PRESENTATION TO THE PORTFOLIO PRESENTATION TO THE PORTFOLIO COMMITTEE ON HOUSINGCOMMITTEE ON HOUSING

Wednesday, May 14, 2008Wednesday, May 14, 2008

Contents

1. Mandate

2. Strategic Objectives

3. Financial Performance

4. Business Performance

5. Business Plan 2009-2011

6. Retail

7. Strategic Partnerships

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1. Mandate

The National Department of Housing established the National Housing Finance Corporation Limited (NHFC) as a Development Finance Institution in 1996 with the principal mandate of broadening and deepening access to affordable housing finance for the low to middle income households

The Corporation achieves that mandate by :• Making housing finance accessible and affordable for the low to

middle income households

• Supporting the Breaking New Ground (BNG) Strategy by facilitating the development of sustainable human settlements

• Facilitating the development of a viable and sustainable low to middle income housing finance market

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1. Mandate (cont.)

Mission

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

Vision

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

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2. Strategic Objectives

2.1 Effective delivery of housing finance to support the Government’s strategy in reducing the housing backlog through:

• Financing an amount of R726 million for the provision of low income housing for both rental and ownership;

• Attaining an impact of 25,025 housing opportunities (Retail included); and

• Facilitating and providing technical assistance to various tiers of government in the drive to deliver affordable housing at the required scale.

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2.Strategic objectives (cont.)

2.2 Implementing the Retail Home Loan Business by:

• Providing loans directly to target market;

• Facilitating housing delivery through provision of financial products and services;

• Developing appropriate products and educational material to address the needs of the target market; and

• Developing appropriate credit scoring system to support roll-out of new products.

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2.Strategic objectives (cont.)

2.3 Intensify delivery through strategic partnerships evidenced by:

•Entering into risk sharing agreements with Banks and other financiers active in the low to middle income housing market to leverage the Corporation’s resources to deliver homes at a greater scale;

•Entering into joint ventures with private sector players such as PACH to develop innovative products for the housing market;

•Partnering with other public sector entities in achieving impact in the housing market; and

•Sourcing and mobilising funding to support the needs of the low to middle income housing sector institutions.

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3. Financial Performance 2008 to Budget Summary Income Statement

Mar 2008 % Mar 2008Draft unaudited Change Budget

R'000 R'000

Lending Income 84,078 -34% 128,346

Less Impairments 13,364 67% 8,000

Net Lending Income 70,714 -41% 120,346

Less Operating Expenses 77,242 -23% 100,454

Operating Profit / (Loss) (6,528) -133% 19,892

Investment & Sundry Income 111,560 70% 65,532

Net Profit 105,032 23% 85,424

Tax 30,459 23% 24,773

Profit After Tax 74,573 23% 60,651

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3.Financial Performance 2007/2008 to Budget

Net Lending Income

• Lower disbursements

• Lag between approvals and disbursement

• Increased impairments

• High interest rate environment

• NCA

(41% below)

Operating Expenses

• Delay in cost mainly related to new retail business (marketing, advertising and consultancy costs)

(23% below)

Key expense items• Employee cost R45m• Outsourced services R7m• Professional fees R4m

Financial Performance

Profit after tax

(23% above)

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4. Business Performance 2008 - Housing Impact

ACTUAL: 14 121

BUDGET: 17 192

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4. Business Performance 2008 Provincial Spread

DISBURSEMENT PER PROVINCE 2007/2008

Eastern Cape 28%

Free State 2%

Gauteng 48%

KwaZulu Natal 3%

Limpopo 8%

Mpumalanga 1%

Western Cape 10%

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4. Business Performance 2008Quarterly Approvals

Quarterly Approvals - Value and Impact

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Quarters

Hous

ing U

nits

0

50

100

150

200

250

300

350

400

Valu

e in

milli

ons

Loan Approvals (Rm) 9 63 193 343

Housing Units 7,230 321 2,044 13,229

June Sept Dec Mar

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5. Business Plan 2009-2011Overview

25,0

25

31,5

62

39,0

97

2009 2010 2011

Housing Opportunities

R726m

2009

R1,1

91m

2010

Disbursements

nil

R1b

illion

R500 m

illion

2009 2010 2011

Funding Requirements

R1,2

37m

2011

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5. Business PlanImpact 2008 and Plan years 2009-2011

2008 2009 2010 2011

Projects (Units) 6,545 7,649 13,417 11,390

Commercial (Loans/Units) 7,576 11,967 8,482 10,362

Retail (Units) 5,409 9,663 17,345

TOTAL IMPACT 14,121 25,025 31,562 39,097

Disbursements (R million) 369 726 1,191 1,237

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5. Business PlanIncome & Expenditure Projections

