Update on establishment of Human Settlements Development Bank; with Deputy Minister

Human Settlements

08 June 2022
Chairperson: Ms R Semenya (ANC)
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Meeting Summary


The Portfolio Committee on Human Settlements had called on the Department of Human Settlements to expedite establishing the much-anticipated Human Settlements Development Bank (HSDB). In line with this, the tabling of the Human Settlements Development Bank Bill would be prioritised as enabling legislation toward this goal. The purpose of the presentation was to provide the Committee with an update on progress establishing the Bank. The completion of the process would bring to life the decision to rationalise the development finance institutions within the housing sector into one entity.

The Committee believed this process had been slow and required urgency to ensure that people benefited, especially in light of the current demand for housing. The strategic intent was to heighten the developmental impact and refine the efficiency required to deliver sustainable and affordable human settlements.

The Committee engaged with the stakeholder interaction the Department had undertaken since 2015, when the process begun, and was hopeful that consultations would be enhanced beyond the current stakeholders when the Bill was processed in Parliament. The Committee had called on the Department to include in its business case how it would ensure the Bank's sustainability in the long-term, especially in light of the poor economic forecast.

The Department responded to Members' questions regarding when the Human Settlements Development Bank Bill would be expected in Parliament, the current framing of the housing programme, structural issues facing the Bank, plan for its capitalisation, and the required exemption from the Reserve Bank Act.

The Committee concluded that a workshop was needed to engage the matter further.

Meeting report

Deputy Minister's overview

Ms Pam Tshwete, Deputy Minister of Human Settlements (DHS), advised that she could not connect via video due to being in the rural areas of KwaZulu-Natal. She said the Human Settlements Development Bank (HSDB) was intended to be central to all needs across the human settlements supply value chain systems. The Bank would be central to all financial and market systems while funding large-scale development projects, facilitating and funding requirements for housing finance while operating in the social and gap market. There is currently already support for a number of asset-based social housing entities. The HSDB aimed to play an active role in redeveloping and revamping the business model for housing banks that would address the challenges.

The two-fold approach had started with consolidating operating entities, including the Rural Housing Fund and the National Urban Reconstruction and Housing Agency, with the National Housing Finance Corporation (NHFC) and through conclusion of donation agreements. The Bank was a final step, as excessive research had gone into influencing and directing the project, and they had hoped the Bank would be up and running by now. Under former Minister Lindiwe Sisulu, the memo had been ready to be taken to Cabinet, but the Minister had been worried about operating without money and had concentrated on securing funding.

The presentation today would therefore address this while highlighting the draft business case for the establishment of the HSDB that had been presented to the public sector stakeholders and had been subsequently revised a number of times and had incorporated input from stakeholders.

Update on establishment of HSDB

Mr Mbulelo Tshangana, Director-General (DG), DHS, said the Deputy Minister had been correct in her review of the Bank's development, as it had started early in 2014, intending to get everything done by 2020 at the latest.

He wanted to stress the point that if he was asked if this was a deposit-taking bank, it was unfortunately not a deposit-taking bank like commercial banks, as this would require complying with all the rules on capital adequacy, which regulated the functioning of banks. After much deliberation, they had settled on making sure this was a development finance institution (DFI) in line with DHS regulations and not a deposit-taking bank.

Mr Jan Maritz, Director: Entities Oversight, DHS, said the rationalisation of the three entities was affirmed in 2008 by National Treasury's sector-wide review report on development finance institutions (DFIs). The report had recommended the merger of the housing sector DFIs into a single entity. The three housing DFIs were the Rural Housing Loan Fund (RHLF), the National Urban Reconstruction and Housing Agency (NURCHA) and the National Housing Finance Corporation (NHFC). Subsequently, the Department had initiated its specific institutional investigation in 2010 into the mandate, operations, functions, developmental impact and governance of its DFIs. This was to enhance, complement and validate the National Treasury findings. In 2014, after a series of operational research reports confirming National Treasury's findings, the Department began the actual rationalisation process.

