Housing Support Institutions: public hearings

Meeting report

HOUSING PORTFOLIO COMMITTEE
10 May 2006
HOUSING SUPPORT INSTITUTIONS: PUBLIC HEARINGS

Chairperson: Ms Z Kota (ANC)

Documents handed out:
PowerPoint presentation by Servcon Housing Solutions
PowerPoint presentation by NURCHA on Expenditure 2004/5 and Budget 2005/6
NURCHA Executive Summary Corporate Plan 2006/7
NURCHA Corporate Plan 2005/6
NURCHA Corporate Plan 2006/7 and Projections 2008/9
PowerPoint presentation by Social Housing Foundation
PowerPoint presentation by Rural Housing Loan Fund (RHLF)
PowerPoint presentation by Thubelisha Homes
Northern Cape Presentation on Housing
NHBRC Presentation
NHFC Presentation
PHPT Presentation: Part 1 & 2
Banking Association Presentation

SUMMARY
The Housing Support Institutions listed above had been asked to brief the Committee on their plans and budgets for the 2006/07 year and to highlight some of their achievements in the 2005/06 financial year.

Throughout the day, a very large number of questions were asked. These dealt, among others with housing blockages; proper management of housing funding and projects; emerging contractors; empowerment of female contractors, options for new housing finance, capacity building, Black Economic Empowerment, housing projects in rural areas and training.

Morning Session

MINUTES
Servcon presentation

Mr M Moroka (Chief Executive Officer) reported that Servcon had been established in 1985. In 1998 it was mandated to dispose of 33 386 properties, which should take place by 31 March 2006 or by such time as the last property had been transferred to the last Servcon client. Over time the mandate had been expanded and Servcon, from 2004, assisted the Provincial Housing Departments (PHDs) with their normalisation process on non-performing properties to achieve liquidity. This process currently stood at over R1 million. A specialist rightsizing programme had started in October 2004, when Servcon had been asked to assist provinces where occupants of non-Servcon properties had been evicted by banks. Servcon had recently been mandated to restructure to incorporate a Special Purpose Vehicle on Land and Landed Properties.

Banks and Government currently funded Servcon’s operational costs equally. The National Department of Housing (NDoH) funded the restructuring costs and incidental costs for exiting Banks, whilst PHDs contributed to the Incidental Subsidy, and the normalisation programme. Currently the Board consisted of the Banking Association of South Africa (BASA) and various branches of Government, but in the restructured Servcon the Minister would appoint the Board. Servcon was 95% compliant with the King 2 Report on Corporate Governance – the qualifications related to the Chairman holding office since 1998, and the fact that the Chairman headed the audit committee. It was fully compliant with the Public Finance Management Act (PFMA) and Department of Public Service and Administration (DPSA) requirements, and 95% compliant with the Policy Framework of Public Entities, with the shortfall of 5% relating to matters still to be approved by the Minister. All material requirements had been met.

The Strategic Plan covered the period to 2010, and included finalisation of the ring-fenced portfolio (95% completed by March 2006). 4000 properties required rectification of administrative problems, of which 1 300 related to refusal of occupants to take ownership, or other ownership issues. The normalisation of PHD owned or managed properties would continue, and should be linked to the restructuring so that it would continue even if Servcon closed. Servcon’s expertise would continue to be used, and it was still identifying and acquiring land for Integrated Housing Development. The normalisation process related to landed properties (properties comprising both vacant land and existing buildings and occupants).

Servcon’s budget in the 2005/6 year was R59 million, with expenditure at R40 million on the Servcon cost sharing and R19 million through CIDA (Canadian International Development Administration), an organ that would assist the Department. For 2006/7 the budget was R60 million, divided by R35 million to Servcon (R28 million to finalisation of projects and R10 million to staff), and R25 million to the restructuring. PHD normalisation was dependent on approved designated properties in four provinces. Key challenges arose through PHDs delaying transfer of special in situ rightsizing programmes, either through delayed understanding or misunderstanding of value adding, but PHDs had now motivated for a linked normalisation programme. The Minister wished to acquire shares from exiting banks but could only do so once the value of shares had been ascertained. Restructuring would involve finalisation of the capitalisation programme, inter-departmental links and raising funds from the private sector. Servcon would become a Section 21 company, fully state-owned, with capacity to transact. Procurement followed requirements. Servcon was Black Economic Empowerment (BEE) compliant and used local skills. It contributed to the Accelerated Shared Growth Initiative of South Africa’s (ASGISA) aims of rapid housing delivery models. Future projects included finalisation of the ring-fenced portfolio by 30 June 2006, the linked process for normalisation, and a restructured Business Case, due to be presented to the Director General of Housing within seven days.

Discussion
Mr G Schneemann (ANC) asked if the 1300 properties not yet resolved were included in the targets for 30 June. He asked whether the new mandate would run on from the old or start afresh.

Mr S Masango (DA) asked how PHDs were identified for the normalisation process and how many ring-fenced properties were still outstanding.

Mr Moroka replied that there were currently 1 355 properties, and that these would be taken care of before 30 June so that the Banks could exit. The existing agreement stated that Servcon would cease to exist on 31 March or when the last properties were disposed of. There were 860 000 properties on the national database, including those managed or owned by provinces. All provinces had received business plans; some had approved but requested pilot projects; some approvals had been stalled at national level; others would now engage with the process to bring it to finality.

