Department of Housing Budget 2008/9: public hearings

Meeting report

Rural Housing Loan Fund (RHLF) presentation
Mr Willem Van Emmenis, Managing Director, Rural Housing Loan Fund, stated that the RHLF was empower people in rural areas to maximise their housing choices and improve their living conditions with access to credit from sustainable retail lenders. The Fund’s lending model was unpacked, and the manner in which the loans were structured. These were described as unsecured, personal housing loans with no mortgage bond and underlying goods capable of repossession, and there was no privileged access to clients’ salary or bank accounts. Loans were made on the basis of affordability. There was a total retail loan book of R176 million currently, across 11 non- bank intermediaries. RHLF-funded loans were distributed via partner lender branches, loan agents and brokers, and mobile sales offices, South African Post Office (SAPO) and building material merchants in deep rural areas. He pointed out that 80 to 90% percent of South Africans could not access mortgage finance, because it was too expensive or they could not access land. The impact of the RHLF was not only to provide financing options but it had also proven that incremental housing was a viable alternative as far is affordability was concerned. He indicated that in the financial year ending 31 March 2008, RHLF had distributed over 37 000 end-user loans to different borrowers through 11 non- bank intermediaries. In the next financial year it planned to distribute 45 000 loans. Disbursed cash amounted to over R106 million. It shared the risks with private institutions.

Discussion
[The questions and answers relating to the RHLF were not audible, due to recording problems]

National Housing Finance Corporation (NHFC) Briefing
Mr Samson Moraba, CEO, NHFC, reported that The National Department of Housing had established the NHFC as a Development Finance Institution in 1996, with the principal mandate of broadening and deepening access to affordable housing finance for the low to middle income households. If achieved that by making housing finance accessible and affordable for the low to middle income households, supporting the Breaking New Ground (BNG) Strategy by facilitating the development of sustainable human settlements, and facilitating the development of a viable and sustainable low to middle income housing finance market.

In terms of delivery of housing finance, NHFC had reduced the housing backlog by financing R726 million for the provision of low income housing for both rental and ownership. 25,025 housing opportunities, including retail, had been granted. If also provided technical assistance to all tiers of government in delivering affordable housing. It implemented the rental home loan business by providing loans directly to target market;, providing financial products and services, developing new products geared to the needs of the target market, and developing an appropriate credit scoring system to support roll-out of new products..

NHFC had a number of strategic partnerships. It entered into risk sharing agreements with Banks and other financiers active in the low to middle income housing market. It also entered into joint ventures with private sector players, such as PACH (a black-owned and operated financial services and investment company) to develop innovative products. It would partner with other public sector entities. It would source and mobilize funding to support the needs of the low to middle income housing sector institutions. 

Mr Moraba tabled the unaudited financial statements, showing a profit of R74.5 million. A profit of R60.6 million was budgeted for the following year. He tabled detailed statistics and tables in respect of lending income and costs, provincial impact, and targets for delivery. In the last year NHFC had reached 14 121 against the target of 17 192. The capital requirements for the 2009 were nil, then R1 billion for 2010 and R500 million for 2011. NHFC had a funding committee. Discussions were under way with the European Investment Bank (EIB) and French Development Agency (AFD). The credit rating of the Corporation was confirmed by Global Credit Rating in November 2007 as AA for long term and A1+ for short term.

In respect of retail, a pilot project offering mortgage loans commenced on 23 May 2007 through five South African Post Office (SAPO) branches in Gauteng, and additional channels were introduced in August 2007. Building and renovation loans were added to the product offerings in September. An income linked home financing instrument had been developed with PACH, and in terms of a Memorandum of Understanding (MOU) with ABSA, R1.3 million would be released towards affordable housing. Another MOU with Basil Read would result in mixed income integrated projects. In the provinces, fast track delivery was facilitated by pre-project funding, bridging finance and project management.

Discussion
Mr A Steyn (DA) wanted to know from the NHFC who was responsible for the infrastructure, since the Corporation was only responsible for the financial side of social housing delivery. Secondly, according to the provinces expenditure patterns, as outlined in slide 11, there seemed to be an unhealthy increase in the expenditure.
 
