Housing Consumer Protection Bill: deliberations

Meeting report

Department & Legal Advisor response to questions
The Chairperson asked the Department of Human Settlements (DHS) and the State Law Advisor to answer questions arising from the 16 November deliberations.

Mr Paul Masemola, DHS Acting Head: Legal Services, responded about property insurance instead of the warranty stated in the Bill. “The answer is no. The Bill is intended to protect every citizen of South Africa”.

The enrolment  fees at National Home Builders Registration Council (NHBRC) are used for warranty purposes. The registration fees are for NHBRC operational and administration costs, since NHBRC does not get money from government. There is a clause in the Bill that talks about the appropriation from Parliament to ensure that there is enough budget to cater for the extended mandates of the NHBRC.

Ms E Powell (DA) said her question on the purpose of the non-profit organisation (NPO) has not been answered. Is this NPO duplicating existing private sector offerings?

The Chairperson asked about the substandard materials. Are there other laws that regulate the materials? If not, how sure are we that the material provided and utilised is of quality standard?

Mr Masemola replied that clause 39 of the Bill enables the establishment of a non-profit company under certain circumstances in accordance with the Public Finance Management Act (PFMA). Such a non-profit company would advance the Bill’s interests and objectives.

Ms Natasha Fouche, NHBRC Head of Legal Services, replied that all the materials that are and will be used by homebuilders must be approved by the South African Bureau of Standards (SABS).

Mr Songezo Booi, NHBRC CEO,  replied that the actuaries on an annual basis look at the solvency and the adequacy of the organisation’s fees. If there is a need for the fees to be revised, then a recommendation would be made through the funds and finance committee of NHBRC. The Council will advise the Ministry of the changes that need to be made on the fees charged.


Mr C Malematja (ANC) applauded the government's warranty considering that most South Africans are poor. What is the turnaround time for the damage rectification? What happens if the beneficiaries have to stay out of the house? “ We see this with other insurance, it can take 30 days and more. How will the building materials be monitored? Will certificates for all materials used on site be shown?

Ms Powell was not satisfied with the DHS response on the NPO. Is private sector insurance not the competency of the financial services sector? How will an NPO operate as a financial service provider? What are the legislative requirements around financial services? She repeated that she did not understand why an NPO has to duplicate a function of the financial sector. “Anybody who has a mortgage understands that the bank requires private or banking insurance”. She asked why it is necessary to have three sets of fees: annual, registration and enrolment . Will the fees be used in addition to existing NHBRC fees that homebuilders need to pay? Or will they replace the existing fees?

Ms Fouche replied that regulations and rules will be drafted and prepared to set out timeframes for the rectification of different complaints. No new fees were introduced, but the fees currently set out in clause 40 of the Bill are already payable by homebuilders. The homebuilders pay enrolment , annual renewal and once-off registration fees.

Mr Craig Makapela, NHBRC Acting Executive Manager: Business Services, replied that a contractor is supposed to conduct quality control. The NHBRC inspectors request material testing. Unsatisfactory material results calls for a second material testing by NHBRC. The NHBRC covered major structural defects for the first five years. When a house is built, as a regulator, we cover the latent defects to ensure the workmanship of the contractor. This includes the complaints section. When a house owner notices a defect they firstly need to call the builder and give them seven days to respond. If he does not respond, the complaint can be escalated to the NHBRC. It will take 14 working days for the NHBRC to go and evaluate the material defect. Then it should not take more than three months to fix the material defects.

Mr Booi requested that the non-profit issue be flagged and NHBRC will revert on the matter after review.

Mr Sisa Makabeni, Senior State Law Advisor, pointed out that there is distinction between a non-profit organisation (NPO) and a non-profit company (NPC). The Bill refers to an NPC, which is a company incorporated for public benefit according to the Companies Act. The income and property are not distributable to the incorporators, members, directors, officers or any member related to that NPC, except as permissible by the Companies Act. The company is not meant to make a profit compared to normal companies. Clause 39 requires the formation of a NPC to comply with the Companies Act and needs to compete on an equal footing with other insurance companies in terms of the Competition Act. The NPC has to comply with any law that regulates companies and the insurance industry.

