Workshop on Housing Consumer Protection Bill

Meeting report

The Chairperson opened the virtual meeting, welcoming the Members. She requested that the Committee Secretary send a card of well wishes to Ms A Buthelezi (IFP), who has been unwell, on behalf of the Committee. She then welcomed the delegation from the Department of Human Settlements (DHS) and the CEO of the National House Builders Registration Council (NHBRC).

She then said that the Department was invited to provide a workshop on the Housing Consumer Protection Bill so that, as the Members go out for public hearings or interact with the Bill, they have more clarity on the issues in the Bill. The Committee should then be able to provide clarity to communities and make sure that the processes of finalising the Bill towards an Act were done so that people understood the impact and contribution of the Bill in their lives and towards building a better nation.

Housing Protection Bill Workshop Presentation

Ms Sindisiwe Ngxongo, Deputy Director-General: Chief Operations Officer, DHS, provided a brief introduction to the workshop. She said that the Housing Consumer Protection Bill 2021 was finalised by the Department, together with the NHBRC. The Department conducted information sessions across the country, collated all the information and provided the response as submitted to the Committee.

Mr Khwezi Ngwenya, Chief Director: Legal and Legislative Services, DHS, introduced the team from the Department. He also tendered an apology on behalf of the Director-General, who was attending the cluster on social protection. He presented the workshop presentation to the Committee.

Introduction of key points

Why this Bill is called the Housing Consumer Protection Bill:

The principal Act, the Housing Consumers Protection Act 95 of 1998, provides for the cover of structural defects, structural integrities and roof leaks. The Bill aims to expand the cover to include the following areas:

• Repairs
• Renovations
• Alterations

The warranty cover period, in terms of the current Act, only covers structural defects for a period of three years. The Bill extends this period from three years to five years.

The current Act provides that cover only kicks in as and when the consumer takes occupation. The Bill aims to extend the duration and timeframes upon which cover needs to be extended. The cover now applies as from the date of construction. This is because many construction challenges may arise during the period of construction, which may affect the structural integrity of the build and the occupying consumer.

The Act warrants that the board in certain instances will use a certain portion of the surplus fund to advance the transformation programme within the built environment. This is now legislated, and the aim is maximise access to the built environment and encourage builders to enroll their projects. The Bill makes it mandatory that each and every sector enroll the projects that they are engaged with, including the state itself. Enrolment is meant to protect that consumer.

Background

The Bill repeals the current Act (National Housing Consumers Protection Measures Act (Act 95 of 1998) (as Amended) in the interest of the consumer.

Key Provisions in Housing Consumers Protection Bill

Definition of Home expanded includes (Section 1&2):

• Boarding house, hostels, residence within institutional facilities such as hospitals, prisons, mixed-use residence, timeshares and share blocks but exclude a hotel, motel, a shack and any dwelling unit without its own bathroom or kitchen

Definition of Home Builder (Section 1):

• A person who builds or undertakes to build a home or cause a home to be built for any person
• Includes a person who builds a home for himself or herself or purposes of a sale, leasing or renting out
• No owner-builder exemption

Definition of MEC and MMC (Section 1, 32 & 33):

• Bill refers to and defines MEC and MMC and provides for their duties and responsibilities

Expansion of the home builder database (section 23 and 24):

• The Bill makes provision for an integrated database to ensure reliable information to facilitate management and policy decisions and assist housing consumers.
• Registration to be linked with the grading requirements

Registration of developer and enrolment of a home (section 25):

• The Bill makes it clear that the Bill applies to both the developer and the home builder and clarifies the role of the developer in respect of enrolment.

Funds of Council (Section 34):

• The Bill makes provision for money appropriated from Parliament in addition to existing revenue streams (Section 34(1)(d)).
• The Bill makes provision for use of the surplus to the warranty fund towards developmental programs in the home building industry (Section 34(3)).

Non-profit company (Section 39):

• The Bill makes provision for establishment of a non-profit company for purposes of risk-based insurance offerings in relation to the structural integrity of a home.

