Servcon & NURCHA: briefing

Meeting report

PORTFOLIO COMMITTEE ON HOUSING
26 October 1999
SERVCON; NURCHA: BRIEFING

Documents handed out
Servcon Report to Portfolio Committee on Housing 26 October 1999 (attached to end of minutes)

SUMMARY
There was an overview of Servcon and NURCHA’s target as well as special services each programme provides. Issues of eviction were discussed with Servcon and how it deals with its portfolio of property. Debate on NURCHA centred on ownership of housing after construction and how to reach small business contractors.

MINUTES
Servcon
Servcon Managing Director, Mr Denis Creighton, Managing Director, presented the Servcon report (see report). Formed in 1995, Servcon, a joint venture between the Banking Council and the Housing Department , acts as an agent to offer a rehabilitation package to the occupants of properties repossessed by the banks and their non-performing loans.

Mr Creighton specifically detailed Servcon’s rightsizing programme which he called "unique" to the rest of the world in assisting individuals relocate to affordable housing. Alternative housing for the Eastern Cape should be found by December with resizing starting in Mpumalanga in February/March. He also highlighted Servcon's personal contact with clients and added that its staff comes from the areas in which it operates. Finally, he asked members of the housing committee for political support of Servcon in its effort to gain more ground support.

Questions
Chairperson Ms N Hangana raised her concern that only 34% of its clients are paying. She also asked in what condition were the properties when given back to the bank?

Mr Creighton said that unfortunately more than 60% of houses were not being paid for but that before the programme started, 100% of these houses were not paid for. He also said that property handed back to the bank was generally in poor condition.

The chairperson asked about recent evictions in Gauteng that she had heard about?

Mr Creighton said that he was aware of the situation of pending evictions and that Servcon is asking people to join so it can take care of the problem. To show the effort Servcon was making in Gauteng, he cited a new trial programme. Servcon is training clients to help with the maintenance of housing in an effort to create employment opportunities in the area.

Ms Hangana then asked what was being done with the houses in Crossroads?

According to Mr Creighton there are structural problems with the houses built in Crossroads in 1987/88. It is also financially difficult for most people to afford these houses due to heavy unemployment, he added. Servcon is asking individuals to join so it can deal with these problems. Mr Creighton also said that he thought those affected in Crossroads had been misled by their leaders and currently 46 evictions are pending after the last attempt to get people to join. He said he wanted to make the legal process work but he also wanted people to come forward and join the programme.

Mr T D Lee (DP) asked where branches of Servcon were located and why only 56% of people signed agreements with Servcon, asking specifically if people understood the agreements?

Mr Creighton told Mr Lee that there are 18 branches but there were not offices in the Northern Province or the Northern Cape. He added that it has visited all its properties in those regions with people who speak the local language(s). He believed that people fundamentally understood what Servcon was but were reluctant to join. This is because individuals would rather stay on the land and pay nothing than join and start making payments.

Several members asked about methods to educate and inform clients before debt accumulation and eviction occurred, as well as how Servcon advertised and what happened to those who did not sign?

Those that defaulted after 1997 were not included under Servcon’s portfolio and therefore had to deal with their respective banks, said Mr Creighton. For this reason everyone who is under Servcon has defaulted. People who do not sign are evicted. Their final chance to sign is when an attorney sends a letter telling them if they respond immediately they can join. Otherwise, the sheriff brings a summons for eviction, which is written in three languages (which varies from branch to branch). Mr Creighton noted again that Servcon operates by person-to-person discussion. He said that it has briefed many community groups on the legal process and implications of signing. For those who had joined Servcon, education was paramount and it is trying to put a national education process in place but he was not aware of its current status.

Mr M N Ramodike (UDM) asked what kind of government and political support Servcon wanted? He also asked why successful evictions were so low and if it thought the people were accepting the programme and what Servcon envisioned to get more people to join? Did there need to be legal interference? Political input? Campaigns?

Mr Creighton said he wanted leaders at the National and Provincial level to stand behind the programme, mainly suggesting that its constituents join the programme if they want to stop evictions. He also wanted local and regional directors to understand and support the programme. He pointed out that when administration puts on a political hat, Servcon cannot do its job.

Mr Nash (ANC) asked where homes were being built in the Eastern Cape?

Mr Creighton said that there is construction in all the provinces and could not name them off the top of his head. He added that construction is centred in major banking areas since the enterprise is operating in conjunction with seven banks.

