National Housing Finance Corporation Integrated Annual Report 2022/2023 PDF

I NTEG R ATE D A N N UA L R EP O RT 2022/2023 Contents 1. LIST OF ABBREVIATIONS/ACRONYMS...................... 5 3. PROGRAMME PERFORMANCE OVERVIEW...........42 3.1...

I NTEG R ATE D A N N UA L R EP O RT 2022/2023 Contents 1. LIST OF ABBREVIATIONS/ACRONYMS...................... 5 3. PROGRAMME PERFORMANCE OVERVIEW...........42 3.1 Programme 1: Administration.............................. 42 PART A: GENERAL INFORMATION....................................6 3.2 Programme 2: Integrated Human Settlements Planning and Development.................................. 46 1. ABOUT THIS REPORT....................................................... 7 3.3 Programme 4: Rental and Social Housing 1.1 Scope and boundary.................................................7 Programme............................................................... 52 1.2 Reporting framework................................................7 3.4 Programme 5: Affordable Housing 1.3 Basis of preparation.................................................8 Programme............................................................... 57 1.4 Risk taking...................................................................8 3.5 Information and Communications Technology............................................................... 73 1.5 Forward-looking statements...................................8 3.6 Stakeholder Management..................................... 74 1.6 Assurance....................................................................8 4. REVENUE AND CAPITAL COLLECTION....................75 2. WHO WE ARE.................................................................... 9 2.1 Strategic pillars........................................................ 10 PART C: GOVERNANCE....................................................... 76 2.2 Our business model............................................... 11 2.3 Stakeholders............................................................ 12 1. INTRODUCTION..............................................................77 2.4 Our strategic focus................................................. 16 2.5 Our cumulative development impact................. 20 2. PORTFOLIO COMMITTEE.............................................77 3. FOREWORD BY THE MINISTER..................................22 3. EXECUTIVE AUTHORITY...............................................77 4. CHAIRPERSON’s OVERVIEW......................................23 4. THE NHFC BOARD..........................................................78 4.1 Introduction............................................................. 78 5. CHIEF EXECUTIVE OFFICER’S OVERVIEW..............26 4.2 The role of the Board............................................. 78 4.3 Shareholder Compact............................................ 78 6. STATEMENT OF RESPONSIBILITY AND CONFIRMATION OF ACCURACY FOR THE 4.4 Board Charter.......................................................... 78 INTEGRATED ANNUAL REPORT.................................30 4.5 Composition of the Board................................... 78 4.6 Meetings of the Board........................................... 85 7. STRATEGIC OVERVIEW.................................................30 4.7 Remuneration of the Board................................. 86 4.8 Board committees.................................................. 87 8. LEGISLATIVE AND OTHER MANDATES....................31 4.9 Access to information and advice....................... 89 9. ORGANISATIONAL STRUCTURE.................................33 5. GOVERNANCE OF SUBSIDIARY COMPANIES........90 PART B: PERFORMANCE INFORMATION..................... 36 6. INTERNAL AUDIT AND AUDIT COMMITTEE...........91 6.1 Internal Audit........................................................... 91 1. AUDITOR’S REPORT: PREDETERMINED 6.2 Audit Committee.................................................... 91 OBJECTIVES......................................................................37 7. COMPLIANCE WITH LAWS AND 2. HOW THE MACRO ENVIRONMENT REGULATIONS..................................................................92 AFFECTS US.......................................................................37 2.1 Service delivery environment.............................. 37 8. FRAUD AND CORRUPTION..........................................92 2.2 Organisational environment............................... 39 2.3 Key policy developments and legislative 9. MANAGING CONFLICT OF INTEREST.......................92 changes..................................................................... 40 2.4 Progress towards achievement of the 10. CODE OF CONDUCT.....................................................93 NHFC outcomes..................................................... 40 11. HEALTH, SAFETY AND ENVIRONMENTAL ISSUES.................................................................................94 CO N T E N TS (cont i n u ed) 12. COMPANY SECRETARY.................................................95 2.3 Employment changes...........................................111 2.4 Equity target and employment equity 13. SOCIAL RESPONSIBILITY..............................................95 status......................................................................112 14. AUDIT COMMITTEE REPORT.......................................97 PART F: PFMA COMPLIANCE REPORT........................114 15. IMPACT, SOCIAL AND ETHICS COMMITTEE 1. INFORMATION ON IRREGULAR, FRUITLESS REPORT...............................................................................97 AND WASTEFUL EXPENDITURE AND MATERIAL LOSSES........................................................ 115 16. BROAD-BASED BLACK ECONOMIC 1.1 Irregular expenditure..........................................115 EMPOWERMENT REPORT............................................98 1.2 Additional disclosure relating to inter- institutional arrangements.................................116 PART D: RISK MANAGEMENT........................................... 99 1.3 Fruitless and wasteful expenditure...................116 1.4 Additional disclosure relating to material losses 1. MANAGING RISK.......................................................... 100 in terms of PFMA Section 55(2)(b)(i) and (iii).. 117 2. RISK APPETITE STATEMENT.................................... 100 2. LATE AND / OR NON-PAYMENT OF SUPPLIERS...................................................................... 117 3. RISK APPETITE PILLARS............................................. 100 3. SUPPLY CHAIN MANAGEMENT............................... 118 4. RISK UNIVERSE............................................................. 101 PART G: ANNUAL FINANCIAL STATEMENTS..............122 5. COMPLIANCE MANAGEMENT REPORT................ 101 GENERAL INFORMATION................................................. 123 6. BUSINESS CONTINUITY MANAGEMENT.............. 102 INDEX................................................................................. 124 7. CREDIT RISK MANAGEMENT.................................. 102 STATEMENT OF RESPONSIBILITY BY THE 7.1 Overview................................................................102 BOARD................................................................................. 125 7.2 Department structure..........................................102 7.3 Policies and procedures......................................103 AUDIT COMMITTEE REPORT.......................................... 126 7.4 Risk appetite.........................................................103 7.5 The effects of COVID-19...................................103 REPORT OF THE AUDITOR-GENERAL.......................... 127 7.6 Loan book analysis..............................................103 7.7 Credit losses.........................................................104 ANNEXURE TO THE AUDITOR’S REPORT.................... 130 PART E: HUMAN CAPITAL...............................................105 DIRECTORS’ REPORT......................................................... 133 1. OVERVIEW OF HR MATTERS................................... 106 COMPANY SECRETARY’S CERTIFICATION.................. 