The Chairperson stated that Servcon’s exit was vital in terms of the funding and that Departments should ensure that they had capacity to solve the dilemmas. The Committee had received reports of problems in township registrations in Free State, and wondered if there was a special method of dealing with these issues.

Mr Masango asked what the scope of existing mandates was and if the additional mandates mentioned for 2004 were now out of Servcon’s hands.

Mr Moroka replied that the normalisation programme consisted of updating data, updating asset registers, updating occupancy registers and recommending properties qualifying for interventions. Relocation was part of this process. All that was still outstanding were rectifications. Establishment of the registers was part of the programme for "R239 towns" and processes were available to deal with the problems.

The Chairperson mentioned some specific problems involving evictions of surviving spouses.

Mr Moroka replied that Servcon had received about 60 referrals where people were threatened with eviction, but were referred to Servcon for assistance.

Mr Schneemann requested clarity on who was responsible for the 860 000 properties.

Mr Moroka replied that they formed part of the new programme. He would send through the reconstructed Servcon Corporate Plan, which should clarify the position. In regard to the properties, he stated that over three years Servcon’s mandate had been expanded by approval of the normalisation programme, but the Servcon shareholders had never advised Servcon that it was acting outside its mandate, which related to 1 835 properties. The expanded mandate would cover 3 500 properties.

Mr Schneemann asked for clarity on what would happen to Servcon’s offices and staff on closure, and whether the Department would grant any annual cash injections.

Mr Moroka clarified that the budget of R60 million included about R13 million for conclusion packages, although many staff would be taken over into the restructured Servcon. The precise details of whether payment would be made immediately, or delayed until a person resigned or retired were still under discussion. The process of restructuring would raise some income and the Minister and the Board would manage this surplus. Assets and liabilities would be taken over wholesale and value would be paid for shares. The claims were around R2 million for concluding packages, and around R71 000 in respect of each of four banks. Servcon would cease its business operations although the company itself would not be wound up.

National Urban Reconstruction Housing Agency (NURCHA) presentation
Mr C de Beer (Managing Director) reported that NURCHA was founded in 1995 as a non-profit company, following a joint venture between the South African Government and the Open Society Institute (now the Soros Economic Development Fund (SEDF)). Its mandate was to attract the banks to low income housing, and the signed agreement between the venture partners required NURCHA to ensure the availability of project building finance to small and medium sized contractors and developers building houses, infrastructure and community facilities necessary for the development of sustainable human settlements. NURCHA had, since 1996, supported 750 projects, constructed 7.2 million houses and facilitated projects to the value of R3.2 billion.

On signature of the venture agreement, NURCHA held R139 million of Housing Finance Funds, provided by USAid, other international agencies and the South African government. It had an operating capital of R42.8 million. It was agreed that NURCHA should recapitalise through a payment of R10 million by SEDF, with this amount being matched by the SA Government over three years with three transfers. This would not be sufficient to support the lending programme and therefore the funding was used to develop financing agreements with the commercial banks, and R350 million funding was available. There was a potential for further loans of R100 million from SEDF, on conditions that would be negotiated loan by loan. Not all facilities were currently drawn down.

Mr de Beer tabled a list of Board members and reported that the composition of the Board needed to be revised. Although technically the members of a Section 21 company appointed the directors, NURCHA preferred to consult with the Minister. There had been ten years of clean audits, and NURCHA was PFMA compliant and was satisfied that it produced quality reports.

Key trends for 2006/7 were to be found in the following areas:
Lending subsidy housing: the increase in the subsidy meant that more working capital was needed per house, and there was also pressure for increased delivery. There were ongoing problems with blocked and incomplete housing projects. There were practical conflicts between the need to use smaller, but slower, developers, and the desire to accelerate projects by using larger and faster companies.
Credit linked housing: NURCHA was ahead of budget but the increase in property prices had the effect of raising the price of delivery of affordable housing and land. NURCHA was not expecting rapid growth in this sector. In addition this particular mandate might need to be renegotiated to allow for mixed-use development.
Rental properties: NURCHA was not entirely convinced that it should be involved, and banks were not keen to give finance. The problem lay in NURCHA’s limitation to a five-year contribution.
Infrastructure and community facilities: NURCHA had only fairly recently become involved in this funding, but believed that it had the potential to develop good relationships with local authorities and agencies and the potential for substantial lending. Funding met the requirement for sustainable human settlements.

Mr de Beer tabled the budget and outputs for the 2004/5 and 2005/6 years. He reported that the current year’s budget was more realistic than in previous years and was based directly on the figures attained in the previous year. NURCHA budgeted to approve loans of R440 million. It aimed to finance 55 000 houses and sites, and build 37 000 houses. The support and financing of construction contributed directly to ASGISA initiatives. NURCHA’s employment equity plans were in place, and corporate society responsibilities were being upgraded to include training of scarce-skill quantity surveyors and engineers.

Discussion

Ms B Dambuza (ANC) asked for the numbers, and approximate finalisation targets, of blocked or incomplete projects.

Mr de Beer confirmed that there were blocked projects, particularly in Limpopo. However this was a national problem and not specific to NURCHA. Where projects were blocked, NURCHA generally did not release more funds to avoid the contractors incurring further debt. NURCHA’s challenges included better awareness campaigns so that the public works programmes and municipalities would utilise NURCHA to assist in blockages.

