human settlements portfolio committee 15 october 2014 nhfc annual report 2014

HUMAN SETTLEMENTSPORTFOLIO COMMITTEE

15 OCTOBER 2014

NHFCANNUAL REPORT

2014

Financier Facilitator Innovator∙ ∙

Overview

Business Performance

Corporate Governance

Risk Management

Our People

Financial Performance


The National Housing Finance Corporation Soc Ltd (NHFC) is a

state owned Development Finance Institution with a principal

mandate to broaden and deepen access to affordable housing

finance for the low- and middle-income households.

The National Housing Finance Corporation Soc Ltd (NHFC) is a

state owned Development Finance Institution with a principal

mandate to broaden and deepen access to affordable housing

finance for the low- and middle-income households.

− The low- to middle-income housing market is any South African

household with a regular monthly income between R1 500 and

R15 000.

− The market segment is able to contribute towards its housing

costs, but unable to access housing finance from Financial

Institutions.

Target Market:Target Market:


Provide innovative and affordable housing finance solutions to the low –to-middle income market

OWNERSHIP

Expand housing finance activities, through the effective provision of housing finance solutions, thus enabling low-to-middle income households to have choice of renting or owning or incrementally building, to meet their housing needs; Facilitate the increased and sustained lending by financial institutions to the affordable housing market; Mobilise funding into the human settlement space, on a sustainable basis, in partnership with the broadest range of institutions; Conduct the business activities of the NHFC in a manner that ensures the continued economic sustainability of the NHFC whilst promoting lasting social, ethical and environmental development; and Provide robust, timely and relevant market research

INTEGRITY

PASSION FOR PURPOSE

CREATIVITY

TEAMWORK

ACHIEVEMENT

To be the leader in development finance for the low-to-middle income housing market

Financier Facilitator Innovator∙ ∙7

Partnership with banks Non-banking retail intermediaries

Home ownership

Through co-financing and risk-enhancement mechanisms, bank lending in this segment of the market is increased and sustained through leveraged funding provided by the NHFC

NHFC provides wholesale funding to non-banking retail intermediaries, that on-lend to households in the NHFC target market. Access to home loans is increased and delivered through a nationwide branch network of intermediaries.

Rental housingProvision of loans that offer the following types of rental accommodation:

Rental housingProvision of loans that offer the following types of rental accommodation:

Incremental housingIncremental housing via approved or selected intermediaries to end-users with household incomes in the R3 500 to R15 000 per month range, and for loans between R1 000 and R20 000.

Incremental housingIncremental housing via approved or selected intermediaries to end-users with household incomes in the R3 500 to R15 000 per month range, and for loans between R1 000 and R20 000.

Private rental (up to R15 000)Rental accommodation is provided by private landlords, who do notreceive any subsidies or grants. It caters for the affordable rental market, including inner city rental developments.

NHFC provides long term funding for the development/refurbishment of Inner City buildings for rental accommodation.

Social rental (R 3 500 – R 7 500)Subsidised rental housing provided by social housinginstitutions . These institutions receive subsidies in the form of restructuring capital grants from the SHRA as well as top up institutional subsidies from provincial government.

In addition to these grants and subsidies, the NHFC provides long-term debt funding (up to 20 years) for the balance of funding for development of thehousing project.

Strategic PartnershipsNHFC develops strategic alliances and partnerships with developers, investors and housing development funds etc. through investment in equities, mezzanine and junior debt capital structures in projects or companies that operate within the affordable housing market.

Home ownershipIs achieved through the indirect provision of mortgage bonds for buying an existing home or building one, through partnerships with banks, and non-banking retail intermediaries

Home ownershipIs achieved through the indirect provision of mortgage bonds for buying an existing home or building one, through partnerships with banks, and non-banking retail intermediaries


Board Governance Structure

Board Credit & Investment Committee

(BCIC)

Audit Committee

Board Risk Committee

(BRC) Executive Committee

(EXCO)

Board Human Resources Ethics & Remuneration

Committee (HRER)

Board Development

Impact & Strategy Committee

(DISC)

BOARD

Social & Ethics Committee

(SEC)

NHFC conforms to the requirements of the King III Report and the Protocol on Corporate Governance.

NHFC remains a Schedule 3(A) entity.

Board charter reviewed annually. Specific powers and authority have been delegated to the Board committees, each of which has a clearly defined mandate in its written Terms of Reference.