The strategic intent was to heighten the developmental impact and refine the efficiencies toward delivering sustainable and affordable human settlements. In October 2014, the former Minister of Human Settlements, referring to progress made during her first 100 days in office, had mentioned that the business model for the consolidation of the DFIs had been reviewed, and the first phase had begun. In 2015, the Department had established a project steering committee whose mandate was to oversee processes and procedures of setting up the new entity and advising the Minister accordingly on substantive progress and milestones.

The project was being approached in two steps. The first step was the consolidation of NURCHA and RHLF within the NHFC through the conclusion of donation agreements. The creation of the HSDB was the second and final step. The presentation unpacked the project approach, which detailed preparation of the draft Business Case for establishment of the HSDB and preparation of donation agreements for the merger of the RHLF and NURCHA with the NHFC. It further detailed the obtaining of approval from the Companies Tribunal to exempt the transaction from the provisions of the Companies Act 2008, obtaining concurrent approval from the Minister of Finance for the transaction in terms of Section 66(3) of the Public Finance Management Act (PFMA) 1999, and implementing the donation agreements.

(Please see the presentation for full details.)

Mr Khwezi Ngwenya, Chief Director: Legal Services, DHS, referred to the revision of the business cases that still needed to be finalised to give effect to the Bank's capitalisation. Public comments were also needed to continue with the project and incorporating the Bill, including resubmitting the Bill to Parliament to assist with processing and abiding by the joint rules of Parliament to present the Bill, including to the Committee itself. The process of consultation with Treasury would happen simultaneously with drafting the current Bill and amendment of the policy. This was to make sure the process of tabling the Bill and getting it to Parliament for processing was not delayed and to make sure they were on time and able to respond to all queries brought up by Parliament and the public comments.

Mr Maritz explained the project planning slide regarding how to operationalise the Bank and corporate plans, and the legislation being operationalised to implement the plan once it was submitted for approval.

 Mr Tshangana advised it was important to state upfront that National Treasury had given them options. If they wanted to capitalise, they would have to capitalise on the existing available finance. They had advised they would not assist in capitalising or funding this Bank. The establishment of an NDT was needed for the Bank's capitalisation, so they required assistance on how to proceed following the update from Treasury. They had done some work with the numbers, and R10 billion was needed to capitalise the Bank. This would be sourced from private funding, which would assist in liberating more funding to finance projects.

Deputy Minister Tshwete advised she was still struggling with network issues but confirmed everything had been covered in the presentation and opened the discussion to respond to questions, clarifications and comments the Committee might have.


Ms S Mokgotho (EFF) asked when the Human Settlements Development Bank bill would be expected to be produced in Parliament. Secondly, the Auditor-General (AG) had made a number of findings in 2021 during its audit of the NHFC on matters related to procurement, contract management, internal control deficiencies, and repeat findings in the financial statement showing continued non-compliance with applicable laws. How was the NHFC addressing these shortcomings prior to the Bank operating? Could the Department provide details of service level agreements with other banking institutions? What were the reasons for the application exceptions from the Bank Act no.94 of 1994?

Mr B Herron (GOOD) described the objectives that many of them could support on an increasing scale, including the objective of improving private sector involvement in the housing sector through subsidy, and private funding through the Finance-Linked Individual Subsidy Programme (FLISP) and the buy-your-own-home programme. These projects were admirable, but in the current framing of the housing programme there were structural issues that no bank would be able to overcome.

Mr Herron had questions on how the Bank would capitalise and increase its scale and improve access to housing for those who did not qualify for BMG housing. They would struggle to achieve those objectives without addressing the current housing programme. With the current direct funding model from the Housing Department's budget, what was the difference between establishing the Bank to capitalise at R10bn and the current DHS model providing the funding for the housing? How was this Bank going to improve access to finance for those who did not qualify for BMG housing? The scale and number of families involved meant the FLISP policy was not conducive or successful, and it was a product that did not work unless they had a new model.

Mr Herron had a question on maximising the balance sheet of the Bank, assuming it would retain assets, so the balance sheet was not just cash. Did that mean it would focus on a different housing model where the state retained some ownership in the housing products they delivered to build up assets or a balance sheet? Currently, the housing products were transferred to beneficiaries while municipalities or provincial governments owned community rental units. What assets did the National Human Settlements Department have that could create a healthy balance sheet to enable investment outside the public sector?

