Financier ∙ Facilitator ∙ Innovator 27 March 2013

Financier Facilitator ∙ ∙Innovator

Financier Facilitator Innovator∙ ∙

27 March 2013 27 March 2013


Financier Facilitator Innovator∙ ∙Financier Facilitator Innovator∙ ∙

• Overview/Background• Strategic Priorities: Alignment to NDoHS • Market Context• Wholesale Lending model• Key Products and Services• Financial Highlights• NHFC Programmes:

FLISP MDI• Challenges



Who is the NHFC ?Who is the NHFC ?







National Priorities of Human Settlements as determined by:

• Pillars of Human Settlements Development Strategy

• Medium Term Budget Statement (MTBS) and Cabinet Lekgotla

• SONA 2010-2013

• Outcome 8, and

Political Resolutions of Mangaung

• Adoption of the National Development Plan (NDP) to resolve the myriad of socio-economic problems



Strategy Objective 1

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

Outcome 8: Output 1Accelerate delivery of housing opportunities

• Provide direct wholesale funding and in partnership with other agencies, into inner city regeneration and in the provision of both social (partnership with SHRA) and private rental housing {aligned to Output 1 OF Outcome 8 and NDP on prioritising Inner City developments and funding wide variety of housing types}

• Provide integrated housing development project funding, directly and in partnership {aligned with NDP by encouraging mixed types and land use}



Facilitate the increased and sustained lending by financial institutions to the affordable housing market by

Strategy Objective 2 Outcome 8: Output 4 Improve Property Markets

• Improving ACCESS to housing finance through the mortgage default insurance (MDI) implementation {aligned to SONA and Output 4 of Outcome 8}

• The Implementation of the FLISP in

partnership with all Provinces, to address the household AFFORDABILITY challenges {aligned to SONA and Output 4 of Outcome 8}



Strategy Objective 3 Outcome 8: Output 1 Accelerate delivery of housing opportunities

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

• Mobilise Multilateral agencies (AFD EIB, etc.) co-funding into social and rental housing {aligned to Output 1 of Outcome 8 and with the NDP on prioritising Inner City developments and funding wide variety of housing types}

• Optimally leverage private sector

funding (e.g. Employer-based partnerships, IHS Fund II) to support the growth of the affordable housing market {aligned to Output 1 and 4 of Outcome 8 and with the NDP on prioritising Inner City developments, funding wide variety of housing types and promotion of large scale integrated developments}



Strategy Objective 4

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

• Improve on our sustainability ratios (e.g. ROA, CTIR) through our pricing, portfolio mix and reduced cost structure {aligned to the NDP on State Owned Entities of DFIs}

• Improve efficiency and effectiveness

through continuously enhancing of systems, processes and competencies across corporation{aligned to the NDP on State Owned Entities of DFIs}



Economic growth expectations lowered, in the S/M Term

Unsecured lending growth continues

Regulatory pressures (Basel III) has also affected mortgage lending

Interest rate outlook remains flat”, unless...

Inflation outlook, is on the rise, for households

•Unpredictable global economic & capital markets outlook

•BUT expected to remain lower for longer (to stimulate SA growth)

Lending income under pressure

Supply remains constrained due to attrition of developers:

• Project funding hurdles set by financiers remain a challenge

• Households remain over indebted – constrained access to mortgages

Regulatory pressure expected to change business model of banks:

• Growth in unsecured lending – search for short term returns?

• Impact will be felt over next 3 - 5 years: lower margins from mortgage

CHANGE IN BUSINESS ENVIRONMENT IMPACT ON NHFC



How we operateHow we operate



Channels

Channel Partners

Typical products

NHFCWholesale Lending

Non-bank financial intermediariesSpecialist

intermediaries

Social Housing Institutions

Micro Finance Intermediaries

Private Landlords/ Developers

BanksJoint Ventures (e.g.

with private sector / DFI initiatives)

Wholesale loan finance



Insurance (MDI)Subsidy (FLISP)

Wholesale loan finance & strategic Investment

(GPF, HIP, SPACE)

Banks financial intermediaries



NHFC CORE:

Product Offering

Defined Market[Per Household

Income]

Financing Needs

Funding

Threshold per Counterparty

Wholesale

Lending

1. Rental Product:

- Social Housing

- Private Rental

R3,500 –

R15,000

Subsidies + Debt

Funding

Equity+ Debt Funding

10% of

Shareholder

Interest

2. Integrated Development

Equity + Debt

Funding3. Incremental

4. Home Ownership

5. Strategic

Investment

Equity/ Mezzanine Debt

NEW PROGMS:

MDI Mortgage Insurance R7,500 – R17,600 Mortgage Funding FSC income target up to

R17,6k

FLISP Subsidy

R3,500 – R15,000 Mortgage Funding Max Mortgage = R300k



Financial HighlightsFinancial Highlights



2013/14 2014/15 2015/16

Debt (R m): additional debt funding 150 250 200

Equity (R m): recapitalisation from shareholder 446 200 200

Total funding raised (R m) 596 450 400

Total debt/equity ratio (%)* [company] 25% 31% 34%

* interest bearing debt to equity at 19% at 31/03/3012

18



2012/13 2012/14 2012/15 2012/16 2012/17 Growth 6 - 10 Years

Key Assumptions

Disbursements 580 638 714 814 880 8.0% 9 199

Commercial 109 120 134 153 165 8.0% 1 729

Projects 380 418 468 534 576 8.0% 6 027

Strategic Investments 91 100 112 128 138 8.0% 1 443

Grow th in Disbursements -13.0% 10.0% 12.0% 14.0% 8.0% 8.0%

Debt Funding on Disbursements p.a. 5.9% -5.4% 1.9% 70.9% 43.5% 18.0%

Prime lending rate 8.5% 8.5% 9.0% 9.5% 10.0% 10.5% - 11.5%

Inflation 5.5% 5.5% 6.0% 6.5% 7.0% 8% - 8.5%

Credit loss ratio 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Cumulative for 10 Years

R 000 000

11 of 19



Return on advances: lending income/average gross loan book

3 of 19



KEY PERFORMANCE INDICATORS: Forecast Budget Budget Budget 2012/13 2013/14 2014/15 2015/16Funding Impact:

Total number of approvals 19 26 32 39

Total value of approvals (R'000) 788 492 936 237 978 418 1 071 153

Total value of disbursements (R'000) 579 899 637 889 714 436 814 457

Total Funding Impact (R'000) 948 316 2 164 353 1 333 094 1 519 806

Developmental Impact: Total Impact (Housing Opportunities) 13 926 21 471 23 880 27 418 Total Number of Intermediaries funded 53 64 79 95 Beneficiaries benefitting* 52 919 81 588 90 743 104 189 Number of jobs created 7 547 11 743 13 746 15 749 Value of disbursements targeted towards 80 053 98 182 118 588 142 695 women-managed/owned companies (R'000)



Examples of enterprise developmentExamples of enterprise development



TRUST FOR URBAN HOUSING FINANCE (TUHF)

•TUHF specialises in commercial property financing through the provision of funding for affordable inner-city rental units.

•NHFC played a major anchor role in the establishment of TUHF and is now a 28% Shareholder. To date, NHFC’s R420 million debt funding has leveraged R1 billion worth of private sector funds. TUHF’s focus is inner city regeneration, SMME development, and in particular with the Previously Disadvantaged (PDIs) Rental Landlords.

ACHIEVEMENTS:

•to date, 60% of funding has been to PDIs. •94 PDI property entrepreneurs were created, of which 25 are women. •TUHF has R1.4 billion in loans and advances, and delivered 18 000 units in 3 provinces. •The leverage factor: for every R1 of NHFC funding, R2.40 private sector funding.



AFFORDABLE HOUSING COMPANY (AFHCO) •The NHFC took risk by funding AFHCO as a start-up Company. Achievements:

•AFCHO has grown from a 2 man company to employer of 150 employees. •Massive job creation and growth. •Attracted major SA Company to be shareholder. Today Old Mutual owns 50% of AFHCO. •Balance sheet size is R 970 million•Properties sold R 500 million•Total value R1,470 billion •Leveraged R847 million (current: Debt = R425m, Equity = R397m) •Current NHFC exposure R 150 million, leverage factor: for every NHFC R1, R5.83 of private sector funding

• Recent: attracted R150 million funding from AFD• Concluded R80 million funding from STD Bank



NHFC ProgrammesNHFC Programmes



8 Implementation Protocols;

1 MOU (FNB);

13 accredited projects across the country;

6 737 estimate total units in all these projects;

2012/13 FY = budget is R172 825 255

Current budget commitment estimated at R42mil;

835 subsidy applications currently processed in development projects representing 3173 households;

57 approvals to date;

2013/2014 budget estimate = R189mil



ACTIVITY TARGET DATE

PwC to present the final report 20 March 2013

Finalisation of capitlisation April/May 2013

The following are subject to the finalisation of capitalisation

Licence application to be reviewed by the FSB licencing committee

May/June 2013

Engage with SARB on capital adequacy relief April/May2013

Appointment of service provider to develop Interface Facility May 2013

Sign a Lender September 2013

Test the IT Infrastructure with a Lender August/September 2013

Commence Business 3rd Quarter of the year



NHFC Funding• Concessional cost of funding to balance - Developmental and Sustainability

Impact

Growth in GDP to stimulate the economy

Growth in Employment levels

Private Sector : Facilitation • Regulation: Basel III• Unsecured lending: aggressive growth• Mortgage lending: subdued• Developer funding: adversely affected

Stimulate affordable housing market through:MDI: Expand access to financeFLISP: Improve households affordability



MDICMDICOverview of Projects Funded Overview of Projects Funded








Financier Facilitator Innovator∙ ∙

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Financier ∙ Facilitator ∙ Innovator 27 March 2013