Click to edit Master subtitle style 3/18/11 FINANCIER | FACILITATOR | INNOVATOR 3/18/11 11 FINANCIER | FACILITATOR | INNOVATOR PORTFOLIO COMMITTEE ON HUMAN

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3/18/11 FINANCIER | FACILITATOR | INNOVATOR 3/18/11 11 FINANCIER | FACILITATOR | INNOVATOR

PORTFOLIO COMMITTEEON

HUMAN SETTLEMENTS STRATEGIC PLAN

2012/2014

16 MARCH 2011

3/18/11 FINANCIER | FACILITATOR | INNOVATOR 3/18/11 FINANCIER | FACILITATOR | INNOVATOR 22

CONTENTS

1. Mandate, Vision and Mission

2. Housing Finance Environment

3. NHFC Human Settlements

Interventions

4. Strategic Objectives

5. Developmental Impact - 2012

6. Strategic Plan Overview

7. Contribution to Outcome 8

8. Key Performance Indicators

9. Investments

10. Strategic Partnerships

11. Projects: Potential impact (units )

by Province

11. Commercial: Provincial footprint

through intermediaries

12. Budget Overview

13. Budget Assumptions

14. Statement of Comprehensive

Income

15. Statement of Financial Position

16. Funding

17. Corporate Governance


NHFC’s Mandate, Vision, Mission

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

Providing innovative and affordable housing finance solutions to the low and middle income households.

The National Department of Housing established the National Housing Finance Corporation Limited (NHFC) as a Development Financial Institution (DFI) in 1996 with

the principle mandate of broadening and deepening access to affordable housing finance for the low to middle income households.

Mission

Vision

Mandate

3/18/11 FINANCIER | FACILITATOR | INNOVATOR

Housing Finance Environment

3/18/11 FINANCIER | FACILITATOR | INNOVATOR 44

• After several years of sustained growth, South Africa’s economy fell into recession with GDP estimated to have contracted by 1.8% in 2009 but was expected to recover in 2010, assisted by the recovery in global demand as well as the boost provided by the FIFA World Cup. The economy is also expected to grow further in 2011 to 3.3%.

• According to FNB, the residential property market was weakening significantly and could experience negative growth. Annual growth rate in house price index was 1.4% in January 2011, significantly lower than the 3.1% for December 2010.

• Inevitably, the effects of this economic downturn, particularly in the housing finance market, as well as the collapse of the credit and mortgage markets made lenders more risk averse as credit to the private sector fell drastically (estimated at 1.6% in some quarters) which was the strongest contraction since 1965.

• Despite interest rates at their lowest levels in more than 30 years, current levels of household indebtedness remain high at 78%.


Housing Finance Environment (cont.)


• The South African Reserve Bank’s Monetary Policy Committee kept interest rates at current levels. The CPI inflation rate has been forecast to remain low for some time and rise gradually during 2011 leading to possible interest rate hikes thus impacting on the housing property market.

• The Consumer Financial Vulnerability Index (CFVI), which has been developed by BMR and Finmark, indicates that consumers will remain financially vulnerable particularly due to high levels of unemployment, indebtedness and continuous job losses.


NHFC Human Settlements Interventions


Expand housing finance activities, through the effective provision of housing finance solutions, thus enabling the 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 Corporation whilst promoting lasting social, ethical and

environmental development.

Stimulate the low to middle income housing sector, by providing robust, relevant and timely research and market analysis to practitioners and housing consumers.

Strategic Objectives


ST

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GIC

OB

JEC

TIV

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STRATEGIC OBJECTIVES


Developmental Impact - 2012


Housing opportunities created: 16,884

Beneficiaries Benefitting: 64,158

Funding impact : R776 million

Private funds leveraged R1,297 million

Jobs Created : 1,860

Empowerment (Women and Youth Entrepreneurship) : R100 million

OUTCOMES


Strategic Plan Overview


16,884

18,962

22,526

2012 2013 2014

Housing Opportunities

R776 m

2012

R894 m

2013

Disbursements

R306 m

R500 m

R500 m

2012 2013 2014

Funding Requirements

R1,076 m

2014

Note: The above figures exclude the Mortgage Default Insurance (MDI) implementation


Contribution to Outcome 8


Outputs 2010/11 Target

2011/12 Target

2012/13 Target

2013/14 Target

Total

NHFC contribution towards Output 1 (Rental)

2,353 3,946 5,772 6,625 18,696

NHFC Contribution towards output 4 (Mortgage Default Insurance)

Develop MDI

business and obtain approvals.