Ms N Sihlwayi (ANC) commented that some objectives in the presentation were clear in assisting with the rationale for the HSDB, but they had last heard about this in 2020 and had no idea where it was until now, so they might repeat their questions. There had been reference to compliance areas, and she wished sustainability would also be included. This was based on assessments made on DFIs in terms of performance and results to establish the development bank. Should this not be included in building the future sustainability of the Bank? The process plan presented was helpful in terms of timing when to do the capitalisation with National Treasury and to ensure it was done once there was an act of Parliament.

Many issues involving National Treasury had been addressed. The question was what exemption the Department needed to get from the Banks Act. What necessitated this request for exemption? What were the difficulties in complying with the Banks Act?

Ms Sihlwayi also asked if the Committee could be presented with a business case that mandated the Department. It was important to know these issues, as they took time and might not be here in 10 years, so establishing something with a clear rationale and meaning was important.

Ms C Seoposengwe (ANC) appreciated the presentation, especially as the Department was continuing to create awareness of the HSDB, which would encourage people to get involved in the mainstream of their communities. Banks in South Africa were not friendly to certain sections of the community, so this gave hope. This could be a "people's bank" that was friendlier and more developmental to the country. Other countries in Africa had sustainable working community-owned banks. She urged that experience and expertise be employed to ensure the Bank was properly managed and people knew their responsibilities in accessing funding from the Bank, and to ensure it was here for generations to come.

The Chairperson said Ms N Tafeni (EFF) was still struggling with her connection and was not yet back on the system. They would therefore allow the Department to respond to the questions currently posed. She said Mr Ngwenya’s presentation had referred to timeframes but had not given any. It was a good time to have a time frame as they were in the midterm, so any introduction of legislation towards the end of the term would not be very helpful. She wanted to check if they could get a time frame ready themselves as the Committee and for a more detailed briefing on the business case. Mr Herron had raised critical points regarding the Department after consultation with National Treasury regarding introducing the Bill and presenting a workshop of business cases so that when the Bill arrived in Parliament, they had a common understanding and were clear on the questions they had as a Committee.

Department's response

Deputy Minister Tshwete acknowledged the presentation had been clear and wanted to go back to slide 26, as her understanding was that they were talking about project plans and the remaining action steps. The President would determine the Development Bank's timeframe, so it was something the Portfolio Committee would not be able to decide on yet. They had pushed the Office of the President to give further dates, and then they could get back to the Committee. They would tell the Department when to do the signing and everything.

Mr Bruce Gordon, Acting Chief Executive Officer (CEO), NHFC, responded on the Auditor-General's findings they had presented to Parliament on procurement. They had dismissed the supply chain manager and recruited a new one. A new system had been adopted to ensure payments were made on time, so small, medium and micro enterprises (SMME) contractors, who were previously paid within 15 days, would be paid within ten. The ones they paid within ten days, they were trying to get down to seven days. The payment had been speeded up as the SMMEs were seen as critical to the sector's growth. A service level agreement with other banks was currently being negotiated, including a memorandum of understanding with the Banking Association of South Africa (BASA) and other banks implementing the "Help Me Buy a Home" programme in joint funding. They had started by understanding the policy and ensuring they knew where they were going.

Mr Tshangana said it was important to note that the first time they had introduced the FLISP policy as a dual subsidy programme, they signed with four major banks -- FNB, Nedbank, Standard Bank and ABSA. The new FLISP policy addressed issues raised by Mr Herron and covered all the funders and was linked to government employees, so it was no longer talking about only the four major banks or those who belonged to BASA and was therefore broadening the scope. The two other questions relating to when they thought the act would be propagated, and exception from the South African Reserve Bank's (SARB's) requirements, would be answered by Mr Maritz.

Mr Maritz advised that when one used the word "bank" in the name of a business, one was regulated to comply with Bank acts, so they needed to accept, because of the nature of the work covered by the HSDB, an application had to be made, and they were awaiting the outcome.