Unqualified audit report since inception.


NHFC sustains a comprehensive Enterprise Risk Management Framework and strategy to meet both statutory and best business practice requirements.

STRUCTURE ROLE ROLES, RESPONSIBILITIES AND ACCOUNTABILITY

The Board

Management

Continuous Risk

Assessment and

Monitoring

Risk Governance

The Board approves the risk tolerance level. The Board has delegated the Governance of Risk to

the Board Risk Committee. Through the Board Risk Committee, the Board

ensures that the NHFC Top Risks and emerging risks are identified and risk mitigation strategies put in place.

The Board ensures that Risk Assessments are performed on a regular basis.

The Board ensures that Framework and methodologies are in place to ensure timely anticipation of unpredictable risks.

Management is responsible for implementing appropriate Board approved risk responses.

Management is responsible for monitoring risks and ensuring that approved action is taken to mitigate such risks.

Management is responsible for reporting on risk on a quarterly basis, or as the need arises, depending on the severity of the identified risk.

Governance of Risk


Business Performance


Key Highlights

Impact through NHFC funding•12 537 housing opportunities created•16 038 job opportunities facilitated

Experiential learners•12 learner-ships undertaken•Five bursaries awarded

Corporate social investments•Sponsorships to beneficiaries of the built project in Port St Johns•Renovation of Langa High SchoolCape Town•Sponsorship of Alexander Orphanage

FinancialFunding impact through NHFC funding•Disbursements of R675 million - highest level to date.•Leveraging of R2.2 billion of private sector funding into the human settlement space.•Secured second facility from EIB (R250 million), subject to necessary approvals.

Challenges•Funding remains critical to NHFC growing its loan book•Delays in housing project development process in the housing market and high indebtedness of households have both constrained the supply and lending, respectively, in the NHFC’s target market.•Constrained mortgage lending by banks delayed the uptake that is critical to housing delivery.•Revise policies and processes to enable the scaling up of FLISP.


Profit before taxR35 million

Profit before taxR35 million

Housing opportunities created: Affordable Rental, Ownership and Incremental 84 503

Housing opportunities created: Affordable Rental, Ownership and Incremental 84 503

Number of beneficiaries benefitting 321 111

Number of beneficiaries benefitting 321 111

Jobs facilitated16 038

Jobs facilitated16 038

Value of disbursements targeted towards women-managed / owned companies - R32 million

Value of disbursements targeted towards women-managed / owned companies - R32 million

DisbursementsR675 million

Private capital and investment leveragedR2,2 billion

DisbursementsR675 million

Private capital and investment leveragedR2,2 billion

Funding Impact

R2,8 billion

Financier Facilitator Innovator∙ ∙15

• Cumulative Leveraging: R 15,3 billion

• FLISP: Approved R40 million - 927 subsidies : Leveraged R138 million mortgage

loans from banks


Enterprise DevelopmentCo-funding arrangement between the NHFC and the Gauteng Partnership Fund (GPF) designed to promote participation of Historically Disadvantaged Individuals companies in the affordable rental property market. An amount of R332 million has been set aside with the NHFC portion being R233 million as senior debt funder and GPF R100 million. R130 million of the senior facility has since been taken up with 18 HDI’s having benefitted from the programme, translating into 698 housing opportunities.

Experiential Learners•12 learner-ships undertaken•Five bursaries awarded

Corporate Social Investments•Sponsorships to beneficiaries of the Women’s Build Project in Port St Johns.•Renovation of Langa High School Cape Town, Youth Build.•Sponsorship of Alexander Orphanage.

Environmental sustainability initiatives :•Formalised an Environmental Policy towards an integrated approach to both internal and external environmental issues.•Evaluation of projects from an environmental perspective and compliance with regulations and best practice.