Ms Phantsi (ANC) asked if there were costs for joining Servcon?

Hr replied that there is no membership fee but clients are expected to pay a nominal rental fee which already includes taxes and can be as low as 70 Rand a month.

Other questions were raised about the 666 evictions that were attempted by July 1999 and if those individuals were informed they would be evicted?

Mr Creighton explained that although people hear they will be evicted for not paying, they do not believe it will actually happen.

Ms M P Coetzee-Kasper (ANC) raised several questions about buy back loans and how it affected the Bond Owners Association? She raised concern that when Servcon bought files from the banks that they were not detailed.

The chairperson, however, told Ms Cotetzee-Kasper that she was going into specific provincial issues and that she should discuss the issues with Mr Creighton later.

NURCHA
Ms Mjoli-Mcube, Executive Director of NURCHA, gave a brief presentation on NURCHA which was started in 1995 as part of the Presidential Lead Project. The organisation has four main aims: bridging finance guarantees, ending user finance guarantees, a joint venture development fund, and national savings mobilisation. She pointed out that part of its main job is ensuring that banks are lending and that they will accept this as a viable option and lend without government aid.

Questions
Ms E N Phantsi (ANC) asked if NURCHA was open to reaching out to small contractors?

Ms Mjoli-Mcube replied that NURCHA sends out marketing letters to contractors about business meetings. It tends to get more response from big contractors because they do business with NURCHA in other provinces and understand more about the programme. She said that NURCHA is willing to work with small contractors and urged committee members to inform small businesses in their areas to take part.

Ms M P Cotetzee-Kasper asked if NURCHA clients had to pay rent to contractors?

The executive director said that NURCHA’s goal is to have contractors build and then give up ownership. She said that there have been several instances where they would take the first five years of rent to help pay for building costs but that ultimately, it would like to see contractors move on after building.

Ms Hangana asked how NURCHA dealt with issues of perpetuating debt?

She said that it is a problem but it tries to deal with clients and have them be honest about bad credit or loans. NURCHA will try to re-package debt to negotiate programs with banks.

Ms Cotetzee-Kasper asked how it dealt with unregistered people and also if it worked with micro-lenders?

Ms Mjoli-Mcube said that some of the clients have been de-registered and that NURCHA will work to re-build clients. She also said that it does work with registered micro-lenders.

The meeting was adjourned.

Appendix 1:
SERVCON HOUSING SOLUTIONS (PTY) LTD
REPORT TO PORTFOLIO COMMITTEE ON HOUSING - 26/10/1999

1. Background
Servcon was established in 1995, as a result of the signing of the Record of
Understanding, by the Department of Housing and the Association of
Mortgage Lenders (now Banking Council).

Servcon's function is to act as an agent to offer a rehabilitation package (see 2 below) to the occupants of properties repossessed (PIP's) by the banks and their non-performing loans (NPL's).

The Record of Understanding terminated in 1998 and the Government and the Banks signed a new agreement incorporating an extension of the Servcon mandate in order to manage the portfolio of PIP's and NPL's out of the system over an 8-year period starting from 1 April, 1998.

The Government and the Banks effectively become equal partners in the portfolio of affected properties. There is a real financial imperative on both shareholders for Servcon to manage the portfolio out over this period.

The Government has signed a guarantee for over R6OOm being 50% of the portfolio value. The ongoing costs including the cost of funds are shared between the Banks and Government.

In a situation in which normality does not return, the above commitment would escalate dramatically. There is also a real potential that the existing performing loans of the banks could be drawn into the problem. The issue is also related to payment of services and housing outside of the banking sector.

Servcon had an initial approved portfolio of +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. (See Addendum 1 for provincial breakdown.)

2. Servcon's Programme
The Servcon programme contains the following elements.

2.1 Rental programme - this is an interim subsidised rental programme to give the occupant time to adjust to paying again after a period of non-payment. Initially, the rental was less than half of a mortgage instalment. This rent increases every 6 months until a market rent is reached over a 3 - 4 year period.

2.2 A Buy Back or Reschedule option - for those who can afford the existing property, a mechanism is available to reassess the property to arrive at a reasonable buy back or new debt amount.

In the case of PIP's unpaid interest and costs are written off and in the case of NPL's the excess debt is "parked" and providing performance is maintained, is written off after 2 years. In the event of genuine structural defects the price is reduced by the "cost to cure" or the property may be repaired.

