Housing Development Agency; National Housing Finance Corporation; NURCHA; RHLF on their 2015/16 Annual Reports

Meeting report

Housing Development Agency Annual Report 2015/16
Dr Pascal Moloi CEO, Housing Development Agency (HDA), stated that there have been 65 catalytic projects, 21 of those are private and 24 are government. There are an additional 38 private projects which have been recommended for consideration. We have draft mining town special transmissions plans which are in the process of being approved. The HDA has been assigned detailed development planning roles on the acquired properties in Marikana, Coligny and Bokfontein, among others. We have 4170 units completed or under constructions with 1035 at various stages of completion. There are 4712 serviced cites ready for further development.

Dr Maloi stated that a couple of Medium Term Operational Plans (MTOP) had been concluded between the HDA and Gauteng and the North West, whilst an Implementation Protocol was signed for Nelson Mandela Bay. HDA exceeded their 7 000 hectares target by obtaining 10 000 ha for the Medium Term Strategic Framework (MTSF) targets.  We achieved all the annual targets for the year under review. HDA does take pride in the fact that their targets have been achieved.

The audit report shows that our controls are in place and we have met our performance targets and HDA still boasts a clean audit. The Eastern Cape MTOP still owed us R85, 5 million at that time which is 36% of our budget. HDA has continued to develop and train its staff. To cope with the consolidation, all critical posts have been filled and 51 appointments have been made during the current financial year. HDA has achieved two key MTSF targets. The business intelligence dashboard is now being used as a policy and administrative guide and used by 20 municipalities across the country.

The HDA has done a trend analysis for mining towns on what has been done in terms of rural development. HDA is working with other sectors of government to continue to build capacity. The Minister has a target to identify at least 50 projects. HDA has been asked by Cabinet to show at least 21 Implementation Protocols. N2 Gateway remains our flagship project. The biggest problem still remains Joe Slovo because communities refuse to be relocated. Negotiations keep failing. If this is resolved, a lot of progress would be made. The Minister has requested that Northern Cape be considered as a catalytic province. Big strides have been made in Nelson Mandela Bay and HDA is confident that targets will be met. The more we deliver, the more funding will be needed. KZN has a total of 1000 hectares of land identified. In Limpopo 91 000 units have been constructed. HDA has developed a rental housing strategy.

The Auditor-General found the HDA performance report reliable and the information accurate and there were no material findings against the HDA by the auditor.

Ms Anna Moola, HDA CFO, stated that the stable financial position of the HDA shows that no capital is given. Total assets amount to R777 million from R206 million. The statement of financial performance shows revenue of R162 million of which R104 million came from the department. The rest of the money came from a special grant of R14 million and money received from the provinces for specific provinces. HDA has charged project management fees. The only segment increasing is employee costs. There is no deficit for the year. However, with Eastern Cape not bringing in the money there is R8.7 billion which HDA has funded on behalf of the province. 

Discussion:
Ms M Nkadimeng (ANC) commended the HDA on the clean audit. She requested clarity on housing support services. The provinces have been divided into A and B which add up to 8, but Mpumalanga was missing.

Mr M Shelembe (NFP) requested a detailed report on the provincial master special plan for KZN.

Mr K Sithole (IFP) requested further details on the capacitation of the municipalities. He was worried about the land which was held by HDA to which municipalities did not have access.

Ms L Mnganga-Gcabashe (ANC) congratulated the clean audit. She encouraged work in Nelson Mandela Bay. However, she was concerned by the lack of work in the Western Cape.

In reply to the Chairperson asking why employee costs had decreased, the CFO apologised saying she had meant to say an increase in employment rather than decrease.

