NHBRC, SHRA, Nurcha, HDA, CSOS, RHLF, National Housing Finance Corporation & EEAABA on their 2016 Annual Performance Plan

Meeting report

Entities of the Department of Human Settlements (DHS): 2016 Annual Performance Plan briefings
National Home Builders Registration Council (NHBRC)
Before the presentation began, Mr Neville Chainee, Deputy Director General, Department of Human Settlements, tendered an apology for the Director General, who was unable to attend as he had a number of urgent matters to attend to.

He furthermore noted that the contract of the former Chief Executive Officer of the NHBRC had recently ended, and Mr Abbey Chikane, Board Member, was the Acting Chief Executive Officer. 

Mr Chikane presented the key performance areas (KPA) that had been identified for 2016/17. In Programme 1, NHBRC intended to move to 100% implementation of the approved annual compliance plan. Programme 2 intended to register 4 068 homebuilders, in line with the medium term strategic framework goal of 20 000 registered homebuilders by 2019. 140196 homes will be inspected in the subsidy sector, and 53 994 in the non-subsidy sector, during the 2016/17 financial year. 110 women will be trained on construction related courses, and 140 196 subsidy homes will be enrolled. 70% of housing consumer complaints will be resolved within 60 days of capture. 2 000 youth will be trained, 351 artisans will be trained, and 440 home inspectors will be trained in 2016/17. 3 870 women and 180 military veterans will also be trained. 100% of people with disabilities currently enrolled in training programmes will be trained.

Mr Shafeeq Abrahams, Chief Financial Officer, NHBRC, said that the strategic alignment had considered both the economic situation and the need to deliver services. R25 million has been allocated to visibility and accessibility to the consumer. R30 million has been allocated to knowledge and creation to improve industry standards. R1.5 million was allocated to the re-positioning of the investment strategy of the organisation. The rest of the budget was allocated to improving accessibility, efficiency and availability to the consumer. Revenue should grow by 14% in 2016/17, to R948 million, largely due to growth in the subsidy market. Cash operating expenses should grow by 4% in 2016/17, largely due to a reduction and containment of administrative expenses. About R367 million will be generated by funding in 2016/17, and investment growth will be about 6%. Liabilities will grow by about R70 million during this year.

Discussion
Mr P Sithole (IFP) said that this strategy does not account for rural areas. The disability-training target of 100% does not reflect an actual target and should be clarified.

Ms L Mnganga- Gcabashe (ANC) said that the plan is lacked evidence of how the organisation had spent money over the past five years. Entities are expected to present this information. Furthermore the presentation was very difficult to see, and there was a need to expand on the information. The number of inspections should be contextualised with previous years as well.

Mr L Khoarai (ANC) said it was difficult to see a coherent plan through many of the slides. For example, the MTSF does not address the realistic situation and there were no figures for enrolments, which is what the Committee would have expected. The Committee needs this data to gauge whether the programme is successful. It was not shown how or whether the subsidy MTSF numbers are linked to the actions of the entity, and the goals did not make sense.

The Acting Chairperson agreed that targets and contextualisation of results should be presented with the current data. The marketing and communication of NHBRC in certain provinces is non-existent, and the visibility of the programme in different provinces should be recorded and analysed. More data is needed for Members to properly respond to these presentations.

She furthermore commented that training of 351 artisans is a low target, particularly given the youth unemployment in the country. This aspect of the programme should be expanded.


Mr Chainee said that total non-subsidy enrolments for 2015/16 amounted to 50 205, while in 2016/17 is anticipated to be 53 955. Many of these come from low-value homes of less than R1 million. Subsidy enrolments have also gone down. Project enrolments decreased since 2015/16 as well. All in all, the performance over most of these figures shows a consistent performance over the two years.

He said that one of the top ten priorities is to be accessible to the communities and NHBRC currently has 22 officers working at a provincial level. Mobile offices will be deployed, although the geographical footprint of this programme is being looked at as well, and many investigations are ongoing.

The NHBRC operates the Youth Brigade Programme out of a main centre where a lot of training of different kinds takes place. It is turning into a resource for the sector, and is planning to expand its operations.

