HOUSING PORTFOLIO COMMITTEE NATIONAL HOUSING FINANCE CORPORATION

1. HOUSING PORTFOLIO COMMITTEENATIONAL HOUSING FINANCE CORPORATION 9 - 10 May 2006

2. ESTABLISHMENT Born out of the 1994 White Paper on Housing Policy, the National Housing Finance Corporation (NHFC) was establishedby the National Department of Housing (NDoH) in 1996 as a wholesale lender

3. ESTABLISHMENT As a state owned development finance institution, the principal mandate of the NHFC is to broaden access to affordable housing finance for the low- and moderate-income earners of South Africa 

4. MANDATE • undertake funding as a wholesale intermediary to promote broader access to housing • underwrite the flow of wholesale funds to retail intermediaries (provide cover, security or guarantee) • specialise in identifying, assessing, pricing, monitoring and managing risks associated with the placement of wholesale funds with retail intermediaries • undertake proactive programs aimed at building institutional and financial capacity at the retail level • managing facilitative interventions supporting bank lending for housing in the target market

5. Governance Structure Board of Directors Audit and Risk Committee Board Credit Committee Human Resources Ethics, and Remuneration Committee

6. FUNDING FRAMEWORK • Funding Framework The NHFC has Capital and Reserves of R1,846 billion at 31 March 2005. The funds are made up as follows: The NHFC is self-sustaining

7. 2004/5 PERFORMANCE

8. FINANCIAL PERFORMANCE 2004/2005 TO BUDGET • Financial performance • Profit before tax up 1.6% • Income from Investment • Lower disbursements • (35% above) • Operating expenses • Capacitation of • Northwest Housing Corporation • Donation to Joe Slovo Park • (7% above) • Income from lending • Slow disbursements • Non-performing SHIs • Client Consolidation • (32% below)

9. HOUSING IMPACT 2004/2005 Supported 8 new housing retail intermediaries Broadened Scope to new areas Unit Impact 12,767 Financed 27000 facilitated +

10. LIH ENVIRONMENT During 2004/2005: • Slow pace ofhousing delivery during the period • Non-performance of RETAIL intermediaries on the increase • Disbursements continue to substantially lag Approvals • The favourable housing conditions prevailing have not filtered to the LIH market • New Housing Delivery Strategy on the cards – “Breaking New Ground to Housing Delivery” • The NHFC responds to the new housing strategy

11. Developments in 2005/6

12. 2005/2006:STRATEGIC PRIORITIES • Extend the reach, scope and coverage to the lowest end of market • Develop the concept for the Housing Bank Model • FACILITATE the increaseof private sector contribution to scale housing delivery - FSC • Provide risk-enhancement mechanism • Through SPECIAL PROJECTS - Address National Priority Projects: • E.g. N2 Gateway Rental Housing, Kliptown etc. • Fund existing and viable housing retail intermediaries – wholesale funds • Provide focused Technical Assistance to housing retail intermediaries – Develop. Fund

13. THE 2005/2006 developments • New Housing Delivery Strategy • Created a momentum for fast-tracking housing delivery • FSC a major catalyst for private sector involvement in LIH • Favourable housing incentives e.g. exemptions and reductions in transfer and stamp duties • National Priorities in housing e.g. eradication/transforming of informal settlements, 2014 Agenda • Integrated approach to delivery – sustainable development and human settlements – Partnerships • Low interest rate era - affordability

14. Preview of 2005/2006 performance (Unaudited) • Income • Created a momentum for fast-tracking housing delivery • FSC a major catalyst for private sector involvement in LIH • Favourable housing incentives e.g. exemptions and reductions in transfer and stamp duties • National Priorities in housing e.g. eradication/transforming of informal settlements, 2014 Agenda • Integrated approach to delivery – sustainable development and human settlements – Partnerships • Low interest rate era - affordability

15. UNAUDITED FINANCIAL PERFORMANCE 2005/2006 (BUDGET COMPARISON)) Financial performance Profit before tax up • Income from Investment • Lower disbursements • (20% ) • Income from lending • Slow disbursements • Non-performing SHIs • Client Consolidation • (25% below) • Operating Expenses • (18% below)

16. HOUSING IMPACT 2005/2006 ACTUAL: 15 515 BUDGET: 16 575

17. Strategic Outlook 2006 and beyond

18. STRATEGIC GOALS (2006 Onwards) • Finance and facilitate 175-225,000 housing units by 2011; • Improve and support the development of a vibrant primary and secondary market in LIH by partnering with private and public sector entities; • Promote and support government priority projects towards achieving sustainable human settlements objectives that aim to eliminate informal settlements by 2014; • Transform the Corporation for effective delivery and impact while ensuring that it remains financially sustainable in the long term, by implementing corporate-wide efforts to increase revenue, customer orientation, and the efficient use of resources.