2.3 A Rightsizing option - where the owner/ex owner cannot afford the property, assistance is offered to procure and finance (in whole or part) an alternative affordable house. Relocation Assistance payable by the Province Government, equal to the Capital Subsidy is allowed towards the new house. (A special company, Thubelisha Homes, has been established to facilitate this process.) Whilst this process unfolds, the ex-owner is allowed to stay on in the property and pay an affordable rent, even as little as R70 (or lower if the family is completely destitute). (See also Section 9.)

2.4 Special Assistance to the Aged and Disabled - these people are entitled to "Relocation Assistance in situ", i.e. without having to relocate. Arrangements will still have to be made for payment of any debt over and above the relocation assistance amount.

3. Servcon's Modus Operandi
Servcon has 18 branches throughout the country with a field force of 129 (total staff complement 164). The staff typically come from the communities they service or similar areas.

Prior to the relaunch of Servcon in 1998, numerous attempts were made to get the occupants to join the programme. Only partial success was achieved.

Since 1998 Servcon has again made frequent. personal visits to all affected properties and dropped off information packs and monthly statements. In spite of the previous attempts, a new opportunity was given to occupants to join. In some cases, Servcon has been refused access to an area and has had to resort to the postal services.

Wherever possible, Servcon has attempted to work with local civic and resident bodies. In some cases these structures have seconded people to work with Servcon.

4 Servcon's Progress to Date (up to 30 September 1999)

4.1 Number of clients who have signed agreements - 18 420 56%

4.2 Number of properties "satisfactorily disposed of" (removed from portfolio) - 4 596 13,89% (Target 14%)

Resales/ Rescheduling - 1 900
Sales to occupants/Third parties - 164
Debt settled/Account normalised - 1 534
Vacated Properties - 830
Successful Evictions - 168

4.3 We currently have 28 486 properties left after removing the "Satisfactorily Disposed Of" cases.

4.4 Although 18 420 clients have signed agreements the default rate on these agreements is high. These are being constantly followed up.

Approximately 34% of clients are paying. (Addendum 1 sets out the provincial analysis of results)

5. Servcon's Findings
The overwhelming cause of the original default was economic - inability to pay the mortgage bond. The main cause was loss of job through retrenchment/redundancy or company going out of business. A significant number of other economic causes such as loss of one partners' income (death, illness, divorce, abandonment), working short time etc. are experienced. High interest rates and other debt are real factors.

Other non-economic factors such as unhappiness with the quality of the product and environmental conditions are also cited as reasons for nonpayment in a minority of cases. It is our belief that often these factors are put forward after an economic situation has arisen.

In only one area to our knowledge was a political boycott a cause for nonpayment, namely Tembisa in Gauteng.

Servcon's programme is designed to deal with all normal circumstances.
Our current experience is that the majority of Servcon's clients still face economic hardship. Unfortunately it is a reality of the labour market that people who have lost their jobs tend to do so again and again (often caused by the retrenchment principle LIFO).

6. Evictions
After many months of attempting to get occupants to join the programme, Servcon has been forced to allow the legal process, leading to eviction, to continue. This is a time consuming and costly process, but generally the legal process technically functions effectively although there are delays. The problem tends to occur when an evicted person forcibly moves back into a property after an eviction. In some areas the Sheriff is still unable to function normally.

In one recent well-publicised incident, a house in Katlehong was destroyed following an eviction. The occupant was an illegal occupant as the original owners had vacated years ago. The local residents claimed to the press that they had destroyed the property to prevent the banks regaining their properties (in fact, considerable theft of fittings had occurred).

In Port Elizabeth recently, the Sheriff was prevented from carrying out evictions because the residents took to the streets and burnt tyres.

It is essential that the authorities prevent tins type of illegal action spreading.

Even up to the last minute and indeed up to 14 days after an eviction, ex owners are given an opportunity to join the programme. In the event that legal action has commenced, late comers are required to pay R500 towards the legal costs and if an eviction has taken place R1OOO is payable. As a special offer to coincide with a major "Remarketing" drive, these costs have been waived or reduced for a period up to the end of the year. To show commitment and contribute to arrears a double payment is to be made on joining the programme and one and a half payments for a 6-month period. (This is also to ensure that clients who joined the programme earlier are not adversely prejudiced by comparison.)

Court orders for the attachment of movables are obtained where possible but the goods are released once the client co-operates by joining the programme or complies with the order by vacating the property. The movables are only sold if the property is illegally occupied.

To date, attorneys have been instructed to obtain the necessary court order of ejection for 3500 evictions.