Alternative buildings will be considered in the creation of future houses, and many new technologies are being investigated and considered. There are many exciting new innovations in this field. Different ideas will be showcased in October 2016, in collaboration with the Department of Human Settlements (DHS or the Department).

He added that the resource capability of the entity is being closely examined. The total revenue for 2015/16 was R870 million, while the budget was R830 million. There has been a growth year on year of 11% over the past two years. The MTSF targets have been given in the slides and these show where NHBRC is coming from and where it is going. Since the current Council took over six months ago, it had prioritised the need to align the constitutional mandate with the National Development Plan (NDP) and current budget constraints. Visibility and accessibility is shown as a critical issue in the slides and this aspect is being expanded. NHBRC needs to have more services and products available to consumers, as it cannot afford to repair all houses that incur damages. Legislation such as the Housing Consumer Protection Act should be reviewed, and teams are being put together to research these Acts. A report will shortly be presented to the Minister. Social transformation efforts are being broadened to include many different previously disadvantaged groups.

Social Housing Regulatory Authority (SHRA)
Mr Rory Gallocher, Chief Executive Officer, SHRA, said that one third of the population currently lives on under R6 500 per month, excluding the portion of the population living in backyard shacks. The APP and the strategic planning has been drafted using these statistics. The National Affordable Rental Housing Programme offers many options. The medium-term target of 27 000 units before the end of March 2019 put pressure on available resources. Greater co-ordination in planning and budgeting is essential to avoid these kinds of situations. Financial modeling constraints like the grant quantum and the income bands need to be re-examined.

He said SHRA wants to make sure that it spends its time and energy on the actual delivery of social housing. The purpose of regulation is to examine the risk to the state’s money in these housing programmes. Another area of focus is to professionalise the sustainable social housing sector and try to make it sustainable. Although SHRA is not actually responsible for the production and management of these programmes, it is responsible for a certain level of oversight and alignment.

The main programmes of SHRA are:
-Investment programme
-Compliance programme
-Accreditation programme
-Capacitation programme – including provincial and metro entities
-Administration programme

The capacitation programme, which has now run for two years, had been ad hoc and related to information directly received by SHRA. A more programmatic and strategic approach has been adopted, and there will be an overall capacitation assessment done per region. The possibility of scaling up housing delivery over the medium term will also be examined.

The investment programme has only delivered 7 485 units in the last two years, which means it will have to deliver an additional 19 000 units in the next three years to reach its medium term targets. The capacitation programme will be clustered with the social housing investment programme to ensure project readiness and financial viability. The accreditation programme will also be separate to completely determine the financial viability of any and all possible investees.

He pointed out that many legacy projects of the past may take up 80% of SHRA’s resources while only contributing 20% of the results it needs to achieve, so the viability of these is being re-examined carefully. SHRA needs to create additional legal capacity to deal with certain areas of its mandate.

In many ways the current arrangement is unsustainable. SHRA cannot financially meet the grant target of 19 000 units for the medium term, with the current RCG grant. However, SHRA is not panicked about this because it could be possible to source additional funding to achieve these targets. SHRA is examining the relative importance of its regulatory mandate and its social housing delivery mandate, and considers itself primarily a social housing delivery entity.

Housing scarcity is at quite moderate levels in the country currently, although it is apparent. This means that projects can be properly examined before they are approved to ensure a quality delivery. Municipal and provincial human settlement strategies need to be examined, and the budget alignment needs to be determined more by provincial strategies than national or entity-determined mandates. SHRA will be able to present in six months on the viability of its capacity to deliver on the national social housing programme.

Norms and standards will be determined on all future houses to be built, as cost estimations and product quality need to be precisely calculated. SHRA will work to re-accredit 150 social housing institutions by 2019, and increase the number of state-of-the sector reports. Many new indicators have been introduced to the capacitation programme, related to the creation of job opportunities for women and youth. Projects and entities will need to be accredited in the future.

Discussion
Mr Sithole asked which provinces and cities the inner-city renewal programmes will focus on. These programmes are not understandable, and the publication of SHRA’s programmes is not clear. The loss of social housing stock does not make much sense in this context.