Mr Maloi replied that the country is divided into three regions. There have been no engagements in Mpumalanga although there is a HDA presence. The provincial special plan can be made available. The intention of the special plan is that the country and provinces would relate to the plan. HDA has received a lot of support from the department. Engagements with GTech have been with the support of the department. Problems vary per municipality in landholding. The 924 hectares relate only to landholding. The plan is to go through all these hectares and identify the land to be developed. Land in the Western Cape remains a problem. We have had five negotiations. Support is received from the province. Opportunities outside of Cape Town have been explored. Farming towns have been a target, one of which is Stellenbosch. A lot of support has been gained for the Joe Slovo project. We took a decision to review the PIC in Joe Slovo. As we allocate, the interest levels and commitment drops. The Nelson Mandela Implementation Protocol is clear that it binds successor in title.

National Housing Finance Corporation Annual Report 2015/16
Dr Samson Moraba, CEO, National Housing Finance Corporation (NHFC), stated that the approach of the NHFC is to meet the housing needs of those demanding it. The target market is the low- to middle-income housing market in South Africa. By 31 March 2016 the NHFC has been able to disburse R7 million into housing and was able to leverage R19 billion to that. The total financial impact was R26 billion in total. In terms of 2015/16, the impact was higher, but the financial investment was not great. He emphasized that this was the first time since the establishment of the NHFC that it had made a loss. Risk management has been implemented to ensure that NHFC does not continue to have this experience. It has been difficult as a result of the economy and the ability of households to honour their obligations.

Mr Moraba was proud to state that a clean unqualified audit had been produced. There were no material findings on the usefulness and reliability of the reported performance information; there were no instances of material non-compliance and there were no significant deficiencies. In terms of business performance, of the key performance indicators NHFC had set, two were not achieved, while the target set for the estimated number of housing opportunities had been exceeded. It was noted that there was continual gains from the initiatives with private sector funding. The NHFC exceeded the target on the number of jobs facilitated which targeted the broader BEE for women. Furthermore, cost-to-income has been decreasing. Two years ago the NHFC had been restructured with a good cost-to-income ratio of 40%. Capital reserves have increased by 4% and a R100 million capital injection had been made into the NHFC.

In terms of the MTSF, there has been an increase in the original commitments which had been set.

As at the end of November, the NHFC will be consolidating with the NHDA, NURCHA and RHLF subject to the tax amendment to be signed by the President. Before the end of the year, NHFC intends on having a stakeholder assessment and ensure that the housing market is interrogated to determine what is expected from outcomes. NHFC envisages an end state in the form of a single Human Settlement Development Bank with a robust balance sheet; greater private sector leveraging capability, increase in the scale of delivery; an efficient and effective human settlement delivery vehicle and enabling long term financial sustainability.

Discussion:
Mr Sithole inquired into the jobs which have been created and how many disabled persons had been employed. He was concerned about the job losses which could result from consolidation.

Mr H Mmemezi (ANC) encouraged the pace of delivery. He emphasized that the aim of the NHFC was to assist poor people and requested that the NHFC increase its footprint. Sight should not be lost of the fact that SA is a developing country, and that the goal of the NHFC should be to reverse the imbalances of those previously marginalized. The mission is to transform society.

The Chairperson stated that the Committee only wants to be reassured of no job losses as a result of consolidation. Appreciation was expressed to the NHFC for not losing the ball due to consolidation. She commended the NHFC for the clean audit report which prided itself on consistency.

Mr Moraba replied about transformation, saying the NHFC has partnered with the Gauteng Partnership Fund (GPF), thereby lending to black entrepreneurs in the city, which is owned by established white men. These businesses are promoted to become the change. The NHFC has a 33% shareholding in the Trust for Urban Housing, and majority of the projects are going to disadvantaged persons. There are efforts in place to remind us why the NHFC is here – to see that society changes over time. In terms of disabled employment, most of the jobs were concentrated in construction and therefore, ability is an inherent requirement but the matter would be looked into. He pointed out that construction costs have been increasing. A few years ago the NHFC was able to deliver a social housing unit below R200 000 and now it costs R350 000. Rental clients pay a minimum of R750 and a maximum of R2250. The NHFC is seeing fewer applications and therefore, delivering fewer units. Since the cost of construction is going up, the rental model needs to be reviewed. In terms of the current rental model, the government was spending 70% for every housing unit developed. This was unsustainable and the percentage needed to decrease as there needs to be equity and shared responsibility. It was confirmed that there would be no job losses.