Mr Schneemann asked what steps, beyond the provision of finance, were taken by NURCHA to ensure that the contractors could manage the finances property and deliver to requirements.

Mr de Beer replied that NURCHA controlled the finances. Contract finance was far more intensive than housing finance and involved assessment in many areas. The essential criteria were whether the budget was correct to do the work anticipated, whether the contractor had the capacity to complete the work, whether he could make a profit, and whether the housing authority had given a reasonable budget and time frame. NURCHA insisted on all payments going to the Project Account, and on signature of agreements between contractor and employer.

Ms Dambuza asked what criteria were used for allocation of finance, and whether it was correct that not all provinces received assistance. She asked if NURCHA extended its activities to the rural areas.

Mr de Beer confirmed that NURCHA funded in all provinces except the Northern Cape. It had limited capacity so could not fund all provinces and currently focused on four provinces. The criterion for funding was simply whether the project was viable and could show a profit, as otherwise the contractor and the project would fail. NURCHA did not undertake credit checks or blacklist on default. It lent to small and medium contractors. Financial management and project support was given through checking cash flows, budgets, ensuring there was release only on progress, assistance with providing certificates to the PHDs, drawing revised budgets if there were delays, and assessing whether larger subsidies were needed. NURCHA did not finance specific contractors, but financed contracts. Of the 111 supported only three had failed; two through local authority mismanagement and one through delays. Real support was evidenced by the fact that all projects supported had shown a profit.

The Chairperson asked for details of the marketing strategy.

Mr de Beer conceded that the market strategy could be improved. Currently NURCHA made presentations to the Heads of Departments (HoDs) at meetings that were organised by NDoH, and had participated in workshops set up by the Members of Executive Council (MECs) of various provinces.

Ms Dambuza commented that NURCHA should perhaps better identify its target groups.

The Chairperson asked how many of the contractors financed were women.

Mr de Beer did not have the exact figures but undertook to forward them to the Committee. However, he pointed out that NURCHA did not actually award contracts but only became involved in the financing applications after provincial governments had awarded the contracts. NURCHA therefore had no power to influence the appointments.

Mr Schneemann asked whether NURCHA interacted with the provinces or provided training and skills to emerging contractors.

Mr de Beer replied that workshops had been held in four provinces during the last six months and assistance had also been provided to the Cape Town City Council. It was keen to meet and to make presentations.

Mr Schneemann asked for examples of infrastructure projects and asked if NURCHA played any role in groundbreaking new projects or pilot projects.

Mr de Beer replied that NURCHA was involved in the N2 Gateway Project and other new groundbreaking initiatives.

The Chairperson asked if NURCHA was BEE compliant.

Mr de Beer pointed out that the majority of contractors financed were small black owned enterprises. Credit linked houses, which formed only a small part of NURCHA’s business, were built by larger contractors, who were not necessarily black-owned. Once again, however, he stressed that NURCHA merely financed contracts already awarded by the provincial governments. NURCHA preferred to finance projects of 100 or more houses. In regard to NURCHA itself, BEE procurement and employment policies had been drawn up and were being developed.

The Chairperson asked what specifically was being done about delays in registration of beneficiaries.

Mr de Beer reported that the delays varied across different provinces and at particular times, but beneficiaries could not be registered where payments had not been made, and the project remained incomplete.

Mr M Sonto (ANC) queried whether some contractors described themselves as "emerging" for a long period and asked whether NURCHA had found itself financing the same "emerging contractors" over several years.

Mr de Beer stated that contractors did face real problems. If provinces committed themselves to supporting particular contractors over a three-year period, the contractors would be able to grow their businesses by having certainty of work. As it was, many tendered for twenty or more projects each time before receiving support. There were a number of contractors and realistically all would not get work and some businesses would not survive. NURCHA’s philosophy and criteria were consistent for emerging and established contractors.

Mr Schneemann asked if NURCHA had been made aware of province’s problems that the contractors failed to deliver because of poor capacity, and whether NURCHA was able to develop any programmes to assist emerging contractors in this regard.

The Chairperson added that NURCHA should perhaps develop some strategy to assist unemployed graduates to become involved.

Mr de Beer reported that NURCHA could only develop such programmes with financial assistance, as it was not paid to undertake training, but guidance was given and was built in to the cost of the financing.

In answer to a query from Mr Masango, Mr de Beer reported that NURCHA’s lending rates were considerably lower than the provincial development lending bodies as it lend out at the cost of raising the funds, with a fee calculated at 3% of the contract price.

The Chairperson commented that the Committee would benefit from a further presentation by NURCHA on their development programmes and it was agreed that this would be set up.

Social Housing Foundation (SHF) presentation
Mr B Maholo (Managing Director) reported that SHF had been established as a Section 21 company, with the mandate to support, strengthen and reposition the social housing sector to build sustainable and well-functioning communities. It developed services and products unique to the sector, was involved in process consulting and finding solutions, gave advice and support to the sector, promoted best practice and developed benchmarks, did research and provided strategic information to the sector and advised on policy development and advocacy. SHF had six key result areas; namely to inform and support social medium density housing policy and development; to build the capacity and effectiveness of the sector; to inform and support stakeholders; to promote access to finance and human resources; to facilitate networks amongst role players in the sector; and to achieve business service excellence.

