HOUSING PORTFOLIO COMMITTEE NATIONAL HOUSING FINANCE CORPORATION

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HOUSING PORTFOLIO COMMITTEENATIONAL HOUSING
FINANCE CORPORATION

• 9 - 10 May 2006

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ESTABLISHMENT

• Born out of the 1994 White Paper on Housing
  Policy, the National Housing Finance Corporation
  (NHFC) was established by the National Department
  of Housing (NDoH) in 1996 as a wholesale lender

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

Share Capital and Premium R880m
Government Grants R200m
Retained Earnings R766m
R1,846bn
The NHFC is self-sustaining
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2004/5 PERFORMANCE
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FINANCIAL PERFORMANCE 2004/2005 TO BUDGET

• Income from Investment
• Lower disbursements
• (35 above)

• Operating expenses
• Capacitation of
• Northwest Housing Corporation
• Donation to Joe Slovo Park
• (7 above)

• Financial performance
• Profit before tax up 1.6

• Income from lending
• Slow disbursements
• Non-performing SHIs
• Client Consolidation
• (32 below)

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HOUSING IMPACT 2004/2005
Broadened Scope to new areas
Unit Impact
12,767 Financed
27000 facilitated

• Supported 8 new housing retail intermediaries

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LIH ENVIRONMENT

• During 2004/2005
• Slow pace of housing 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

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Developments in 2005/6
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2005/2006STRATEGIC PRIORITIES

• Extend the reach, scope and coverage to the
  lowest end of market
• Develop the concept for the Housing Bank Model
• FACILITATE the increase of 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

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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

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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

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UNAUDITED FINANCIAL PERFORMANCE 2005/2006 (BUDGET
COMPARISON))

• Income from Investment
• Lower disbursements
• (20 )

Financial performance Profit before tax up

• Income from lending
• Slow disbursements
• Non-performing SHIs
• Client Consolidation
• (25 below)

• Operating Expenses
• (18 below)

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HOUSING IMPACT 2005/2006
ACTUAL 15 515
BUDGET 16 575
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Strategic Outlook 2006 and beyond
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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.

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KEY STRATEGIC THRUSTS AND OUTCOMES
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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

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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
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BUDGET INFORMATION (Previous MTEF)

• Comparison Actual 2005 to budget 2005 and budgets
  for planning years 2006 2008 (Submitted in
  2005)

Actual 2005 (Rm) Budget 2005 (Rm) Budget 2006 (Rm) Budget Plan 2007 (Rm) Budget 2008 (Rm)
Income 186 168 191 237 323
Less Impairments (28) (16) (4) (5) (6)
Operating Expenses (64) (60) (75) (89) (107)
Profit Before Tax 93 92 112 143 210
Tax (28) (28) (34) (43) (63)
Profit After Tax 65 64 78 100 147

Impacts Houses/Loans 12,767 29,393 16,575 17,590 18,608
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BUDGETED INCOME STATEMENT FOR THE FINANCIAL YEAR
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BUDGETED OPERATING EXPENDITURE FOR THE FINANCIAL
YEAR
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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

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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

• Political Obstruction in certain projects
• Individual political leaders blocking due process
• Rent boycotts

• Land
• Access to land for housing
• Land release processes

• 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

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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 NHFCs broadened mandate in
  process

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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.

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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