Mr Ngwenya responded that introducing this to Parliament would be dependent on the process of public comments and approval of the Bill by looking at the amendment of the business case. Once the process of Cabinet approval for public comments was finalised, after 30 days, the public comments would be incorporated, and they would go straight to Parliament for the introduction of the Bill. They would do this simultaneously with the other amendments made before the Bill was presented.

Mr Tshangana responded to the comments made by Mr Herron on the structural challenges, the current housing problem structure, the challenges faced, as well as the other comments on the ownership model and the assets to create a balance sheet. Because of the product and services the Bank would be offering, it was clear they had to present a business case. The Department could present a workshop for the Members to present the business case, stating the products and services the Bank was responsible for. It would also have to look at the entire value chain of human settlements. The Housing Development Agency (HDA) had been established for land development and had agreed to a memorandum of understanding based on synergies of the three entities. There had to be more cooperation among the three entities in working on the bills. One could easily find synergies with the HSDB, creating bank property assets which would take care of all the property division and the social housing aspect.

The NHFC was currently the biggest funder of social housing and played a bigger role in social housing, but debt housing and affordable ownership was an area in which they were not doing well. There was a need to target people who owned too much to be considered by government but too little to be considered by financial institutions. There were DFIs worldwide dealing with market failures, and they were commonly referred to as banks of last resort. The HSDB would therefore take more risk but not compromise its sustainability, as referred to by Ms Sihlwayi. A DFI dealt with market failures and the balance between taking risk and sustaining themselves. Most DFIs were not getting money from the government and had to employ a capitalist mindset. The balancing act of taking on more risks and dealing with sustainability challenges involved keeping a balance while taking more risk. This Bank should be able to take more risks and must provide housing for those in the gap market.

The Department would come back and present the business case. They would take a day or two to go over the act, the draft bill and the business case and share the comments made by the other strategic partners, including the South African Reserve Bank and National Treasury.

There had been a question about the Bank's capitalisation. The DHS had one DFI, and now they moved from 1 October 2018 to reintegrate the merger of the NHFC into one, as there was already an operating model of what was expected of the Department to capitalise the entity. This would have to come from the R30 bn budget to capitalise the NHFC. After slicing the R30 bn, this may impact allocations to Parliament, but this would have to be tabulated after approval by the Minister on whether to capitalise or use the existing budget. Treasury had made it clear they would not capitalise the funding until everything had been established. Questions on the business case would be addressed at the workshop with Members of the Committee, as they had previously. The expectations of those they had been working with were that the NHFC and the three other entities would want to maintain their relationship with the other banks.

Regarding the question of the delay in proposing the Bill, the former Minister had wanted the Bank to be a deposit-taking state bank. The Department had discussed this with Treasury and finally convinced them at this stage that it was not possible, given the state of the economy and the fiscal policy requiring them to comply with capital adequacy in general, which was not practical at this stage. The Bank could grow in the near future if they wanted it to, but what was practical for now was to make sure it was a DFI. The Department had discussed this with former board members and the former CEO of the NHFC before finally agreeing a DFI could not be a deposit-taking bank. This had been a difficult item to finalise, but now that it had been resolved they could move forward.

Further discussion

Mr Herron confirmed that they now had the proposed workshop to answer the question of whether the Bank could operate in the current housing spectrum, as it would not work under the current housing model. He welcomed the workshop to allow for further discussion.

Ms Sihlwayi said the HSDB would involve a surety from National Treasury and the banks, so a business case for a programme of this nature should have very clear sustainability principles. Socio-economic and environmental issues needed to be addressed to ensure it could transform the human settlements sector. It would be best to build a bank as a future solution, so conditions for the sustainability of the programme must be included.

Ms Mokgotho was not satisfied with the response regarding when the HSDB was expected to be introduced in Parliament. The response received was a timeframe based on the process of public comments. By now, however, the NHFC should know when the public comments would start and when other processes would lead to the Bill being presented. The answer had been vague. Was it possible that this process could go on without a definite timeframe until December 2023?

