NHBRC, NHFC & SHRA 2022/23 Annual Reports; with Deputy Minister

Meeting report

The Chairperson commenced the meeting by welcoming all Members of the Committee and the delegates representing the three entities of the Department of Human Settlements (DHS) in attendance. The primary purpose of the meeting was to receive a briefing from the National Home Builders Registration Council (NHBRC), the National Housing Finance Corporation NHFC, and the Social Housing Regulatory Authority (SHRA) on their 2022/23 financial year audit outcomes.

Apologies were recorded on behalf of the Minister of Human Settlements, and Mr B Herron (GOOD), Adv T Masutha (ANC), and Dr N Khumalo (DA), who was expected to join the meeting at a later time.

The meeting marked the second part of the Budgetary Review and Recommendation Report (BRRR) process, with the prior segment having involved a briefing by the Auditor-General (AG) on the financial status of the sector and the overall departmental performance.

Deputy Minister's opening remarks

Ms Pam Tshwete, Deputy Minister (DM) of Human Settlements (DHS), began by acknowledging and applauding the exceptional performance demonstrated by the three entities since the start of the financial year. Notably, she highlighted that 88% of the population now resided in formal dwellings, representing a significant improvement compared to the 1996 report, which stood at 65%. This substantial increase underscored the substantial progress achieved in housing provision over the years. She said that all three entities had received unqualified audit reports from the AG, which was a testament to the entities' commitment to financial accountability and transparency.

NHBRC annual report 2022/23

Ms Nomusa Mufamadi, Chairperson, National Home Builders Registration Council (NHBRC), said the Council was committed to fulfilling its oversight responsibilities in accordance with the Act that established the entity. She noted that they had received an unqualified audit outcome following a review by the Auditor-General (AG). However, the AG had raised concerns regarding consequence management due to reported irregular expenditure. The Council was dedicated to addressing this issue to ensure it did not recur, with their primary goal being to attain a clean audit.

Ms Mufamadi highlighted the NHBRC's efforts to introduce innovations throughout the year aimed at enhancing functional performance and visibility. These innovations were part of the entity's ongoing commitment to improvement. She introduced Mr Songezo Booi, the new Chief Executive Officer (CEO), to continue with the presentation on the annual report outcomes.

Mr Booi said he aimed to provide a concise overview of the annual report, focusing on key highlights. Since the Committee had already been briefed on the full report, this approach would facilitate engagement with the material as it was presented. His presentation covered several key areas:

• High-level performance, where he delved into the high-level performance indicators and outcomes of the NHBRC.
• Financial performance: An overview of the financial performance of the NHBRC, examining the financial highlights.
• Audit outcomes and recommendations: A discussion of the audit outcomes and recommendations from the AG.

Building on the Chairperson's, he highlighted various initiatives undertaken by the NHBRC, including the Home Construction Professionals Bill (HCPB) under review by the National Council of Provinces (NCOP), digitalisation efforts, and their partnership with the Gordon Institute of Business Sciences (GIBS) for women's empowerment. He provided a description of training programmes for designated groups as mandated by the Act, and said the NHBRC trained registered home builders to produce highly skilled professionals. An examination of NHBRC's performance over a five-year period demonstrated a significant improvement from a low base in the 2018/19 financial year to an unqualified report in the current review year.

Mr Booi gave an overview of the NHBRC's three programmes -- administration, regulation, and consumer protection.

In Programme 1, the NHBRC achieved 89% of its 26 outputs, with a notable challenge in meeting the procurement set-aside target for companies owned by people with disabilities. Programme 2, which focuses on regulation, encompasses home builder registration and competence testing, with a successful target achievement. The programme also considered home inspections in subsidised and non-subsidised housing, acknowledging the challenges raised concerning inspector conduct.

His presentation provided a comprehensive overview of the NHBRC's annual report, highlighting key achievements, challenges, and initiatives. The NHBRC remained committed to improving performance and regulatory effectiveness, striving for continual growth in the coming years.