19. KEY STRATEGIC THRUSTS AND OUTCOMES

20. CORE BUSINESS • PROJECTS(Financing, Packaging, Facilitation) • Social Housing Projects • Public Projects • Private Projects Mostly where the 25 000 units will come from… • Direct Lending • Setup appropriate comprehensive infrastructure • Operationalise as from first Quarter of 2007

21. OVERVIEW OF THE 2006-2009 BUSINESS PLAN Housing Opportunities Loan book impact Funding Requirements 41,996 R1,736m R1billion R1billion 33,266 R800m 25,146 nil R787m 2007 2008 2009 2006 2007 2006 2007 2008 2009

22. BUDGET INFORMATION (Previous MTEF) • Comparison Actual 2005 to budget 2005 and budgets for planning years 2006 – 2008 (Submitted in 2005):

23. BUDGETED INCOME STATEMENT FOR THE FINANCIAL YEAR 1ST APRIL 2006 TO 31ST MARCH 2007 Budget - New Forecast % Change Budget 2006/2007 2005/2006 2005/2006 R'000 R'000 R'000 Income generated from: Lending Activities 92,710 62,921 (47%) 82,582 Investment Activities 61,937 84,725 27% 81,553 Management Fees 2,000 3,339 40% 1,000 Other 3,619 6,895 48% 9,150 Inc. Before Op. Exp. 160,265 157,880 (2%) 174,285 Total Operating Expenses 83,732 55,494 51% 73,269 Less : Profit Before Tax 76,533 102,386 25% 101,016 Less : Tax (29%) 22,194 30,905 (28%) 29,295 Profit After Tax 54,338 71,481 24% 71,721 Add : Cell Captive Net Profit 1,000 930 (8%) 8,946 Opening Retained Earnings 838,388 765,977 (9%) 765,977 Closing Retained Earnings 893,726 838,388 (7%) 846,644 BUDGETED INCOME STATEMENT FOR THE FINANCIAL YEAR

24. BUDGETED OPERATING EXPENDITURE FOR THE FINANCIAL YEAR 1ST APRIL 2006 TO 31ST MARCH 2007 % Change Notes Budget - New Forecast New/Forecast 2006/2007 2005/2006 % R'000 % R'000 48% 40,328 56% 31,023 30% 1 Employee 6% 5,032 3% 1,877 168% 2 Marketing 19% 16,230 9% 4,987 225% 3 Outsourced Services 3% 2,352 3% 1,843 28% Professional Fees 5% 4,053 3% 1,635 148% 4 Travel & Entertainment 2% 1,600 3% 1,490 7% Administration 2% 1,709 2% 1,351 26% Communication Infrastructure 4% 3,519 3% 1,566 125% 5 Computer 1% 1,242 2% 957 30% Office Expenses 6% 4,637 7% 4,128 12% Premises 1% 959 1% 455 111% 6 Training & Development 0% 71 - - - Direct costs - Retail 2% 2,000 8% 4,182 (52%) Sundries TOTAL 100% 83,732 100% 55,494 51 % of Total Income 52% 35% BUDGETED OPERATING EXPENDITURE FOR THE FINANCIAL YEAR

25. KEY CHALLENGES Municipal Capacity as regards the supply side of Housing Delivery vis; • Human Resource • Delays • Accreditation • Availability of subsidies Developers not playing in low income market • Currently servicing high end • Results in scarcity in lower end, and illiquidity in the market Financial sector charter stalemate • Non-resolution on risk enhancement mechanism and conduit

26. SPECIFIC CHALLENGES IN RELATION TO DELIVERY – NHFC EXEPRIENCE Retail Housing Finance Intermediaries • Dependency on non-banking housing retail institutions that lack institutional and financial capacity – results in lower disbursements vis-à-vis approval Capital • In providing a “social window” to its lending into the retail market NHFC will have to look to the Department of Housing for concessional funding Political Obstruction in certain projects • Individual political leaders blocking due process • Rent boycotts Land • Access to land for housing • Land release processes

27. WAY FORWARD • NHFC has undertaken bold steps in its aim to make a serious impact in the Low Income Housing environment in the medium to long term. It will need the support and encouragement of all its stakeholders to achieve the goals set. • The 2007/2009 Business Plan was presented to the Department of Housing on 18 April 2006 and although final approval thereof is awaited. • Implementation of NHFC’s broadened mandate in process

28. OVERALL EXPANDED MANDATE OBJECTIVES • Deepen the access, scope and size of impact in the housing market; • Facilitate the development of markets for affordable housing finance; • Continue to pilot new interventions in support of the development of sustainable human settlements; • Promote increased competition to the low income housing market; • Expand scope of lending to enable cross-subsidisation of less profitable elements of business; • Exploit and avail incentives to the market for facilitating affordable housing finance; • Ability to raise funds and mobilise resources for the sector and channel them for housing.

29. Equity/Procurement/BEE and contribution to ASGISA In developing the new business model for NHFC for the 2007/2009 period, it was conscious of the need to respond to the: • Millennium Development Goals (MDG) • Promoting the development integrated human settlements • Special focus on slum reduction • Procurement policies to promote female and BEE participation • ASGISA: • Skills development and Employment creation through housing construction (labour intensive) • Technical assistance (capacity building) – accelerating delivery • Breaking New Ground in Housing strategy • Increasing homeownership and quality of human settlements through expanded mandate enabling alternative solutions • Improving access to housing finance • Finance Sector Charter • Risk enhancement for the industry