Ms Thiloshini Gangen, Parliamentary Legal Advisor, replied she was covered by the State Law Advisor. She will revert to the Portfolio Committee on NPC requirements. In Clause 31(2)(b), her understanding of 'financial guarantee' in the conveyancing and property environment is that it is obtained through a bond from a bank that issues financial guarantees. She asked DHS to confirm if her understanding of financial guarantee is correct.

Ms Powell asked why would the government want to assume the function of the private sector in creating and establishing an additional entity in the form of an NPC. The private sector already covers the function. Would the NPC not be anti-competition in the insurance sector? How will this have an impact on jobs in the private sector?

Ms Rashnee Atkinson, DHS Acting DDG: Research, Policy, Strategy and Planning, replied that when a person makes a home loan, he is expected to take an insurance policy through the bank or insurance company. “The reason is that banks and insurance companies make more profit through payments on insurance policies”. The state is setting up the NPC to reduce the burden on beneficiaries. The NPC will serve as a registered insurance provider through financial service providers associations. The registration process of the NPC is complex. The private sector can still assume the function but under certain negotiations of providing the insurance service under reduced costs.

The Chairperson allowed the DHS to review the NPC matter because she would also like to know about how it relates to establishing a development bank in South Africa.

Ms Powell agreed with the Chairperson’s proposal.

Clause by clause deliberations
Chapter 6
Ms Powell asked for clarity on the meaning of “employer” in clause 46(3). Who has the obligation to notify the NHBRC? What is the purpose?

Mr A Tseki (ANC) asked what happens when a law refers to another law. He assumed that the mention of another law invites us to look at what that specific law entails such as the PFMA.

Ms N Sihlwayi (ANC) asked if the system has contractors, homebuilders and developers that have been blacklisted. Is it publicly known? She asked if an inspector can inspect a home in clause 47.1 (a) and (b) and approve it as complying with NHBRC standards, while the house does not meet the standards. What happens then?

Mr Malematja asked how the clause 53 can be simplified without compromising quality as the clause also affects subcontractor payments.

Mr Masemola replied that the suggestion by Mr Malematja would be considered after consultation with the State Law Advisor and government. The Bill provides permission to publish a list of contractors and subcontractors who have unrectified offences despite being advised of these.

Mr Makabeni said 'employer' as defined in clause 45 "means a developer, person or organ of state that enters into a home building contract with a homebuilder". Clause 89 of the Bill deals with the liability of member, staff, accredited representative, expert and adviser of the Council. “A member of the Council, member of staff, an accredited representative, expert or adviser to the Council is not personally liable by virtue of any report, finding made or expressed in good faith in terms of this Act.” The NHBRC would still be liable if something wrong was caused by a Council member or staff according to civil liability principles.

Ms Sihlwayi appreciated the response and said she is concerned that the inspectors are still not liable for approving houses with structural defects.

The Chairperson agreed with Ms Sihlwayi that it is concerning that a person with professional skills and experience gets appointed to conduct quality assurance and conducts mistakes. Why is the Council held liable instead of the professional?

Mr Makapela replied that the Act has emphasised the professionalisation of the inspector. He understood why Members are  uncomfortable because the current Act clearly defines the roles of the NHBRC inspector. Hence, the new Act holds the inspector liable to some extent if they have ignored basic issues. The inspectors are not protected from their duties just by being under the NHBRC.

Ms S Mokgotho (EFF) asked if the Bill protects the consumer who has built his own house using a private builder or construction company registered under NHBRC. Can the owner have the right to lodge a structural defect to be repaired by the NHBRC?

Mr Makapela replied that every new home must be constructed by a builder registered with the NHBRC. A private homebuilder must first ensure that the builder is registered with the NHBRC. The builder will tell the homeowner to pay a structural warranty to accommodate any structural defects in the future.

Ms Mokgotho asked if the consumer is the one who pays for the warranty or is the consumer already covered by the Bill.

Mr Makapela replied that the warranty fees come out from the housing consumer. The builder includes the Council enrolment  fees when he quotes the consumer. He noted that the warranty on a home lapses after five years.

Ms Mokgotho asked if the enrolment fee is applicable to every consumer that builds a house with any construction company.