Mr Booi highlighted various key initiatives aimed at addressing critical issues within the NHBRC. He stressed the importance of these initiatives in enhancing performance and promoting transparency. Key initiatives to address issues were:

Inspector professionalisation. The NHBRC was working in collaboration with the South African Council for the Project and Construction Management Profession (SACPMP) to professionalise and capacitate their inspectors. This initiative aimed to ensure that inspectors perform their duties effectively.

Lifestyle audits. The NHBRC had introduced lifestyle audits for their inspectors as part of efforts to enhance transparency and ethical conduct.

Training offerings. The NHBRC had expanded its training programmes beyond registered home builders to include various designated groups, such as youth-owned companies, women, military veterans, and individuals with disabilities. The entity tracked the effectiveness of this training by monitoring the employment opportunities available within the sector for these designated groups.

Consumer protection. This programme focused on safeguarding consumers through the warranty fund. The NHBRC tracked the enrolment of homes, both subsidised and non-subsidised, and had identified areas for improvement.

Standardisation across provinces. The NHBRC had implemented a process to engage with different provinces and standardise the requirements for submissions to the NHBRC. This step ensured compliance throughout the provinces, and contributed significantly to achieving an average performance of 89% in the current year under review.

Ms Tamlyn Bouwer, CFO, NHBRC, presented the financial performance for the year ending 31 March 2023, and discussed the audit outcomes. Among the positive achievements, the NHBRC had improved the quality of its financial performance and achieved an unqualified audit opinion. This accomplishment marked a significant improvement from previous years. The primary challenge preventing a clean audit had been the issue of consequence management. The entity had an outstanding balance of irregular expenditure that dated back to the 2006-2011 financial years. To attain a clean audit in the future, the NHBRC has implemented an audit plan to maintain its positive outcomes and address the historical irregular expenditure.

[Please see the attached for the full financial results and audit outcomes]

NHFC annual report 2022/23

Mr Luthando Vutula, Chairperson, National Housing Finance Corporation (NHFC), emphasised the notable improvements achieved by the entity in comparison to previous periods. He also acknowledged the challenges it faced, particularly the impact of inflation and rising interest rates, which had contributed to increased non-compliance. However, he stressed its unwavering commitment to prioritise key areas, including the Human Settlements Development Bank (HSDB), home finance, and social housing. These priorities played a pivotal role in helping the entity attain an unqualified audit report, with no material findings. His presentation highlighted the NHFC's achievements, challenges, and strategic priorities for the financial year.

Ms Azola Mayekiso, CEO, NHFC, said the corporation had successfully approved loans amounting to close to R1 billion, with disbursements totalling approximately R750 million. This demonstrated its commitment to providing financial support for housing. Regarding disbursements to designated groups -- a priority for the NHFC -- there had been a substantial increase, from R124 million to R274 million, during the 2022/23 financial year, signifying significant progress. In terms of first home finance, the number of approved applications had seen a 46% increase, rising from 2 935 to 4 283, with the total value of approved applications increasing from R166 million, to R286 million.

The NHFC's focus on enterprise development through procurement was evident, as they had disbursed R14.3 million to various beneficiaries, including 42 women-owned contractors and 15 youth-owned contractors. A key milestone for the entity was appointing its first female CEO, a historic achievement after 27 years of operation.

The CEO emphasised rebranding the Finance-Linked Individual Subsidy Programme (FLISP) to First Home Finance, which now allowed individuals earning a minimum wage of R3 500 and qualifying for home ownership. This change, along with digitisation, has made the application process more accessible.

In the context of information security and the impending transition to become the Human Settlements Development Bank (HSDB), the NHFC implemented robust cybersecurity measures to safeguard sensitive data.

Regarding the cumulative development outcome, the entity has consistently generated surpluses over the past five financial years, demonstrating its financial stability. However, rising interest rates and inflation caused by global factors, such as the Russian and Ukrainian conflict, have posed challenges to social housing within the NHFC. It was actively exploring new financial instruments to ensure its continued financial viability, even in the face of market failure.