Mr Khoarai said that in the human settlement bracket, there was always a capital allocation to SHRA. It is not clear whether this has all been spent, and how much of it is left over if not. There needs to be a clearer picture of exactly what SHRA’s housing and regulatory role is. There are many different standards within the projects under SHRA’s mandate, and the need for norms and standards is vital. He asked if SHRA does regulate the social housing institutions’ maintenance of the units produced? This should be considered in the re-accreditation process. The increase of rents in these units does not take into account the lack of increase in individuals’ salaries.

Ms Mnganga-Gcabashe said that it is good that SHRA recognises its need to deliver housing as well as regulate social housing institutions. However, coordinated planning with national and provincial departments needs to improve. SHRA should not be underspending its budget at all, because the importance of SHRA’s activities should be vital under the NDP. The targets of units approved for construction is not made clear in the presentation of results for the past few years. Targets and actual results should be presented together.

Ms T Gqada (DA) said that in 2015/16 there were seven projects approved, to deliver 1 979 units, and she asked if this target had been met. She also asked if the misconduct cases at SHRA over the past few years had been resolved. She asked if SHRA had compiled its list of accredited institutions, or was this work still ongoing?

Mr Chainee said that a substantial number of working class people live very far from their work. SHRA has been asked to deal with this issue, and to try to enact this social change and transformation. If there is justification to move income bands and increase subsidies, then these requests will be considered and made to the Minister. As there is a “missing middle” in the South African market, access to housing is not being provided for many.

Mr Gallocher said that the inner-city programmes are quite strong in their agreements and the eThekwini and Cape Town programmes are in the pipeline. A R3 million contract has been signed with the City of Johannesburg to assist with the densification of affordable housing in the inner city. Replicating the approach taken by the Johannesburg Metro is vital to the success of subsequent programmes. The compliance report of the social housing institutions will be much more robust in the future, and will be presented in the fourth quarter of this year. Many of these social housing institutions do not budget for a maintenance reserve because of the low amount of income with which they operate.

The Minister’s target of 1.5 million affordable housing units being made available is a valid target for the current situation, where one-third of the population was renting. However, the real issue in the social housing arena is currently the lack of inner city affordable housing all over the country, and these programmes will be ramped up and prioritised.

He answered that the misconduct cases in the organisation are at a sensitive stage; one was presently in the Labour Court and one was under criminal investigation. The Council will meet on the 25 April, and a list of 21 individuals will be considered for future misconduct cases.

SHRA is in discussions with the national DHS and National Treasury to allow the separations alluded to in the presentation. The excess medium term allocations have been re-allocated and any unspent funds will be spent on programmes and deliveries of units.

Estate Agency Affairs Board (EAAB)
An executive member of EAAB said that consumer education is mandated by the Minister, and that this has been adopted by EAAB as part of its mandate. If people are selling their houses over the black market, there are serious repercussions and the EAAB tries to prevent these situations by making it easy to have access to a registered estate agent.

Unemployed youth are being considered as future estate agents, and that is in line with the Minister’s mandate as well. This industry is reserved for a kind of person with a certain amount of time and money, but the EAAB is attempting to provide access to training and accreditation to previously disadvantaged groups. Access to money during training is important as well for these youth, and the EAAB is looking into providing subsidies as well as training. These programmes are also looking to become more general training programmes that can empower individuals to join the market in any kind of capacity, not just as estate agents.

Mr Silence Mmotong, Chief Financial Officer, EAAB, said that the 2014/15 to 2018/19 strategic planning numbers form the basis for all key performance annual targets. These numbers have previously been presented to the Committee. Inspections of estate agent sites will end, and EAAB will now communicate with the agents to conduct self-assessments. There are a lot of claims that could reduce the reserve of the EAAB, and the strategic risks are being investigated. Payment to illegal estate agents will be immediately restricted and the implementation of the Property Practitioners Act will reduce the use of illegal trading agents.

