National Urban Reconstruction and Housing Agency:Briefing; Study Tour to India

Meeting report

HOUSING PORTFOLIO COMMITTEE
6 June 2001
NATIONAL URBAN RECONSTRUCTION AND HOUSING AGENCY: BRIEFING; STUDY TOUR TO INDIA;

Chairperson: Ms N Hangana

Documents handed out:
National Urban Reconstruction and Housing Agency Presentation (email [email protected] for document)

SUMMARY
The National Urban Reconstruction and Housing Agency briefed the Committee on their current activities. They are a non-profit organisation designed to help secure loans and other outside funding for low-income households that are seeking to build a home. The organisation has been in existence since 1994 so many of the newer members of the Committee did not know that such a group existed. The Committee members seemed excited to re-discover a potentially useful ally in financing homes to the poor.

The scheduled briefing on the People's Housing Partnership Trust did not take place.

MINUTES
Study Tour to India
The first 45 minutes of the meeting was closed to the public while the Portfolio Committee discussed their study tour to India, to be undertaken shortly.

National Urban Reconstruction and Housing Agency (NURCHA): briefing
Mr C de Beer, the CEO of NURCHA informed the Committee of the current activities, programmes, successes and challenges that NURCHA was experiencing.

Mr de Beer noted that NURCHA did not receive a direct allocation from the government per se, but did work closely with the Department of Housing and shared its goals of providing adequate housing to all South Africans. NURCHA is a Section 21 non-profit organisation set up by the RDP in 1994 with the aid of the Open Society Foundation.

NURCHA seeks to aid the flow of money from financial institutions to low-income citizens that are trying to secure loans for the construction of a home. There are two kinds of money-assistance projects that NURCHA sponsors. One is to provide developers and contractors with loans so that they may build homes. The other is to encourage banks to give loans to low-income households by providing a high guarantee of loan repayment. They work in conjunction with the National Housing Finance Corporation.

Securing Loans for Builders and Contractors
Projects are received from the provincial housing authorities and try to secure at least 10-20% of a project's funding as up-front collateral to builders and contractors. Their current funding is approximately R170 million, of which R25 million comes from national government contributions.

Mr de Beer noted that funding small-time entreprenueurs like contractors is high risk. But they attempt to guarantee a bank 100% of the loan if they choose to support the contractor. Emerging contractors receive about 70% of NURCHA's loans.

The builder/contractor loan programme has been quite successful up to this point. The programme has done particularly well in supporting women builders and contractors, especially those that are just beginning their businesses.

From October 1999 to February 2001, they have signed 337 loans for over R171 million in guarantees. Of those 337 projects, 213 were completed and the loans have been repaid. The programme has funded the building of over 70,000 houses worth over R1.2 billion.

Even though they are supporting many new, high-risk small businesses, the default rate on loans is less than 2%. However, banks seem to be getting more conservative with their loans due to inflating market prices. NURCHA's goal was to have ended their services by now in hopes that banks would have desired to liberalise their loan policies.

Securing Individual Home Loans
NURCHA has been less successful in their second programme, encouraging banks to give individual home loans to low-income households. Mr de Beer noted that this programme is not for people who do not have the capacity pay their loans back. They are trying to find modest loans for responsible people trying to build their own home.

Loans around the R10,000 mark were needed to give to people who have a less than R1,500 per month income. However, Mr de Beer felt as if he had to twist bankers' arms even to be considered and the bankers had the ultimate say in the situations. They have only released 5,000 loans since the programmes existence and have plans to cease this programme in the near future.

National Savings for Housing Loans Campaign
Mr de Beer announced the start of a new programme that brought a lot of excitement to NURCHA. They are mobilising a National Savings for Housing Loans Campaign (commenced in January 2001) that is designed to be a supplement to the negligible government subsidy programme.

In the midst of rising inflation, NURCHA wants to encourage citizens with lower incomes to save their money in stable financial institutions and start generating interest. They want to create a sense of owner equity and self-funding that takes some of the pressure off of government funds. No longer will the poor be simply beneficiaries, a passive role, but they will become consumers of housing, an active role.

NURCHA does not take savings itself, but encourages people to find banks like PEPBank in the Western Cape that gives favorable interest rates and low transaction fees to people with smaller accounts. The goals of this new campaign are five-fold:
Secure channels of investment (savings banks)
Locate areas with potentially numerous housing projects
Negotiate with contractors to work with citizens that have saved up funds
Continuing to subsidise the very poor, but still promoting savings
Attract other housing consumer benefits to high-density savings areas (such as building materials, electrical services, etc.)

