located within a gazetted RZ plus an opening balance of R26.73m).

Mr Gallocher said that they are on the same page as NHFC when it comes to the funding model. The reason is because of the economic constraints which will impede the increase in the budget. This means they have to be innovative and work with NHFC to move into a blended funding environment to use the grant portion to leverage more from external financers so they can stretch the Rand further.

The Chairperson welcomed the Minister to the meeting.

Ms M Mohlala (EFF) asked if NHFC could provide reasons on why targets in Programme 4 were not met and provide reasons for the error made in classifying assets. She asked NHFC the reasons for the R10 million in private funds for Enterprise Development that was not mobilised. She asked if NHFC could provide more detail on delays and challenges experienced on the Kuyasa and Drakenstein programmes; have these been resolved. She asked for more detail on the six disciplinary actions taken against employees. She said that many people suffer from a bad credit record and the FLISP housing failed because they do not qualify for housing or bonds. The current system used by the financial system in South Africa is discriminatory against poor black people in the country. The current system rates people as high risk or low risk according to their racial background. She asked if the State bank will also discriminate against people’s financial records, especially given the poor economic state that the country is in.

On SHRA, Ms Mohlala referred to the Helderwyk Mega Project and asked why there was a sudden change of heart about use of the same land for RDP houses. The land was already approved for 903 units and funds were ring fenced by SHRA. She asked if the land was sold or donated to Gauteng Province since RDP houses are allocated for free to deserving beneficiaries. If sold, what was selling price? She asked if SHRA issued a notice of non-compliance to the Social Housing Institution (SHI) and remedial action after being informed of financial and governance irregularities. If so, when did this happen?

Ms S Mokgotho (EFF) asked NHFC why effective measures were not taken to prevent the R5.5 million irregular expenditure. What measures have they now put in place and why did they ignore the AG recommendations on this? What measures have they put in place to deal with non-compliance with legislation? Training and development decreased from R1.4 million in 2018/19 to R1 million in 2019/2 and she asked for reasons for this decrease. She asked the reasons for the construction delays in the SHI in Cape Town. She asked NHFC for more details on the non delivery of 4403 housing units due to cancellation of Savannah. She asked how NHFC would ensure targets are specific and realistic to avoid missing targets due to incorrect phrasing and forecasting.

She asked SHRA what measures have been put in place to stop irregular expenditure and non-compliance with legislation.

Ms G Tseke (ANC) appreciated the good performance of NHFC but there is room for improvement. Going forward they are expecting a clean audit from NHFC as she believes that management has the capabilities to deal with those audit findings. NHFC must commit to a clean audit in the coming financial year. NHFC allocated R556 million to BEE clients but only R83 million was disbursed to women and youth, yet the target for women and youth was R348 million and she asked about the large variance between the target and the actual achievement, as women and youth are the majority in the country. They have a responsibility as entities of government to ensure that they empower women and youth. She asked for reasons for the increase in legal fees. On its footprint in provinces, she noted zero in the Northern Cape for financed housing projects and asked why the province is performing so badly. She asked the reasons for the delays in the construction of private rental housing projects in Springs in Gauteng. The AG raised the matter of NHFC using expired contracts and she noted this opens up room for corruption. When can they expect the Human Settlements Development Bank Bill to be presented to Parliament?

Mr M Tseki (ANC) asked SHRA if they happy with the state of their risk and if they are managing the rental payments of the 40 000 units they are managing. He asked if there are challenges with a lot of defaulting on payments. He thanked Ms Puoane for stating what they did achieve where they have not met their targets.

Ms N Sihlwayi (ANC) asked SHRA why they give up on projects when they do not get enough funding from government instead of attempting to get funding elsewhere. They expect SHRA to formulate an economic policy. While houses do need to be built, they need to see transformation within the programme. SHRA does talk about transformation, but she needs to know the areas of transformation and most importantly you must ensure there is integration of the people of this country. She is interested to get a breakdown, particularly of Cape Town, on how they are unifying the people of South Africa. There is no other money for integration and transformation, and the money given to these entities for service delivery must be used for integration and transformation. She asked about the R6 million which was illegal and from where it came and what the process is to legalise it.

Ms N Tafeni (EFF) asked NHFC about the increase in the auditor’s fees. She asked why there was no income for 2019/20 for Norufin Housing.

Ms N Mvana (ANC) stated that she wished SHRA had received a clean audit. She appreciated the SHRA and NHFC reports as well crafted and commented on the good work they are doing. They do however need to pull up their socks as some of the work they do is not visible at the ground level.

The Chairperson said to NHFC that she is very worried about the explanation on the irregular expenditure particularly on the use of expired contracts. It seems that their project management is problematic and so procured a contract management system which incurred unnecessary costs as this is what they should have been doing from the beginning. This is worrisome. She asked for clarity on this as she is very worried that this might open up the doors for corruption. She is disappointed that NHFC did not get a clean audit.