He noted that the EAAB funds itself through examinations, setting of study guides and through the training of individuals and professional development. Although it does not primarily intend to produce a profit, a R2.8 million surplus was achieved last year, which will provide a good buffer for the future. The levy of EAAB has increased by 40% because over the last ten years it has not increased this levy once. Staff costs have increased by 15%, which includes a wage increase average of 8%, but a new centre is opening in KZN, while many vacancies are being filled. Young graduates are being employed at different levels of the organisation, to make them employable in the job market. The first term of this young graduate programme will end in May, and 20 young graduates will hopefully move into permanent jobs with another organisation.

He said that a critical element of the plans related to consumer awareness, as there are too many South Africans who are not aware of their rights and responsibilities in the housing market. This is especially true in the affordable housing market. The EAAB is still financially viable and will be comfortable for the next few years.

Discussion
Mr Khoarai asked how far the programmes for youth development reached, and whether they were operating rural areas. He agreed that the lack of consumer awareness needs to be seriously addressed.

Ms Gqada said that municipalities have a programme to ensure consumer identification, and she asked how EAAB would work with different spheres of government to ensure this. Target dates are not clear, as there is no baseline for certain figures. She asked about EAAB’s involvement with the selling of RDP houses on the black market, and how it would work to prevent this.

Ms Mnganga-Gcabashe said that there must be a body that does regular inspection of real estate agent training sites. The need for figures is also extremely important and is lacking in certain areas of the presentation.

Mr M Gana (DA) agreed that targets should be based on numerical data, and that selling of RDP houses had to be urgently investigated as this should be prevented.

The Acting Chairperson asked whether EAAB felt that it was making progress. Provincial and local governments needed to work together to combat the black market sales of RDP houses, but there is no evidence of this collaboration. The lack of communication between EAAB and other stakeholders in these issues is of concern. Racist slurs have previously come from the real estate sector, and these issues need to be addressed by the EAAB.

Mr Chainee said that the EAAB and the DHS need to work together to combat the consumer awareness issue. The sale of RDP houses on the black market will also be considered and seriously combated, and the Department can inform the Committee on the sale and ownership of all RDP houses. However, certain provinces such as Limpopo have struggled with this issue and the EAAB can look into assisting with this problem in the future. A task team has been set up by the Minister and other stakeholders to combat racism in the sector. The SA Human Rights Commission and the Department of Justice are also involved in this task team.

He noted that the training programme aims to transform the sector itself, and that EAAB will involve itself in rural areas to this end. Meaningful engagements are going on with provinces and other municipalities to come up with strategies to recruit previously disadvantaged groups and especially youth. The advertising of this career and the possibility of starting firms up needs to be more successfully broadcast to different areas. The consumer awareness issue has been prioritised and the budgeting increases for this area reflect this. Townships and rural areas need to be areas of focus for future consumer awareness programmes.

The EAAB has established multi-stakeholder relations with various stakeholder groups to improve and discuss many different issues. This helped with the discussion and consideration of levies to determine the viability of these prices. The prices for estate agent training had also been researched through these relationships.

National Urban Reconstruction and Housing Agency (NURCHA)
Ms Adel Struwig, Executive Director: Lending, NURCHA, said that this institution had faced a difficult period, including losses and a divergence in vision and profit opportunities. However, surpluses had been recorded in the past few years and profits had also been recorded since 2011. The impact of NURCHA’s various programmes is very powerful, but also full of challenges. Affordable housing is a difficult service to deliver in the current economic context, but NURCHA should be on course to meet its MTSF targets.

She noted that NURCHA is in the business of providing short-term loans to developers and contractors. NURCHA’s budget is covered by the income from interest and fees on loans, fees from programme and fund management, and money market investments. The strategy is linked to sector development and the growth of the affordable housing portfolio. Contractor financing is being investigated in the subsidy housing sector, but NURCHA has been unable to continue three of its funding relationships in the past three years. However, it has a healthy growth outlook for the medium-term. NURCHA will be meeting with the DHS to align its policy framework.

The lending business stream of NURCHA has the affordable housing portfolio, and the subsidy housing portfolio. The programme management business stream offers programme and fund management services to prospective developers. The value of NURCHA’s loans is currently R1 billion with a target of R1.7 billion for 2019. The value of the projects funded is currently at R3.5 billion, with 28% of loans book disbursed outside of Gauteng, with a target of 40% by 2019. Energy efficiency will be added as a criteria for funding of projects.