Department's response

Mr Gordon answered Mr Herron’s questions about the changing goals of the HSDB, which had to be very different. Their mandate had been to address the market failure in gap funding by clearing the backlog and providing 200 000 homes a year, as the current market provided 20 000 while the FLISP provided up to 4 000 homes a year. The Department therefore had to work with stakeholders locally and international DFI’s. More construction companies needed to be developed to build these houses. The City of Cape Town (COCT) and Nelson Mandela Bay were developing contractors to gear up and transform the industry both from an ownership standpoint and the ability to deliver. By looking at completely changing the narrative and not relying on government funding, people could borrow to buy houses, and organisations could borrow to build houses. In addition, social housing and affordable rentals should be implemented to address this huge backlog. The question was how to address the current balance sheet before the legislation was in place. Optimising the balance sheet was important, as too much cash was sitting in the balance sheet and should be used to build houses. The Department was looking at optimising after this past weekend’s board meeting. The goal remained to ensure the HSDB could deliver what was necessary after the legislation had been addressed.

Mr Tshangana said banks no longer just look at the financial bottom line, but sustainability principles had to be adhered to and find expression in the business cases. The question of Mr Herron will be discussed at the upcoming workshop, with the starting point being the housing policy itself. This was expected to be released through the White Paper, which would make it possible to upgrade the housing codes and policy and inform their work. The Department would review the housing codes before they got to fix everything. It took time, as housing codes were last reviewed in 2009, more than ten years ago, making it a long-overdue review. This was to address the shortcomings in the housing policy primarily they were addressing in the FLISP, so taking up one part of the policy meant dealing with the entire environment of housing policies. The Department would deal with this and their work to review the codes in the proposed workshop.

Mr Tshangana confirmed they were running behind, with the Bill being approved as early as 2020, as they were governed by what they got from the Department of Justice. It depended on the legislative programme as to whether they could pass it on before the end of the year. However, the Department could not respond incorrectly or prematurely.

The Chairperson said there needed to be a follow-up on the workshop matter, as this was a new Committee with new Members. It was helpful to empower people to go further when they took the matter to Parliament. It should be fast-tracked so they could effectively transform the industry and make available resources to help people buy a house.

Deputy Minister Tshwete said it was clear they needed to fast-track the process and come back to report to the Committee, as it was clear Members were not happy about the suggested timeframes. The Department noted what was raised and would advise on the comments and return to the Committee regarding clarity on timeframes. Considering the processes in place, however, these needed to be pushed by the Department to detail all stages where the Committee was not satisfied with what they had right now. The Department would return to the Committee with comments to show all the stages of progress.

The Chairperson said they would diarise the workshop as soon as possible so Members had an opportunity to interact and look at the broader implications.

Committee matters

Committee minutes dated 20 April 2022

The Committee Secretary took Members through the minutes.

Ms Sihlwayi raised concerns over the use of the word "activism " and whether selling houses to a foreign national equated to a capital market transaction.

The Chairperson pointed out sections and said the requested corrections to the Department's responses on the question dealing with the illegal occupation by foreign nationals of reconstruction and development programme (RDP) houses could not be changed.

Ms Seoposengwe questioned why the Department did not relook at certain phrases because they allowed for different interpretations. Beneficiaries could not sell houses within eight years, whether to foreign nationals or not. This should be rephrased, as now it seemed like it was only to foreign nationals.

The Chairperson said this had been a response from the Department, and she saw no problem as that was how it had worded the question, directly responding to undocumented people.

The minutes were adopted with amendments.

Ms E Powell (DA) referred to reports that needed to be approved and asked at what point they could add matters arising for other minutes in a meeting.

The Chairperson responded that there were no matters arising. They were not dealing with an item on matters arising but rather addressing the minutes and just doing corrections.

The Committee then considered and adopted the Committee's minutes of 21 April, 4 May and 11 May.

Report of the Portfolio Committee on Human Settlements, on 2021/22 Second Quarter Financial and Non-Financial Performance of the Department of Human Settlements

 Mr Sabelo Mguni, Committee Content Advisor, took the Committee through the report.


Ms Powell asked why the report was coming to them only now in mid-June if it had happened in February.

Ms Mogkotho questioned the observations on the blocked projects due to bulk infrastructure. That was not the only reason, as there was the contractors’ poor performance, the mismanagement of funds, the lack of consequence management to service providers for work not being of good quality, and the termination of contracts by the Department.