Mr Bruce Gordon, CFO, presented the NHFC's financial results and the audit outcome for the 2022/23 financial year. While the entity had received an unqualified audit opinion for its financial statements and performance objectives, a material finding concerning non-compliance with legislation had been identified. This non-compliance was related to a contract signed in 2020 that the board did not approve properly, resulting in irregular expenditure.

[Please see the attached for further illustration of the financial performance and audit outcomes].

SHRA annual report

Ms Busisiwe Nzo, Council Chairperson, Social Housing Regulatory Authority (SHRA), said the entity received an unqualified audit opinion with some material findings. While the performance represented a slight drop from previous years, largely due to leadership vacancies during the financial year, the Authority had been able to meet its main target of delivering social housing units. However, seven out of eleven units were still left to achieve the new target.

She highlighted challenges in the entity's operating environment, particularly external factors such as the country's economic crisis and the escalating cost of inflation, which affected the affordability of rentals and building costs for social housing units. She also mentioned issues with construction mafias causing disruptions on their sites, and contractors not adhering to the SHRA's rules.

Mr Sandile Luthuli, CEO, SHRA, provided a summary of key programme outcomes, reporting that the entity had facilitated the delivery of 3 182 units, with a 90% tenancy uptake compared to the previous year. He also discussed programme expenditure, indicating that the current year's expenditure was R769.5 million, representing a 97% achievement compared to the allocated target of R791 million. He emphasised the focus on expanding the social housing portfolio to reach more people and enhance institutional performance, which stood at 58%, signifying the achievement of 15 out of 26 key performance indicators. He emphasised the SHRA's commitment to improving performance by implementing various remedial actions.

Ms Lorato Sithole, Corporation Service Manager (CSM), SHRA, discussed the unqualified audit opinion received by the entity and the measures in place to improve future unqualified audit outcomes. She highlighted the need to enhance the internal audit review processes to address misstatements in financial statements.

[Please see the attached for further illustrations on the annual financial performance]

Discussion

Mr A Tseki (ANC) commented on the NHBRC presentation concerning the lifestyle audit, and asked if they could indicate to the Committee the indicators of the audit. When were they going to complete those lifestyle audits, and had the other entities implemented a similar procedure? He did not understand what SHRA had meant by its reference to a rental boycott strategy -- were these people who could afford, but then decided to boycott, or was it because of economic challenges, where individuals had lost employment? He suggested it was possible that SHRA and the NHFC could have a joint force looking out for properties left or abandoned by their owners to take them over, either for social housing or for the bond of the NHFC.

Ms N Sihlwayi (ANC) agreed with Mr Tseki's suggestion for a joint force between SHRA and NHFC to help keep safe those communities occupying abandoned buildings. She emphasised that the NHBRC's performance was very important for both the communities and the Portfolio Committee, because it had to deal with quality products. Did the NHBRC have a strategic plan which was well integrated? They should start from the design of the houses and the capacities of builders and developers, to building quality houses and the role of the inspectorate divisions of the municipalities. The entity had to be strict and not approve houses that were not of good quality to avoid the undermining of the communities.

She highlighted how important the NHFC was in terms of the country's economic growth, as it dealt with all the communities, including the low-profile communities, and they had to try by all means to upgrade them to an acceptable level. The focus was on disbursements to the designated groups, mostly women. She suggested that the NHFC join forces with the South African Social Security Agency (SASSA) so that they could discuss how best they could look after those families in the designated groups. She also applauded the NHFC on its appointment of the first female CEO. She also wanted to know how the digitised system that the NHFC had implemented would work.

Mr C Malematja (ANC) congratulated all three entities that had managed to receive an unqualified opinion. He commented on the need to fill vacancies in strategic and decision-making positions. Referring to the NHFC and their proposed Bill for transforming into a bank, he said this could really improve and maintain houses that would be built from day one up until the day of the handover. He raised concern over rental-occupied homes, where breadwinners were losing income. He asked what had been put in place to mitigate this challenge so that one would not find someone evicted from a government house and ending up living on the streets with his or her family. He also raised his concern that the AG’s findings were repeating the same thing, because if it kept on finding the same result, it made the Members of the Housing Committee and those of the Council look incompetent and not doing what was expected of them.