135 1.1 Human Capital key initiatives for the year under review......................................................................106 STATEMENT OF FINANCIAL POSITION....................... 136 1.2 Workforce planning framework and key strategies to attract and recruit a skilled and capable workforce........................................107 STATEMENT OF FINANCIAL PERFORMANCE........... 137 1.3 Employee performance management framework.............................................................107 STATEMENT OF CHANGES IN NET ASSETS................ 138 1.4 Employee wellness programme........................108 1.5 Policy development.............................................108 CASH FLOW STATEMENT................................................. 139 1.6 Challenges.............................................................109 1.7 Future HR plans/goals.........................................109 ACCOUNTING POLICIES................................................... 140 2. HUMAN RESOURCE OVERSIGHT STATISTICS.... 110 NOTES TO THE CONSOLIDATED ANNUAL 2.1 Personnel related expenditure..........................110 FINANCIAL STATEMENTS................................................. 155 2.2 Employment and vacancies................................111 STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS.................................................. 207 2 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 LI S T O F F I GU RES Figure 1: NHFC’s allocated capital as at 31 March 2023...................................................................................................................... 19 Figure 2: Cumulative funds disbursed directly by the NHFC............................................................................................................... 20 Figure 3: Cumulative housing opportunities facilitated through lending disbursements and leveraged funds........................ 20 Figure 4: Private-sector funds leveraged through our funding, interventions and partnerships.................................................. 21 Figure 5: Financial performance – annual surplus................................................................................................................................... 21 Figure 6: Risk appetite pillars.....................................................................................................................................................................100 Figure 7: NHFC risk universe.....................................................................................................................................................................101 Figure 8: Impact of driving performance.................................................................................................................................................106 Figure 9: NHFC’s process for planning its workforce...........................................................................................................................107 Figure 10: Performance management framework.................................................................................................................................107 Figure 11: Employee problems presented...............................................................................................................................................108 Figure 12: Human Capital road map.........................................................................................................................................................109 LI S T O F TA BLES Table 1: Legislative mandates of the NHFC.............................................................................................................................................. 31 Table 2: Human Capital’s strategic responses to risk factors................................................................................................................ 39 Table 3: Employee development pillars...................................................................................................................................................... 40 Table 4: Strategic outcomes progress......................................................................................................................................................... 41 Table 5: Programme 1: Administration....................................................................................................................................................... 43 Table 6: Sub-programme 2a: Strategic Partnerships and Programme Management....................................................................... 48 Table 7: Sub-programme 2b: Subsidy Housing Finance (Lending)...................................................................................................... 50 Table 8: Programme 4: Rental and Social Housing Programme............................................................................................................ 54 Table 9: First Home Finance Performance – MTSF period................................................................................................................... 58 Table 10: Total number of subsidies approved in 2022/23.................................................................................................................. 58 Table 11: Total number of subsidies disbursed in 2022/23.................................................................................................................. 59 Table 12: First Home Finance provincial outcomes for 2022/23........................................................................................................ 59 Table 13: COVID-19 Debt Relief Programme funds – 31 March 2023.............................................................................................. 60 Table 14: Sub-programme 5a: Grant facilitation..................................................................................................................................... 64 Table 15: Sub-programme 5b: Affordable Housing Finance................................................................................................................. 66 Table 16: Sub-programme 5c: Sector Transformation............................................................................................................................ 69 Table 17: Sub-programme 5d: Strategic Investments............................................................................................................................. 70 Table 18: Examples of stakeholder engagement in 2022/23.............................................................................................................. 74 Table 19: Revenue and capital collection.................................................................................................................................................. 75 Table 20: Board composition and meeting attendance.......................................................................................................................... 84 Table 21: Board remuneration..................................................................................................................................................................... 86 Table 22: Board committee meetings and members............................................................................................................................... 87 Table 23: Examples of breach of code of conduct................................................................................................................................... 93 Table 24: Projects sponsored during the 2022/23 financial year........................................................................................................ 96 Table 25: B-BBEE report............................................................................................................................................................................... 