Servcon Housing Solutions Annual Report

Meeting report

HOUSING PORTFOLIO COMMITTEE
30 MAY 2001
SERVCON HOUSING SOLUTIONS ANNUAL REPORT

Chairperson: Ms N Hangana

Documents handed out:
Servcon annual report (See Appendix)

SUMMARY
Servcon updated the Committee on its work. Its mandate, based on an agreement between the Department of Housing and the banks, is to assist property owners who are in arrears with bond repayments to find a solution to this problem. This is achieved either by rescheduling the loan, providing a rental option or right-sizing the people into a more affordable home. From the discussion it appeared that Servcon is not readily accessible to people on the ground. As a result people end up owing the bank large sums of money because there is no one to advise them.

Servcon had an initial approved portfolio of about 33 000 properties, where default or repossession occurred prior to 31 August 1997. Properties in default after this date are handled by the respective banks.

MINUTES
Servcon Presentation by Mr D V Creighton
Mr Creighton the Managing Director of Servcon informed the Committee that he had only prepared an outdated annual report but promised to bring the Committee a new report as soon as it becomes available.

Background of Servcon
Mr Creighton said Servcon is a joint venture between the government (as represented by the departments of Housing, Safety and Security, Justice and the National Treasury on the one hand) and the Banking Council on the other. The driving force and the major shareholder is the department of housing. The joint venture was established in 1995 in order to deal with the properties that the banks have repossessed from the people. The idea was to convince the banks to get back and lend into the environment had withdrawn from, that is the low income housing environment, specifically the so-called township market.

There was a revision of that agreement in 1998 and at that stage they were given an eight year period up until 2006 to deal with the properties that have been allocated to Servcon. They are handling an initial portfolio of just over 33 000 properties with a value of R1, 28 billion. He said this is quite a significant portfolio and the majority of properties are in Gauteng, with the Western Cape following. The objective is to offer the occupants of those properties a rehabilitation programme to save them from losing their properties as would normally happen without any assistance programme from the government or the banks. He said they have four main products: a rental option, a buy-back option, a rightsizing option and special assistance for the aged and the disabled.

For more details on Mr Creighton's presentation please refer to the attached document

Discussion
Mr Durand (NNP) noted that there is a clause that prevents the transfer of property unless the rates and other arrears are paid off to the local government. If Servcon continues with downsizing (sending people to affordable houses), how are they going to do that if the arrears are not paid off?

Mr Creighton replied that as far as Servcon is concerned most of the properties they deal with are in possession of the banks. This means that banks are the owners of those properties. By definition this means that they are the ones who clear the arrear rates and taxes with the local authorities and thereafter are responsible for those rates and taxes. The banks feel this is unfair that they have to pick up that expense. If a person moves out of an unaffordable property into a rightsizing property, they should move without any arrears.

The Chairperson told Mr Durand that some of the houses are being sold by local governments because of the arrears in services.

Mr Durand said when the local government sells a house they absorb what the person is owing. But in this case there are some structures that prevent people from selling their houses like in the case of someone having arrears. Prior to 5 December 2000 the local government had an option to absorb what the person owes, but the new law says that the property cannot be transferred until the current account in the local government is paid off.

The Chairperson suggested that the Portfolio Committee on Local government should be invited to discuss with this Committee issues relating to arrears and payment to local governments.

Mr D Motsitsi (ANC) wanted to know the relationship between Servcon and the financial institutions. Servcon should have personnel in all the banks who could liaise and assist people who are unable to make payments. At the moment people do not know where to go and who is responsible for advising them. Was this the responsibility of Servcon or the Banking Council to provide information about the database of all the personnel who should liaise with clients?

Mr Creighton agreed that they are also facing the same difficulty of liaison. It had to be decided if the property in question was a Servcon or a bank matter. If the issue is a Servcon matter then it should be referred to Servcon's local branches. In terms of evictions it is the bank that takes such an action (though they do so under instruction from Servcon after Servcon has exhausted all other options). Banks are structured such that they have separated their Servcon portfolio administration from non-Servcon portfolio administration. Mr Creighton said even at Servcon they do not know who deals with non-Servcon portfolios. Another reality is that the banks have rationalised their branch networks and they have put all these problem cases under the credit divisions. These credit divisions are located in areas that are not accessible to the clients.

Servcon should get a list of contacts from the Banking Council. They will then establish from the banks the contact people for non-Servcon portfolio and this would be made available to the Committee. Two lists would be made available: Servcon and the Banking Council contact people.

Ms Southgate (ACDP) wanted to know if Servcon had a special programme for the aged because they are living in very poor conditions.