There had recently been a complete restructuring of SHF, and in future its role would be focused on capacity building and building grants in order to meet the demands of the sector and contribute to the new strategy of key interventions. It had been undertaking training and education in the social housing sector since 1997, but the new role would focus on facilitation of training, rather than undertaking the training itself. The highlights for the past year included producing the SHF Generic Operations Manual, produced in collaboration with the entire sector. A Public Housing Stock conference had been held to discuss issues relating to existing local and provincial public stock when other countries had given valuable input. The Local Government Social Housing Forum and other networking had been held. Policy support and information support to the sector, through the resource centre, had enhanced networking with other role players.

Overall SHF had shown good performance and had turned itself into an information organisation, as opposed to a training organisation. Its budget was drawn up to support the European Union’s (EU) programmes in Social Housing. Activities planned for the next year were aligned with EU policies. In the area of influencing National Housing policy, SHF was busy with four research papers and workshops. In building the social housing sector, it would enhance information and support of the programme management unit of the EU and establish benchmarks. Information and support to the sector included various support tools, including the website and update of the resource centre. In broadening its funding base it was facilitating links to funding resources and building partnership agreements. It aimed to facilitate and strengthen the networks amongst all role players and achieve client satisfaction.

During 2006/7 the Social Housing Foundation would change to the Social Housing Regulatory Authority (SHRA). Regrettably there was no certainty when this would happen, although April 2007 was a possible date. The establishment of the SHRA was aligned to closure of SHF to ensure that there would be no gap in the programmes. The EU programme was to end in June 2007. In addition NDoH wished to establish a Chief Directorate within the Department – management of this process was also vital to SHRA’s establishment. In the interim SHF was working to maintain South African and EU programmes, meet the needs of the sector, ensure effective operational management processes, and monitor and evaluate programmes. Policy and legislation which would impact in the next year included amendments to the Prevention of Illegal Evictions Act (PIE), the impact of the High Court ruling in Johannesburg on evictions, the Social Housing Bill, the formation of SHRA, and the implications of the National Credit Act.

The budget for SHF was based upon funds from the EU and NDoH, and a former grant from the Norwegian Government. A total of R64 million was available. The breakdown of these figures was tabled but not discussed. There was no funding in the cooperative Housing Sector since the Norwegian funding had ended, and there was limited capacity for stock support in the public sector.

Discussion
Mr Masango asked how SHF assisted in capacity building.

Ms O Crofton (Director of Academic Research and Development) replied that SHF interacted with NDoH on three levels, in a facilitative role, but did not make policies. Firstly, it had been involved in the Social Housing Bill, whose policy had been approved in May 2005. Secondly it was involved in drawing up the programme guidelines, which would be presented for approval within the next two months. Thirdly it was involved in information and making recommendations on difficulties in the registration processes. In addition, SHF had been involved in the programme to develop hostels into Commercial Residential Units (CRU), giving support and resourcing capacity for the rollout. SHF also assisted in creating guidelines for and giving management advice on the capacity building grants. Project feasibility assessments were undertaken for the housing institutions. SHF had also assisted in managing donor projects, and still managed the EU support programmes on housing and technical support.

Mr Masango asked for the outcome of the conference.

Ms Crofton replied that the conference decisions and discussions were used to inform NDoH of the different options and models available for extended discount benefit schemes relating to the transfer of public stock to beneficiaries, and the likely impact on affordable public rental housing.

Ms Crofton reported, in answer to a question from the Chairperson, that rental housing stock was still a target market and SHF had framed policies.

Mr Schneemann asked whether there was growth and increase in social housing and co-operative housing models in South Africa.

Mr Maholo replied that there was growth in the number of entities, but this did not necessarily mean an increase in the number of units developed, and this was one of the areas being addressed. SHF believed that accreditation should relate both to the institutions, and to their projects. SHF was currently planning a pilot project, in the current year, utilising the grant allocated for social housing.

The Chairperson asked who had decided on the closure of SHF and she and Mr Masango questioned whether any time frames or deadlines had been given.

Mr Schneemann asked whether the uncertainly was having a negative impact on operations.

Mr Maholo replied that SHF policy had anticipated the establishment of SHRA, with SHF’s functions being subsumed under SHRA. The team of consultants preparing the business case recommended to NDoH that the two processes be linked. The Board had not advised a time frame, although the indications were that it would be during 2007. The uncertainty was affecting morale, but the management team was encouraging staff to remain with SHF and to focus on the effective completion of their jobs. Customers were also uncertain of SHF’s future.

The Chairperson asked for an indication of the relations between SHF and NDoH.

Mr Maholo felt that there was a positive working relationship, but would like to see better communication on the establishment of SHRA and the role of SHF.