98 Table 26: Loan book analysis for the company......................................................................................................................................103 Table 27: Credit losses for the company..................................................................................................................................................104 N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 3 LI S T OF TA B LES (cont i n u ed) Table 28: Personnel cost by salary band..................................................................................................................................................110 Table 29: Training costs...............................................................................................................................................................................110 Table 30: Employment and vacancies by programme...........................................................................................................................111 Table 31: Employment and vacancies by salary band...........................................................................................................................111 Table 32: Employment changes by salary band......................................................................................................................................111 Table 33: Reasons for staff leaving............................................................................................................................................................112 Table 34: Labour relations: Misconduct and disciplinary action........................................................................................................112 Table 35: Male staff by salary band...........................................................................................................................................................112 Table 36: Female staff by salary band.......................................................................................................................................................113 Table 37: Disabled staff by salary band....................................................................................................................................................113 Table 38: Reconciliation of irregular expenditure..................................................................................................................................115 Table 39: Reconciling notes........................................................................................................................................................................115 Table 40: Current and previous year irregular expenditure (under assessment, determination, and investigation)..............115 Table 41: Current and previous year irregular expenditure condoned.............................................................................................116 Table 42: Current and previous year disciplinary or criminal steps taken because of irregular expenditure...........................116 Table 43: Reconciliation of fruitless and wasteful expenditure..........................................................................................................116 Table 44: Reconciling notes........................................................................................................................................................................116 Table 45: Current and previous year fruitless and wasteful expenditure (under assessment, determination, and investigation)...............................................................................................................................................................................117 Table 46: Current and previous year fruitless and wasteful expenditure recovered.....................................................................117 Table 47: Current and previous year irregular expenditure not recovered and written off.........................................................117 Table 48: Current and previous year disciplinary or criminal steps taken because of fruitless and wasteful expenditure...117 Table 49: Procurement by other means...................................................................................................................................................118 Table 50: Contract variations and expansions........................................................................................................................................121 4 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 1. LI ST OF A BBREV IATIO NS /ACRONYMS AFD Agence Française de Développement IRDP Integrated Residential Development Programme AGM Annual General Meeting IT Information Technology AGSA Auditor-General of South Africa KPI Key Performance Indicator APP Annual Performance Plan MoI Memorandum of Incorporation BASA Banking Association South Africa MoU Memorandum of Understanding B-BBEE Broad-Based Black Economic Empowerment MPC Monetary Policy Committee BNG Breaking New Ground MTSF Medium-Term Strategic Framework CEO Chief Executive Officer NCR National Credit Regulator CFO Chief Financial Officer NDoHS National Department of Human Settlements CIO Chief Information Officer NHBRC National Home Builders Registration CRM Customer Relationship Management Council CSI Corporate Social Investment NHFC National Housing Finance Corporation CTCHC Cape Town Community Housing Company NURCHA National Urban Reconstruction and (Pty) Ltd Housing Policy DBSA Development Bank of Southern Africa ODA Other Delivery Agent DCF Discount Cash Flow PDI Previously Disadvantaged Individual DFI Development Finance Institution PFMA Public Finance Management Act, 1999 DPSA Department of Public Service and (Act No. 1 of 1999) Administration PICC Presidential Infrastructure Coordination DRP Debt Relief Programme Council ERP Enterprise Resource Planning PMO Project Management Office EWP Employee Wellness Programme RFI Request for Information EXCOM Executive Committee SAIBPP South African Institute of Black Property FLISP Financed Linked Individual Subsidy Practitioners Programme SALGA South African Local Government GEHS Government Employees Housing Scheme Association GPF Gauteng Partnership Fund SAMWU South African Municipal Workers’ Union GRAP Standards of Generally Recognised SARB South African Reserve Bank Accounting Practice SCM Supply Chain Management GRI Global Reporting Initiative SHI Social Housing Institution HR Human Resource SHRA Social Housing Regulatory Authority HSDB Human Settlements Development Bank SOC State-Owned Company ICT Information Communications Technology TWG Technical Working Group IF Infrastructure Fund N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 5  PART A: GENERAL INFORMATION 1. A B O UT THIS REP O RT This report provides information about the performance of 1.1 Scope and boundary the National Housing Finance Corporation (NHFC) for the This Integrated Annual Report provides strategic, operational, period 01 April 2022 to 31 March 2023. governance and financial overviews of the activities of the NHFC for the period 1 April 2022 to 31 March 2023. The National Department of Human Settlements (NDoHS) The information in this report refers to the performance of established the entity as a Development Finance Institution the core business functionality of the NHFC, operating in (DFI) in 1996, when it was mandated to broaden access South Africa, and its major operating subsidiaries, unless to affordable housing finance for low- to middle-income stated otherwise. households in South Africa. The NHFC is registered in terms of the Companies Act, 2008 (Act No. 71 of 2008) and is 1.2 Reporting framework listed as a Schedule 3A public entity according to the Public As a Schedule 3A SOE, wholly owned by the Government Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA). of South Africa, the NHFC is represented by the Minister of Human Settlements. The NHFC was incorporated under the The NHFC’s complete list of general information is included Companies Act, (Act No. 61 of 1973), which was replaced on page 123 of this report. by the Companies Act, 2008 (Act No. 71 of 2008) and is thus subject to its tenets. The report is thus compiled in This Integrated Annual Report is produced in good faith and compliance with: provides insight into the effects of the company’s business The Public Finance Management Act, 1999 on its internal and external