NHFC Portfolio Committee Of Housing 13 June 2001 NATIONAL HOUSING FINANCE CORPORATION LIMITED.

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<ul><li><p>NHFCPortfolio CommitteeOf Housing13 June 2001NATIONAL HOUSING FINANCE CORPORATION LIMITED</p></li><li><p>The National Housing Finance Corporation is one of five state-owned development finance institutions in South Africa.With initial, permanent capital provided by government, each one supplements its capital with private sector funding.In this way, partnerships between the public and private sectors are created.INDUSTRIALDEVELOPMENTCORPORATIONDEVELOPMENTBANK OFSOUTHERNAFRICAKHULAENTERPRISEFINANCELAND ANDAGRICULTURALBANKNATIONAL HOUSINGFINANCECORPORATIONSouth AfricanGovernmentIndustrialdevelopmentfinance for, andinvestments into, industrialconcernsInfrastructuredevelopment finance forprovincial/localauthorities,parastatals andutilitiesSmall, medium and microenterprisedevelopment financefor lending intermediariesfinancing small, mediumand micro enterprisesAgriculturaldevelopmentfinanceHousing developmentfinance forintermediariesfinancing housingand housinginstitutions</p></li><li><p>In partnerships with the broadest range of organisations,to search for new and better ways to mobilise finance for housing, fromsources outside the state..."The corporations endeavours should in time ensure that every South African with a regular source of income can gain access to finance to acquire, rent and/or improve a home of his/her ownTHE MANDATE . . .</p></li><li><p>The NHFC seek tocreate housing opportunities for the low and moderate income families by: Funding intermediaries to promote broader access to housing Building adequate and sustainable capacity within the organisations to which it funds Partnering organisations to pioneer new finance and housing delivery approachesTHE MISSION . . .</p></li><li><p>Wholesale Debt Funding : R 1 083m Provide credit facilities to retail lenders in low income housing market existing institutions(Rural/Urban):Banks - Unibank, Cash BankNon-Banks Agishana, Grand Finance, Mid First, Protea, SumexBuilding Material Suppliers Bonus Building SuppliesDevelopment Corporations Ithala, Mpumalanga Challenges / ExperiencesConsolidation / Alliances extending reach by the big banksEnvironment highly competitive no room for small lenders, clientsLiquidity pressures in this marketBlending of credit with SAVINGS and SUBSIDIESRisk Management become increasingly important</p></li><li><p>Build &amp; Capacitate new Inst: R 170mSHF provides capacitation of new housing institutions Fund housing projects of the housing institutions for alternative tenure promote Social Housing:Rental stock - SEMAG, Greater Germiston, Durban Metro, HAELRent-to-Buy CTCHC, ReatlehileInstallment Sales CTCHC, ABAHLALICo-operatives COPE, NEWTOWN HOUSING CO. Challenges / ExperiencesSetting time of viable housing institutions 18 approx. months Project have to be scale magnitude approx. 3000 unitsGrant funding is crucial at early stages of the projectVat and Income Tax Exemption make them sustainableEnabling regulatory environment Rental Housing Act</p></li><li><p>Partnering other OrganisationsIntent to deliver housing and housing finance at scale In 1999, setup Gateway Home Loans(PTY) - PPPLoan Origination and Servicing by major banks end up in Securitisation : Accredited LendersDesigned a Non-Mortgage financial instrument : Makhulong Home Loan Pension provident fund backed / other forms of collateralBanks SBSA, NEDCOR, AFRICAN BANK, CASH BANK, ETC Lessons LearntNeed for Primary Market stimulation no big banks in this marketNeed for policies/regulation to facilitate the banks involvementScale delivery is crucial for successful securitisation Risk Enhancement mechanisms NHFC to assume greater risk</p></li><li><p>Performance TO-DATE HIGHLIGHTS</p></li><li><p>NHFC Approvals and DisbursementsRm (Annual)</p></li><li><p>Number of End User Loans</p></li><li><p>Number of Housing Units</p></li><li><p>Social Impact of the NHFC Potentially more 2,5 million low and moderate income families quality of life would be improved due to NHFCs funding activities</p></li><li><p>EXAMPLES OF PROJECTS FUNDED BY THE NHFC</p></li><li><p>CTCHC WESTERN CAPEMitchells Plein </p></li><li><p>ABAHLALI - EASTERN CAPEPort Elizabeth / Nelson Mandela Metro ABAHLALI</p></li><li><p>TSUTSUMANI - GAUTENGAlexander SEMAG ( All Africa Games )</p></li><li><p>DURBAN METRO - KZNDurban </p></li><li><p>Housing Budget Relevance Initially capitalised by SA Government : Seed Capital </p><p> CURRENT YEAR : 2001/2002 No Allocation from Budget</p><p> Current Capital Structure :Seed CapitalR 880mDebentures from Private Sector R 100mDistributable Reserves/ProfitR 350m R 1 330m Financial Vision - Longer term goal is to be self-sustainable</p></li><li><p> Extend the housing finance market down-stream : accommodate the low income households Unlock private sector capital into the NHFC target market Ensure that there is increased competition in this sector of the market Improve on the internal efficiencies</p></li><li><p>Challenges for the NHFCFinancial Where the next funding for the Corporation would come from Self Sustainability Link Savings and Subsidies to Credit (package better affordability levels with a quality product delivered) Increase private sector investment in the low income housing market risk enhancement mechanisms Run a Cost Effective Operation Lean and Mean Conform to all the Public Finance