National Urban Reconstruction Housing Agency Report (NURCHA) 2015/16
Mr Viwe Gqwetha Managing Director, NURCHA is to provide finance to small and medium-sized contractors that deliver affordable housing. However, the limited structure of the balance sheet means that NURCHA can only provide short term funding while partnerships with banks have been facilitated to provide long-term funding. R23 billion has been used so far. NURCHA has grappled with transformation. NURCHA has a good pipeline of affordable housing, and with a bigger balance sheet would be able to increase the production of housing. NURCHA reported a 1% loss with a write off which predated 2011 and was fully provided for.  

In the last three years, NURCHA has seen an R18 million surplus. NURCHA has commenced on its first contract with the City of Cape Town and a number of strategic relations were embarked upon. A new process of consolidation has been accepted. NURCHA has struggled to raise funds due to the uncertainty of consultation. The Public Investment Corporation (PIC) has assisted with R70 million and NURCHA would like to migrate this funding capacity. NURCHA has embarked on partnerships in Nelson Mandela Bay and for this NURCHA has allocated a budget and loan book. NURCHA has 17 contractors building and completing projects in this area, with most being female contractors.

It was emphasized that NURCHA staff were being prepared for the ensuing change, but it has experienced challenges related to limited resources and the inability of recruiting new staff. NURCHA is engaging in a close monitoring of cash flow.

Income from developmental streams have improved significantly over the last four years from R30 million to R50 million. The target was to have 32 signed loans which have been added to NURCHA’s existing loan book. The trend over the past financial year has shown the highest level of loan exposure which is R13 million. Activity in the loan book shows over 44 active projects and some were completed and closed during the year. NURCHA has three active programmes now: Nelson Mandela Bay, Vulindlela and the City of Cape Town.

NURCHA faces economic, financial and mining limitations and it was hoped that the financial constraints would be dealt with before a point was reached where applications could no longer be accepted. NURCHA has obtained an unqualified audit report with emphasis of matter. The main areas of focus are the project losses of R36 million which were fully provided for. NURCHA’s cost-to-income ratio was noted to be 85%.
 
It was concluded that NURCHA will continue to remain active in the market for the foreseeable future. NURCHA has engaged with provinces and stakeholders. It has optimized learning capacity and slowed down on loan approvals as the year draws to a close and construction activity slows down too. The systems and controls along with interaction with other housing agencies are being improved to make integration easier.

Discussion
Ms M Nkadimeng (ANC) asked what the problem was with staff retention, particularly with the slide which showed that critical positions had not been filled and asked what this meant.

Mr Mmemezi emphasized the importance of the job of the housing entities in a developing country, where 80% of people had previously not been allowed to grow. He wanted to impress on the housing entities to assist small construction companies.

Mr Sithole asked about a remedy for improving the audit and that he wanted to see an improvement next time NURCHA reported.

Ms Mnganga-Gcabashe was disturbed by the loss of 1% as this translated into a lot of money. A surplus of R18 million should be interpreted to mean that R18 million loans were not given to contractors. The graphs presented showed that NURCHA was busier in Gauteng and she noticed that in other Metros there had been very little contribution. She inquired about the R36 million shortfall.

The presenters responded saying that the R36 million shortfall has been written off but some had still been collected. South Africa is moving into a period where non-payment has increased. This is where the trend of loss sits. A turnaround plan had been implemented in 2011 and the good results of the plan are seen. Staff retention is a management marker and is due to the anxiety of consolidation. We have invested a lot in training and chain management so that people can rationalize their feelings and job security. We are sitting with 54 loans delivering 55 000 units and 30 affordable housing projects that are active. Affordable housing has R275 million. We are active in rural provinces even though the most activity has been in Gauteng.  We have not been restricting loans. We assess the loan and then approve it. We are trying to be sustainable.