17,000 loans

88,000 loans

110,000 loans

215,000 loans

NHFC contribution towards output 4: (Traditional lending activities)

7,226 10,313 10,341 12,702 40,582

Total NHFC Contribution to Outcome 8 9,579 31,259 104,113 129,327 274,278

% Contribution 40%


Other Government Priorities


• Through funded projects, NHFC enables job creation, skills development and

entrepreneurship enabling Government to achieve the goal of economic growth. The

Corporation has included job creation as a KPI.

• Disbursements totaling R415 million targeted towards women and youth managed / owned

companies in the planning period.

• The Corporation’s experiential programme (learnership for students, internship for new

graduates and sponsorship for students who are still at university –both undergraduate and

post graduate) is targeted at providing youth with work experience as well as ensuring that

those who are within the NHFC’s field of study are assisted financially.


Key Performance Indicators


Objective 1: Expand housing finance activities, through the effective provision of housing finance solutions, thus enabling the low to middle income households to have choice of renting or owning or incrementally building, to meet their housing needs.

• Provision of loans to institutions that provide various housing tenure options – Social Housing

Institutions, Inner City Landlords and Integrated Housing Project Developers.

• Provision of loans to intermediaries that on lend into the market for incremental housing and

home ownership.

• Syndication through dedicated Funds to scale up housing opportunities.

• Co-financing arrangements with Banks towards integrated settlements.


Key Performance Indicators (cont.)


Housing opportunities

Forecast 2011

Budget 2012

Budget 2013

Budget 2014

Housing units 3,555 6,644 7,626 9,094 Incremental Loans 5,121 7,125 8,167 9,833

Mortgage loans 903 490 320 400

Total Impact 9,579 14,259 16,113 19,327

Disbursements

Forecast 2011R’000

Budget 2012R’000

Budget 2013R’000

Budget 2014R’000

Projects 472,483 581,000 709,000 846,000 Commercial 113,790 152,000 185,000 230,000

Retail 124,794 42,500

Total Disbursements 711,067 775,500 894,000 1,076,000




Social Impact Budget 2012

Budget2013

Budget 2014

Number of Jobs Created 1,860 2,135 2,546

Disbursements targeted towards empowerment of women as well as youth entrepreneurship.

R 100 mil R 150 mil R 165 mil




Forecast2011

Budget 2012

Budget 2013

Budget 2014

Funds leveraged R’million 913 1,297 1 543 1 927 Impact leveraged through others 2,014 2,625 2,849 3,199

Objective 2: Facilitate the increased and sustained lending by financial institutions to the affordable housing market.

• Syndication through dedicated funds to scale up housing opportunities.

• Co-financing arrangements with financial institutions towards integrated settlements.

• Through strategic partnerships attract other funders to fund intermediaries.




Objective 2: Facilitate the increased and sustained lending by financial institutions to the affordable housing market.

• Leverage ownership through Commercial banks through effective risk enhancements such as Mortgage Default Insurance(MDI).

o MDI delivers better affordability levels and improved access for the households.

o MDI normalises the housing finance market across the various income bands.

o MDI is tried and tested internationally as a proven government intervention.

o R1bn guarantee improves the credit rating of the MDI Program, and further enhances

household affordability.


MDI – Progress to date


• The development of the MDI implementation plan is advancing satisfactorily with the following milestones achieved to date:

o Business plan and financial modeling done.

o NHFC Board approved MDI program.

o MDI program approved by MinMec on 19 November 2010.

o Appointed Technical Advisor to the MDI program.

o Signed Memorandum of Understanding with BASA.

o Ongoing consultation with National Treasury to obtain necessary approvals

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MDI – Next steps

• Obtain key decisions from National Treasury and Financial Services Board (FSB).

• Engage with the Reserve Bank on capital reserve requirements for Banks.

• Implementation of the MDI progamme with Strategic partners.

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Objective 3: Mobilise funding into the human settlement space, on a sustainable basis, in partnership with the broadest range of institutions

Budget 2012

Budget 2013

Budget 2014

Value of funds mobilised R’ millions 306 500 500

• Source and mobilise funding in partnership with broad range of institutions to support strategic objectives.

• Facilities concluded with AFD and EIB. Concurrent approval from National Treasury and Accounting Executive for both facilities.

• Sale of Retails books.

• Approval and implementation of optimum funding strategy and plan.

• Explore opportunities with DHS to mobilise funding into the Human Settlements space.

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Summary of progress on Objective 3• Loans amounting to R416m have been secured from AFD and EIB for rental housing projects

– The AFD agreement for R200m was concluded in 2010 and to date 2 inner city projects have

been approved for funding under the facility and these are:

• Jozi - R45 million acquisition and refurbishment of dilapidated old hotel in Hillbrow and

conversion to 338 rental housing units

• Rivavect - R14.5 million refurbishment and conversion of old hostel into 120 family rental

units.

– EIB facility agreement was signed in January 2011. The R216m will be allocated to finance

TUHF (R50m) and Own Haven (R45m) projects and the balance will be allocated to

qualifying projects in the pipeline.