666 Evictions have been carried out

494 Were successful or were "rescued" after the event and allowed to join the programme

172 (26%) Failed (occupant illegally moved back in)

In the event that the eviction fails criminal charges of trespass and contempt of court are pressed. This is a slow and difficult process given pressures on the courts and investigating officers. To the best of our knowledge no case has yet been successfully prosecuted.

Every effort is being made to prevent evictions by getting the occupants to join the programme.

7. Community Reaction
Although we always attempt to work with local community structures, the level of co-operation and support varies from area to area. In some areas we have a formal alliance with the local structures with secondment of community representatives to our offices to work with our staff, backed up with regular review meetings. In other areas community representative structures are hostile and refuse our staff entry into an area.

With the advent of the evictions and the increasing tempo, we have experienced widespread reaction from civics, including Sanco structures at local, regional and provincial levels, residents groups, political parties and local Government including the mayor of a large city.

The approach of these parties is almost universally uniform, calling on
Servcon to:
- Place a moratorium on evictions.
- Enter into negotiations to revise the agreement and the programme.
- Extend the cut off date of 31 August, 1997 for inclusion of properties in the portfolio.

Based on a mandate given to management by the Servcon board our approach is to decline the request for a moratorium and to insist on people joining the programme, pointing out that the programme is broad and flexible enough to accommodate the problems.

In so far as the cut off date is concerned, it was and is the desire of the shareholders for normal processes to be recommenced and not to offer an open-ended "soft landing".

It is apparent from some of the approaches from community structures, that the issues raised are political issues or deal with macro economic and/or developmental issues beyond the scope of Servcon. These issues need to be dealt with at a higher political level.

8. Support by Minmec Meeting
The Housing Minmec meeting held on 23 August, 1999 again considered the Servcon programme and reaffirmed full support for Servcon and its programme.

We have received written messages of support from the Minister and all the MEC's and these have been published in a Newsletter (attached). This has assisted Servcon considerably. Without political support and backing by Government officials in the various provinces, Servcon will be unable to achieve its goals of normalising the housing environment.

9. Thubelisha Homes and Rightsizing
Rightsizing is the official programme to assist ex-owners who are in Servcon properties who cannot afford them, to acquire alternative affordable accommodation as follows:

- A rightsizing agreement must be signed.

- An affordable rent (20% of income or minimum R70) is negotiated and must be paid monthly (in extreme cases a lower "destitute" rent can be negotiated).

- The existing property may continue to be occupied in the meanwhile.

- Thubelisha Homes will assist in obtaining an alternative affordable house.

- A Government subsidy (Relocation Assistance) equal to the capital subsidy is payable towards the new house.

- The ex-owner is then required to relocate to the new house.

- The old house is returned to the bank to market.

Thubelisha Homes is a Section 21 company jointly established by Servcon and the Department of Housing to facilitate the process. It received a capital grant of R5Om from Government to start the process.

The company become operational in early 1999 and has been negotiating with Provincial Governments and Housing Boards and also with developers and builders. A number of opportunities are nearing finality. It is expected that the first houses will be available in this scheme in Embalenhle in Mpumalanga before the end of the year.

All new houses will comply with the Government norms and standards.

10. The Way forward
With renewed Government support, we are embarking on a "remarketing" exercise to get as many people as possible to join the Servcon programme. A special offer is available until the end of 1999 to assist in this process.

We are revisiting all our properties and dropping off a newsletter.

Unfortunately there is still a high level of resistance in a number of areas.

We still face a number of "problem areas" where we are denied access to our clients or where local leadership actively discourages the residents to cooperate. However, we have been able to reduce these somewhat.

In 1998 the Portfolio Committee became involved in the problem of the Free State Goldfields. Unfortunately no progress had been made and we are now working with the MEC to resolve the problem within the province. (A comprehensive report on the area will be handed to the Portfolio Committee).

Where people refuse to come on board, the legal process continues.

Where genuine structural defect problems exist, we are able to assist provided people join the programme.

Unless the problem of non-payment for bonds (and other forms of finance) is rectified, it is our belief that the housing programme will continue to be undermined.

This is the task of Servcon and we are confident of success provided:
- We continue to receive Governmental and political support.
- We are able to offer the clients relief in terms of our programme and people accept the programme.
- The legal system functions effectively.


Denis Creighton
Managing Director, Servcon

Attachments:
1. 1999 Annual Report
2. Newsletter

[Ed. Note: Annexures and Attachments not included]