The subsidy housing programme’s loan value target for 2019 is R684 million. Five new loan types were rolled in 2015/16, to improve access to funding for this portfolio. NURCHA aims to manage R1 billion of client programme funds in execution of programmes. The contract targets are 32 contracts signed in the subsidy housing sector for 2015/16, and 21 signed for the affordable housing sector for 2015/16. Only four projects were targeted for infrastructure and community facilities for 2015/16, although NURCHA needs to determine whether this sector is a valid sphere of involvement for this entity.

All 21 of the planned contracts were signed for affordable housing for 2015/16 and all 32 were signed for 2015/16 for subsidy housing. Four contracts were signed for infrastructure this year. The total value of the loans committed is R911 million.

Mr Viwe Gqwetha, Managing Director, NURCHA, said that NURCHA was performing different services in 2010, and had since shifted its mandate, with financial success. NURCHA now invests its funds in money markets to fund its activities. Shareholders will not fund NURCHA, so it must make every effort to make its own funds. The performance of the programmes around budget and portfolio is looking good and the target of R4.5 million revenue for this year has been exceeded already. Losses incurred were largely due to changes in the money market.

Discussion
Mr Sithole asked whether metros and municipalities all signed off on protocols for NURCHA, and whether its capacity extended to the provinces.

Ms Mnganga-Gcabashe asked why there was an operating surplus when the activities of this entity could be expanded. However, the surplus showed good financial planning and good business for the year.

The Acting Chairperson noted NURCHA's assurance that no jobs will be lost, but pointed out that high turnover at NURCHA belied this statement.

Mr Gqwetha said that provincial protocols are currently taken very seriously and that NURCHA regularly engages with provinces. These provinces must comply with NURCHA’s guidelines to receive loans. Provincial capacity for these projects was linked to the operations and capacity of NURCHA in those provinces.

NURCHA offers value for money as a governmental arm. The main financial mandate of NURCHA is that there must be no shareholder payment to pay loans. Therefore, the surplus is due to a strict focus on breaking even and then even outperforming in certain areas. Part of NURCHA’s mandate this year was to remove any programmes and projects that do not contribute to its financial and social responsibility success, and this had been done seriously, with much time and effort.

Housing Development Agency (HDA)
A representative from HDA apologised to the Committee for the absence of the Chief Executive Officer of HDA, due to operations taking place at the N2 Gateway project.

The official said that HDA focuses on the Minister’s expectations of the entity to act a support service to all nine provinces for housing developments, from project identification all the way to implementation. For the year 2016/17 HDA will move more into direct implementation of projects. Land and housing developments will therefore receive much more support from HDA in technical assistance functions. HDA will also liaise with external service providers to provide support to developers. Technical support and financial planning support programmes will still continue.

In the forthcoming year, HDA will focus on administration (policy, research, monitoring and information),  the national programme support; and land and housing services. The upcoming audit will indicate the viability of certain corporate functions. HDA will be looking at a more integrated evaluation that will focus on the implementation role, as well as the project managers'  roles in certain projects. Informal settlement upgrades and mining town projects will fall under HDA mandates. It will be vital for the Board to develop a business case for the proposed developer role. In 2016/17 there would be more focus on the implementation of this developer role, and five projects will be engaged with, in order to ascertain the viability of this option.

The HDA had a total surplus of R20 million in the last year. Total funding for the HDA will increase to R403 million in 2016/17. This will be used to develop the business cases for the developer role to indicate to the Minister that this role is beneficial to the organisation.

Discussion
Mr Khoarai said that the R20 million surplus is too large and that this money should be spent. He wanted more details of the HDA’s involvement in Limpopo?

Ms Gqada said that she had understood that HDA was supposed to give support to developers in the different provinces. Now HDA was also acquiring land from provinces, but wanted to implement projects on this land, and to develop it. She questioned whether this was not a conflict of interest. She thought that HDA was doing a good job, but in 2016/17 staff at HDA were set to increase by 40 people, with plans to continue expanding the staff. HDA is not working alone, and should not have to implement these programmes, and the fact of more staff indicated that it was probably overstretching itself. She asked about the relationship with HDA when it buys the land from these provinces. HDA receives national funding, but it also receives provincial transfers, and she asked that this relationship should be clarified.