The Chairperson said that the particular problem that with have in this country, particularly with African people, is that they are in debt. She asked what is being done to assist these people. She asked how NHFC works with the Public Servants Association (PSA) to educate and encourage public servants to invest in houses. She said that there appeared to be no movement with the NHFC footprint in provinces.

NHFC response
Mr Sizwe Tati, NHFC Board Chairperson, replied about the intention of the HSDB of serving the underbanked – it is at the centre of why the bank is being created. For over indebted clients, the intervention is that they plan to work with partners and assist those clients with credit rehabilitation. The bank will invest in public education programmes to caution people against over borrowing and to promote asset accumulation more than consumption and borrowing.

Some of the irregular expenditure is not happening because of poor controls. Sometimes they continue to use the expired contracts because the institution with the tender has institutional and background knowledge of the matter at hand and NHFC would rather carry on with them than to re-tender and have another institution have to catch up on the matter. When you put three institutions together, the number of contracts triples and you find that each will bring different systems and methods in managing these contracts. In trying to streamline, a few items do fall into the cracks. This is why they needed to procure an automated system which will block the use of a contract if it has expired. The system is not an indication that there was never a contract management system; it is simply trying to streamline the system. They always aim for no findings and there should not be repeats. They always strive for clean audits but sometimes it is difficult.

It is a problem all over the world that when you run an apex institution, its visibility on the ground is not always obvious, but there is a reason, from a policy perspective, that a wholesale institution has been able to marshal and rally multiple institutions so that NHFC touches a number of people on the ground.

The audit fees have increased because of the increased number of accounts the auditor has to audit. There were special audits that were linked to the merger, such as auditing the opening balances before they put balance sheets together. Other reasons are that management requested specific audits on areas that might be new as they merge, or on matters that are being dictated by the new accounting standards.

On the status of the HSDB Bill, it is not entirely within NHFC's control to drive this process but the feedback they gather on a monthly basis from the Department is that by December, it should have at least moved to Parliament. Thus it is difficult for them to give a specific answer.

NHFC aims to increase disbursements to women and youth. The recent Women in Construction conference organised by the Department was a very good opportunity for NHFC to meet physically with women to set up appointments with them and it was a very rich exchange of information. Amongst their staff they will ensure that they have a dedicated individual who will ensure that the applications coming through include women.

It is very difficult to answer why the legal fees have increased. Sometimes you find contracts overlapping from one year to the next and so some fees that should have been paid in the previous year, now need to be paid in the current year, and this makes it look as if the legal fees have increased.

On the zero in the Northern Cape's footprint, it is more of a presentation issue. The slide was looking at active projects and many of the projects have been completed. On the SHI delay in disbursement, he does not have specifics. In general there are specific conditions that are set when projects begin.

The staff training budget has decreased but he has seen a rapid jump in training, with an increase of more than 27%. He agrees that they could have been more effective about the R5 million irregular expenditure. The manner in which these occur is not because someone is sleeping on the job, but rather the nature of the transactions and the manner in which they manage and speed up their turnaround.

The point of FLISP is to support people who have weaker equity contribution in their borrowing. The structural weakness is that they should still follow through and support people who have been approved by the bank. This means that the bank will still apply their normal creditworthiness test and they will come to NHFC when there is a shortfall on equity.

The disciplinary actions relate to poor conduct, employees being away from work for unexplained long periods of time and to some limited extent performance-related.

Mr Viwe Gqwetha, Strategic Partnerships and Programme Management manager: NHFC, replied that there are a number of initiatives to create a conducive environment for new entrants and smaller enterprises. One is on the lending side. Sometimes on the lending side you get clients that are already appointed by other players in the market and therefore they are a taker in that market as a lender. On the other side NHFC is trying to be proactive and partner with provinces and municipalities to structure programmes that make it easy for small enterprises, small contractors and women and youth led contractors to enter and implement programmes. For these enterprises, it is not just about financing as there are a number of areas that NHFC has to help them with. One area that is important is sometimes the bridging finance NHFC provides compensates for inefficiencies in how payments are administered to pay small contractors on time. NHFC helps them get access to credit with suppliers so that they do not have to pay upfront for materials. NHFC has good collaboration with the National Home Builders Registration Council (NHBRC) in training home builders and in areas of management training. On the delays in Kuyasa and Drakenstein, these programmes seek to unbundle scopes of work for smaller enterprises to enter and be active in the economy. In the structuring of these programmes, the Department retained portions of the procurement. The accumulative procurement is what created delays in the programmes.

NHFC replied that 2019/20 is the year in which they were regrouping and planning as they had just consolidated and they were faced with a situation where they had a duplication of roles. Training decreased because of this. Of the six disciplinary actions reported, four of them have to do with the irregular expenditure, and the other two deal with non disclosure and negligence. Student accommodation is a new product for them, and they currently have R66 million approved and are in the disbursement phase. This project will be completed in 2021.