Mr Moraba responded that in relation to infrastructure, the Corporation faced challenges, amongst others, the unavailability of land. For this reason NHFC had entered into Memorandums of Understanding (MOU) with various stakeholders. It had signed an MOU with both the South African Post Office (SAPO) and Development Bank of South Africa (DBSA), which was financing municipalities and giving professional assistance in relation to policy formulation and implementation. At the provincial level, the development of Institutions was a challenge. NHFC believed that the MOUs would be of immense benefit in the delivery of social housing.

Mr S Masango (DA) wanted to know the total amount of loan approvals and asked why the Corporation had a presence in only seven of the nine provinces.

Mr Moraba replied that the total amount spent on loan approval was R650 million

Mr Moraba explained that the reasons why the Corporation did not have a presence in Mpumalanga and North West was that North West did not have retail institutions. NHFC was working towards overcoming that hurdle. In Mpumalanga there had been a change of strategy and formation of two housing institutions, one of which was  Mpumalanga Housing Corporation. The province then appointed twenty six developers, went to DBSA and raised funds to buy NHFC out.

Mr G Schneemann (ANC) referred the Committee to slide four of the presentation and requested the Corporation to make available the research survey conducted on the retail side of loans. He asked for more background on slide 17, which focused on the business plan, and details of the implications.

Mr Moraba replied that the infrastructure and people were major expenditures in the retail component of the Corporation and the Corporation would make available the pilot study, which gave the background and implications, to the Committee. On the question of business plan funding, the Corporation had established a funding committee to deal with the funding programme. Discussions were also underway with the multi- lateral institutions for a R620 million grant, and the negotiations were at an advanced stage.  

The Chairperson wanted an explanation of PACH, and asked what were the benefits of this joint venture.

Mr Moraba replied that PACH was a private company that specialised in structuring deals. It was a joint venture partner to NHFC. Their expertise in deal structuring was of paramount importance to the realisation of the Corporation’s objectives, therefore the joint venture was adding value to NHFC.

Mr Schneemann asked, in relation to slide 18, what was behind the retail pilot project and what were the objectives and research findings of that pilot project.

Mr Moraba replied that the reason the NHFC was in retail was based on the broadening aspect of their mandate. NHFC was meant to broaden access to social housing funding by creating accessible outlets to the target market, and by widening product options. There was also a need to create credit criteria that were consumer-friendly for the targeted audience. Retail outlets also acted as points of collection.
 
The Chairperson asked the role of the NHFC with regard to the Housing Development Agency (HAD)Bill.

Mr Moraba responded that NHFC had looked at the HDA Bill, and believed that it had a complementary role to play along with the Housing Development Agency, which would be addressing problems around land acquisition and land ownership.

Social Housing Foundation (SHF) presentation
Mr Andrew Higgs, Company Secretary, Social Housing Foundation (SHF) delivered the Foundation’s presentation and apologised for the absence of the Chief Executive Officer, Mr Brian Moholo, who was in Canada.

Mr Higgs noted that the mission of the SHF was to provide strategic services towards creating and developing a sustainable and vibrant social housing sector in South Africa. SHF was established as a national institution and was formally mandated by the Department of Housing to develop and build capacity for social housing institutions and to develop a policy framework for the social housing sector through the Housing Amendment Act 20 of 1999.

It had been mandated by the DoH to be the implementing agent for the Interim Social Housing Programme (in the absence of the Social Housing Regulatory Authority (SHRA), championed the new national Rental Housing Strategy and was working currently on turnaround of distressed projects. It aimed to create credible social housing institutions (SHIs) and simultaneously develop housing capacity.

The strategic objectives included policy support, monitoring and evaluations, delivery Agent’s support, sector communication, professionalisation and knowledge management, government support and operational management.

The past and current performance areas were set out. Turnaround interventions and future projections were listed. The coverage in terms of institutions and units per province was tabled. It was noted that there was ongoing support to certain projects, including the N2 Gateway Project, and in Welkom and Gauteng. There were furthermore interventions in the rental areas.
 
The unaudited financial statements and balance sheet were tabled, and comparisons were given both for the previous year and the budgets for the next three years (see attached presentation).

Mr Higgs then outlined the governance structure were outlined, and noted that there were various board committees in place and that there was compliance with the King Report, with Treasury guidelines and the PFMA. SHF had enjoyed 10 years of unqualified audit reports. It was awaiting registration as a not-for-profit organisation.