Mr de Beer believes that this programme will grow very quickly in the coming years. Their goals for this year are to recruit 125,000 new savers, each with at least R6,000 in savings by the end of the year. They would also like to secure at least five contracts with banks that are committed to assisting low-income savers so that at least 37,000 savers will be able to secure housing loans.

Discussion
Mr J Durand (NNP) asked if there would be a way to create a government loans programme with funding from the World Bank or IMF to give low-interest loans to people of need. Would it be feasible to create a state bank.

Mr de Beer replied that the market saw good success between 1995-1998, but with increasing interest rates spurred on by the Reserve Bank as a response to many unpaid loans. As a result, banks like African bank became very tight on their loans and increased interest rates. It became exceedingly difficult to find an insulated pool of funding for individual home loans.

A government bank in this kind of economic climate would be even harder to construct. South Africa does not have the infrastructure prepared to build such an internal banking system. However, government could look beyond prejudices of crime-riddled areas and help promote banks to give loans to people building there. They can apply pressure to banks that counteracts the frustration they have of not getting their loans paid back.

Ms M Coetzee-Kasper (ANC) asked if there would be more lending to SMME contractors and builders.

Mr de Beer replied that because of the political imperative to target more SMME's, NURCHA would continue their procedure of securing loans for small-time builders and contractors. However, banks are wary of funding high-risk ventures and the government must be realistic about the amount of funding available to SMME's.

Mr F Maserumule (ANC) posed a general question to the entire Committee on what Europe did after World War II to rebuild their banks from a state of disaster.

Mr de Beer said that the Mortgage Indemnity Fund that was heavily government sponsored after the war, but he pointed out that there are very different circumstances around a post-WWII Europe of the 1950s and a post-Apartheid South Africa of the 21^st century.

Mr W Skhosana (ANC) asked why certain provinces (North West, Northern Cape, Mpumalanga) were missing from NURCHA's 1999-2000 report. Northern Cape was using their own provincial housing department and made deals with large-scale contractors to handle building projects. North West utilised the North West Housing Corporation to secure their funding. Mpumalanga had a few small NURCHA projects and de Beer was not sure why it did not appear in the report.

Mr S Montsitsi (ANC) reminded the Committee of the Memorandum of Understanding sent out by the Department of Housing to banks that said money should be loaned out if there was a high rate of guarantee. Could the lack of loans from banks be caused by the racial issue.

Mr B Douglas (IFP) added that he definitely "smelled the rat of racism" in this situation. He brought up previous cases like the Lifeboat Issue and the ABSA fiasco. Why was there not any prosecution in those cases. Banks are using their fear of "high crime areas" as a front for racist policies.

Mr Durant clarified that his remark from earlier. A governmental reserve bank should not handle loans but, rather, he wanted a provincial trust set up with open access to all citizens. Banks should be forced to publish their track records of loaning (especially to Blacks) so that people can decide for themselves where to deposit their money. This would create a new market force that applied pressure to banks to loan to people of all races.

Ms M Ramakaba-Lesiea (ANC) requested more information on PEPBank and their ability to loan to low-income people.

Mr de Beer explained that NURCHA did not have a specific deal set up with PEPBank per se, but that PEPBank was ideal to loan to low-income groups. They have lower transaction charges and better interest rates, even for people depositing smaller amounts. They are able to do this by keeping lower overheads and less frills in their branches. They also take specific interest in the community. For example, they are willing to go to township meetings on weekends to assist people in opening up savings accounts.

Chairperson Hangana thanked NURCHA and de Beer for the comprehensive presentation that gave good exposure to newer members of the Committee. She expressed the Committee's frustration with the banks' hesitation to liberalise their loan policies. The Committee would definitely have to set up a meeting with Servcon and the Banking Council in the very near future.

Mr de Beer mentioned that NURCHA, despite its name, also does work in rural areas. He said that he is not anti-bank, but wants to cooperate closely with them to provide better access for housing loans..

The members agreed that they wanted to meet with Servcon and the Banking Council.

Mr B Douglas (IFP) wanted internal sanctioning of banks that failed to loan sufficiently to blacks. Advertisements in the Sowetan newspaper gave false hope to many poor blacks that they could get low-interest loans.

Chairperson Hangana said that when the Minister of Housing and the Director-General come to brief the Committee on the budget next week, the Committee should ask for an update on the implementation of the Home Loan & Mortgage Disclosure Act [63-2000]. Apparently, they have been receiving some negative feedback from the Deputy Director-General on its implementation.

The meeting was adjourned once it was established that the People's Housing Partnership Trust (PHPT) would not be arriving.