BUILDING SUSTAINABLE HOUSING

DELIVERY PARTNERSHIPS:

Presented by Boni Muvevi

Chief Investment Officer

Date: 27th October 2011

SOCIAL INVESTMENT PARTNERSHIP

CONTENT

• WHY AFFORDABLE HOUSING?

• GOVERNMENT ROLE

• PRIVATE SECTOR ROLE

• GPF ROLE

• GPF STRATEGY

• MARKET INTERVENTIONS

• FINANCIAL INSTRUMENTS

• INVESTMENT PROCESS AND CRITERIA

• FUNDED PROJECTS

• GPF PERFORMANCE

WHY AFFORDABLE HOUSING?

CONTRIBUTION TO THE SA ECONOMY

• Construction and property industry – jobs

• Mining sector – cement locally made, stones etc.

• Manufacturing – door frames etc.

• Small business – plumbers, electrical maintenance etc.

• Finance industry – mortgages, microfinance etc.

• Perhaps housing can contribute to much needed economic recovery?

CONTRIBUTION TO ADDRESSING NATIONAL ISSUES!

• Historical housing backlog – estimated at +/-2.3million housing units

• Redressing the Legacy of living apart – Apartheid

• Capital redistribution and empowerment

• Property ownership, as an asset and a means for creation of wealth

• Reducing unemployment /job creation

• The constitutional right to housing for all SA citizens

• Demand by people for better infrastructure and services (housing)

GOVERNMENT ROLE

Amongst others, government attends to all issues listed above in particular; – Addressing historical and current housing issues or imbalances

– Reversing the legacy of living apart through town planning

– Ensuring we have a stable democracy and society

– Fast tracking the pace of housing delivery in particular affordable housing

Limitations/ challenges

• Not enough capital available in government treasury to address these issues

• Pace of delivery needs to be improved

• Insufficient skilled human capital

• Innovation

Positives

• Government has built over 3 million subsidised housing since 1994. SA is the only country with such a delivery rate.

• Basic service to over R10million households since 1994

• Proactive leadership in Human settlements

• Government willingness to engage

• Policies are in place but there is an opportunity to review policies

• Government is establishing mechanisms for private sector to participate i.e. GPF and Each One-Settle-One

EACH - ONE – SETTLE - ONE

Human Settlements Minister Tokyo Sexwale is calling upon every South African who can

assist, to step forward and join each-one-settle-one, a campaign aimed at addressing

the huge housing backlog.

How can companies or individual play their part?

• By way of financial pledges towards house builds and other programmes

• By coming up with strategies for job creation with regards to human settlements

• By donating their services, expertise, building materials, time and land. This can include

professional services such as engineering, accounting, architectural and legal.

• By helping to provide permanent housing for domestics and employees residing on employers’

property.

GDLG&H is ahead of the curve –

– GPF is available to assist private sector, individuals, donors or financial

institutions that wish to partner on housing projects.

– GPF is an entity with a track record on affordable housing projects and

governance (clean audits).

PRIVATE SECTOR ROLE

Return on Investment (ROI) and creation of shareholder value

Recently sustainability – consistency in future profits and impact on the environment

Another important factor overlooked is Social responsibility, (National issues!) – addressing historical housing issues or imbalances

– ensuring we have a stable democracy and society

Why private sector? • Combined with public sector capital we have more to address these issues

• Track record in fast pace of delivery i.e. world cup stadiums, road and rail infrastructure

• Skilled human capital

• Innovation – in design, building of structures etc.

Limitations/ challenges in private sector • Only driven by the Financial Services Charter (FSC), rather than on opportunities,

• Gate keepers – people within institutions

– “We do not need this in our portfolio, its too risky”

– “We are comfortable with affordable housing for people with income R15 000 – R20 000”- unwritten rules

• Decisions on perception rather than facts i.e.. Mortgage lending in affordable housing bracket and senior debt to rental projects and student housing - yet demand exceeds supply.

• Sources of funding are generally expensive reflecting lenders assessment of risk with the project

• Limited investment in skills development and enterprise development, especially HDI owned companies

• Lack of investment in under-developed areas and perpetuating service inequalities,

• Limited financing available to address the skewed patterns of ownership

GAUTENG PARTNERSHIP FUND ROLE

Government

GPF

Finance Institutions/

Private sector

• GDLG&H

• Municipalities

• Agencies

• Facilitation

• Funding coordination

• Banks

• DFI’s

• Developers

GPF STRATEGY 2011-2014

• The GPF strategy supports Provincial Outcome 6, as a proactive contributor to the

development of sustainable human settlements and quality of household life in

Gauteng.

• In particular the provision of rental housing – under the social housing program

• In the future;

– assist in identifying and development of in-fill parcels of land with private

sector for affordable rental, inline with densification drive.

– the involvement of GPF early in the planning process to assist with unlocking

funding for provincial priority projects.

– In partnership with Metros, especially Mogale, Tshwane, Emfuleni, Ekurhuleni

etc. initiate social housing projects in specific developmental nodes.

– also we are looking at ways we can assist with other human settlements

programmes i.e. integrated human settlements or mixed housing

developments.

– Dialogue with DFI’s (DBSA, PIC etc.) on how we can mobilise funding for

affordable housing projects.

GPF MARKET INTERVENTIONS

Financial product Purpose

Rental Housing Fund To enhance the debt/equity ratio for entrepreneur driven projects to

enable them to raise commercial funding.

