HOUSING PORTFOLIO COMMITTEENATIONAL HOUSING FINANCE CORPORATION
9 - 10 May 2006
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
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
ESTABLISHMENT
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
Governance Structure
Audit and Risk Committee
Board Credit Committee
Human Resources Ethics, and
Remuneration Committee
Board of Directors
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
2004/5 PERFORMANCE
FINANCIAL PERFORMANCE 2004/2005 TO BUDGET
Income from lending
• Slow disbursements
• Non-performing SHIs
• Client Consolidation
(32% below)
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%
HOUSING IMPACT 2004/2005
12,767Financed
Unit ImpactBroadened Scope
to new areas
Supported 8 new housing retail
intermediaries
27000 facilitated+
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
Developments in 2005/6
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 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
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
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
UNAUDITED FINANCIAL PERFORMANCE 2005/2006 (BUDGET COMPARISON))
Income from lending
• Slow disbursements
• Non-performing SHIs
• Client Consolidation
(25% below)
Income from Investment
• Lower disbursements
(20% )
Financial performance
Profit before tax up
Operating Expenses
(18% below)
HOUSING IMPACT 2005/2006
ACTUAL: 15 515
BUDGET: 16 575
Strategic Outlook 2006 and
beyond
STRATEGIC GOALS (2006 Onwards)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.
KEY STRATEGIC THRUSTS AND OUTCOMES
FINANCING
FACILITATION
GOVERNMENT DELIVERY AGENT
TECHNICAL ASSISTANCE
A DELIVERY,FOCUSED
CORPORATION
Aimed at delivery of housing and housing finance:• Ensure sustainability of programmes and sector
development• Creation of technical competency and capacity in
institution• Have knowledgeable end-users ready to receive
funding
• Effective management and mobilisation of concessional funding
• Assist Government achieve National/Priority Housing Programmes
• Establishment of an enabling housing policyframework
• Ensure increased banks lending to target market• Development of markets for affordable housing• Stimulate activity in the housing supply and
development• Appropriate quantification and pricing of risk in
the target market
• Supporting integrated housing development• Lower the cost of housing finance for households• Broadened access to housing finance by
households
WHAT WE WANT TO ACHIEVENHFC THEMES
FINANCING
FACILITATION
GOVERNMENT DELIVERY AGENT
TECHNICAL ASSISTANCE
A DELIVERY,FOCUSED
CORPORATION
Aimed at delivery of housing and housing finance:• Ensure sustainability of programmes and sector
development• Creation of technical competency and capacity in
institution• Have knowledgeable end-users ready to receive
funding
• Effective management and mobilisation of concessional funding
• Assist Government achieve National/Priority Housing Programmes
• Establishment of an enabling housing policyframework
• Ensure increased banks lending to target market• Development of markets for affordable housing• Stimulate activity in the housing supply and
development• Appropriate quantification and pricing of risk in
the target market
• Supporting integrated housing development• Lower the cost of housing finance for households• Broadened access to housing finance by
households
WHAT WE WANT TO ACHIEVENHFC THEMES
CORE BUSINESSCORE BUSINESS
• PROJECTS (Financing, Packaging, Facilitation)
– Social Housing Projects
– Public Projects
– Private ProjectsMostly where the 25 000 units will come from…
• Direct Lending– Setup appropriate comprehensive infrastructure
– Operationalise as from first Quarter of 2007
OVERVIEW OF THE 2006-2009 BUSINESS PLAN
25,1
46
33,2
66
41,9
96
2007 2008 2009
Housing Opportunities
R787m
2006
R1,7
36m
2007
Loan book impact
R800m
R1b
illion
R1b
illion
2007 2008 2009
Funding Requirements
nil
2006
BUDGET INFORMATION (Previous MTEF)
• Comparison Actual 2005 to budget 2005 and budgets for planning years 2006 – 2008 (Submitted in 2005):
Actual
2005
(R’m)
Budget
2005
(R’m)
Budget
2006
(R’m)
Budget Plan 2007
(R’m)
Budget
2008
(R’m)
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
BUDGETED INCOME STATEMENT FOR THE FINANCIAL YEAR
BUDGETED INCOME STATEMENT FOR THE FINANCIAL YEAR 1ST APRIL 2006 TO 31ST MARCH 2007
Budget - New Forecast % Change Budget2006/2007 2005/2006 2005/2006
R'000 R'000 R'000Income 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% 101,016Less : Tax (29%) 22,194 30,905 (28%) 29,295Profit After Tax 54,338 71,481 24% 71,721Add : Cell Captive Net Profit 1,000 930 (8%) 8,946Opening Retained Earnings 838,388 765,977 (9%) 765,977Closing Retained Earnings 893,726 838,388 (7%) 846,644
BUDGETED OPERATING EXPENDITURE FOR THE FINANCIAL YEAR
BUDGETED OPERATING EXPENDITURE FOR THE FINANCIAL YEAR 1ST APRIL 2006 TO 31ST MARCH 2007
Notes % Change
New/Forecast
% R'000 % R'000Employee 1 48% 40,328 56% 31,023 30% Marketing 2 6% 5,032 3% 1,877 168% Outsourced Services 3 19% 16,230 9% 4,987 225% Professional Fees 3% 2,352 3% 1,843 28% Travel & Entertainment 4 5% 4,053 3% 1,635 148% Administration 2% 1,600 3% 1,490 7% Communication Infrastructure 2% 1,709 2% 1,351 26% Computer 5 4% 3,519 3% 1,566 125% Office Expenses 1% 1,242 2% 957 30% Premises 6% 4,637 7% 4,128 12% Training & Development 6 1% 959 1% 455 111% Direct costs - Retail 0% 71 - - - Sundries 2% 2,000 8% 4,182 (52%) TOTAL 100% 83,732 100% 55,494 51 % of Total Income 52% 35%
Budget - New Forecast
2006/2007 2005/2006
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
SPECIFIC CHALLENGES IN RELATION TO DELIVERY – NHFC EXEPRIENCE
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
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
Land
Access to land for housing
Land release processes
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
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.
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