Mar-08 % Mar-09 Mar-10 Mar-11

Forecast Change Budget Budget Budget

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

Operating Income 107,528 -4% 103,450 236,889 387,030

Lending Income 107,528 8% 116,015 258,258 420,604

Impairments -12,564 -21,368 -33,575

Operating expenses - Direct 74,530 31% 97,550 104,311 124,097

Employee 36,498 73% 63,089 70,729 83,623

Marketing 11,292 -30% 7,905 12,789 17,423

Outsourced Services 21,933 -10% 19,670 13,351 14,973

Professional Fees 3,107 7% 3,342 3,588 3,803

Travel & Entertainment 1,699 109% 3,543 3,854 4,275

Operating expenses - Indirect 10,608 53% 16,201 20,107 22,007

Administration 1,028 59% 1,641 1,811 1,965

Communication 1,560 48% 2,312 2,421 2,706

Computer 1,167 205% 3,561 6,627 7,403

Office Expenses 1,099 127% 2,502 2,668 2,964

Premises 4,520 6% 4,809 5,087 5,349

Training & Development 945 45% 1,370 1,486 1,613

Sundry Expenses 288 6 6 8

Total Operating Expenses 85,137 34% 113,751 124,418 146,104

Net Operating Profit / (Loss) 22,391 -146% -10,301 112,471 240,926

Other Income 98,443 -7% 91,813 32,326 24,729

Investment Interest 85,501 -6% 80,700 19,953 9,976

Sundry Income 12,941 -14% 11,113 12,373 14,752

Net Profit / (Loss) 120,834 -33% 81,513 144,797 265,655

Tax 35,042 -33% 23,639 41,991 77,040

Net Profit / (Loss) After Tax 85,792 -33% 57,874 102,806 188,615

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5. Business Plan Key Income and Expense items

Explanation of Key Income and Expense items for 2009 1. Lending Income

The 8% increase is mainly due to new business.

2. Employee Costs Employee costs are expected to increase by 73% due to 34 new positions created (23 for Retail) and an annual increase of 8.5%.

3. Outsourced Services Included in outsourced services is the cost related to the outsourcing of certain areas relating to Retail in line with the model.

4. Travel and entertainment Travel & Entertainment has increased by 109%. The increase relates mainly to the roll out of Retail business. Activity has also increased in Credit, Projects and Marketing divisions relating to existing and new projects.

5. Administration costs The increase of 60% is due to the expected increase in depreciation of new furniture for Retail.

6. Communication 48% Office expenses 128% Training and development 45%

The increase is due to the expected increase in number of employees and Retail.

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5. Business Plan - Balance Sheet

Three Year Balance Sheet

31 March 2009 31 March 2010 31 March 2011Budget Budget Budget

R R RAssets

Non Current assets 1,678,607,886 2,668,278,180 3,499,087,458 Loan debtors 1,645,441,666 2,639,315,643 3,475,883,481 Fixed assets 15,177,500 10,973,817 5,215,256 Equity Investments 15,696,624 15,696,624 15,696,624 Deferred taxation 2,292,096 2,292,096 2,292,096

Current assets 963,751,704 1,054,117,468 913,446,574 Accounts receivable 20,893,430 30,007,333 23,377,703 Taxation Receivable 5,543,928 - - Money Market Investments - NHFC 483,013,986 570,741,372 437,886,001 Funds Under Management 451,297,360 450,365,763 449,179,870 Bank balances and cash 3,003,000 3,003,000 3,003,000 Non-current assets held for sale - - Total Assets 2,642,359,590 3,722,395,649 4,412,534,032

Equity & Liability

Capital & Reserves 2,124,391,309 3,227,197,177 3,915,812,073 Ordinary Share Capital 880,000,060 880,000,060 880,000,060 Distributable reserves 986,517,035 1,044,391,249 1,147,197,117 Distributable reserves - current year 57,874,214 102,805,868 188,614,897 Grant capital 200,000,000 1,200,000,000 1,700,000,000

Non Current Liabilities 467,930,709 463,687,003 458,868,754 Long Term Liabilities - Funds Under Management 451,297,360 450,365,763 449,179,870 Deferred Income 16,633,349 13,321,240 9,688,884

Current Liabilities 50,037,572 31,511,469 37,853,205 Accounts Payable 50,037,572 31,511,469 37,853,205 Taxation Payable -

Total Liabilities 2,642,359,590 3,722,395,649 4,412,534,032

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5. Business Plan - Funding

• Capital requirements are as follows:

• The Corporation has established a funding committee to deal with the funding programme.

• Discussions are underway with multi-lateral institutions– European Investment Bank (EIB) – French Development Agency (AFD)

• The credit rating of the Corporation was confirmed by Global Credit Rating Company in November 2007 as AA- and A1+ for long and short term respectively.

YEAR TOTAL

2009 nil

2010 R 1 billion

2011 R 500 million

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6. Retail Pilot

•MOU signed with SAPO.

•Pilot offering mortgage loans commenced on 23 May 2007 through five SAPO branches in Gauteng targeting Post Office staff.

•Additional distribution channels introduced in August 2007 due to low number of applications received from SAPO.

•Building and renovation loans added to product offering in September 2007.

•Rolled out to Kwa-Zulu Natal, Western Cape and Free State in November 2007.

•SAPO staff trained and borrower education material developed.

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6. Retail Roll-out Plan

•Development of infrastructure (people, processes, technology and governance) underway.

•Envisaged to be in place for roll-out to public from end of July 2008.

•Distribution channels:

•SAPO

•Mortgage originators

•Loan officers

•Developers

•Call Centre

•Internet

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7.Strategic Partnerships

•JV with PACH to introduce the Income Linked Home Financing Instrument.

•MOU was signed with ABSA on 26 November 2007 that will result in R1.3bn released towards affordable housing.

•Mou with Basil Read - Mixed income intergrated projects based on Cosmo experience

•Agreement with DBSA consortium (DBSA, NHFC, French Development Agency and Gauteng Partnership Fund) Intergrated developments projects on certain land parcels managed by JPC; and

•Provinces – Facilitation to fast track housing delivery including pre-project funding, bridging finance and project management.

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