Mr Sithole asked how many positions at HDA are in the field of development and implementation. He also asked what role HDA in the Western Cape played in the acquisition of land from the Department of Public Works.

Ms Mnganga-Gcabashe said that the Committee had encouraged HDA to spread its activities across all nine provinces and it should be commended on success in this area. HDA should continue to work successfully with provinces. The hectares identified for 2016/17 purchase had been identified, but it is not clear how this process was going in 2015/16.

Mr Chainee said that the land acquisition process was essentially about confidence. This process started with land identification. This would be followed up by feasibility studies and the collaboration with many different stakeholders and specialists. There is a national process, a provincial process and a municipal process. The Joint Coordinating Committee (JCC) is an amalgamation of different interested stakeholders that assisted with this process. The Department of Public Works had no problem with releasing land, especially if it is not land used for core business. The provinces and cities who wanted to acquire land knew that they needed to go through the national departments. It was important to note that the HDA played a vital role in the JCC. The HDA will conduct a detailed analysis of all land acquired for social housing since 1994 and will continue to investigate its role today.

Community Schemes Ombud Service (CSOS)

Mr Themba Mthetwa, Chief Ombud, Community Schemes Ombud Service (CSOS), said that the focus of CSOS was on the community schemes. He noted that historically, other than migrant hostel dwellings, community schemes were not a familiar or accessible form of human settlements for the vast majority in South Africa, particularly sectional titles, retirement estates, home owners associations, and other modern community schemes. He noted that there had been a trend recently to go for social housing. CSOS plays a major role in educating people on dispute resolution and good governance

CSOS had five strategic objectives:
- to provide a dispute resolution service for Community Schemes in South Africa
- to take custody and control of Community Schemes’ governance documentation
- to ensure that the CSOS is an efficient, effective and sustainable organisation
- to promote good governance in Sectional Titles and other Community Schemes in South Africa
- to provide stakeholder training, consumer education and public outreach programmes on Community Schemes in South Africa.

CSOS currently has its Head Office and is operational in three provinces. As a result of budget challenges CSOS had to put recruitment on hold. Some systems had been acquired but others were put on hold. On development of policies, processes and procedures, CSOS had made good progress.

He noted the CSOS legislative establishment, which went through public comment and was approved by the Minister. CSOS was able to do 600 voluntary conciliations between parties who had disputes in the past financial year.

Mr Themba Mabuya, Chief Financial Officer, CSOS, presented the budget. His major point was to highlight that CSOS had a R15 million budget shortfall, and said that CSOS needed extra funding in order to sustain itself. It was engaging with the DHS to see how it might be possible meet the shortfall. Some of the projects had had to stop because CSOS wanted to live within its means.

Discussion
The Chairperson noted that the CSOS had mentioned the regulations, and the Committee would be meeting to discuss these on 19 April, so that questions on this could stand over.

Mr Sithole commented that if CSOS only had a presence in three provinces and was still financially constrained, the DHS was probably not doing justice to its funding needs.

Dr Vukile Mehana, Chairperson of CSOS, agreed.

Ms Mnganga-Gcabashe asked how CSOS was intervening to assist with the difficulties faced by municipalities on the issuing of title deeds, some of which were sitting unissued because of disputes among family members, often siblings. This was cited as a huge backlog, and she thought that CSOS might be able to use its expertise to assist. She asked why DHS was not prepared to fund the R15 million shortfall.

Dr Mehana indicated that CSOS was working closely with the DHS to try and finance this shortfall. He added that CSOS would ideally like to have some presence in all the provinces, and provide services, and it would be looking at the number of community schemes in each of the provinces and regional offices. He said that CSOS does not deal directly with the title deeds but that CSOS was responsible for all government documents. As soon as the memorandum was signed by government ministers, CSOS would quickly fast track the migration, as it had already done the preparations. CSOS would look at its data and see how it could provide appropriate assistance. He was confident that very soon CSOS and the Department would reach a consensus on the funding of the R15 million shortfall. CSOS was “government’s baby” and DHS would not let it die.