Mr Creighton said they have an aged and disabled programme. The aged and disabled can stay in their property even if their subsidy has been reallocated. They do not have to move to their new property. For example if an aged person applies for the R16 000 subsidy via Servcon, his/her bond would be paid off in full. However, if it is more like R30 000 or R40 000 the aged person would be required to pay that off.

Ms Southgate said nowadays a person's house is not considered as an asset. For example if a person loses a job the house becomes more of a liability. What is done to rescue people from losing their homes? This does not only apply to low and middle income people, but also to those people who used to live comfortable lives and now they cannot do so any longer because they lost their jobs.

Mr Creighton said there are two factors to Ms Southgate's question. If a person has a bond of R40 000 and the property is now worth R25 000 how does one deal with this? If a person loses a job and cannot get a job in the short term, that person should put the property on the market. However, if there is no value for that property then the person still owes the bank that money. This is when the property becomes a liability.

People are educated on how to borrow money and that they should not over borrow. There should always be some equity in the property, for example a difference between what a person owes and what the property is worth. People should live within their means, otherwise there is no simple answer to the question.

Mr Singh (DP) asked what happens in a situation where the amount owed by an individual is less than the subsidy of R16 000. Is there any arrangement for that person to be paid off because the person owes less than the subsidy amount?

Mr Creighton replied that currently the only people who can take that subsidy and be paid off are only the aged and disabled. Why should people who have defaulted, even if that is not their fault, get a benefit over someone who has not defaulted? Everybody would then want his/her debt to be paid off.

Mr Creighton said normally to participate in the subsidy reallocation assistance one has to relocate from the too expensive property to a new property.

Mr Singh asked about the cut off date of 31 August 1997, it was said that nobody could apply for loans after that date. What does that mean?

Mr Creighton replied that the cut off date was being negotiated by the banks and the government. At this stage there is no discussion about extending that cut off date. Neither the banks nor the government are excited about extending that date at all.

Mr Nash (ANC) said banks should not wait for people to owe large amounts of money. If the people were brought to book during the first few months, they would not owe banks such large amounts.

Mr Creighton said the portfolio they deal with is a historical portfolio. People defaulted especially in the early nineties when there was political turmoil in the country and the legal system was broken down. Nevertheless he agreed with Mr Nash that the sooner one deals with the problem the better, both the borrower and the lender.

In conclusion the Chairperson said at a later stage there might be a political debate regarding the extension of the date. There was still the question of the commitment of banks in terms of housing delivery in this country.

The meeting was adjourned.

Appendix
Servcon Housing Solutions

Report to Housing Portfolio Committee meeting to be held in Cape Town on 30 May 2001

1. Background

Servcon is a joint venture between the Government as represented by the Departments of Housing, Safety & Security, Justice and National Treasury and the Banking Council. Servcon's role is to deal with the properties repossessed by the Banks in low-income communities.

Servcon was restructured and received a new mandate from the Banks and Government on 1 April, 1998. The two parties are in effective partnership and share the costs of the portfolio.

The portfolio under the Servcon administration was initially just over 33 000 with a value of R1 280 000 000 (at original loan amount) - (the Provincial breakdown is reflected under the progress report hereunder).

The Servcon rehabilitation programme offered the occupants contains the following elements:

Subsidised rental option
Buy back or loan reschedule option
Rightsizing option (assistance towards an alternative affordable house)
Special Assistance to the Aged and Disabled

Servcon's prime objective is to normalise the situation and specifically to dispose of the portfolio over an 8-year period from 1 April 1998 to 31 March 2006.

2. Servcon's Progress up to 30 April 2001

2.1 The results up to 30 April 2001 are as follows:

Province	No. of Props	Total SDO	%	Rightsizing signed	Other Leases	Total Agree. signed
Eastern Cape	1 641	469	28,58	380	348	852
Free State	1 880	299	15,90	173	208	480
Gauteng	22 276	7 193	32,29	3 644	5 332	13 912
Kwazulu Natal	536	241	44,96	68	91	244
Mpumalanga	1 524	791	51,90	420	314	882
North West	1 389	308	22,17	311	231	617
Northern Cape	51	30	58,82	0	7	11
Northern Province	97	74	76,29	3	7	15
Western Cape	3 925	947	24,13	494	1 406	2 454
Total National	33 319	10 352	31,07	5 493	7 944	19 467

 

2.2 Servcon's primary objective is to "satisfactorily dispose of" (SDO) the properties over an 8 year period. We have achieved the target for the period up to 31 March 2001, having disposed of 10 118 properties 30,36% against a target of 30%.