environments. The report (Act No. 1 of 1999) includes financial performance information relevant to all The Companies Act, 2008 (Act No. 71 of 2008) stakeholders and the shareholder. The principles of the King IV Code on Corporate Governance National Treasury Regulations Standards of Generally Recognised Accounting Practice (GRAP). N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 7 1.3 Basis of preparation development finance institution, the NHFC needs to strike This report reflects the adoption by the NHFC of integrated the right balance, constantly and consistently, between thinking and the application of the process. In determining the its developmental mandate and its financial sustainability. content provided, issues that materially affect the company’s ability to create and maintain value for its stakeholders are 1.5 Forward-looking statements considered. Such information is drawn from the company’s Contained in this report are various forward-looking records, and includes details of the operating context, statements. Such statements may relate to the possible strategic performance, risks and associated mitigation future financial position, business operation and strategy, measures, stakeholder engagement and identified business or management plans. Forward-looking statements are not opportunities. Inputs from the Executive Management Team based on historical facts, but rather on current estimations, are included in this report, and all information has been assumptions, and expectations for the company, and are approved by the NHFC’s various committees and ultimately dependent on circumstances that may or may not be realised by its Board of Directors (the Board). in the future. To the best of its ability, the NHFC provides an accurate and 1.6 Assurance transparent account of the company’s performance for the The NHFC’s Integrated Annual Report for 2022/23 is reporting period, as expanded upon by the recommendations compiled in accordance with the ethical values of the of the King IV Code. company, statutory legislative frameworks, and reporting best practices. The Board has reviewed the report and is 1.4 Risk taking satisfied that the information it contains is, to the best of The NHFC is not a particularly risk-averse corporation, its knowledge, an accurate and true representation of the however, the company does not undertake reckless lending NHFC’s position. The financial statements contained herein and investment behaviour. This report is presented in the have been assured via an audit conducted by the Auditor- light that the risks encountered often occur as we bring General of South Africa (AGSA). new opportunities into the affordable housing market, and our pricing is set in accordance with our mandate to be a sustainable company, while balancing our role as a DFI. As a Cape Town Belhar Project 8 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 2. W H O WE A RE The NHFC is a state-owned company in the human settlements sector, supporting housing delivery through the provision of affordable housing finance. The “The NHFC has become company’s ultimate purpose is to serve low- to middle- the largest debt provider in income households by providing the opportunity for such social housing.” households to live with dignity. The NHFC is mandated to facilitate an end-to-end solution that addresses financing of human settlement needs in South Africa. This is achieved through the provision of various funding instruments which seek to address specific intervention requirements. The company has been in existence since 1996, operating at a national level, providing wholesale funding to the affordable housing market. The primary funding focus has been on Social Housing Institutions (SHIs), non-banking retail intermediaries, privately owned property developers, construction companies, and investors. The secondary focus has been on loan origination and other forms of wholesale funding (equity and quasi-equity), which have been made available to intermediaries that operate within the affordable housing market sector. Prevailing socio-economic conditions, together with a drive to better leverage private sector contributions, provided the impetus in 2018 for the merger of the Rural Housing Loan Fund (RHLF) and the National Urban Reconstruction and Housing Agency (NURCHA) into the NHFC, together Cape Town Sunset Village Project with the process of converting the NHFC into the Human Settlements Development Bank (HSDB). The HSDB is servicer of implementing agencies, to facilitate delivery of intended to deliver on development outputs and outcomes sustainable human settlements. on a greater scale and with greater impact than the three single entities could previously yield. As a result, the NHFC’s The concept for the HSDB has been approved by the mandate expanded to include rural housing, as well as the Socio-Economic Impact Assessment System (SEIAS) supply of bridging finance to developers and construction Cluster, and the business case is being reworked based companies in the affordable home ownership and subsidy on National Treasury’s comments. Once this process is housing markets. The NHFC has indeed become the largest finalised, and the HSDB Bill is promulgated, National debt provider in social housing. Treasury will consider the capitalisation of the entity. The matter is concurrently subject to the preparation of draft The process towards the establishment of the HSDB is legislation by the Department of Human Settlements ongoing. A policy framework for the establishment of the before it can be presented to Cabinet. HSDB, which aims to contribute to an improved, functional property market, has been approved. The HSDB as a DFI, will The Board remains committed to concluding the operate as a financier, facilitator of affordable mortgages, process towards the establishment of the HSDB and has human settlements value-chain transformation agent and accordingly geared the strategic direction of the NHFC to this eventuality. N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 9 2.1 Strategic pillars The NHFC is founded on four strategic pillars. For each pillar, the company has defined what success will look like, and has developed strategies that are critical to achieving that success. STRATEGIC PILLARS Maximise Additionality Transform Achieve Development the Human Sustainability Impact A contribution Settlements that is beyond Sector Balance the twin Facilitate increased what is available or challenges of and sustained provides that which Facilitate market the NHFC as a private sector is otherwise absent participation, DFI, namely, the investment and from the market enabling the achievement participation in prioritisation of greater the under-served of inclusivity, developmental segment of the size, previously impact whilst housing market disadvantaged ensuring that it is individuals (PDIs), done in a sustainable and women and manner youth, in the development of sustainable human settlements Sustainable human settlement and improved quality of household life 1 0 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 2.2 Our business model The current delivery model provides housing finance to retail intermediaries, developers, private rental, social housing landlords, contractors, and strategic partners to facilitate the delivery of housing opportunities for households earning below R22 000 a month. As NHFC works towards converting to the HSDB it has proposed the following business model to align with its expanded mandate. IDEA P C O BUSINESS MODEL PLANNING National Initial Feasibility P C O Provinces Identify Land P C Acquire and Financial P C Finance Land Service Sector FINANCING Identify Financiers P C Financial Application P C O HSDB Service Sector Credit Financial HSDB Assessment Service Sector Financial Approval HSDB Service Sector Financial Disbursement O HSDB Service Sector Design and P O P Construction Marketing, Developer: Social Rental, Affordable Selling and O P and Private Rental Accommodation Renting Financial Intermediary End-user Property P P Management P Physical: Walk-in C Contact Centre Collection and Financial O Online (Web- or app-based) O HSDB Repayment Service Sector Management Company