Rural Housing Loan Fund (RHLF)
Mr Jabulani Fakazi, Chief Executive Officer, Rural Housing Loan Fund, noted that the voucher programme was an addition to the RHLF mandate in the sense that it was established so that RHLF would administer the access of subsidy funds by the beneficiaries. The programme was approved, but the Minister was still concerned and had asked that RHLF should firstly pilot the programme. The voucher programme had been used to build houses, and it was now deciding whether the programme should be implemented. He noted that this should be highlighted as a vital addition to RHLF’s mandate.

In describing the business model, he pointed out that RHLF is a wholesale lender working with intermediaries who access funds which must be repaid. He further added that RHLF sought to create value for people.

RHLF facilitated access to government credit which needed to be repaid, and this was a challenge in the sluggish economic climate. The report noted that whenever there was a change in the interests rate there was a change in the cost in its market because any inflation affected the RHLF target market and people would then reprioritise their spending. New regulations would be coming into force in May 2016 to change the manner in which interest rates are calculated. The current maximum interest rate for development credit, for Small Medium and Micro-Enterprises (SMME’s) and low income housing, was 34.85%. The Committee and the RHLF were concerned about the high cost of credit. During the drafting of the regulations, the RHLF had made a submission to the Minister of Trade and Industry, pointing out that South Africa as a democratic country should find ways to make credit more affordable for people who are engaged in developmental activities.

Initiation fees had been increased slightly. He indicated that if a loan was taken out for low income houses, this would be R550 per agreement plus 10% of any amount in excess of R1 000, but never exceeding R2  600. He then compared this to the initiation fees for development of small business, which were R275 per agreement, plus 10% of the amount in excess of R1  000, but never to exceed R2  600. The high cost of credit and initiation fees were of concern.

With regard to the pricing policy, he said that RHLF were trying to respond to government instructions to reduce cost of credit for borrowers in its target market, and trying to find ways to lower the cost. It was trying to help community based organisations to get loans by giving them favourable rates – prime minus2.5% (currently 6.75%).

There were concerns pertaining to how credit flights were administered under the draft regulations.

Mr Bruce Gordon, Chief Financial Officer, RHLF, outlined the yearly performance, pointing out that the RHLF was slightly behind target for the last period, at 30% instead of 31%. He cited the poor economy and the collapse of African Bank, resulted in reduced lending. He noted the increase of intermediaries approaching RHLF in the last three months, which was encouraging. RHLF could only lend to those earning under R15 000 per month. It had achieved 5.5% of the 20% target outlined in the presentation in the current financial year. For the target for  percentage of loans to people earning under R3  500 per month, RHLF set a target of 60% and had subsequently achieved 72% in the current financial year.

He then outlined the financial results. RHLF's operating expenditure went below budget on expenses. It wanted to make its surplus roughly equal to the inflation rate to make sure that it would be sustainable. It had to finance everything itself.

In relation to business processes, he said that RHLF had a team which goes into the rural areas and inspects houses to make sure that the loans are being used appropriately. Eight loan verification visits were targeted and achieved.

He outlined some of the strategic goals. For 2016, the target was to disburse 43  000 housing loans and he was adamant that this was achievable.  The DHS had given notice that RHLF would get additional capital funding in the coming years, which was why there were increased projections in terms of housing loans disbursed. He also indicated an increase in expenses as a result of the staff who were to be hired for the voucher programme. He noted an increase in the number of loan visits, and noted that RHLF had recruited another person to drive to rural areas and do loan visits.

RHLF virtually only recruited people as interns in the organisation and then trained and promoted them. The voucher programme was a particular focus point. RHLF had approved the pilot programme in the past financial year, and was now expanding it. In respect of the balance sheet, he indicated a growth in RHLF’s total assets. Finally, he concluded that RHLF had achieved its mandate. There was a huge target market and it would be useful to significantly increase market coverage, although tough market conditions and high level of indebtedness posed challenges. The RHLF business model resonates with active citizenry as advocated in the NDP. People drive its building process and improvement of living conditions.