The Chairperson also congratulated the entities for attaining unqualified audits, commenting that they must have worked very hard to receive a clean audit. She agreed with the programme of the NHBRC on the professionalisation of the housing inspectors, and the coordination of the municipalities with the NHBRC, because if one took a decision to outsource, the integration of the inspectorate would be very critical and key for quality assurance.

She said the NHFC had raised an important matter in terms of assisting  Breaking New Ground (BNG) contractors to access money. However, she did not understand why it suddenly became a problem, because provinces had already had sessions with the individual material suppliers who assist contractors. She asserted that these sessions had resulted in the councils' contractors remaining poor, with some not making a profit out of the projects, and asked the NHFC for further clarity.

She welcomed the fact that the SHRA had gone beyond their presentation and was already outlining what they were going to do about the issues raised by the AG. On rent-to-buy projects, as raised by Mr Tseki, she agreed that more discussion was needed because the view was that government had various subsidies, such as the FLISP and the Gap houses. She asked the NHFC how many people had benefited from the distress funds they implemented.

Entities' responses

NHBRC

Ms Mufamadi provided an update on the lifestyle audits. She said the management reported that the planning stage of the lifestyle audits had been successfully completed, and the implementation stage was poised to commence shortly. The process was expected to conclude by the end of the last quarter in March next year. In response to a Member's concern about performance and product quality, the organisation acknowledged the critical importance of these aspects. The NHBRC was dedicated to ensuring accountability through a robust consequence management framework. Efforts were underway to address any instances where inspectors may have contravened the organisation's policies and procedures.

The Council reported their commitment to professionalising the inspectorate team through a partnership with the South African Council for the Project and Construction Management Profession. They also explored a hybrid approach, including outsourcing some functions and providing necessary training. Ethical issues involving inspectors were being addressed, with the aim of delivering positive results for the next Committee engagement.

Mr Booi acknowledged the issue raised by the AG regarding consequence management within the NHBRC. He shared that commitments had been made to both the AG and the Council to address this matter, and progress was being closely monitored quarterly. He expressed optimism that by the next Committee engagement, they would be in a position to provide feedback on the actions taken.

In response to the Chairperson's comment on surpluses, he said that they were considering how these surpluses could be effectively used within the sector. He mentioned an ongoing process of reviewing the investment strategy with the aim of allocating a portion of it to reprioritised areas.

He addressed the Chairperson's concerns regarding the lack of awareness among beneficiaries about the NHBRC's services. He said a strategy was developed to enhance consumer awareness and educate beneficiaries about the NHBRC's offerings. This strategy was currently being put into operation across all provinces. He acknowledged the Chairperson's concerns about the quality assurance provided by the NHBRC in the construction value chain. He said that they had initiated measures to address this, including active involvement in the planning phases in various provinces. The NHBRC was working to ensure that it was part of the entire value chain, from design approval to the delivery phase. He highlighted the importance of capacity building, and informed the Committee about the NHBRC's efforts to make builder registration a requirement for those appointed by the provinces. This registration allowed builders to benefit from capacity-enhancing training provided by the NHBRC.

NHFC

Mr Vutula acknowledged the importance of the lifestyle audit process, but emphasised that this process was conducted with strict governance to prevent any potential misuse. They were committed to ensuring proper implementation.

Regarding abandoned properties and collaboration with local government/municipalities, he said that they were dedicated to addressing this issue by working closely with local authorities. The synergy between the NHBRC and the SHRA, in particular, would be pivotal in developing effective strategies to reclaim and revitalise these properties. He also appreciated the linkage made by Ms Sihlwane with SASSA, and said they were actively exploring ways to assist, with a special focus on women. There had been involvement in the Trust for Urban Housing Finance (TUHF), which had initiated the uMaStandi programme for property entrepreneurs. This programme had a specific objective of supporting women and individuals seeking to extend and rent out their homes, potentially alleviating the financial burden through additional income. He acknowledged that this programme was in its early stages and entailed cooperation with municipalities, especially concerning infrastructure requirements such as water and sewage. They were eager to expand this programme and would be in discussion with SASSA to explore collaboration possibilities to further its reach.