Rural Housing Loan Fund (RHLF) presentation
Mr W van Emmenis (CEO) reported that RHLF was a world-class rural social venture capital fund that created new financial arrangements and opportunities for rural families to improve their housing, economic and living environments. It was a Section 21 entity established with capital from a general Government Grant. It focused on rural housing and created access to credit. The rural housing statistics showed that the majority of rural residents would not qualify for mortgage finance. RHLF would establish a credit history for people, and about 25% of end users had managed to gain repeated access to finance for other purposes. RHLF worked with intermediaries to create jobs, and used local community labour, facilitated economic development, enabled access to public utilities, linked the first and second economies and supported the building industry in creating jobs. RHLF also facilitated training by manufacturers of installers, and linked this with credit facilities for purchase by workmen of materials needed for installations. RHLF engaged with banks, and its current funding was to its maximum exposure limit. It had succeeded in obtaining a loan agreement through one of the large pension funds, and further funding had been concluded from the German government, with a guarantee issued to the Development Bank of Southern Africa (DBSA). It shared land and agriculture policies with Mafisa, had made representations to SARD (Sustainable Agriculture and Rural Development) and the Payments Association of SA (PASA) on the national payment system and competition, and were pleased that the new National Credit Act would allow for larger loans, over a longer term and at a lower cost, to borrowers.

RHLF had developed a consolidation strategy during the past year, when 7 of the lenders had been consolidated into three. RHLF’s clients’ difficulties in accessing equity from the formal banking sector had suffered even more with the collapse of certain banks. RHLF aimed to bring low risk entities on board to reach the target market. Selected initiatives used by RHLF included consolidation, where entities were assessed on their ability to expand credit in rural areas; a pilot scheme with stokvels to assist with credit vetting; village banks; and cellphone banking facilities. Community-based loans were made available to farm workers, and RHLF engaged with the larger agricultural co-operatives to assist emerging farmers. RHLF also assisted with alternative building technologies, subsidies for environmentally friendly housing; rural worker housing and in establishing links with building material manufacturers. It gave top-up credit to housing subsidies. RHLF was also running a pilot programme through the Spaza stores, attempting to shorten distribution networks to make it more cost-effective for Spazas to stock materials and offer credit at lower cost.

RHLF tabled its disbursements since 2003, and budgets for the forthcoming period. In the current financial year it hoped to exceed R500 million turnover, a 22% increase on the previous year. In 2005/6 RHLF had made loans in building material supplies to 2 900 people across 70 nodes, to a value of around R8 million. It budgeted for growth in the following years, but at a lower percentage, since strategic initiatives undertaken would not necessarily result in immediate results. Interest on loans was budgeted to increase. RHLF had been able to contain its costs very effectively, and annual operational costs had reduced in real terms by about R1 billion. New strategic initiatives would result in an operational cost increase for the current year. RHLF had succeeded in reversing the fallout from the bank crises in 2003/4, and in the last year had achieved a before-tax profit of R2.6 million. RHLF aimed to make 22 000 end-user loans; in the previous year it had made 28 000, of which 49% were granted to females. Monitoring of borrowers had shown that 23% had earned R1 500 to R2 500 per month and 33% over R2 500 with RHLF’s assistance.

RHLF was committed to BEE at four levels; in meeting demand-driven development needs, in funding black owned and managed enterprises, in warehousing RHLF shares for future acquisition, and in its own employment equity. Six out of nine of the current clients were BEE; three would become BEE compliant shortly. It had received unqualified audit certificates for the past two years, and was PFMA and National Treasury-compliant, with all loan and investment decisions being taken by the Board or sub-committees of non-executive directors.

Discussion
Mr Masango asked how RHLF assisted in the accessing of finance.

Mr van Emmenis responded that the criteria for financing laid down by the banks made it extremely difficult for borrowers to access funding. RHLF would establish a credit history and would monitor the costs charged to repeat borrowers. RHLF tried to maintain clients and match services.

Mr Schneemann asked if there had been any progress in bringing down the cost of loans.

Mr van Emmenis reported that the RHLF costs were well below those of other institutions. The average rate of interest on loans was around 35% and RHLF’s clients fell within this range.

Mr Mabena asked if RHLF supported indigenous building technologies.

Mr van Emmenis confirmed that it did, and tried to link credit with alternative technologies. Pilot projects were currently running in KwaZulu-Natal to grant financing for the building of environmentally friendly houses.

Mr Masango asked whether loans were made for both first-time building and improvements.

Mr van Emmenis reported that around 2% of loans were for new housing, 6% for extensions, 44% for improvements, 16% for services and 26% were other loans (for education or other services).

Mr Mabena asked about farm workers, and whether loans were granted in accordance with plans from the National Housing Builders Registration Council (NHBRC).

Mr van Emmenis replied that loans were granted for dwellings away from farms, but not for farm dwellings, as there was a problem with security of tenure and workers might not receive compensation for upgrades when they left the farm.

Mr Sonto asked if RHLF checked whether clients were genuinely BEE compliant. He asked for clarity on RHLF’s own employment equity.

Mr van Emmenis confirmed that RHLF undertook due diligence audits and was satisfied on BEE issues. In regard to RHLF itself, he confirmed that there were only 11 staff members and it was simply not possible to employ across all racial groups, but that there was a good demographic representation.

Mr Sonto asked for the reasons for the "exodus" from the RHLF Board.

Mr van Emmenis replied that the Board had adopted a rotation policy and had made representations to the Department of Housing for nomination of additional members, since it currently had only seven members, which was insufficient and placed undue burdens on sub-committees. Members had resigned because they had relocated, or owing to job pressures, or through normal rotation.

Thubelisha Homes (Thubelisha) presentation
Mr K Duncan (CEO) reported that the initial mandate of Thubelisha had been revised in 2006 to one of rightsizing. From 2004 to 2006 Thubelisha was working with a number of Servcon clients. In order to assist in the rightsizing process it consulted with the municipalities on the question of waiting lists for housing, so that wherever rightsizing took place was linked with waiting list clients. There were no further Servcon properties involved.