Warranty cover commencing from construction + warranty period (section 41 and 66):

• Increase protection of the housing consumer by affording early cover;
• Easy access to the builder during construction as opposed to after occupation;
• Lower cost of remedial works during construction stage;
• Powers to extend the warranty period by the Minister, subject to actuarial assessment, feasibility studies;
• Extension of the roof leak cover to 24 months: to consider undertaking appropriate assessments to confirm the viability of the proposal;
• Act makes provision of home builder’s liability for the costs of alternative accommodation for the housing consumer where required. (Section 49(3));
• Minister may prescribe reimbursements to the housing consumer, for any losses suffered, which may be deducted from the administrative fine;

Enforcement – penalties/fine for contravention of the Bill (Compliance and Enforcement Committee) (Section 66(2) and (5); 62(1)(e) )

• 10% of the project value
• 100% of the remedial costs as expended; or
• A maximum fine of R1 million
• The above penalties are a maximum – the CEC may impose lower fines in this regard
• Impose suspension or cancellation of registration
• May also impose any alternative or other appropriate relief in line with the objectives of this Act

Duty of Financial Institution, Conveyancers, Property Practitioners, Registrar of Deeds, MEC and MMC respectively (CEC) (Section 82, 83 and 84; 32 and 33):

• Duty to ascertain if a home is enrolled, not to approve or continue payments, register a bond, inform buyer (housing consumer) of consequences of non-enrolment and to report to Council if the home is not enrolled
• Duty on Registrar of Deeds has been removed as the Deeds Office is concerned with registration of property and not necessarily the home
• MEC and MMC have a duty not to release funds for housing projects unless the project is enrolled
• Council must report failure by MEC or MMC to appoint a registered home builder or to enroll a project/ home to the Minister of Human Settlements

Ms Ngxongo emphasised that the Bill focused on the protection of the consumer; this means that more communication was needed for consumers to know how to access warranty cover should they need it. The Bill had elevated the areas of economic transformation by recognising that missileries needed proper training so they could be registered and participate fully in the economy. An area that the Department had been grappling with within the sector, in terms of its compliance with NHBRC, was the issue of the role of inspectors, where there were unwarranted approvals advanced. The inspectors’ conduct would be addressed with potential deregistration as inspectors. The database for registered builders and their gradings would assist the sector in knowing what builders were available, at what level and how they were advancing.

Discussion

Ms E Powell (DA) welcomed the following changes in the Bill:

• The extension of the period of cover under the warranty fund, from the date of commencement until five years after the date of certification;
• The warranty period for roof leaks being extended from two to five years;
• A home builder or developer that is not registered still has the same liability as a registered home builder: this is going to ensure the protection of unsuspecting consumers who might not be aware of who they are contracting and the requirements of the existing Act.
• A provision for the principals of a company to be held personally accountable;
• The definition of a person will be extended to include a trust.

Having gone through this draft with her legislative researchers, potential shortcomings had been identified that they would like the Department to take note of and provide responses to. Of concern was that the Bill placed an obligation on the NHBRC to establish and maintain a register of homebuilders and developers. This meant that every entity who wanted to build a home, whether for personal use or part of a business, would have to apply to the NHBRC to be registered as a home builder and would have to pay the prescribed annual fee. The NHBRC would also be required to keep a record of every home that was to be built, and this would place burdens on the NHBRC, the homebuilders and the developers to enroll each and every home before construction commenced, as well as to pay the prescribed enrolment fees. Did the obligation apply to homebuilders who self-build? For example, with RDP (Reconstruction and Development Programme) or BNG (Breaking New Ground) housing developments: would the people who had been given title deed and then built backrooms that they rented out have to register with the NHBRC and pay the prescribed enrolment fee? If she decided that she wanted to renovate her home and she contracted with a builder, would it be herself as the homeowner who was managing the build, or was it the builder who would have to register? Should a home builder or a developer not comply with the requirement of registration at the NHBRC or enroll the homes that they are building, such a home builder or developer, they would be guilty of an offence or a fine not exceeding R1.5 million or imprisonment. The current Act sets that fine at R25 000.

She expressed concern that, in South Africa, people do not always have access to information. Although necessary in the case of big developers, R1.5 million was a huge amount of money for a small build in a poorer community. Was this amount fair, just and equitable? Would it be up to the courts to determine the fine or would the Act prescribe thresholds? The Bill placed a duty on estate agents, financial institutions, conveyancers, and the register of deeds to confirm before they proceed with the property transaction – whether the property constituted a home, as defined in the Bill, and whether the home was enrolled with the NHBRC, and if it was not enrolled, to notify the NHBRC accordingly. A conveyancer now bore an additional duty to report non-compliance to the registrar of deeds, and estate agents had an additional duty to notify prospective buyers that the home had not been enrolled. If the parties did not comply with this duty they could be reported to various oversight bodies such as the PPRA (Property Practitioner Regulatory Authority), the Financial Services Board, the Law Society, and the Auditor-General. This was extending the watchdog function over homebuilders and developers to further include external parties who also had obligations to confirm compliance with the Bill. Was this not creating laborious bureaucratic red tape burdens that could potentially delay building disputes significantly?