The Chairperson asked if the warranty fee covers all the houses the consumer will build in a financial year, or if it only covers one house.

Mr Makapela replied a warranty fee is a percentage-based fee, which is 1.3 % of the total money you pay to the builder, therefore it is not a fixed amount. He highlighted that 15 days before construction occurs, a builder needs to ensure that the house is enrolled with the NHBRC. Building 20 houses means that each of those houses must be registered with the Council.

Ms Fouche replied that the enrolment fee is dependent on the value of the property regardless of builder A or B.

Mr Malematja said it is advisable that the Bill is simplified for the layman on the ground. The language must accommodate people on the ground.

Chapter 7
Ms Sihlwayi noted in Clause 63 that there are three spheres of government plus NHBRC overseeing the construction of houses. What happens when you make an oversight visit and find out that houses are not built to standard? Does the national government have powers to challenge another organ of state in that instance? The Bill does not talk about any action that can be taken by the consumer when he has problems with the house. The Bill provides no engagement between the inspector and the consumer as per clause 72.

Ms Atkinson replied that the national department can enforce and control how the disbursed provincial funds are spent. The national government has a right to withhold funds if it is not satisfied. She highlighted that each government sphere has differentiated powers.

Ms Sihlwayi asked why a consumer is not part and parcel of the inspections in clause 72, while the Bill is about the consumers. She highlighted that the Bill needs to be overhauled to include all the issues raised at the public hearings.

Mr Tseki said that the gratification of the inspectors is not properly covered by the Bill. The Bill must provide for a heavy penalty for bribery of inspections.

Mr Masemola replied that clause 72 is intended to protect the consumers without their presence. The consumer will still be informed about the house reviews by the inspectors with remedial actions. The consumer is not prevented from being part of the inspections. He noted the comment from Mr Tseki and would consult with the State Law Advisor and the Parliamentary Legal Advisor. He added that the Bill intends to stop corruption.

Mr Makabeni replied that the inspector performs the functions as experts in the home building space. The intention in clause 72 is to protect the interests of the consumer. The suggestion "may be practical when a consumer is an individual but there will be challenges when we deal with social housing”. He asked Mr Tseki to be specific about the gratification of the inspector. Should penalties be applied to the inspector or the person who bribes the inspector? The inspectors are required to report any offerings of gratification per the Bill. A private person who offers gratification will be held liable as per the Bill. The normal disciplinary hearings according to NBHRC rules will be applied to the inspector. The Bill sufficiently addressed the issue of bribery of inspectors.

Ms Gangen added that any corruption activity is covered by the Act, therefore it is criminal. In terms of civil liability there would be consequences as per disciplinary procedures. She is also of the view that the Act offers sufficient provisions for inspector gratification.

Ms Sihlwayi said she does not agree with the response from Mr Makabeni. She wished that the officials could tell them that there will be a systematic way to allow housing consumers to visit their houses. The Bill is created to intervene in the housing experiences consumers have about housing abnormalities and procedures. She was not comforted with the answer about impracticality. The consumer needs to always be allowed to inspect because they are the only people who will be affected. "Your role is to put systems in place that protect consumers”.

Mr Malematja replied that the Council should be there to ensure that everything is in order so that the consumer is protected. Some consumers cannot use a metal detector to check structural defects. Also what happens if a consumer cannot point to a person who constructed the house? How then do we hold that specific individual accountable?

Mr Makapela replied that each and every house has an inspection report per NHBRC rules. The date and the name of the inspectors are highlighted on the report.

Mr Makabeni said the inspector has a statutory role to inspect the house. A consumer has no power and role in writing the report about the structural integrity of the house. “They cannot put any observation in the inspection. We do not know what value that would have in the legislation”. Clause 72(6) talks of neglect of the inspector in protecting housing consumers.

The Chairperson said that the steering committee can be able to help the consumer by making inspections because they are qualified to do so. If the system was working very well, we would not be having challenges on the ground. People on the ground complain about the lack of visibility of inspectors and the NHBRC to address their housing concerns. There are certain issues that cannot be resolved by the Act.

Chapter 8
Mr Tseki says that the Bill was missing the definition of 'employee'. An employee cannot be given the same liability as the employer.