"Satisfactorily disposed of" means to have the property normalised and removed from Servcon (returned to bank) through selling the property back to the ex owners, rescheduling the loan or getting vacant possession through occupant voluntarily vacating, rightsizing or eviction of uncooperative occupants.

The S.D.O.'s have been achieved as follows:
NO.
Instalment Sales to ex owners 1 166
Instalment Sales to occupants 62
Rescheduled Loans 1 774
Resale to original owner 914
Outright Sale to occupant 194
Outright Sale to 3rd party registered 73
Occupant rightsized - property vacated 778
Property vacated 1 453
Successful eviction 837
Debt settled/loan account normalised 3 101
TOTAL 10 352

2.3 Although over 71% of the occupants have signed agreements (or otherwise normalised the position) the record of payment in terms of the signed agreements is very poor. Only some 30 to 40% of occupants pay regularly, which is a very worrying trend. Clients are now responding to a vigorous arrear process. However, we are in the process of cancelling a number of leases where payments are not made and clients have not responded. A vigorous credit control policy is having an effect and ± 50% of clients who have signed agreements are now paying.

2.4 Rightsizing

Rightsizing is the official programme to assist people who have defaulted on the housing loans to relocate to alternative affordable houses. Government pays a subsidy "relocation assistance" towards the new house.

Thubelisha Homes was established by the Government and Servcon with a specific mandate to procure the alternative houses for the Servcon clients.

778 Families have been successfully relocated in projects in Embalenhle, Vosloorus, Katlehong, Tsakane, Khayelitsha and Motherwell.

Rightsizing is a difficult concept to promote and often we find resistance from the Servcon clients and also community structures. Extensive interaction is required to ensure projects proceed smoothly.

3. Servcon's Findings

The overwhelming cause of the original default was economic. The main cause was loss of job through retrenchment/redundancy but other social issues impact. A significant number of other economic causes such as loss of one partners' income (death, illness, divorce, abandonment).

Our current experience is that the majority of Servcon's clients still face economic hardship.

4. Evictions

Evictions are implemented where people have refused to join the programme (sign an agreement and start paying) or where they have defaulted on an agreement.

The eviction process takes a long time to be implemented. Of concern is the ongoing widespread disrespect for the due process of law and in many cases the active defiance thereof, preventing the Sheriff from carrying out his duties and/or moving back into properties from which they have been evicted.

Unfortunately it is extremely difficult to get the police and or prosecutors to investigate criminal charges against people who have illegally reoccupied properties.

It is necessary to virtually run a military style operation in order to succeed. Improved co-operation between the various role players (attorney, sheriff, police and security guards) has resulted in the success rate increasing to ± 73%. The position is deteriorating on a monthly basis at present though.

Province	Evictions Instructed	Evictions Attempted	Failures	% Failures
Eastern Cape	463	86	29	34
Free State	276	38	5	13
Gauteng	5 729	1 169	334	29
Kwazulu Natal	178	29	2	7
Mpumalanga	523	145	23	16
North West	266	31	3	10
Northern Cape	6	0	0	-
Northern Province	10	3	1	33
Western Cape	1 143	109	43	39
National	8 594	1 610	440	27

 

5. Cut Off Date

We continue to receive a lot of pressure to extend the 31 August 1997 cut off date.

This issue has been referred to the Banks and Government.

Unfortunately the Policy Review Committee, which is to review progress, has still not met. We have again asked the minister to convene the meeting.

6. Servcon's current focus

The current year is considered a critical one in Servcon's history, which will set the platform for the ultimate realisation of its goals.

There is a need to change the levels of performance, efficiency and success to a higher plain. Failure at this point, will on the other hand, further entrench the abnormality prevalent in the housing market within which we operate.

Our goals and objectives for the year include:

6.1 Reduction in portfolio

6.2 Improve payment record through a vigorous arrear strategy

6.3 Clients to join programme

6.4 Reduce the number of problem areas (presently 26)

6.5 Communication strategy, to improve Servcon's image and get its message across

6.6 Self Help job creation Projects, to assist in boosting affordability amongst its clients

With the successful conclusion of the local Government elections and the restructuring in many areas, Servcon will be attempting to work very closely with the Local Councils, especially the Mayors and Ward Councillors.

7. Problem Areas

Whilst there are difficulties in most areas where Servcon operates, certain areas are more difficult due to a variety of reasons including:-

Specific nature or concentration of development
Quality of local leadership
History of violence in the past
Current environmental conditions (including crime and employment)
Quality of services and effectiveness of local authority.
Whilst local circumstances may differ from area to area, there are common issues (real or perceived).