The current scope of activities ranged from identification of land to relocation of clients, and now included physical construction of services and houses, allied to Extended Public Works Programmes (EPWPs). Thubelisha would not compete with the private sector but focused on areas where there had been market failure, where schemes were dysfunctional or blocked projects were no longer commercially viable. Pilot projects had been initiated in Alice (Eastern Cape) and Gauteng (near Potchefstroom). Thubelisha was now involved in the N2 Gateway Project. Initially it had been appointed as project manager, with the City of Cape Town (CCT)as developer and the province as funder. The province and Thubelisha were now responsible for development, with CCT taking back its normal city function.

Thubelisha was funded by an initial capital grant of R50 million from the old Reconstruction and Development Programme (RDP) funds. This was used as revolving or bridging finance to enable Thubelisha to engage with contractors, who invoiced Thubelisha. Thubelisha claimed from provinces at a later stage. This affected cash flow since payments from provinces were not always made on completion of housing. The grant had, over time, been reduced to its current level of R39 million, which meant that there had been a "loss" of R11 million. Against this, however, must be measured Thubelisha’s provision of 15 000 houses. R39 million was reflected in "debtors" as bridging finance and was collectable. Treasury had recommended that in order for Thubelisha to operate more effectively it needed better infrastructure and more staff and systems. A conditional grant of R30 million had been awarded specifically to improve capacity, not as working capital. Half had been spent on employing additional staff, IT and providing offices. Thubelisha had never received transfers from the National Department for overhead recoveries and recapitalisation would offer increased options as Thubelisha could then approach the market. The problem with cash flow arose because provinces, whilst operating on suitable systems, were nonetheless slow in finalising and paying. Essentially Thubelisha was able to finance contractors upfront and recover later as its single shareholder was Government.

Treasury had ruled that Thubelisha was prohibited from operating as a Section 21 company, and was therefore considering new options. The most likely was the formation of an independent company, at arms length from NDoH, but providing the necessary functions to it. The Board of Thubelisha had been constant for a long time but Mr Mataka had left when the rightsizing initiative came to an end as there was no longer an operational relationship between Servcon and Thubelisha. The Minister’s official was also withdrawn. The quorum of seven out of the seven members had of necessity been reduced at a recent Special General Meeting. The Board needed to be reconstituted and augment its skills. It was satisfied with its performance on corporate governance and had reached appropriate compliance levels – the qualifications were attributable to non-investment of surplus funds, which was deliberate as it required a constant high cash flow. The functions of the audit committee and Board Chairpersons would be split when the new Board was formed. Employment equity followed the Construction Charter Guidelines, and Thubelisha was well in line with recommended targets for the industry, having 41% black management, 11% (as opposed to the recommended 12%) black females, and 23% total female management. It was in line with the national profile on racial balance.

Thubelisha had spent 85% of its budget for construction of houses in the last year. The shortfall related to delays in completing roofing due to a shortage of raw materials sheeting, which Thubelisha had established arose from the failure of NDoH to give any indication to processors and manufacturers of the quantities that would be needed for building. This had been taken up with the Department. There had also been an abnormally wet summer in Gauteng, so that there was considerable downtime in delivery of materials and building.

Thubelisha’s strategic objectives related largely to its Board restructuring to meet its new mandate. It would finalise corporate structures, set up funding, and hoped to contribute 20% of the total housing market. It aimed to construct 20 000 houses, service 10 000 stands and achieve a turnover of R600 million. Certain issues arising from its "backbender status" still remained to be finalised.

Discussion
Ms Dambuza asked whether Thubelisha had managed to complete blocked projects.

Mr Duncan replied that around 60% of Thubelisha’s work was in this area, and that the projects had originally been handled by entities other than Thubelisha, and had become blocked for various reasons. Thubelisha was called in essentially to resuscitate the projects.

The Chairperson asked for details of the blocked projects, by region, and the work involved in unblocking projects to be forwarded to the Committee, and Mr Duncan undertook to do so.

Ms Dambuza asked for further clarity on the loans from NHSC, in particular how Thubelisha would repay them.

Mr Duncan replied that a loan was one of the options currently under consideration, but he personally did not believe that loan finance was the best way to recapitalise. Thubelisha would prefer to receive a cash payment, although small top-up loans might be needed, particularly to accelerate the N2 Gateway project.

Mr Schneemann asked whether Thubelisha was already operating on the new mandate.

Mr Duncan confirmed that it was, and that some small building projects had already been done. Project management continued as in the past.

Mr Schneemann asked for details of its office network and staff.

Mr Duncan advised that there were seven provincial offices; none in the Free State, and only one small satellite office in KwaZulu Natal. Presently the Free State provincial government did not see the need for Thubelisha but this did not exclude involvement in future. Thubelisha had about 140 staff, and anticipated having 200 by the end of the year.

Mr Schneemann asked when exactly Thubelisha had become involved in the N2 Gateway Project.

Mr Duncan reported that the agreement had been signed on 22 February 2006, in terms of the new mandate, but that the official starting date was end February 2006.

The Chairperson commented that the N2 Gateway work, which was running at a loss, should have been given to an entity that had already incurred losses in the past.