Ms Sihlwayi proposed that officials must be able to formulate a systematic process for a consumer to have power over their house. “We are undermining the importance of the Bill”. She was concerned about clause 81. What is going to happen when there is an agreement between the contractor and 20 homebuilders registered with the NHBRC and one of the builders lodges a complaint?  She asked clarity on clause 94(14) and (15).

Mr Masemola replied that a new builder or contractor takes the responsibility from the previous builder. The intention of clause 81 is to ensure that a company with transgressions cannot be allowed to work anywhere. Clause 94 ensures that there is a continuation of the current Act during the transition to the new Act.

Ms Fouche gave an example. A homebuilder might employ an electrician or a plumber and if something goes wrong, the homebuilder will be held liable for any damage caused by the plumber or electrician.

Ms Sihlwayi asked what does the enactment of the Bill imply about a builder who has not fixed houses as per clause 94 (14) and (15). “ Homebuilders have a contract with the council and they have paid money for them to have a contractual obligation”. She is worried about the heading on transitional provisions. What does that mean? Will these provisions be clarified in another Bill?

Mr Makabeni replied that the provisions empower the NHBRC to lift the suspension of a homebuilder's registration before the new Act is enacted. The lifting of the suspension will not affect the housing consumer adversely. “It would not happen automatically, the NHBRC will look at the merit of the case and consider whether the lifting of the suspension is justified and does not affect the rights of the housing consumer concerned”. Clause 94(15) highlights that the lifting of the suspension does not mean that the Council will be held accountable for any loss and damage suffered by the homebuilder while under the suspension.

Ms Fouche replied that clause 94(15) would be consulted on with the DHS and the State Law Advisor to see if there is a need to reword the clause.

The Chairperson asked if clause 94(14) involved National Treasury. If the Council lifts the suspension alone, what then happens?

Ms Fouche replied rules and regulations are set out for successful homebuilder suspensions. In the same regard, relevant rules and instructions will be drafted to set out how the uplift of the suspension process comes about.

Mr Moses Mphelo, NHBRC Acting Regional Inspection Manager, explained that there are several triggers that lead to a suspension of a homebuilder as per clause 94(14), which can be administrative or structural. A house consumer will require protection if the house builder was suspended due to structural issues in the house, where the NHBRC has to recover cost from the same builder. The new Act allows the homebuilder to rectify the mistakes.  The provisions of the new Act cannot be applied to this homeowner, if issues relating to the past Act have not been addressed. Non-compliance as per clause 94(15) does not permit any claims by the homebuilder. Clause 81 allows the changing of homebuilders, when there is an agreement between the builder and housing consumer concerned, that the old builder is handing over the new builder. The new builder must accept all the obligations of the previous builder.

Ms Sihlwayi said that the Bill is an Act of Parliament and a homebuilder reads it as it is and takes government to court. She called for the review of clause 94(14) so that the homeowner is protected.

Mr Mphelo said that every Act needs to have rules and regulations to be effective. Clause 94 on transitional matters is dealing with the determination of rules and regulations.

Mr Masemola said that clause 94(14) still mentions what Ms Sihlwayi is suggesting. It is clear that that subsection protects the consumer: "if the lifting of the suspension does not affect the housing consumer concerned adversely".

Mr Makabeni agreed with Mr Masemola. “We need to also include transitional provisions for consumers and the industry to understand what has happened. In clause 94(14), "The Council may lift the suspension of a homebuilder", using "may" is an empowering provision to the Council to examine the merit of the case. He explained that "adversely" in the clause refers to negatively.

Ms Sihlwayi asked how can the lifting of the suspension of a homebuilder affect a consumer adversely.

Mr Masemola said the intention of the Bill is to make it open so that it can accommodate each case individually. This is so that different cases are examined individually.

An NHBRC official added that other legislation gives parties an opportunity to be heard, such as the Promotion of Administrative Justice Act.

Ms Sihlwayi asked what will happen next about the Bill.

Ms Gangen replied that there would be a compilation of the proposed amendments (A list) by the legal team which requires substantial work to look at every issue raised by government and public hearings. The A list will be presented to the Committee for review.

Mr Makabeni agreed with Ms Gangen.

The meeting was adjourned.