Entrepreneur Empowerment

Property Fund Programme

This is an incubator programme designed to promote participation of

HDI owned companies in the affordable rental property market. (The

programme is limited to prospective participants invited on public tender annually).

Social Housing Fund

To reduce the cost of capital for projects and is linked to government

institutional subsidy funding.

Management of Social Housing

Institutional subsidies

To reduce the cost of capital for projects, to allow for lower affordable

rentals and assist SHI’s to fund their

growth.

Strategic Partnership Projects

(Banks and DFI’s)

To facilitate the sustainable entry of Banks through sharing financing

risk. This is also open to other financial institutions.

Sustainable Housing Fund

(Integrated Housing

Developments)

To share financial risk with financial institutions in debt/equity funding

for sustainable integrated projects

FINANCIAL INSTRUMENTS

Subordinated debt

• Income subordination (cashflows) for repayment of debt

• Security subordination (register 1st or 2nd Mortgage Bond)

Term loans over 15 – 20 years

Interest rate: JIBAR plus

Administration fee: 1-2% of loan amount

Equity Contribution: minimum 2.5% of project cost (HDI) and minimum 10% for

established companies

Bridging finance – 3 to 6 months loan period in partnership with TUHF

Development finance – 36 to 48 months loan period (facility with ABSA & SBSA)

INVESTMENT PROCESS

Project Investment Process

Deal origination

New business development

Client relationships

Deal flow management

Project Assessment

Investment evaluation

Feasibility analysis

Technical assessment

Investment criteria

Credit analysis

Risk Management & Controls

Credit risk pricing Liquidity risk

Concentration risk Other risks

Investment Administration

Reporting on Investments

Investment monitoring

Contract monitoring

Board Investment Committee – meets every fortnight or adhoc Board of Trustees – meets every 6 weeks

INVESTMENT CRITERIA

Mandate fit – the affordable housing project should cater for households with income <R15 000

Strategic fit – does the project fit or contribute to GPF strategic direction

Policy fit – maximum 30% contribution by GPF and balance from a senior funder

Alignment to government planning or funded projects – i.e. urban renewal projects

Socio economic development – does the project have developmental impact – Job creation

– Poverty alleviation

– Increase procurement of goods & services for SMME’s

Technical aspects – design, costs etc.

Financial Sustainability – cashflows, financial ratios etc.

OTHER KEY PROJECT CONSIDERATIONS

• Contribution to building sustainable communities

• Catalytic role or developmental impact

• Part of municipal IDP’s (under-developed areas)

• Precinct approach, alignment to others investments

• Target market (households earning <R15 000 income)

• Proximity to amenities and transport nodes

• Design (secure environment, functionality and

unit layout etc.)

• Quality of construction, NHBRC and CIDB rating of

contractor. Professional team experience.

• Local SMME’s development

• Project and property management

• Future (green issues!!)

PROJECT EXAMPLE - BRICKFIELDS

Brickfields - Newtown Mixed use – commercial & Housing 809 units: GPF Funding: R24million Total cost: R120million

GPF FUNDED PROJECT EXAMPLES

PROJECTS PROFILE

Client: JHC

Location: Cosmo City

Units: 281

GPF funding: R20million

Total cost: R85million

Project is part an Integrated

Development with +/-12 000 units, clinic

Schools, taxi rank churches, commercial etc.

in Kaya Sands Johannesburg.

Client: JOSHCO

Location: Roodeport

Units: 432

GPF funding: R20million

Total cost: R98million

Project is within the Roodeport CBD and

adjacent to a taxi rank, retail options.

PROJECTS PROFILE

Client: Yeast City Housing

Project : Tau Village

Location: Pretoria

Units: 109

GPF funding: R9million

Total cost: R30million

Project entails a mixed use facility

Housing, day care, girls at risk shelter, commercial space etc.

Client: GDLG&H

Project: SOWETO, Kliptown

Units: 932

GPF funding: R34million

Total cost: R190million

Project was a part of a greater plan of the Kliptown re-development by the city

includes Kliptown square, golf course, hotel, housing etc.

SMALL SCALE LANDLORDS (INTUTHUKO FUND)

In partnership with TUHF on a R10million GPF contribution, 43 loans and over 729 units. This program targets building managers, cleaners, police man, responsible community leaders etc. mostly character based lending. The aim is to assist them to become owners of units in a building or even grow to own buildings. Success stories:

Client: Josephine Tshaboeng

Initial occupation: domestic worker and shop assistant

Project: Harmonie Girls

Location: Johannesburg

Units: 56

GPF loan: R192,000

TUHF loan: R7,300,000

Client: Nqobile Khumalo

Initial occupation: building maintenance (plumbing skills)

Project: Sonskyn Boys and 72 Derby

Location: Johannesburg

Units: 55

GPF: R700,000

TUHF:R4,600,000

GPF PERFORMANCE 2003 – 2011 (MARCH YEAR END)

• Over the past 8 years GPF has funded projects to a value close to R350million (from an initial capital of R450million) leveraging over R2 billion of private funding in social housing projects.

• This has facilitated approximately 18 000 social housing units

R 0

R 54

R 68 R 66

R 76

R 54

R 40 R 42

R 12

R 52

R 109 R 104

R 84

R 87

R 6

R 68

R 0

R 20

R 40

R 60

R 80

R 100

R 120

2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 20010/11

Am

ou

nt

Mill

ion

s

Years

GPF Performance 2003 - 2011

Performance Budget GPF Commitments

BUILDING SUSTAINABLE PARTNERSHIPS

Our slogan:

“Leveraging Affordable Housing Finance”

Thank you !