Management Act regulations ( already do )</p></li><li><p>Challenges for the NHFCHousing Impact Putting the roof over peoples head : MANDATE!!! Deliver finance for ALL forms of Low Income Housing Ownership ( including, the Urban Renewal Projects ) Alternative Tenure : Rental / Rent-To-But / Installment Sale Incremental : Thrust of the RURAL housing market (in line with the Presidential Integrated Sustainable Rural Development Strategy - ISRDS)How to deal with the AIDS factor that is most prevalent in this target marketWork with other NGOs to quantify the magnitude and the likely impact of AIDS among the LIHExplore housing solution options for the AIDS sufferers</p></li><li><p>Challenges for the NHFCPolicy Effectively use the policy instruments such as the HLMDA and the CRA to ensure maximum participation by the private sector e.g. banks and non-banking financial and insurance institutions in the low income market Stipulation of ENABLING MEASURES / EXEMPTIONS that will ensure the NHFC can fulfill its public mandate</p></li><li><p>Challenges for the NHFCPrivate Sector Participation Innovative financial structuring : Aggressive risk Enhancement Mechanisms ( Strategic Thrust ) Through Enabling Measures, the NHFC becoming a strategic partner to private sector the spirit of PPP extended Implicit Guarantee by the Government To enable the NHFC to deliver lower costs of funding</p></li><li><p>Conclusion NHFCs Mandate : Putting the Roof Over Peoples Head Strategic Focus : Self Sustainability Question of future funding Focused on Housing Delivery Agenda Establishment of Enabling Arrangements We need Your Help Normalisation of the housing finance sector among the low and moderate income families Thank You Portfolio Committee of Housing</p><p> AIM : TO BROADEN ACCESS TO HOUSING FINANCEFOR : HOME OWNERSHIP AND INCREMENTAL HOUSING (home improvement, home extensions and home infrastructure setup)</p><p>Financial Instrument used : SECURED END USER LOANS (pension provident backed, other collateral), UNSECURED END USER LOANS</p><p> Default Levels : Very Low around 4% AIM : TO BROADEN ACCESS TO HOUSING FINANCEFOR : HOME OWNERSHIP AND INCREMENTAL HOUSING (home improvement, home extensions and home infrastructure setup)</p><p>Financial Instrument used : SECURED END USER LOANS (pension provident backed, other collateral), UNSECURED END USER LOANS</p><p> Default Levels : Very Low around 4% AIM : TO BROADEN ACCESS TO HOUSING FINANCEFOR : HOME OWNERSHIP AND INCREMENTAL HOUSING (home improvement, home extensions and home infrastructure setup)</p><p>Financial Instrument used : SECURED END USER LOANS (pension provident backed, other collateral), UNSECURED END USER LOANS</p><p> Default Levels : Very Low around 4%</p><p>HOW HAS THE NHFC PERFORMED TO DATE ?</p><p>In the first five years we have APPROVED : R 1.3bn</p><p>We have PAID-OUT :R 957m</p><p>Which RESULTED IN THE FOLLOWING HOUSING IMPACT :</p><p>HOUSING IMPACT among the LOW AND MODERATE income families is described IN TERMS OF : 242 000 Loans</p><p>Number new units on the ground : Either for OWNERSHIP or RENTAL / RENT-TO-BUY / INSTALLMENT SALE : 76 431Number of end user loans for : INCREMENTAL HOUSING ( excludes the above ) : 172 300 or FORECASTED : 436 700Meaning : House ExtensionsHome ImprovementHousing Infrastructure e.g. Water, Electricity, etc.Breakdown of the NHFC Funding :</p><p>SEED CAPITAL R880mDEBENTURES R100mDISTRIBUTABLER350mRESERVES</p><p>But the long term goal is to BE1. Unbundle the housing finance market. Stimulate Loan Originators, Servicors and Underwriters</p><p>Foster the involvement of both Banks and Non-Banking institutions</p><p> Use risk-enhancement mechanisms : Junior or Sub-ordinated Debt, Mezzannine, etc.</p><p>Increased client activity is positive to the end user choice / options and lower cost of financing</p><p>Run a Lean and Mean operation reflection of the R 350m retained earningsA) FUNDING according to RESPONSIBILITY (borne by financial and capital markets players) , LENDING according to CAPABILITY (should be done by those who have the capability understanding, marketing, managing) Small banks more geared to marketing, underwriting and managing LIH loans e.g. Cashbank, Southfin, Agishana in the low income sector of the market THIS WILL RESULT INTO TWO ADVANTAGES :EXPAND THE LOW INCOME HOUSING LENDING CAPACITY andREDUCE THE COST OF FUNDING FOR THE NHFC</p><p>B) EXEMPTION FROM :Banks ActSTAMP DUTIES ACT Currently, for issue of any share, stock, debentures. Extend this to ANYTransfer Fees and Charges on home loans it purchases from intermediaries,MORTGAGE REGISTRATION costs </p><p>Calculated Risk Not aimed at eroding the seed capitalNormalisation of the South African housing market : demonstrated by increased access to housing credit among the low and moderate income families -Higher levels of private sector funding leveragedGrowing number of loans advanced to LMI families</p><p>Full Faith and Credit of the US government Private sector and Rating agencies considers this favourable in pricing the riskiness of the corporation LOW COST FUNDING FOR THE NHFC which would be PASSED to the end beneficiary e.g. R 200m p.a.Normalisation of the South African housing market : demonstrated by increased access to housing credit among the low and moderate income families -Higher levels of private sector funding leveragedGrowing number of loans advanced to LMI families</p></li></ul>

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