It was explained that the Nurofin (Pty) Ltd balance has remained the same from the previous year. Nurofin is one of the NHFC investments where they had to invest in a social housing venture, but this venture has been written down to nil, hence they are maintaining it at the same value. It has essentially been written off.

SHRA response
Mr Gallocher replied that there was no change of heart by SHRA. What happened was that an applicant, Salamax, created by the grant owner, formed a joint venture with the Purple Moss company but the partners fell out, with Salamax losing the rights to the land. When Salamax lost the rights to the land, the landowner was not negotiable about reviving the land agreement. SHRA tried to mediate but the mediation failed because the relationship between the parties has collapsed completely. The only thing they can do is recover the remaining R7 million of the project.

Mr Gallocher replied that there have been three questions posed to the Gauteng legislature on this matter. He does not have any knowledge on the land being sold to Gauteng province. In all cases where there is irregular activity, where the grant applicant quarterly report to SHRA is not doing a good job or is becoming non-compliant, SHRA always issues a non-compliance certificate. In the case of non-compliance expenditure, the reason SHRA did not issue a non-compliance certificate is because the responsibility of gazetting the restructuring zone rests with them not with the grant applicant. This happened in one of the irregular expenditure cases in Gauteng and this has now been gazetted and the matter has been resolved.

In the case of the Free State restructuring zone, it is very far advanced, but the grant applicant has repaid the bulk of the money invested in the project and R41 million has been paid to SHRA. The irregular expenditure on the restructuring zone did exist but because it was in a metro, they have council policy that allows them to approve a project within a 10km radius of the restructuring zone. Lawyers did advise them that even projects within that 10km radius must be published in the gazette. The measurements now are that each and every time they have expenditure against an accredited project, it first has to be signed by their legal unit, who has to state in writing that it is 100% compliant with legislation.

On the default rates, it is a bad picture. Up until the last quarter, the collection rate across all 40 000 units had sunk to 67%. Fortunately, there has been some improvement, although not at a desirable place. The rent relief policy has been approved and as recently as last week, the required regulations under the state of disaster have been formulated and they are anticipating it will be published in December.

On SHRA leveraging the government grant, this is in line with the current discussions SHRA and the SHRA Council and the Department are having. It is the reason that SHRA has pitched projects for the Infrastructure Fund and that is the reason SHRA has been having discussions with a range of financiers.

On transformation, Mr Gallocher noted that Ms Sihlwayi had asked about racial and social integration guidelines, which is a new idea. At the moment the provinces do prescribe how many African tenants and how many coloured tenants, so it is true that in the different provinces the profiles are different based on the different demographics. Perhaps SHRA needs to be more directive to ensure that the profile of the tenant body mirrors the demographics of the area. They would need to provide a guideline and currently SHRA is not doing so.

It was not R6 million but unfortunately R26 million that was irregular and it is Gauteng-based in Soweto. SHRA is in the process of recovering this through legal processes as the recipient misled SHRA and did not disclose the status of their land availability agreement and that they were in dispute with the landowner.

SHRA agrees with the Committee that they must obtain a clean audit. There were only three areas that stood in the way of a clean audit. The one is the tail end of supporting evidence for the performance information. The second is material misstatements in the annual financial statements and it is highly unlikely that it will happen again. The third one is irregular expenditure which they are presently regularising. It is true that many of their projects are located close to tertiary institutions and students are eligible and do apply. A proposal has been submitted to the shareholder to allow them to specifically roll out social housing projects for student beneficiaries. However, they cannot just do it and have irregular expenditure as they have to be guided by policy. They always aim for a benchmark of 80% for projects and the reason it is difficult to promise 100% to the Committee is because they are dependent on the social housing landlords and the developers to get their job done; SHRA only facilitates.

Ms Puoane said that the financial misstatement transactions were treated as annual events and what they will do now is track them on a quarterly basis as they conclude their quarterly reports.

Ms Lindiwe Sisulu, Minister for Human Settlements, Water and Sanitation, said that the Bill will come to Parliament once it has been certified by State Law Advisors. She has been informed that it has been certified and that on 9 December, it will be served before the DG cluster. Thereafter it will be handed over to the Minister and put before Cabinet. Once approved by Cabinet, it will be handed over to the Portfolio Committee. If they are lucky it could all be finalised by the end of the year. On the bank, she is hoping that at some point she can discuss with the Committee the possibility of how they can assist with the Government Employees Housing Scheme. This is something the Department has been asked to look into. There needs to be a quota for every social housing institution. Part of their job is not only to provide housing but to integrate communities and people.

The Chairpersons thanked the Minister and the NHFC and SHRA teams who had responded to all the questions to the best of their ability.

Meeting adjourned.

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