Rural Housing Loan Fund (RHLF) Annual Report 2015/16
Mr Jabulani Fakazi, RHLF CEO, said the mandate of RHLF focused on rural areas such as tribal land and small towns and 60% of the assistance is targeted at people earning under R3 500 per month. In its business model, RHLF focuses on wholesale lending and makes use of intermediaries. Intermediaries access RHLF facilities and lend to the people in the target market. The intermediary carries the credit risk as they are required to make collections to pay RHLF and are governed by the National Credit Act. Loans are unsecured which means that there is no repossession in the case of non-payment and therefore, intermediaries are encouraged to be careful with loaning. RHLF has implemented a pricing system which has given discount to intermediaries which at present is 30%.

RHLF has to create value. RHLF has to empower people to improve their living conditions and housing. It has been trying its best to operate in the weak economy which started in 2008. This is made worse by the high unemployment rate and market over-indebtedness. We have therefore seen a rejection rate of 95%. When people are filling in forms they are understating what they are spending. The interest rate had been too low for a number of years.

Mr Fakazi noted that by 2019, they hope to meet their goal in terms of the MTSF. So far, 7 529 loans have been administered which is 34% of the target. In terms of the other targets, RHLF is exceeding them. No more than 20% is issued to persons earning more than R15 000. On development performance, there has been poor performance which is a reflection of the tough market conditions.

Mr Bruce Gordan, CFO, Rural Housing Loan Fund, referred to the MTSF goals and the debtors, saying RHLF has had a lower expenditure than what was budgeted because the appreciation was kept low. The operating surplus has been dramatically lower than budgeted. RHLF has been arguing with SARS about a refund as RHLF is of opinion that they should receive R34 million whilst SARS insists that only R16 million is to be given back to RHLF in tax rebates. At this stage R18 million has been added back to RHLF books. Loans are verified through random visitations of the homes. Not enough people were taking loans from us due to the prevailing economic conditions.

Most employees of RHLF are taken in as interns which then allows them to grow within the business as they become appointed in official positions. Earnings have been retained of R150 million and the Department has promised another R150 million over the next few years. RHLF has been generating more cash as more were paying back rather than taking loans.  In terms of governance structures, the MOI provides for a maximum of eight directors, with only four non-executive directors.

An unqualified audit with emphasis of matter was obtained. The emphasis of matter stated that the merger of RHLF with other Development Finance Institutions indicated the existence of a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern. This was something which RHLF has no control over.

Mr Gordan drew attention to the decrease in affordability by the end users as shown by lower borrowing, through there seems to be a slight turnaround happening. Over 70% of loans have been issued by a single intermediary. RHLF is assisting with affordability by helping intermediaries reduce interest charged to retail borrowers. RHLF is developing three start-ups in Maluti-a-Phofung; Makhuduthamaga; Mahikeng.

Discussion
Mr Mmemezi commended the presenters on achieving their targets, but emphasized the need for RHLF to focus and assist people in rural areas. The target was still seen as low, and therefore, the celebration of the target was premature. He did not understand why RHLF needed to work through intermediaries. He said he had seen homes in urban areas. RHLF should focus on rural development.

Ms Mnganga-Gcabashe applauded the housing entities which had achieved unqualified audits. She found comfort in a body with good books. She stated that in future the target needs to be increased.

The Chairperson wanted elaboration on unsecured loans and wanted to know whether the intermediary or end user obtained the unsecured loans. How do unsecured loans affect you as RHLF? Has it had a negative influence in how RHLF does its work?

Mr Fakazi replied that the targets were in fact low as they were a function of the budgets which were allocated as RHLF is only able to budget in terms of the money they have as affected by the market conditions. On homes in urban areas, these are permissible in terms of our mandate. RHLF believes that this helps but we have not abandoned the rural markets. When RHLF was established in 1996, one of the elements of our mandate was to establish the market. We have to leverage private sector funding. RHLF has succeeded in creating an industry for itself. It is better to work through intermediaries as it encourages people to pay rather than people thinking that they should not pay because it is the government assisting.

Mr Gordan replied that the end users are unsecured and we have a cession of the books from the intermediaries. We do occasionally have problems but this is the risk of being in business.

The meeting was adjourned.