Discussion
Ms Mnganga-Gcabashe asked for clarity on the business process perspective for 2015/2016 and the nine month period. She asked why forecast and not actual statements were given since the financial year had ended on 31 March and asked if the books had perhaps not been audited. She cautioned RHLF to be careful with the voucher programme, as for many years the Department was issuing vouchers which some people had manipulated, and it could learn from these lessons and tighten the loopholes.

Mr Gordon replied that the figures were still draft as the presentation had been prepared about three weeks ago, on requests. In the last quarter, RHLF had issued over R40 million funding, which was not as good as it had hoped.

Mr Fakazi noted the remarks concerning the voucher programme, and said that RHLF had met with the DHS and was engaging on the risks.

National Housing Finance Corporation (NHFC)
Mr Samson Moraba, Chief Executive Officer, National Housing Finance Cooperation, reminded the Committee that the NHFC catered to both demand and supply of housing in the South African affordable housing market. It interacted with the private sector and provided home loans.

One of its pillars was to mobilise funding. More than four times the grant that it received from the shareholder was exceeded with money received from the private sector, in order to increase the amount of money supplied to the market.

The APP was aligned to the Medium Term Strategic Framework (MTSF) and the approved Strategic Plan for 2014/15 to 2018/19. It was also informed by the National Development Plan, which had a key point of privatisation of the Inner City.

There were challenges impacting social housing, with delivery being less than optimal. NHFC tried  to coordinate and align because for every Restructuring Capital Grant (RCG) that was being given out, NHFC provided the top-up finance. In time, it would like to bring the private sector to the funding side but at the moment it was busy with trying to create alignment between itself, the province, the private sector and the municipalities, to ensure consistency. The scale of delivery was also not optimal. NHFC was particularly vulnerable to volatility in impairments.  Some of the projects had led to increased profitability but others did not go so well.

He gave an overview for 2016/2017, and said the shareholders were expecting R100 million, which was targeted for social housing, but the MTSF period indications now were R635 million. With the R503 million, the RHLF had managed to leverage another  R1.380 million, so that the total funding was now at R1.883 million. Over the whole MTSF the funding was expected to be R7.508 million, with R5.132  million leverages and R2.376 disbursements. For every rand NHFC brought in, it managed to get R2 from the private sector.

There had been 22  268 housing opportunities created in the 2016/2017 period. One of the main challenges lay in ensuring that the funding would benefit those who were previously disadvantaged and NHFC was targeting to disburse R376 million for the 2016/2017 period.

Ms Zonia Adams, Chief Financial Officer, NHFC,  indicated that one of NHFC’s key drivers for revenue was the lending income from the money that it put out. NHFC had observed that over that last two years there had been a decrease in income, and it was in much the same place as last year, with a “very thin bottom line”. The capitalisation the NHFC was expecting from shareholders, and the revenue growth in loan assets were significant points. Some of the key drivers of the reduced profitability were reduced cost to income ratio, as a result of efficiencies, and the increase in the credit loss.

Discussion
Ms Mnganga-Gcabashe asked why the NHFC was only showing forecasts and not actual figures for 2016/2017. She asked if the  increase in the loan was a positive development or was due to high interest rates.

The Acting Chairperson said that even though there was a commitment to retain jobs, the consolidation was leaving a lot of staff disgruntled and she asked for comment.

Ms Adams replied that the NHFC was working very hard to finalise the numbers which it had needed to consolidate from the intermediaries. Final reports were due in the next two weeks.

Mr Moraba replied that high interest rates were both good and bad for the NHFC. These augured well for the income side, because all the loans which the organisation gave out were time-linked, and if interest rates rose, its income would too. However, NHFC was also aware that rising interest rates posed a challenge to the households, but housing loan partnerships that the NHFC had introduced shielded the households from interest rate volatility.

Mr Moraba said he was sensitive to staff concerns and the Chief Executive Officers of the three merging entities had been constantly in discussion, to try to assure their employees in the consolidation process. Based on the uniqueness of the role and the functions needed, there might be space for people to continue in their posts, but that would be based on the consolidated business model, the relevance of the jobs and the input of skills. NHFC was looking for a better future for all and for the sector. New business would identify the core key skills and make known which people would be essential to the project. NHFC was aware that its success depended on the staff.
The meeting was adjourned.