Financial Performance


Actual Budget Variance Actual Budget VarianceR'000 R'000 R'000 R'000 R'000 R'000

IncomeLending income 166 250 227 193 (60 943) 173 881 231 250 (57 370)Investment income 31 396 23 738 7 658 31 111 23 708 7 403 Sale of houses 43 474 10 492 32 982 - - - Other income 8 637 10 648 (2 011) 6 514 4 458 2 056

Total income 249 757 272 071 (22 314) 211 505 259 416 (47 911)Impairments 2 188 (74 356) 76 544 2 188 (74 356) 76 544 Cost of sales (40 089) (8 057) (32 032) - - - Operating expenses (123 642) (133 429) 9 787 (105 963) (125 707) 19 744

Operating profit 88 214 56 229 31 985 107 730 59 353 48 377 Fair value changes on investments (9 225) - (9 225) (3 144) - (3 144)

Bad debts (30 322) - (30 322) (30 322) - (30 322)Interest paid (22 789) (17 752) (5 037) (22 497) (35 099) 12 602 Share of profit of an associate 9 311 5 775 3 536 - - -

Surplus before tax 35 188 44 252 (9 064) 51 767 24 253 27 514 Tax (19 117) (6 791) (12 326) (20 254) (6 791) (13 463)

Surplus after tax 16 071 37 461 21 390 31 513 17 462 14 051

GROUP NHFC


Mar-14 Mar-13

R'000 R'000

Loan Assets 2 144 378 1 929 232 Equity investments 94 618 96 963 Instalment sale recievables 49 032 35 605 Investment Property 74 279 72 072 Other non current assest 16 909 16 200

2 379 217 2 150 072

Properties develoved for sale 168 566 78 099 Held to maturity investments 139 413 1 026 383 Cash and short-term deposits 433 918 350 919 Other current assets 13 039 11 134 Total 3 134 153 3 616 607

Net assets and liabilities

Capital and reserves 2 417 782 2 401 711 Funds under management 225 765 698 980 Financila liabilities 391 439 429 617 Other current liabilities 99 167 86 299

Total net assets and liabilities 3 134 153 3 616 607

Assets


Harmony Village – Cape TownHarmony Village – Cape Town


424 Commissioner Street,Johannesburg

The NHFC, together with GautengPartnership Fund (GPF), financed the renewal, conversion and refurbishment of the dilapidated 424 Commissioner Street.NHFC provided a mortgage loan ofR7,4 million. The property consists of 34 units, comprising one- and two bedroom units. It is owned, developed and managed by a black female.

424 Commissioner Street,Johannesburg

The NHFC, together with GautengPartnership Fund (GPF), financed the renewal, conversion and refurbishment of the dilapidated 424 Commissioner Street.NHFC provided a mortgage loan ofR7,4 million. The property consists of 34 units, comprising one- and two bedroom units. It is owned, developed and managed by a black female.


120 End Street, Johannesburg

NHFC provided funding of R110 million for the conversion and refurbishment of two buildings, Frank & Hirsch and Khan Corner, into rental accommodation. The property is now called 120 End Street, and has 479 units comprising one- and two-bedroom units. It is owned, developed and managed by Affordable Housing Company, a leading investor, landlord and property manager in the inner city of Johannesburg.

120 End Street, Johannesburg

NHFC provided funding of R110 million for the conversion and refurbishment of two buildings, Frank & Hirsch and Khan Corner, into rental accommodation. The property is now called 120 End Street, and has 479 units comprising one- and two-bedroom units. It is owned, developed and managed by Affordable Housing Company, a leading investor, landlord and property manager in the inner city of Johannesburg.


Lakehaven Social Housing Project - Phase 1 and 2

The NHFC provided mortgage loan financing of R35,5 million for the development of 312 units, for social housing rental. Other funders of this project are the KwaZulu-Natal provincial government and the Social Housing Regulator.The project has 34 double-storey blocks of eight units on 17 hectares of land in Durban. All the units are two-bedroom. The developer is First Metro Housing Company, a social housing entity.

Lakehaven Social Housing Project - Phase 1 and 2

The NHFC provided mortgage loan financing of R35,5 million for the development of 312 units, for social housing rental. Other funders of this project are the KwaZulu-Natal provincial government and the Social Housing Regulator.The project has 34 double-storey blocks of eight units on 17 hectares of land in Durban. All the units are two-bedroom. The developer is First Metro Housing Company, a social housing entity.


Kenwick Close: East LondonKenwick Close: East LondonMettle: Karino Development - Nelspruit

SPACE: Kimberley FRESHCO: Bloemfontein

human settlements portfolio committee 15 october 2014 nhfc annual report 2014

Documents

subsidised rental housing

affordable rental market

housing needsfacilitate

middle income housing

housing development

private rental

nhfc target market

social rental r