She noted reference to inspectors and their training requirements but found no further reference. Consideration had to be given to outsourcing these positions to the MBARSCA’s registered building surveyors to align with international standards. She welcomed that the board would contain competent practitioners. The Department needed to look at including environmental and health backgrounds in terms of to represent the various in relation to board representation. Council inspector qualifications and managerial roles needed some defining in relation to principal-agent duties because there seemed to be a duplication in the Bill. She noted that adjudication was not enforceable under the Arbitration Act unless it was agreed by both parties. The correct process would be referral to the Master Builders Association (MBA) for dispute resolution, as per the MBA home building contract. There was no current litigation option. So, the suggestion was that arbitration further be restricted because currently the NHBRC could not handle the amounts of complaints, and most adjudication had to be done on papers in Pretoria. The suggestion in terms of adjudication of disputes was that they should be devolved to a regional function. She was uncertain as to whether the current Act could address this.

Ms S Mokgotho (EFF) welcomed the workshop. She suggested that the state, through state housing construction company, improve the size and the quality of low-cost houses and RDP houses. The state should regulate housing finance by providing housing finance that did not exceed a period of ten years. All settlements led by the state should have bulk services such as water, electricity, a sewer system and paved roads, especially since currently most of the RDP houses built by the DHS had no bulk services but the houses were already built. When construction companies finished building the houses, people that were supposed to occupy the houses were given keys to occupy houses in areas where some of these bulk services were not provided. The Bill did not state to the home builder or the private construction company that was developing a residential area that it should make sure that the site is fully serviced.

The Chairperson reminded the Members that the Bill had been tabled with Parliament. The Department had done their job and the Bill was with Parliament to take over, finalise and engage with communities until it became an Act. The Committee had requested the Department to provide a workshop so that the Bill was understood by Members. This is so that, when they went to engage communities, they did so having had clarity on the intention of the Bill and the issues that were repealed, and allow communities to make inputs. The Department was clarifying what the Bill entailed and providing further input was now the responsibility of Parliament.

Ms Mokgotho said that the Department was providing a workshop on the Bill, which, according to it, was final. It did not want the Committee’s input before it took the Bill or put it in front of Parliament and even before the public hearings. In other words, the Committee’s views were not important; it just wanted the Committee to interact with the Bill.

The Chairperson interrupted Ms Mokgotho and reminded her that the Committee had received a briefing from the Department on the Bill. The Committee interrogated the Bill and said that, before it went to public hearings, they should have a workshop with the Department to interact with the Bill for further clarification. This was to ensure clarity when they went out to communities.

Ms Mokgotho was not satisfied with the Chairperson’s explanation. The reason the Committee wanted the workshop was because they wanted to understand exactly what the Bill entailed so that they could provide input before the Bill was sent for public hearings.

The Chairperson clarified that the Bill had already been tabled with Parliament.

Ms Mokgotho maintained that the Committee was not afforded the opportunity to engage with the Bill.

The Chairperson said the Committee had the opportunity, and she was providing clarification.

Mr A Tseki (ANC) said that the Chairperson’s clarification was of assistance. The Bill was in front of Parliament. He explained to Ms Mokgotho that the Members were expected to make inputs; they were going to listen to the public, after which all inputs would be covered. As a Committee, they would then provide a presentation of all issues raised, depending on what the Committee wanted to be in the Bill. He reassured Ms Mokgotho that she was still in order. The Bill was not thrown to the Committee without the opportunity for inputs.

Regarding missileries that were small or not registered, if they took the same responsibilities as those that were registered, they would have to be registered with the NHBRC, and there was a payable fee. Could the Committee get clarity on the capacity of those missileries, on whether they would be able to sustain these payments, versus the penalties that they could suffer? What about the areas found to be communal land? In these communal lands, there could be a missilery who built without being registered and had a communal land. Could a claim be made from the NHRBC, on communal land that was led by Chiefs?

Regarding the issue of plans, he pointed out that there were areas where a structure would be erected and by assessment of the way it was placed, it may not have been registered with the NHBRC. Were there processes whereby a client or an individual could act as a whistle-blower to inform the NHBRC that, in their view, the structure was not being built right, and request the NHBRC to inspect the structure?

He said he noted a comment that Ms Powell made in terms of the threshold. He requested clarification on the threshold part of the presentation. Generally, all the points in the presentation were positive and took matters forward.

Ms Powell raised a point of order. She said that she did not find it appropriate that when Members made their contributions, they consistently and continually referred to individual Members of the Committee. They were addressing the Department and the Chairperson. It was not right or fair for the constant personal references that were made. She asked that Mr Tseki be warned of that in future.