The Chairperson responded that the presentation had been on certain areas affecting the bulk water supply and asked Ms Mogkotho if she remembered having a meeting with the issue involving the budget. This report was based on the issue of the blocked project. Only specific reports were being addressed on blocked projects, and these were issues that had been resolved. However, the issues around Sedibeng were not finalised and were referred to as a bulk supply problem.

Ms Mogkotho said she did not understand what the Chairperson was explaining. Even though they discussed issues around the second quarter report, they needed to address the blocked projects, as there were several reasons for them.

Mr A Tseki (ANC) said Ms Mogkotho’s reasons were welcomed as amendments, as there were many reasons like the mismanagement of funds and the termination of contracts due to poor performance. However, he did not support her on the mismanagement of funds.

The Chairperson told Mr Tseki there was a resolution on the blocked projects, referring to the specific project in Sedibeng where the problem was the bulk infrastructure. She proposed that they mention the exact project that had been blocked and the interventions implemented, as they needed to know what was happening to the project and what the Department had done to date.

Mr Mguni suggested they needed to say there was one blocked project and not refer to everything, as the Chairperson spoke only about the issues encountered in Sedibeng.

Ms Powell responded that slide 55 of the report stated the Department was withholding letters for various departments. The presentation noted the various provinces to which letters were being sent, as there were many blocked projects and not just this one.

The Chairperson responded this was related mostly to finance and was not to the issue of Sedibeng not getting satisfaction from the Department. This was not a blocked project but was largely about the performance of provinces utilising the grants given to them by the Department.

Ms Powell expressed the rejection of the DA to adopt this report.

Ms Mogkotho advised the EFF also objected to the adoption of this report.

Mr Tseki commented that for those interested in driving transformation in government, maybe Mr Mguni could just summarise this report.

Mr T Malatji (ANC) said he thought they had allowed Ms Powell to abuse them as a Committee for too long with her opinions, which resulted from privilege and thinking she was more important than anyone else in the Committee.

Ms Powell objected and requested the Chairperson ask the Member to withdraw, calling a point of order based on misleading the Committee. She refused to be silenced and asked for the Member to be called to order or she would take the matter up with Ethics Committee.

The Chairperson asked Ms Powell to allow Mr Malatji to finish, as he had not finished his sentence and she was jumping in -- they could not even hear what Mr Malaji had said. She said Members needed to respect one another and be patient in allowing them to finish. She asked Mr Malatji to withdraw his comments on privilege.

Mr Malatj withdrew the comment on privilege and asked Mr Mnguni to summarise the issue of blocked projects if there was a resolution on blocked projects, as they were receiving the second term expenditure.

Mr Mnguni responded on the blocked project, noting the bulk infrastructure was not being provided. There were therefore recommendations to ensure proper project planning and sequencing. As suggested, the recommendation must include where the projects were and what had been done to rectify them.

The report was adopted.

The Chairperson asked for an update on the agenda and advised Ms Powell to take her time and wait for other Members to finish speaking -- to follow procedure and listen to other people’s input. The resolutions would be placed in the programme brought to the meeting that had been adopted. The agenda had been based on what had been adopted by Members. Ms Powell should submit her issues to the Committee Secretary for inclusion in the agenda.

Ms Powell asked if the matters she had not been allowed to address now on outstanding reports could be included. She had sent two emails and would resend them, as her emails were not responded to, and she was not allowed to respond in the Committee meeting either.

The Chairperson asked for Ms Powell to be removed from the meeting as she refused to listen and kept interrupting.

UN-Habitat Conference

Before closing the meeting, she said the Committee had received a letter from the Department asking it to participate in the UN-Habitat Conference hosted annually, and they invited Members of Parliament to participate. The Committee Secretary would send a request to the Chair of Chairs to inform Members about it.

She referred to legislation in the pipeline that needed to be finalised by Parliament so there was enough time for the National Council of Provinces (NCOP) to deal with it.

She had requested Mr Mnguni to extract service delivery issues from the report, as raised by communities, to be tabled in the Committee to give departments and provinces the opportunity to respond to the issues.

The meeting was adjourned

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