Concerning collaboration with banks and property distress, the chairperson said that a crucial area of concern was the relationship with banks, particularly concerning properties in distress. They were committed to working closely with financial institutions to ensure people did not lose their homes. This collaborative effort would involve not only the NHFC but also the Department of Human Settlements, and they believed that they could collectively develop solutions to protect vulnerable homeowners.

At the principle level, they addressed the primary concerns raised during this session. They appreciated the guidance and insights of the Committee, and remained open to further dialogue and collaboration. Their commitment was to serve the community better, and together, they could find innovative solutions to the challenges at hand.

He thanked the Portfolio Committee for their invaluable input and support in his closing remarks. They recognised that the road ahead may be complex, but they were ready to face these challenges head-on. He also extended his appreciation to the Committee for their dedication to improving the lives of the country’s citizens.

Ms Mayekiso acknowledged the chairperson's coverage of most questions and expressed appreciation for the words of encouragement and compliments regarding the strides made so far. She commended the board and executive authority for appointing the first female CEO, highlighting the commitment to prove that women have the capability to lead entities successfully.

In the response to the challenge regarding irrevocable undertakings, she said fraud was the reason for the reluctance of provinces and municipalities to sign irrevocable undertakings when awarding Breaking New Ground (BNG) housing contracts. This reluctance stemmed from past instances of fraud, where contractors would sign irrevocable undertakings but later change their bank account details in the Central Supplier Database (CSD). This led to payments being made into different accounts than those administered by the NHFC, defeating the purpose of the irrevocable undertaking. She said the NHFC had offered to vet the details on the invoices submitted by contractors on behalf of provinces and municipalities. They were willing to take on this administrative burden to ensure the integrity of the process, but stressed the need for cooperation from provinces and municipalities to implement this solution effectively.

Regarding the NHFC's efforts to prevent evictions of distressed consumers who had lost their livelihoods, the CEO referred to the disaster recovery programme (DRP) funds received from National Treasury during the COVID-19 pandemic. These funds were designed to provide support to clients directly funded by the NHFC, which included developers and non-bank retail intermediaries offering micro-loans for home improvement. She explained that a policy required clients to be in arrears for the NHFC to disburse these funds. However, she recognised the need to revise this policy, as some clients, such as incremental housing institutions, had managed to avoid falling into arrears through alternative resources. Nonetheless, the consumers they served were currently defaulting. NHFC aimed to enhance the policy to provide relief to clients even when they were not in arrears, utilising the remaining DRP funds.

Ms Mayekiso mentioned the collaborative efforts with banks to provide relief at the consumer level. However, she deferred to the Chairperson's previous response for additional information on this aspect.

SHRA

Ms Nzo began by expressing appreciation for the comments and feedback provided by the Committee Members, whether they were commendations for their work or calls to exert more pressure in fulfilling their mandate, and highlighted the importance of both forms of feedback.

On lifestyle audits, she acknowledged that, although the SHRA had not yet embarked on a comprehensive lifestyle audit process, they were currently in the process of subjecting individuals in positions of Authority, particularly the CEO and CSM, to a security vetting and clearance process.

Regarding the rental boycott strategy, she emphasised the importance of understanding the underlying causes of such boycotts and the need for education. The SHRA's strategy aimed to empower beneficiaries to understand their responsibilities within the value chain and to coordinate efforts among stakeholders at different levels of the chain.

Ms Nzo acknowledged the issue of properties left by corporations and dumped on municipalities. This matter would be taken to the entity's Council for deliberation. The SHRA was already addressing similar issues, particularly in inner cities, with the approval of projects aimed at revitalising these areas.

Discussions regarding the rent-to-buy policy formulation should occur at the departmental level, where the SHRA would play a leading role.

Mr Luthuli reiterated the entity's commitment to address key issues and collaborate with sister organisations such as the NHFC regarding inner-city regeneration and combatting rental boycotts. He stressed the critical importance of tenant education in the context of these challenges. Tenant education was vital in outlining the roles and responsibilities of both landlords and tenants. One essential aspect was encouraging tenants to proactively notify their landlords when their economic circumstances change. While this proactive approach was ideal, but was rarely the norm. However, if achieved, such notification would enable the landlord, in collaboration with the SHRA, to explore options for the tenant to transition to other housing solutions within the realm of human settlements, such as BNG houses or rental options.