Mr Duncan replied that it was true that there had been losses, but that this was to be expected since Thubelisha only operated in areas that were not commercially viable which consequently did not attract the private firms. Thubelisha could not therefore be expected to run to the same margins as commercial firms. In addition, it became more involved in the dynamics and social structures. It had been operational for seven years and although there was indeed a loss over that period, this must be balanced against the production of 15 000 houses. Thubelisha would need further transfers of funds if it were to continue properly; the margins would be covered by the project management fees but the overheads needed to be paid by clients or NDoH.

Mr Schneemann asked for clarity on "mega-projects" and on "breaking new ground" pilot projects.

Mr Duncan stated that the "mega-projects" were run as pilot projects involving settlement upgrades in N2 Gateway, Buffalo City (Duncan Village) and Nelson Mandela Metro (Soweto-on-Sea). It was anticipated that the work on blocked projects would take only a further two to three years, when the special deals would fall away, and that then Thubelisha would focus on mega-projects. Each project undertaken was useful as a learning curve and training ground for future work.

The Chairperson referred to the visit by a Dutch delegation and asked if there had been any form of exchange.

Mr Duncan replied that he had not been involved, and that this was apparently a visit arranged by SHF.

Mr Schneemann asked if the contract work was in line with the NHBRC proposals on standardised plans, quality of work etc.

Mr Duncan reported that the size of houses was set according to Provincial specifications, but new houses would be standardised under NHBRC proposals.

Ms Dambuza urged Thubelisha to ensure that it complied strictly with the time frames, since provinces had commented in the past that Thubelisha had been slow owing to capacity problems.

Mr Duncan pointed out that projects became blocked for different reasons, but that all projects were completed as originally intended. He assured the Committee that Thubelisha was constantly striving to improve its service with the appointment of senior and appropriately skilled technicians.

Afternoon Session

MINUTES
Northern Cape Provincial Government Presentation

Mr JF Van Wyk (Member of Executive Council (MEC)) explained that the Northern Cape budget allocation for 2005/06 hadbeen spent by March 2006. However, the province was still unable to implement some housing projects because of the lack of capacity at municipal level. He also told the Committee that the vastness of the province made it difficult to monitor and evaluate projects, and that put a strain on the operational budget

Discussion

Ms NJ Ngele (ANC) remarked that she was concerned about the constraints and challenges when it came to delivery. She pointed out that certain projects were abandoned by the Northern Cape Province in December 2004 due to lack of funding. She asked what had happened to those projects.

Mr Van Wyk explained that the lack of funding is a huge problem in the province. He pointed out that if one looks at the national allocation one finds that, due to the allocation formula, the money that the Northern Cape receives is not comparable with the amount of money that the other provinces receive. He explained that while other provinces are allocated more than R400 million, the Northern Cape received only R104 million for this year.

Mr Van Wyk conceded that there were projects that came to a standstill in December 2004. He explained, however, that these projects came to a standstill due to overcommitment and lack of funding. As a result the Northern Cape had about 54 blocked projects. He pointed out though, that the province is starting to address some of the problems; consequently some projects have been re-started and some are nearly complete. Some projects are still blocked, but the province aimed to unblock all of them by March 2008.

Mr GD Schneemann (ANC) asked what "breaking new ground" housing strategies of the national department have been implemented in the Northern Cape as pilot projects. He also asked for an explanation of interdepartmental planning around such pilot projects.

Mr Van Wyk pointed out that there were two new pilot projects in the province that were part of the "breaking new ground" housing project. He explained that this is because the province does not have the problem of upgrading informal settlements. One project is in Kimberly, Lorato Park, and the other one is in Kossieburg, called Ou Box. Both pilot projects are in phase one, the planning phase. He pointed out that due to lack of funding these pilot projects were only started in the previous financial year.

Mr Schneemann asked what role the National Home Builders Registration Council (NHBRC) played in the Northern Cape Province. He enquired if the NHBRC is active at all in the province in fullfiling their mandate of inspecting government subsidised housing.

Mr Van Wyk explained that the NHBRC played a role in the province, and both the province and the NHBRC were busy ensuring that all the projects in the province were registered with the NHBRC.

Mr DC Mabena (ANC) remarked that he was worried about the lack of capacity at the municipal level. He pointed out that it was worrying that the province had a vacancy rate of about 42%. He asked if the province was experiencing skills-flight. If so, what was the province doing to rectify this situation?

Mr Van Wyk replied that as far as the lack of capacity at municipal level in the Northern Cape was concerned, the province was making remarkable progress compared to other provinces. He explained that with regards to accreditation of municipalities, for example, the province had already completed a business plan for the national department and accreditation of the pilot projects in eight different municipalities located in the province. Further, the province had already completed the capacity assessment process for each municipality.

Mr Van Wyk conceded that the issue of vacancies was a problem. He explained that because of the rural nature of the Northern Cape Province, it was difficult to attract the necessary capacity.

Mr Mabena asked the MEC to explain the progress of the People’s Housing Partnership Trust (PHPT) projects in the province.

Mr SF Haasbroek (Director: Northern Cape) explained that as far as the people’s housing process was concerned the province had good housing projects in 2003 which were implemented according to the people’s housing process plan. These projects were then used as pilots. However, in 2004/05, the issue of the R2 479 contribution that beneficiaries had to make in order to receive the subsidy came to the fore. He pointed out that this was the time that everybody jumped onto the PHPT bandwagon. He added that it was not even really PHPT housing projects; rather, it was managed PHPT projects.

