National Urban Reconstruction Housing Association briefing

NCOP Public Services

06 September 2005
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Meeting report

PUBLIC SERVICES SELECT COMMITTEE

PUBLIC SERVICES SELECT COMMITTEE
7 September 2005
NATIONAL URBAN RECONSTRUCTION HOUSING ASSOCIATION BRIEFING

Chairperson: Mr R Tau (ANC)

Documents handed out:
Department PowerPoint presentation
NURCHA website

SUMMARY:
The National Urban Reconstruction Housing Association (NURCHA) briefed the Committee on the success of their housing projects and their goals. NURCHA anticipated a transition from guarantees to bank overdrafts, to guarantees for managed loans, and financing structures to manage loans independently. NURCHA also briefed the Committee on their delivery mechanisms. They used financial intermediaries to assist small contractors and direct lending for established contractors.

The Committee expressed concerns surrounding funding sources and to whom NURCHA was accountable. The Committee agreed that the presentation was ‘an eye-opener’ and that the Departments initiatives should better complement those of NURCHA.

MINUTES:

NUCHA briefing
Mr Sitembele Nase, NURCHA Executive Director of Strategic Programming, said that NURCHA had been founded in 1995 when they were given a $50million letter of guarantee by international financier, Mr G Soros. The project focused on bridging finance and risk-sharing with banks, to allow contractors to build low-income housing. This was a five-year programme.

To date, NURCHA had built 155 000 houses and had facilitated funds worth R3.2 billion to contractors. In 2002, the guarantee was not working effectively so a lending instrument was created to directly manage loans. These intermediaries would lend and manage the money on NURCHA’s behalf. Smaller, emerging contractors would receive loans and as they became more successful in their business practices, NURCHA would eventually lend directly to them. The intermediaries were ‘insurance’ to ensure the job got done in appropriate time. Emerging contractors would in turn receive loans without putting up collateral, but it would be a highly controlled lending situation because of the intermediaries. The intermediaries would be able to get building supplies at a discounted rate and be able to help contractors in other ways until they were able to operate without the intermediary. Established contractors had to have two to three years of financial history, and be able to front 30% of the loan for security purposes. Due to their experience, they were seen as less of a risk and therefore they were not as tightly monitored as the less experienced contractors.

The Minister of Housing had asked NURCHA how they were going to "grow" businesses. NURCHA proposed to focus not only on the financing of building houses, but also complementary projects such as roads, police stations, schools and community centres. This had triggered a meeting with the Open Society Institute (OSI). The Minister of Housing and OSI had signed a Memorandum of Understanding regarding their partnership in February 2005. NURCHA had received US$20 million in 1995 from the government, but had not received anything since. Once their mandate was renewed, this would commit NURCHA to finance 190 000 houses and R2.4billion in loans over three years, and 400 complementary infrastructure and community projects. At that point, the Soros Economic Development Fund (SEDF) would inject US$10 million if the government matched it over three years. This agreement had been completed and signed in July 2005.

The Minister sought to decrease the housing backlog, and wanted to develop credit-linked housing with a kind of bond so home-owners could apply for further credit. NURCHA viewed themselves as financiers of this ‘funding enhancement process’. Currently, the landlord of a rental property could receive money to refurbish a building but could not rent to people who earned more then R7 500. There were currently intermediaries in Limpopo, Free State, Gauteng, KwaZulu-Natal, North West, Northern and Eastern Cape for emerging and small contractors. Direct lending was available in all provinces.

Discussion
Mr S Shiceka (ANC) asked to whom NURCHA was accountable - was it Mr Soros or the Minister of Housing? In terms of the mentioned Department mandate, how many houses were envisaged in rural areas? He also asked what role NURCHA had played in getting loans from banks. Established contractors did not have to put up collateral but established contractors did - was this a contradiction?

Mr Nase responded that they were accountable to the Minister. The relationship between NURCHA and Mr Soros was not an iniative of NURCHA. Mr Soros had expressed interested in affordable housing and had approached President Mandela about potential projects and had put up US$50 million. NURCHA had relationships with First National Bank (FNB) and Allied Bank of SA (ABSA). Not all the banks had come on board at first because it was too risky.

The established contractors had to put up 30% of the loan, but this was not the same as collateral. NURCHA did not take a contribution from small contractors. For established contractors, it was crucial to take 30% so that they could operate without an intermediary.

Mr D Worth (DA) wanted to know about delivery mechanisms. He also wanted to know about projected interest rates. Had they considered co-operatives, and to what extent were banks involved in the guarantee?

Mr Nase replied that operations and delivery mechanisms were covered in the Annual Report to be published at the end of September 2005. He would forward a copy to Members. They had not previously worked with co-operatives, but were not closed to this option if they could assist with the completion of projects. The return on investment (ROI) or cost of funding was no different for established contractors than for small contractors. The interest rate ranged from Prime (10%) plus 1.5% and Prime plus 3%. However a short-term project was approximately 3-4 months. If this were the case, contractors would be paying one-quarter interest. The fees for contractors were R40 per month per house. Intermediaries also charged small administration fees, such as fees to pay suppliers.

The Chairperson asked if the US$20 million given between 1995-2005 was the only money from the government. He also wanted to know more about the relationship between NURCHA and municipalities.

Mr Nase stated the US$20 million had been the only money received thus far from government. NURCHA worked closely with municipalities in terms of funding, but they were not funded properly unless they tendered out projects.

Ms H Lamoela (DA) wanted to know why the Department of Public Works was not co-operating. What could be done for contractors who do not meet the criteria and for municipalities seeking funding?

Mr Nase replied that NURCHA’s contribution was specifically targeted at contractors who received tenders. Municipalities should use their own prerogatives to get grants. However, NURCHA was very interested to understand other independent municipality initiatives.

Ms H Matlanyne (ANC) asked if NURCHA had experienced any contractors not paying back the loan, and if had they received applications from women contractors.

Mr Nase said that all loans had been paid back, and this was largely due to tight management and the involvement of intermediaries. Contractors did not like the involvement of intermediaries but they get the job done. NURCHA had an entire department headed by women and female contractors.

The Chairperson stated that there was a need to better link NURCHA services and those of the Department so that projects were complementary.

The meeting was adjourned.

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