The Chairperson requested Mr Tseki to raise matters through the Chairperson, not to other Members.

Mr Tseki accepted this request.

Mr B Herron (GOOD) raised concerns about sections 32 and 33 of the Bill. Both sections referred to the MEC and the MMC. However, to him, the drafters of the Bill had not understood local government legislation, because an MMC was not the same as an MEC. An MMC did not have executive authority. In the way the Bill was drafted, the MMC may not release any funds. No councillor or MMC would ever be positioned to withhold funds or release them. Similarly, with section 33, the MMC would be breaching the Act if they appointed homebuilders for subsidised housing that were not registered. MMCs were not involved in the appointment of homebuilders and should not be. He therefore misunderstood what was intended. An MMC did not have the authority nor the mandate and is prohibited by legislation from being involved in the administration of a council. Executive authority rested in the council and was delegated either to the municipal manager or the mayor. The appointment of builders for social housing and the release of funds would be the responsibility of the municipal manager and not an MMC. He was concerned about this section being in the Bill because he did not think that it was legally correct and it was putting MMCs in a position that they do not occupy.

The Chairperson added on to Mr Tseki’s questions on missileries. Was the Department going to provide them with training? Was it going to categorise them in terms of their levels? She said that municipalities were also not on the same level. There were those that had executive powers and those where the council was responsible. How would that be handled because, legislation-wise, sections 32 and 33 would not be correct?

Department’s Responses

Mr Neville Chainee, Deputy Director-General: Human Settlements, Planning and Strategy, DHS, reiterated the Chairperson’s point that the Bill was in Parliament. On issues raised by the Committee in relation to changes, amendments, and revisions, including after the public hearings: he said that the Department would address these.

On the concern about the duties in respect of the MMC and MEC: he responded that this was only in respect of subsidised housing projects where it was indicated that any MEC or MMC may not release any funds unless the provisions of the Act had been complied with. One of the biggest issues currently was that there was a substantial amount of subsidised housing projects that were not enrolled. Either the municipality or the province was the implementing agent. What was found in some of the oversight visits was that there were defects, and the implementing agent was either the province or the municipality. There were defects in the projects that had not been enrolled. What the Department wanted to do was to enforce the accountability and responsibility of MEC and MMC because, notably, the MEC sometimes delegated and made the municipality an implementing agent. And in relation to the delegations, the MMC was normally delegated to the mayoral committee or council to then take responsibility in relation to any of the projects that may be put in that regard.

Mr Ngwenya agreed that the questions posed by Members would enhance the Bill. In response to Ms Powell’s question on the issue of penalties, he explained that the rationale behind the penalties was understood, one being to target big businesses as the current R25 000 would be too little. He acknowledged that the penalty might unintentionally adversely affect a small builder, who might not be conscious of the legislation. He agreed that the Department needed to establish a framework to strike a balance or provide a particular exemption based on special circumstances or reasons. His understanding was that each case would be dealt with on its own merits. For example, a contravention by a small company and the nature of the transgression would be evaluated by a committee that would be responsible for coming up with a particular decision. A framework needed to be developed to deal with this specific element without defeating the purpose of what needed to be achieved by providing access to small builders while issuing the necessary heavy penalties. A fundamental point was that each case be evaluated on merit. But the target, without any fear of contradiction, was big companies, as the minimum figure prescribed in the current Act was not making working sense.

In response to Ms Mokgotho, in the overhaul, the Department needed to assess every development. Citing the issue of the inclusion of the MEC and MMC in terms of the subsidy housing programme, he said the particular municipality of a province must take responsibility as the regulating agent, and the MEC must take responsibility in terms of making sure that all the projects within his own area of jurisdiction are enrolled. The MEC and MMC had particular responsibilities. For example, for every implementation of a project a year, the MEC may submit business plans. Therefore, the MEC knew which projects were in the business plans and needed to check with the Director-General or accounting officers to ensure that particular processes were enrolled. So, in respect in respect of the subsidy programmes, the MEC and MMC must take responsibility. If a project was not enrolled, it meant that the consumer was exposed, and unauthorised builds would occur. There would be chaos, lack of plans, no settlement that was established and no infrastructure.

On Mr Tseki’s question about fees payable by missileries, these would be determined on a case-by-case basis, but the Department was focussing primarily on the bigger companies so that they could be dealt with effectively.