Alleged product defects

"Rip off" by developers

"Value" of properties (originally and/or presently)

High levels of unemployment

Environmental Conditions

Other socio economic factors, such as:
Death
Divorce
Violence
Crime
Illness (including HIV/AIDS)

A housing crisis exists.

The housing environment has been described as a "swamp". The major drivers of the problems are a breakdown of law and order/defiance of the law and unemployment /poverty. Other factors include environmental conditions, lack of education and understanding/acceptance, HIV/AIDS, structural defects, lack of financial discipline and poor community leadership.

Unfortunately little progress has been made in some areas. Of particular concern is the Free State Goldfields where no progress has been made. As the issue has been politicised, we require political intervention. Unfortunately this has not yet been forthcoming.

It is clear to Servcon management that our existing strategies and policies have not to date brought significant progress in most of the problem areas. Without significant political intervention it is unlikely that we can ever solve some of these problems. Each area will be tackled and our target is to normalise the position in at least 50% of the problem areas.

The current climate is deteriorating in most of these problem areas, and previously "normal" areas have become problems. It is also becoming clear that the issue is not really a housing problem but rather a mixture of social, justice, safety and security, economic as well as housing. Other role players such as Eskom and local authorities are also directly involved.

A broad based initiative at the highest level involving all role players needs to be developed as soon as possible. A trend break is required. We believe that a package of measures are needed to tackle each of the problems in order to "drain the swamp". We need a new vision in order to create an environment conducive to a functioning housing delivery process. One of the problems inhibiting the flow of finance into development is the absence of a vibrant secondary market. We need an environment that encourages individuals as well as institutions to invest. In the meanwhile Servcon is attempting to initiate action to solve the problems where we can.

We have started to initiate job creation and community development projects in a number of areas aimed primarily at our clients.

In Vosloorus, we have trained some of our clients in food gardens. The objective is to provide knowledge and seeds to start vegetable gardens at their own homes. We have also secured a communal site in one of the local crèches where members will cultivate vegetables to sell to the community. We are in the process of assisting women who are involved in sewing and knitting to acquire more space for their project. There are various individual initiatives that need to be harnessed and assisted.

In the Vaal area, 18 clients will be undergoing training on starting a business at the Sedibeng Training Centre on the 11^th June 2001.Upon completion of training, efforts will be made to assist those who have viable business ideas to start their own small businesses. A communal site has also been identified at the Santa clinic in Sebokeng to also start a vegetable garden. Training for this group of clients is underway.

We have received proposal from the Motherwell Community Development forum for a variety of projects that could benefit some of our clients in the area. This proposal is being considered. We have also initiated consultations with Crossroads Residents Committee and ward councillors to facilitate a process whereby our clients will identify projects where we could build partnerships. Whilst at Embalenhle, a process of needs and projects identification is underway.

These are pilot projects and they will provide us with lessons that could be replicated throughout our branches.

Denis Creighton
Managing Director 28 May 2001

SERVCON HOUSING SOLUTIONS
BUDGET 2002
COST SHARING ARRANGEMENTS
DEPARTMENT OF HOUSING
PROJECTIONS FOR THE NEXT FIVE YEARS
MILLIONS
	31/03/2002	31/03/2003	31/03/2004	31/03/2005	31/03/2006
Capital Account (RMillions)	831.0	688.3	336.2	176.1	127.0
Guarantee Amount
(50%)	415.5	344.2	168.1	88.1	63.5
Interest Account	48.0	43.0	23.5	12.8	8.9
Profits and Losses	10.0	10.0	15.0	15.0	12.5
(Government portion)	5	5	7.5	7.5	6.25
Income and Expenditure Account	27.0	24.0	24.0	18.0	15.0
Less Clearance certificates
	27.0	24.0	24.0	18.0	15.0
(Governments 50% Portion)	13.5	12.0	12.0	9.0	7.5
Less Excess brought forward
Funding requirement	66.6	60.0	43.0	29.3	22.6
RSA 150 rate assumptions	11.56%	12.00%	14.00%	14.50%	14.00%
Payable as follows:
First Quarter	16.4	14.8	10.6	7.2	5.6
Less excess
	16.4	14.8	10.6	7.2	5.6
Second Quarter	16.1	14.5	10.4	7.2	5.6
Third Quarter	14.3	12.9	9.3	6.3	4.9
Fourth Quarter	19.8	17.8	12.8	8.7	6.7
	66.6	60.0	43.0	29.3	22.6
Comparative:
Budget 2001
Funding requirement	71.8	60.9	49.7
RSA 150 rate assumptions	14.00%	14.50%	14.00%