Contractor/Builder Service Provider N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 1 1 Financing of the NHFC’s interventions is largely from reserves, debt raised through other financial institutions, and government grants. The main sources of income include interest on funding and dividends on investments. Currently, dividend income is not a major contributor to revenue but will increase with investment portfolio growth. The business model caters to both the demand and the supply of housing in the South African affordable housing market. The demand side depicts the instruments used to address household’s housing finance needs, while the supply side delivers the means through which household’s needs are adequately met. DEMAND AND SUPPLY-SIDE PRODUCTS Supply Side Products Demand Side Products Private developer financing First Home Finance Social housing financing Subsidy Programme Contractor financing Incremental housing finance Developer bridging finance Rapid land release financing Programme and Fund management 2.3 Stakeholders The NHFC holds the importance of its stakeholders in high regard, as the success (or failure) of the company directly impacts them. The relationship between the company and its stakeholders is seen as symbiotic because the conduct of one has an impact on the other. An overview of the NHFC’s core and external stakeholders is illustrated below. Internal stakeholders These stakeholders are internal to the company and responsible for ensuring that the business of the company is achieved. Internal/Core Stakeholders Function in the Value Chain Purpose Board of Directors Governance Provide direction and oversight Executive Committee (EXCOM) Management Implement strategy and oversee operations Employees Disbursement, collection, Carry out the work of the company management, service provision, grant facilitation and operations 1 2 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 External stakeholders/Strategic partners Our external stakeholders comprise individuals, groups or entities that have either a significant impact on, or are significantly impacted by, the operations of the company. External Stakeholders Function in the Value Chain Role National Credit Regulator Financial oversight Regulator Adherence to FICA Financial Sector Conduct Authority Financial Intelligence Centre Property Practitioners Regulatory Collaboration Regulator Authority National Treasury Capital provision and approval of Ensures capital provided is used in fund-raising applications accordance with mandate Department of Human Settlements Capital provision/management Advocacy and oversight National Home Builders Registration Certify developers Regulator Council Provincial Government Planning, land, tenure, and essential Partner and customer infrastructure Private Sector Financial Institutions Co-funding Supplier and partner Multilateral Funders Funding Supplier and partner Private Rental Developers All functions other than financing Customer Social Housing Institutions All functions other than financing Customer Short-Term Financiers Financing Intermediary customer Provincial Development Financial Financing Partner Institutions Department of Public Services and Policy guidance Ensures entity maintains a compliant Administration and functioning public service Housing Finance Institutions and All functions other than financing Intermediary customer Other Deliver Agents (ODAs) Low Income Households Property end user and community Beneficiary development Housing Development Agency Planning, land and tenure, and Partner essential infrastructure Social Housing Regulation Authority Planning, land and tenure, and Partner and regulator financing for delivery of social housing Research Institutions Across the value chain Partner N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 1 3 Current intermediaries – Future customers The NHFC’s operating model is that of a wholesale financier which provides suitable financing for retail financiers. The retail financiers in turn provide affordable financing solutions to end consumers in need of affordable housing. Thus, the NHFC ultimately provides affordable housing finance to individual consumers via an intermediary (customer), which could be a social housing institution, a retail financial intermediary (such as a micro lender providing loans for incremental building or home improvements), building contractors/developers, bond originators, or other property investment companies (investing in rental housing stock). Intermediary Description Needs End Consumer Serviced Retail Finance Lending businesses that Access to affordable Rural and urban Intermediaries provide loans to low- funding households income households that build on an incremental basis Social Housing Institutions Non-profit institutions that Access to affordable Social housing market develop and manage social funding housing developments Government subsidised rental accommodation Other Delivery Agents For-profit institutions that Access to affordable Social housing market develop and manage social funding housing developments Government subsidised rental accommodation Private Developers Property developers and Access to affordable Affordable housing contractors who develop funding market housing for the sales and Private rental market rental market Contractors Contractors appointed to Bridging subsidy finance Urban and rural build Breaking New Ground beneficiaries of BNG (BNG) housing homes 1 4 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 End consumers End consumers are the ultimate beneficiaries of the NHFC’s product offering. End consumers benefit from financing provided via the NHFC, enabling them to either receive, build, buy or rent formal accommodation. The NHFC’s end consumers comprise the BNG market and the ‘gap’ market – households with a combined income that precludes them from qualifying for a full government housing subsidy. End Consumer Combined Household Segment Income per Month Description Need Incremental housing R800 – R22 000 Households that Funding for incremental do not qualify for housing solutions government housing Building materials and need financing for for renovations and incremental building building houses Households that incrementally currently reside in informal dwellings (in both rural and urban areas) and are building a house Households that have previously received a BNG house, but because of changing income circumstances want to extend/ improve BNG house and possibly trade up, thereby supporting the secondary housing market Social housing R1 850 – R22 000 Households that fall Affordable social rental outside the scope of the housing government full housing Subsidised subsidy and are unable to accommodation obtain a mortgage loan from a bank Affordable housing R3 501 – R22 000 Households that fall Affordable private outside the scope of the rental and ownership government full housing solutions subsidy and require a Subsidy to enable deposit to obtain a home buying or building first loan from a financial homes on an affordable institution basis BNG housing R0 – R3 500 BNG provides subsidised Funding provided to houses to low-income contractors appointed families. These houses are by local authorities to owned, not rented, by the build BNG housing. beneficiaries N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 1 5 2.4 Our strategic focus The NHFC, in the execution of its mandate, strives to transform the human settlements sector, the spatial economy and the quality of household life in South Africa. This entails increasing access to affordable housing finance, enabling intermediaries to produce affordable housing near economic opportunities and basic services and, ultimately, provides support for government’s goal of providing appropriate and adequate housing for all. In accordance with the Theory of Change Framework, the NHFC has designed its strategy to include programmes that drive the achievement of its strategic goals and make an impact in relation to the National Development Plan (NDP). IMPACT STATEMENT SUSTAINABLE HUMAN SETTLEMENTS AND IMPROVED QUALITY OF HOUSEHOLD LIFE Alignment with NDP outcomes Outcome 8 of the NDP aligns with the NHFC’s objectives and