• The facilities will enable the NHFC to fund an estimated 3 500 units during the planning period

benefitting 13 300 beneficiaries.

• Both financiers are willing to entertain further funding requests following the full and successful

utilisation of the approved facilities.

2020




Objective 4: Conduct the business activities of the NHFC in a manner that ensures the continued economic sustainability of the Corporation whilst promoting lasting social, ethical and environmental development

KPI Budget 2012

Budget 2013

Budget 2014

Maintain financial sustainability Return on Equity (Profit after Tax)

2.11% 3.79% 4.25%

Impairments: Gross advances 7.5% 7.5% 7.5%

Improve operational efficiency

Total Operating Expenditure to Total Income

66.58% 48.77% 44.66%

Total Operating Expenditure to Total Lending Income

73.99% 49.94% 41.16%




Objective 5: Stimulate the low to middle income housing sector, by providing robust, relevant and timely research and market analysis to practitioners and housing consumers.

• Facilitate the provision of housing consumer education, skills development with

Partners and RFI’s.

• Provide an analysis of the affordable housing market performance, trends in house

prices, consumer behavior and patterns.

• Participate in the promotion and development of housing related policies, instruments

and strategies through providing input into DHS policy issues, legislations and

regulatory frameworks.


Investments


Cape Town Community Housing Company (Pty) Limited

• New business model has been developed to turn the entity into a viable and sustainable operation to attract potential equity investors.

• Impact contribution to date 3,716.

Housing Investment Partners (Pty) Limited

• The initial fund is currently being established allowing 200 loans to be advanced. R25 million committed each by Old Mutual and NHFC. An approach has been made to a large third party investor to consider investing a further R50 million in the initial Fund and this looks positive.

• HIP Fund 1 will allow HIP to have a controlled launch to a select group of clients and employers This controlled roll-out will enable HIP to ensure that all systems are in place and to indicate that HIP is ready for a full scale launch.


Investments (cont.)


• TUHF

o NHFC, through its investment in TUHF, continues to achieve its mandate of delivering affordable rental housing in the inner-city Johannesburg.

o The NHFC as the main Architect and backer behind TUHF’s establishment will continue to be involved in the restructuring of TUHF’s balance sheet to enable it to raise funds in the market to grow it’s book.

o A proposal to capitalise TUHF with the aim of improving its capital adequacy is being facilitated by the NHFC.

o Impact contribution to date 17,035.


Strategic Partnerships


Collaboration with other Housing Institutions

• Nurcha, RHLF, NHFCo Under the auspices of NDOHS, the DFI’s continue to

collaborate in exploring a new funding and delivery model for Human Settlements.

• SHRAo Plans are in place to collaborate with SHRA in respect of

the funding rental housing and capacitation of Social Housing Institutions

• HDAo Collaborate with HDA in respect of making State-owned

land available for new affordable housing developments.


Strategic Partnerships (cont.)


Partnerships with Financial Institutions

o Endeavors to collaborate with financial institutions through co-financing and risk sharing are bearing fruit as demonstrated by among others, the transaction to facilitate the financing of 25 000 affordable housing units together with OMLACSA and its BEE partners approved by the NHFC Board. In this arrangement, the NHFC’s contribution will be R150 million which will leverage a further R600 million from OMLACSA and its partners.

o Having concluded the Old Mutual Space syndication deal anticipate increased activity in the banking sector to partner with the NHFC in similar syndication in large projects.

o NHFC investment in TUHF created confidence that has enabled TUHF to secure credit lines totaling R350 million from Cadiz, Standard Bank and Future Growth. Additional facilities of R400 million have been agreed to in principle by PIC and Future Growth.


Job Summit Funds


o A new mandate is being finalised with DHS with regards to utilisation of the JS funds. The new proposal tabled envisages the funds being used to contribute towards the rental component of Outcome 8.

o The proposal entails a portion of the fund, the R225m capital being extended as concessional loan (jibar linked) to qualifying projects with an exit through refinancing or rent to buy options within a 5 year period.

o The interest portion of R165m will be used to bridge finance social housing projects during construction with a once off admin charge not exceeding 2% being levied on a project as opposed to an interest charge. This will have the impact of reducing financing costs at the initial stage of project implementation.

o The impact from the programme is accounted for in the business plan to 2014 as follows:

o Units funded = 4 758 o Beneficiaries = 18 080o Jobs created = 433o Affordable rentals targeting income bands: R2 500 to R7 500


Projects: Potential impact (units ) by Province 2012 - 2014


Commercial: Provincial footprint through intermediaries


Budget Overview


• Profit after tax of R48 million – 48% above forecast for 2011

• Investment in CTCHC – forecasting profit from 2011

• Investment in HIP– expected to generate profit from 2012 following launch

• Low interest rate environment

• Funding raised externally – borrowing cost

• Retail– disbursements limited to outstanding obligation of 1 184

units committed to Impala. Retail book will be sold at value, further two Retail books will be sold at a discount of 10%.