The CEO underscored the significance of delivering high-quality housing stock. Sub-standard housing was a catalyst for rent boycotts. Ensuring that housing met high standards was crucial for maintaining tenant satisfaction.

He highlighted the ongoing engagements with municipalities and the Department of Cooperative Governance and Traditional Affairs (COGTA) concerning rates, taxes, and the classification of social housing as a special class. These discussions were vital to secure rebates and benefits for social housing initiatives. Rental tribunals were mentioned as a crucial part of the process. These tribunals served as mediation bodies between landlords and tenants, preventing conflicts from escalating. He noted the pivotal role of lower investment agencies in addressing these issues. These agencies played a significant part in crafting well-articulated policy positions that ensure compliance and prevent deviations from established policies. He reiterated the SHRA's commitment to tackling these challenges and ensuring that effective strategies, collaborations and policies were in place to prevent rent boycotts and maintain the quality of housing stock. Public advocacy for policy change was encouraged, but it was noted that articulating policy changes on public platforms should align with the established policy framework to prevent confusion and unintended consequences.

Closing comments

Department of Human Settlements

Ms Rosinah Dumalisile, Acting DG, DHS, expressed gratitude for the valuable comments and concerns raised by the Committee Members. They had emphasised the commitment to work collaboratively with the entities on the ground to address and resolve the challenges.

Significant improvements had been observed in the entities, particularly in terms of stability. Notably, they all now had fully functional councils, which was a positive development. However, they acknowledged that there were still some manageable challenges.

In response to concerns about vacancies, especially at the senior management level, the Deputy Minister touched on this matter and emphasised that efforts were being made to address these vacancies and enhance the entities' capacity. While acknowledging that the AG had raised some concerns, the overall performance had improved. Although some areas required attention, the entities had shown significant improvement compared to previous financial years. She said two entities in particular still faced challenges concerning compliance-related matters. However, it was noted that even in these areas, there had been improvement compared to previous years. The entities had prepared corrective measures to address the identified compliance issues, and she was confident that they were well-equipped to address the minor areas of concern and that continued improvement in their performance would be achieved.

Deputy Minister

Ms Tshwete said that the Department's commitment was to support the empowerment of individuals with disabilities and women in Parliament, so it was essential that they work together to ensure equal access to opportunities. The focus was on promoting a positive change, particularly in achieving a 40% representation of women. These reports reflected the concerted efforts made by various entities in this regard. The emphasis was on the need to improve support for people with disabilities. It was imperative that they address vacancies and prioritise their inclusion in various sectors. While they acknowledged the financial constraints introduced by National Treasury, they remained dedicated to finding practical solutions.

She said the commitment to achieve a 40% representation of women in Parliament was a non-negotiable goal, and they were consistently reminded of its significance. Entities had demonstrated proactive measures in place to enhance their performance. The forthcoming Women's Human Settlements progress report, scheduled for 2024, would play a pivotal role in evaluating the progress towards this target. A notable concern was the lack of follow-up on training initiatives, particularly for graduates. It was vital that these individuals were empowered with job opportunities. She commended those entities that had taken steps to follow up on trained individuals, and urged all the entities to make this a standard practice. They should consider internships and other employment avenues for these individuals to ensure their education leads to meaningful employment.

She extended her gratitude to the Chairperson of the Portfolio Committee and the Members for their guidance and support, saying that it was through their constructive feedback that they continued to improve. She also commended the entities for their diligent efforts and improved performance. The push for greater visibility in provinces was crucial, as it enhanced consumer education and awareness of government offerings. She recognised that the path to a clean audit may be challenging, but they could achieve this goal through collective determination and focus.

She closed by saying that they were committed to addressing the issues raised by the AG, and invited a follow-up to assess the Department's progress in addressing those concerns.

The meeting was adjourned