highlights the following: A strong and The upgrade More people Better quality More jobs in or efficient spatial of all informal living closer to public transport close to dense, planning system settlements on their places of urban townships that is well suitable, work integrated across well-located the spheres of land by 2030 government Outcomes Strategic enablers Functional, efficient, Improved delivery Efficient and Sound corporate and integrated of affordable effective systems governance government housing and processes Increased Competent and Stable economic Increased access to penetration and adequately skilled climate affordable finance participation staff to enable end-users of low- to middle- to have appropriate, income households Co-operation with all spatially just, and and black-owned Functioning spheres of adequate housing businesses in the housing market government and housing market provinces 1 6 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3  HOW WE ACHIEVE OUR MANDATE The NHFC achieves its mandate through various strategies and approaches, as outlined below: 1 Development Finance Institution (DFI) Model: The NHFC operates primarily as a DFI, providing wholesale funding to the affordable housing market. It adopts a flexible hybrid model by forming strategic partnerships to make markets more inclusive and leverage partner resources, skills, and competencies. 2 Risk Appetite and Market Gap: The NHFC’s risk appetite threshold is higher than that of traditional banks. It invests or provides finance in areas where banks would typically not participate, addressing the missing or under-served segments of the housing market. 3 Market Expansion: The NHFC identifies and enters new markets to unlock opportunities. This includes areas such as township residential property markets, student accommodation, backyard rentals by small-scale landlords, and micro living solutions. By entering these markets, the NHFC aims to address liquidity constraints and perceived commercial risks. 4 Financial Closure and Equity Stakes: The NHFC plays a role in facilitating financial closure for projects. It provides longer tenures to improve project viability and may also take equity stakes in projects to support their development. 5 Project Preparation: The NHFC supports project preparation activities, including scoping, pre- feasibility, and feasibility work. By assisting in the preparation of bankable projects, the NHFC aims to attract private sector involvement and financing. 6 Catalysing Private Sector Involvement: The NHFC’s role is to catalyse, attract, and mobilise private sector participation in the affordable housing sector. It collaborates with like-minded partners such as the International Finance Corporation (IFC), Agency Francaise de Development (AFD), and African Development Bank (AfDB). The NHFC also encourages reluctant partners to actively engage in housing financing. 7 Lead Arranger: The NHFC positions itself as the ‘bank of first choice in human settlements financing’. It takes the lead in arranging and coordinating financing for projects, bringing together various stakeholders and funding sources to support the development of sustainable human settlements. 8 Blended Finance Solutions: The NHFC utilises blended finance solutions to bridge gaps and address market barriers in areas with strategic importance and high development impact. By combining public and private funds, the NHFC aims to overcome financing challenges and promote sustainable housing development. Through these approaches, the NHFC strives to fulfil its mandate of providing affordable housing finance, mobilising private sector involvement, and facilitating the development of sustainable human settlements. N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 1 7  THE NHFC’S OFFERING The bulk of the funding provided by the NHFC is secured, senior debt with security in the form of mortgage loans or the client’s underlying loan book. In addition, the NHFC provides funding that falls into the realms of equity and quasi equity (mezzanine debt, junior debt and preference share investing/funding). The NHFC works closely with investors, developers and housing Strategic development agencies and funds to leverage private sector and Investments development funders to finance and create affordable housing stock. This is subsidised rental housing, made available by social housing institutions (SHIs) and other delivery agents (ODAs) accredited by Social Housing the Social Housing Regulatory Authority (SHRA). The NHFC provides Finance 10%–30% project funding as secured debt with the balance provided by SHRA in the form of consolidated capital grants. Private Rental The NHFC provides medium- to long-term funding to develop or refurbish Housing Finance affordable privately-owned rental accommodation. The NDoHS commissioned the NHFC to administer and facilitate delivery and access to the Finance Linked Individual Subsidy Programme (FLISP) nationally with effect from 1 April 2019. In 2023 the programme was Grant re-branded to First Home Finance and launched in February 2023. The First Facilitation Home Finance Programme offers qualifying applicants a once off subsidy to make buying or building homes more affordable and offers a measurable opportunity to reduce the eventual monthly loan repayment instalments. The NHFC provides bridging development finance to contractors and developers involved in the development of subsidy and affordable housing. Affordable Funding is provided to contractors who have been awarded contracts by and Subsidy public and private sector entities for the construction of subsidy housing housing – and related community facilities. For affordable home ownership, the Bridging NHFC invests in developments where individuals purchase completed Finance units through mortgages. These bridging finance products are typically short- to medium-term and assist contractors and developers with a revolving facility throughout the duration of construction. The NHFC offers funding to non-banking intermediaries, who on-lend to Incremental homeowners, for incremental improvements, including additional living Housing Finance space. Funding is facilitated to empower both rural and urban low-income earners to better their living conditions. The NHFC enters into Memorandum of Understanding (MoUs) with strategic partners in the human settlements ecosystem with a view to Strategic collaborate on funding projects as well as on advocacy work for funding Partnerships programmes run by the NHFC. Programme management and project and Programme implementation services are offered to provincial and local authorities Management to enhance the development of project and programme management capacity and enhance service delivery in the human settlements sector. 1 8 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 The NHFC capital allocation to the various programmes is as follows: Figure 1: NHFC’s allocated capital as at 31 March 2023 R0.8 million 0% R1 028 million R1 538 million 21% 31% R854 million 17% R351 million 7% R723 million R466 million 15% 9% Social Housing Finance Private Rental Housing Finance Affordable Housing Bridging Finance Strategic Investments Incremental Housing Finance Home Ownership through grant facilitation Subsidy Housing Bridging Finance* *Subsidy housing is a short-term revolving facility. Although balance at year end was small in comparison to the total loan book, there were investments during the year. Cape Town Sunset Village Project N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 1 9 2.5 Our cumulative development impact Figure 2: Cumulative funds disbursed directly by the NHFC R’million 12 000 11 526 10 777 9 823 10 000 9 113 8 389 8 000 6 000 4 000 2 000 0 2019 2020 2021 2022 2023 Figure 3: Cumulative housing opportunities facilitated through lending disbursements and leveraged funds Thousands 900 800 800 775 744 719 700 680 600 500 400 300 200 100 0 2019 2020 2021 2022 2023 2 0 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 Figure 4: Private-sector funds leveraged through our funding, interventions and partnerships R’billion 30 28 28.5 25 24 23 22 20 15 10 5 0 2019 2020 2021 2022 2023 Figure 5: Financial performance – annual surplus R’million 300 250 218 222 200 191* 181 146* 150 110* 100 88* 73 62 49 50 0 2019 2020 2021 2022 2023 Group Company * Restated N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 2 1  3. FORE WORD BY THE MINISTE R The growth of inter- and intra-country migration to urban expect that in the financial year 2023/24, the First Home spaces will continue to exert pressure on the supply of Finance programme will show improved performance. affordable housing. Currently, the shortage of affordable housing stock has led to the increased formation of informal Transformation in the affordable housing sector remains settlements and urban slums and the worsening of the a challenge. In the year under review, designated groups inner-city housing crisis. The rate of urbanisation and the make up a small percentage of the approved pipeline which attendant crisis in secondary cities has surpassed that of does not bode well for transformation. The NHFC must, in big Metropolitan cities. The crisis is exacerbated by the fact the new financial year, implement Broad-Based Economic that some of these secondary cities are in dysfunctional Empowerment Lending and Investment Guidelines that will municipalities which are unable to cope with the increased stimulate participation of designated groups in the sector demand for services and lack the planning capacity to adapt and in the NHFC pipeline. Affordable housing, in the process to the changes in population sizes. Hence, there is a great of helping us transform the spatial configuration cities, must need for the National Housing Finance Corporation (NHFC) be transformed as an economic sector. together with the private sector to increase investments in the development of new stock. I am encouraged by the expansion of the programme aimed at increasing the participation by PDIs (particularly In the year under review, the NHFC approved R989 million enterprises owned by Black people, women, youth and and disbursed R749 million for affordable housing finance in people living with disabilities) and support the establishment South Africa. Although, this investment will go a long way in of start-ups and small enterprises. I welcome the creation of contributing to the creation of new affordable housing stock, the Walmer-Gqeberha Programme in the Nelson Mandela it is nowhere near enough to meeting the market demand. The Bay Metro, which has so far completed 52 houses at a implementation of Government Employees Housing Scheme cost of R9 million. The expansion of the programme in the (GEHS) will also add to increased demand for affordable financial year 2023/24, which will include the appointment housing in Metropolitan and secondary cities. Under the of five co-operatives and the construction of 138 houses as current fiscal constraints, government’s contribution will part of the in-situ upgrading process, is an indication that continue to diminish, which therefore means the efforts to transformation as deliberate effort can achieve great results. crowd-in private sector investments in this sector must be intensified. The NHFC must lead these efforts. I wish to express my gratitude to the Board, the CEO Ms Azola Mayekiso and the rest of the NHFC staff for their hard work. The Finance Linked Individual Subsidy Programme (FLISP) which has been rebranded to First Home Finance during this financial year, has underperformed. The underperformance has been attributed to the delays in the approval of the Housing Code Implementation Guidelines for Non-Mortgage Products, leading to the reduction in the number of subsidies Mmamoloko Kubayi, MP and anticipated subsidy amounts. With the now approved Minister of Human Settlements Implementation Guidelines for Non-Mortgage Products, I 2 2 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3  4. CHAIRPE RSON’s OVE RVIE W Introduction Catalysing private sector involvement It is with mixed feelings that I present this strategic Taking the lead in arranging and coordinating overview of the National Housing Finance Corporation financing for projects, bringing together various at the culmination of my first year as Chairperson of stakeholders and funding sources Using blended finance solutions to bridge gaps the Board. The year has not been an easy one for either and address market barriers in areas of strategic the company or our country. Indeed, it may be argued importance and high development impact. that load shedding and ailing state-owned entities and municipalities, together with the protracted recovery from the COVID-19 pandemic and the on-going Ukraine- Russian crisis, have exacerbated an already fragile “As a DFI, the NHFC is situation. As poverty continues to afflict a large portion self-sustaining. Capital of our population, urbanisation continues to increase, injections from the ultimately moving out our end goal of access to adequate shareholder are intended housing for everyone. to increase delivery capacity rather than However, I am pleased to reflect on the positive strides ensure the company the company has made amidst (and despite) this turmoil, remains a going concern.” including the appointment of our first female CEO, Azola Mayekiso. Products (including capital allocation) and services evolving from this strategy include Strategic Investments Strategy and performance overview (R466 million); Social Housing finance (R1 028 million); The NHFC’s strategy to achieve its mandate has remained Private Rental Housing finance R854 million); Affordable true to form. It is founded on various sound approaches, and Subsidy Housing bridging finance (R723 million); including: Incremental Housing loans (R351 million); and home Operating primarily as a DFI to provide wholesale ownership – including retail and other (R1 538 million). funding to the affordable housing market Providing finance in areas where banks would The other product is First Home Finance for which typically not participate, thus addressing the missing the NHFC receives an allocation from the Department or under-served segments of the housing market of Human Settlements which the NHFC disburses to Identifying and entering new markets to unlock qualifying applicants. The NHFC also does Programme opportunities Management in partnership with various municipalities. Facilitating financial closure for projects Performance in relation to the NHFC’s five-year strategic Supporting project preparation activities targets is reflected in Table 4 on page 41. N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 2 3 Strategic relationships of targets and halting attempts to raise awareness among The NHFC has made concerted efforts to maintain and grow public servants about the First Home Finance Programme. relationships with its strategic partners and stakeholders during the review period, including, where possible, scheduled Delayed approval of the Housing Code Implementation meetings. Guidelines for Non-Mortgage Products reduced the number of subsidies and anticipated subsidy amounts and had An MoU was implemented with the Department of Public a knock-on effect on other aspects of the First Home Service and Administration (DPSA) to inform public servants Finance Programme. Lenders were hesitant to enter into on the Government Employees Housing Scheme (GEHS) implementation agreements with the NHFC and reluctant about the First Home Finance Programme. Collaboration to sign MoUs until final approval. MoUs were also signed with the National Home Builders Registration Council (NHBRC), HDA, Social Housing Funding Regulatory Authority (SHRA) and Property Practitioners Although the NHFC has over R2 billion in undisbursed Regulatory Authority (PPRA). In addition, an engagement funds, the major portion of this sum is already committed to on the product offering was held with the South African clients. The company needs to raise new funding to ensure Municipal Workers’ Union (SAMWU). The company is that it can continue to deliver on its mandate. However, engaging with various non-mortgage lenders to sign MoUs as the NHFC moves towards becoming the HSDB, some with the NHFC to enable their borrowers to seamlessly long-standing partners have indicated that they will hold apply for the First Home Finance