Budget Assumptions


CPI

PRIMERATE

DISBURSEMENTS

IMPAIRMENTS

STAFF

SALARY INCREASE

4.6 %9 %

R 776 m

7.5 %917 %

4.4 %9 %

R 711 m

8 %878 %

FY 2012

FY 2011


Statement of Comprehensive Income

Mar-11 % Mar-12 Mar-13 Mar-14Forecast Change Budget Budget Budget

R'000 R'000 R'000 R'000

Interest on advances 133 264 31% 174 673 239 824 330 361 Interest on investments 38 275 -31% 26 374 35 727 42 795 Rental income 3 492 36% 4 740 5 757 7 009 Dividends received 158 0% 158 158 158 Sale of houses 62 256 23% 76 807 330 433 201 750 Revenue 237 445 19% 282 752 611 898 582 071 Cost of sales (62 373) -25% (46 776) (274 602) (155 000) Net impairments (38 592) -62% (14 581) (30 944) (48 405) Gross profit 136 479 62% 221 395 306 353 378 667 Other operating income 28 973 -49% 14 861 23 233 33 725 Operating expenses (115 460) 31% (151 461) (147 636) (155 202) Operating profit/(loss) 49 992 70% 84 795 181 949 257 190 Finance costs (1 841) 1167% (23 333) (57 784) (113 289) Share of loss of associate (2 163) -59% (895) 333 1 698 Profit/(Loss) before tax 45 990 32% 60 567 124 498 145 598 Income tax expense (13 291) -9% (12 064) (34 068) (39 513) Profit/(Loss) for the year 32 699 48% 48 503 90 430 106 085


Statement of Financial PositionMar-12 Mar-13 Mar-14Budget Budget BudgetR'000 R'000 R'000

Assets

Non Current Assets 2 007 513 2 596 529 3 222 462 Loans and receivables - advances 1 887 663 2 346 600 2 951 767 Property, plant and equipment 11 779 7 652 3 220 Instalment sale receivables 30 768 54 843 78 343 Investment property 69 173 179 173 179 173 Other non current assets 8 130 8 261 9 959 Current Assets 1 251 334 1 293 400 1 275 438 Properties developed for sale 64 702 34 416 29 416 Instalment sale receivables 10 900 12 800 14 700 Other receivables and prepayments 36 060 43 613 50 981 Held to maturity investments 920 190 966 832 948 021 Cash and short-term deposits 208 953 225 208 221 791 Income tax receivable 10 530 10 530 10 530

Total Assets 3 258 847 3 889 929 4 497 899

Equity and Liabilities

Capital & Reserves 2 297 558 2 387 988 2 494 072

Non Current Liabilities 858 002 1 344 030 1 820 958 Funds under management 521 034 585 938 611 213 Other financial liabilities 336 968 758 091 1 209 745

Current Liabilities 103 288 157 911 182 868 Other Financial Liabilities 85 006 136 138 161 215 Provisions 6 166 6 889 7 965 Trade and other payables 12 116 14 884 13 689

Total Liabilities 3 258 847 3 889 929 4 497 899


Funding


DisbursementsR’ m

Own CapitalR’m

BorrowingsR’m

TotalR’m

2012

776 470 306 776 2013

894 394 500 894 2014

1,076 576 500 1,076

• No additional capital from shareholder, funding raised externally

• External funding secured from AFD and EIB

• Sale of Retail books

• Approval and implementation of optimum funding strategy and plan.


Corporate Governance


Operational Functions

Management Committees

Executive Committee

Board Committees

Board of directors

NHFC Board of Directors

Audit Committee

Executive Committee

Asset & Liability Committee

EM: Enterprise Risk, Audit and Compliance

Board Risk Committee

Management Credit Committee

Board Credit & Investment Committee

Shareholder

DoHS

Subsidiary & Associate Companies

(Audit & Risk Committees)

Treasury

Enterprise Risk Management Committee

Subsidiary & Associate Companies


NHFC Client Showcase


Southernwood Square: East London

Emerald Sky: East London HomeFront: Rustenburg

Strathdon: Durban CBD




Cavendish: Johannesburg CBD

Cavendish Entrance



TUHF: Boston BlockEIB VP Project (financed by TUHF)



EIB visiting project (financed by TUHF)

EIB visiting project (financed by TUHF)



JOZI Housing: Coronia Building Hotel conversion

JOZI Housing: Coronia Building



JOZI Housing: Coronia Building JOZI Housing: Coronia Building

Documents

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