On the issue of the small contractors: the big proposal was that it uses a particular portion of the surplus fund for developmental programmes, including training. This was to give access, not only in terms of exemptions of giving them capacity to be enrolled, but to give access to information. Access to information was very critical as when the Department assesses itself and the impact of the legislation once it passes; the question was whether it had reached the relevant people in terms of consumer awareness. Access to information was a challenge, and the Department will look into the issues that have been raised.

Mr Songezo Booi, CEO of the NHBRC, said that part of what the Department was mandated to do was to look at the issue of training. In terms of the Act, it would the setting aside a portion of the surplus funds to drive the issue of training initiatives, as it was looking at creating capacity in the sector as well as incorporating transformation. The Department would be looking at all the various stakeholders, as it was planning to create capacity in the sector. There would be a focus of the initiatives in rural areas as well as urban areas.

Follow-up discussion

Ms Mokgotho repeated her request that the Department look at the state regulating housing finance through providing housing finance that did not exceed a period of ten years.

Mr Herron maintained his concern around the responses to sections 32 and 33. The responses created illegality in the Bill, and he requested the Department investigate this. There was a misunderstanding around the role of an MMC and the way that the two clauses were drafted intended for the MMC to appoint only registered house builders. MMCs were not involved in tender processes and the appointment of homebuilders. These clauses could not be left that way, as they were not legal and unintentionally resulted in the creation of the role of a politician being able to appoint a house builder and release funds. This did not make sense.

Mr Tseki said that he did not hear a response to what the rights were and claims that people in communal lands could have, including missileries. He apologised if he had missed the response.

Mr Chainee acknowledged Mr Herron’s concerns and said the Department would consider them. On Mr Tseki’s question concerning communal land, in relation to the NHBRC, he said that the Bill would apply to any project that was implemented where there were funds – for example in the subsidy project. The issue was not about land tenure. It was about the fact that there was a structure, which then got built and approved within a framework. There were important regulatory, safety and compliance issues. A balance needed to be struck between what was in the Act in relation to its scope of accountability and coverage, vis-à-vis the regulatory framework. The point that Mr Tseki raised was something that the Department, as part of the processes they have taken, would look at that with reference to those provinces that were predominantly on communal land.

On the question of training, the developmental introduction, and amendments the Department had made were to make sure that it took everyone along in the building value construction chain. It was not about kneading out anyone. The issue was that the Act was going to operate within a framework of compliance, monitoring and oversight that occurs at the province and municipality. The issue of missileries that Mr Tseki raised was that people were not provided information or proper education, which raised the issue of how they would apply and enforce compliance. This would take place predominantly in training, hence the CEO raised the need to include or allow the NHBRC to use a bigger portion of the funding for training, education, and information. There was a need to strike a balance between compliance, economy, and the ability for people to access housing. The Department would take the valuable points and comments raised in the process, along with those of Parliament’s legal advisors and start working on addressing issues

On the concerns about sections 32 and 33, Mr Ngwenya said that, from the point of view of a drafter, certain instances could be in line with Mr Herron’s concerns. If the intention of the provision remained the same, it could be dealt with in the context of the accounting officers as defined in the PFMA and municipal finance systems. In terms of enforceability of the provisions, the Department could look at them in terms of that particular context that has been proposed.

Ms N Tafeni (EFF) commented on the chat that, in terms of section 26, the Bill did not specify which procedures were in place to process late registration. What were the key motivations for the establishment of non-profit companies for risk-based insurance offerings when the warranty fund already existed?

Mr Chainee said that the regulations would deal with the first part of Ms Tafeni’s question in consultation with the Chairperson. The operationalisation of the Act would be done and would address Ms Tafeni’s first question.

Mr Booi responded that, in terms of the current Act, the warranty fund was established as a form of protection for the consumers. As the National Council, they had to fund their own operations and still had some portion that was set aside to grow the warranty fund. Looking at their operations, they had to ensure that they had enough resources to run the operations, hence the establishment of a non-profit organisation, if needed. This would negate the need to tap into the warranty fund to run the current affairs of the organisation.

The Chairperson thanked the Department for the empowering workshop. As previously indicated, the process was now in the hands of Parliament. Therefore, legal issues, like those raised by Mr Herron, would be engaged with by the legal services of Parliament for the Committee to proceed. She hoped that Members were empowered to take the process forward to receive input from communities. Later in terms of the process, Members would have the opportunity to deliberate on what the Department had tabled as the Bill, the communities’ input on the Bill and Parliament’s legal team’s advice. The Committee’s input would then go to Parliament for further discussion and finalisation of the Bill. There was still enough time for Members to engage with the Bill. She reaffirmed the Committee’s responsibility to drive the process forward. Again, she thanked the Members and the Department for attending the virtual meeting.

The meeting was adjourned.