subsidy. back until the HSDB is in place. Engagements with other potential funders are ongoing and once offers are in place, Engagements with several key players in the sector the necessary approvals will be sought to allow for further are ongoing, including the Infrastructure Fund (IF), the capitalisation. The Board is looking at various options that Development Bank of Southern Africa (DBSA), commercial can assist in recapitalising the HSDB. banks, Gauteng Partnership Fund (GPF), and Agence Française de Développement (AFD). These engagements seek to Sustainability establish collaborations to support the housing value chain As a DFI, the NHFC is self-sustaining. Capital injections from and mobilise financing syndications for priority projects. the shareholder are intended to increase delivery capacity rather than ensure the company remains a going concern. To Two MoUs were concluded with the GPF and the IF. These achieve this, return on equity over the long term must exceed two strategic partners have financing instruments and the long-term inflation rate. The NHFC’s financial results for mandates complementary to those of the NHFC to advance 2022/23 are impressive but it continues to achieve a return housing financing and transformation. on equity below what is required. To this end, attempts are being made to: Further engagements were held with AFD, with whom the Improve the percentage of assets that are productive NHFC has maintained a good working relationship for a long Better manage the debtors’ book period of time. Discussions are under way to build on this Improve the cost to income ratio foundation and increase the scope of collaboration which Improve margins will take effect once the Human Settlements Development Gear up. Bank (HSDB) is established. In the interim, the focus is on financing the NHFC’s transitional processes and associated In essence we need to look more closely at the quality of our research required for transitioning to the HSDB. assets and pay particular attention to our post investment strategy. Both areas need further refinement and attention. Discussions with the Small Enterprise Finance Agency (SEFA) are ongoing, particularly regarding a partnership that would enable SEFA to extend its financing to the built environment Our strategic focus in sectors, and particularly the human settlements sector. the year ahead is clearly directed at Operating environment As mentioned in my introduction, several factors affected fast-tracking the South Africa’s economy and hence the NHFC’s performance establishment of the in the review period. In addition, the company, and the HSDB. country in general, bore the brunt of public service industrial action in August and November 2022. This had severe repercussions for the NHFC, hobbling the achievement 2 4 // N H F C I N T E G R A T E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 Transformation The South African Government is addressing historical We continue to work with the department in implementing imbalances with inclusive and equality-seeking legislation, the Government Housing Employee Scheme. As the NHFC aimed at assisting previously disadvantaged households. In we want to ensure that no one is left behind. this regard, expropriation, a prevalent issue in land reform, has cast a shadow over the market as it awaits clarity. In the Appreciation year under review we improved our transformation funding In conclusion, I extend my sincere thanks to the Minister to designated groups by 120% compared with the previous of Human Settlements, Ms Mmamoloko Kubayi and her reporting period. The NHFC supported B-BBEE compliant department, for their guidance and support. companies through disbursements totalling R668 million, an increase of 82%. A new indicator was introduced targeting My appreciation also goes to the directors of our Board and black-owned entities, to further address historical imbalances, Board Secretary, whose collective expertise has so efficiently and while the target was not met, the NHFC disbursed guided the direction of the NHFC and the decisions of the R248 million to this group. Board and its committees. Strategic focus Finally, my thanks go to the CEO, executive management, Our strategic focus in the year ahead is clearly directed at and staff of the company. Your diligence and commitment fast-tracking the establishment of the HSDB. This means are the engine that drives the NHFC. we will have to focus on the following: Finalising the HSDB enabling legislation Finalising the HSDB business case Recruiting appropriate skills for the HSDB. This will enable the effective leveraging of government grants to maximise private sector funding and participation, leading ultimately to the transformation of the human Mr Luthando Vutula settlements sector. Chairperson: National Housing Finance Corporation N H F C I N T E G R AT E D A N N U A L R E P O R T 2 0 2 2 / 2 0 2 3 \ \ 2 5  5. C HIE F E XECUTIVE OF F ICE R’S OVE RVIE W It is an absolute honour and privilege to serve in a capacity The NHFC’s purpose is to improve people’s lives by ensuring that contributes to providing people with a fundamental it funds the development of affordable housing thus ensuring human right, which is the provision of decent human that beneficiaries have decent homes. Its dual mandate is also settlements. Access to housing is not only a basic human to transform the ownership patterns in the industry delivering need but also the cornerstone for overall well-being, stability, homes to align with the demographics of our country. and the fulfilment of other aspirations. Working towards At group level, the performing book of the NHFC increased ensuring everyone has access to a safe and affordable by R617 million. This was attributed to higher disbursements home can have a profound impact on individuals, families, and a reduction in the non-performing book (loans that communities and the economy; contributing to a more were in default). At company level, the NHFC collected equitable and prosperous society. R945 million from the total current book and R1.1 billion at group level. This was primarily driven by affordable The year under review saw the NHFC approving R989 million housing programme clients who paid off their outstanding and disbursing R749 million for affordable housing finance in exposures ahead of schedule. Collections exceeded the South Africa. It is commendable to be part of these efforts that budgeted amount. Social Housing collected R75 million, positively impact people’s lives. Another key milestone was while Private Rental collected R113 million during the period. the re-branding of FLISP (Finance Linked Individual Subsidy The company arrears decreased by R91 million, going from Programme) to ‘First Home Finance’. This signifies a strategic R343 million to R252 million. The reduction in arrears and shift in how the programme is positioned and communicated successful implementation of the debt relief programme to its target audience. This is not a mere name change; it have contributed to improved financial performance. signifies benefits like accessibility, relatability and connection as the word ‘home’ resonates with the target audience. In 2021/22 new policy measures were approved for First Home Finance to enable households to access non-mortgage Having joined the NHFC in March 2023, I walked into an products in addition to those who already had access to organisation that in my opinion is primed for a refresh. A subsidies with mortgages. refresh in terms of its culture, transformation efforts, customer- centricity and funding sources. This refresh is embodied in our The programme, however, continued to face challenges four core pillars that will be used to migrate from the current including the delay in approving Housing Code Implementation NHFC to the Human Settlements Development Bank (HSDB). Guidelines for Non-Mortgage Products, which is required by lenders to enter into implementation agreements with the The work towards the establishment of the HSDB has received NHFC. This delay meant limited uptake of the programme renewed impetus and a dedicated project management non-mortgage finance. office (PMO) will be in place by the second