Discussion
Mr Steyn said that he wanted to ask on an issue raised by the NHFC. According to the Province’s annual reports, social housing delivery had not been particularly successful, and there had been problems in disbursements. SHF appeared, from the presentation, to have done well, but he wondered how the technical support and figures translated to actual delivery on the ground. He asked whether the money spent had resulted in successful institutions.

Mr Moraba replied that in respect of the work done with the DoH and NHFC, there were distressed institutions, but there were also quite a number of successful institutions, for example the JOSHCO, which was recognized internationally by the UN Habitat for Humanity, and SOHCO, which existed in several provinces. There had been a turn around as a result of SHF interventions. Initially there were 64 distressed companies, which had now reduced to around 15, showing that the SHF turnaround strategy had had positive impacts on those institutions’ sustainability and viability. Under the Interim Social Housing Programme (ISHP) programme there were qualifying criteria to be met in order to receive a grant. The Foundation had given grants to eight institutions for project purposes and there were 15 applications being processed for projects which purported to meet the required criteria.

Mr Steyn wanted clarity on the transition of the SHF into the Social Housing Regulatory Authority (SHRA). He wanted an explanation as to whether it would operate as the same organisation with a different name or be a differently structured organisation.

Mr Higgs responded that the transition would be done in a phased approach. The SHF had been mandated to take care of certain ISHP programmes, but these had to be handed over to the SHRA, while the research and development section would revert back to the DoH. SHF would continue working in a stable manner and SHRA would certainly take over the work. A number of the SHF employees would definitely transfer to SHRA, but there was no guarantee that everybody would be absorbed by the new Institution. The Bill proposed that the new institution would be different in structure from the SHF. 

Mr Schneemann noted that the NHFC mentioned that in relation to social housing it was working with the DoH and the SHF in addressing problems that the social housing financial institutions were facing. He asked the SHF to give an indication of how it saw the general state of social housing in the country.

Mr Moraba replied that the ills of social housing institutions were based on their foundations. The institutions that succeeded were set up with a different mode. For example, the Johannesburg Company was set up with a R60 million grant and SoyCo had  received a grant from outside the country. Successful institutions had received financial support internally, before attempting to start their projects. This had been recognised by the new social housing policy, which had merit in that it there was a need for grant funding for initial capitalisation of the institution.

Mr Schneemann wanted to know the participation and involvement of SHF with the DoH in the implementation of the Breaking new Ground (BNG) strategy.

Mr Higgs responded that SHF had a number of new plans, and one of them was responding to the social rental housing, which had a broader definition than purely social housing. In this area the expertise of Ms Odette Crofton, Acting Chief Director, DoH, came in. The development of the National Housing Policy guidelines would be translated into projects on the ground. A good example was the ISHP programme and its component projects. SHF was also looking at some of the turnaround projects, because clearly the distressed projects could not be allowed to continue into the future.

Mr Masango commented that the costs and income were shown as the same in the financial statements and requested an explanation.

Mr Higgs responded that SHF had shown a break even. According to the Public Finance Management Act (PFMA) it was not allowed to budget for a deficit or surplus, meaning that it had to balance up by working backwards. It knew that there would be interest, and could calculate the income. Having deducted the fixed costs such as salaries and other internal costs, if would then use whatever was left for other activities. In reality it did not quite break even. Over the past ten years there had been deficits and surpluses. SHF could use the surplus, with permission of the DoH and the National Treasury, and the deficit in the current financial year would be covered by its equity.

Mr Steyn asked if there was a time frame for the dis-establishment of SHF.
 
Mr Moraba replied that the Board of the SHF had received notification to begin the process of dis- establishment. However, the SHF would continue working as usual until such time that Foundation ceased to exist.

The Chairperson stated that she was very worried about support of housing institutions and funding problems. She asked whether there had been engagement with people in Cape Town on the matter.

Mr Moraba explained that the entity cited in television programmes recently was owned by both the City of Cape Town and NHFC. The City wanted to sell its total share of 50% to NHFC, and there was some need to evaluate the options. The NHFC was to take complete control of the entity. Social housing co-operatives would not continue to operate. There had been mismanagement of building co-operatives as NHFC was not paid.

The meeting was adjourned.