Mr Haasbroek explained that as a result they had a number of projects in their system that were registered as PHPT projects, but in reality these were managed PHPT projects. However, what the province was doing at the moment was to review all the projects to make sure the PHPT projects were not managed PHPT projects, but real PHPT projects.

The Chairperson asked if there was any housing backlog in the Northern Cape. She pointed out that she was asking because the province had managed to spend all the money that was allocated to it.

Mr Haasbroek explained that the province had a backlog of about 35 000 to 40 000 house. He added that it was possible to wipe out the backlog because it was equivalent to some of the country’s metros’ housing backlog. He emphasised that with the necessary financial support, the Northern Cape would have no problem in wiping out the backlog.

National Home Builders Registration Council (NHBRC) Presentation

Mr P Makgathe (Chief Executive Officer) informed the Committee that the NHBRC was committed to assisting home builders through training projects and inspections to achieve and maintain satisfactory technical standards for home builders.

Discussion

Mr Schneemann remarked that he had been interacting with a number of people who were involved in alternative designs and construction methods, who he had referred to the NHBRC, but the people were not getting any responses from the NHBRC. He wondered how successful the NHBRC project of providing alternative housing was. He enquired if it was possible to visit some of the completed alternative housing projects.

A Member remarked that previously when the NHBRC appeared before the Committee, they were told about a new standardised housing design and costing models, which the NHBRC was planning to implement. The Committee asked how far that project had progressed.

Mr Makgathe explained that the 284 slabs that have been cast are located in Modimolle, Limpopo Province. He added that there were 50 completed houses, 31 had their roof level completed and 20 houses have already been painted.

Ms Ngele pointed out that she was not very impressed with the progress of the emerging contractors. She asked what happened after the emerging contractors have been trained.

Mr Makgathe explained that the issue of emerging contractors and capacity building was a big challenge for the NHBRC. He pointed out the NHBRC has spent about R3 million on emerging contractors and capacity building instead of R10 million that had been targeted.

Mr S Masango (DA) remarked that most of the Reconstruction and Development Programme (RDP) houses in Mpumalanga had not been inspected and the local people did not know about the role of the NHBRC.

Mr Makgathe pointed out that the NHBRC had a project in Mpumalanga which started in April this year. He explained that in terms of the construction process, before the province could actually start with construction, it had to submit a "geo-tech" report to the NHBRC.

National Housing Finance Corporation (NHFC) Presentation

Mr S Moraba (CEO) explained that as a state-owned development finance institution, the principal mandate of the NHFC was to broaden access to affordable housing finance for the low and moderate-income earners of South Africa.

Discussion

The Chairperson asked how the gap between the NHFC and emerging contractors was being dealt with by the NHFC.

Mr Moraba explained that the NHFC believed that facilitation played a crucial role in this regard, and further, it believed that it was vital to form partnerships with other development finance institutions (DFIs) to promote small and medium enterprise development. He added that the DFI project he had in mind was a project like the National Empowerment Fund (NEF).

Mr Schneemann asked what direct lending meant. He enquired who the NHFC was planning to lend to.

Mr Moraba explained that the NHFC planned to lend to the "man in the street" (sic), and any contractor who was involved in a specific development project. He added that the NHFC’s role is project defined. Within a project, the NHFC would be able to provide whatever resources that were necessary to get the project off the ground.

People’s Housing Partnership Trust (PHPT) Presentation

Mr M Tshabangu (CEO) explained to the Committee that PHPT as an institution was still struggling to build an institution with adequate capacity to achieve its goals, and therefore, to meet the requirements of the Comprehensive Plan for Sustainable Human Settlements. He added that the PHPT was a small institution, with about three to four staff based at the PHPT offices. This had been the case for the past three years. Mr Tshabangu explained that when he talked about a restructuring of PHPT he was actually referring to the construction of a bigger and better PHPT.

Discussion

Mr Mabena asked how many municipal officials were trained by the PHPT in Gauteng. He explained that the reason he was asking was because as far as he knew the municipal officials in Gauteng were trained, but the PHPT presentation stated that only two provinces have been trained, i.e. the North West and the Free State. He asked the PHPT to explain exactly which provinces had been trained and which still needed to be trained.

Mr Tshabangu explained that the PHPT did not have enough capacity to train municipal officials. He added that for the past three years he has been complaining about the same thing. Although he was the CEO, he had to organise training due to the lack of capacity. For this reason only a small number of people had been trained in two provinces.

The Committee felt that the presentation of the PHPT was not that different from last year’s one. The Committee remarked that according to the National Estimates of Expenditure in 2004/05, 212 new PHPT housing projects were initiated; while in 2005/06, there were only 12 new PHPT housing projects. This did not add up, the Committee felt.

The Chairperson asked what good was an institution like the PHPT that offered training that was not accredited. She added that as far as she was concerned, this was a waste of time and resources.

The Chairperson questioned the PHPT internal staff structure of four people. She further asked the Members of the Committee not to waste time discussing the PHPT, for it was clear that the PHPT was not committed to its mission.

Banking Association Presentation
The Banking Association made their presenation (see attachment).
The discussion on the presentation was not minuted by PMG.

The meeting was adjourned.