STRATEGIC and ANNUAL PERFORMANCE PLAN NHFC Briefing to the Human Settlements Portfolio Committee

1. STRATEGIC andANNUAL PERFORMANCE PLAN NHFCBriefing to the Human Settlements Portfolio Committee 27 March 2013

2. AGENDA • Overview/Background • Strategic Priorities: Alignment to NDoHS • Market Context • Wholesale Lending model • Key Products and Services • Financial Highlights • NHFC Programmes: • FLISP • MDI • Challenges

3. Who is the NHFC ?

4. INTRODUCING THE NHFC • Established: 1996 • Type of Organisation: Development Finance Institution (DFI) • Ownership: State Owned Company, 100% SA government • Total Assets: R 3,48 billion (31 Jan 2013 – group) • Total liabilities: R 1,215 billion (31 Jan 2013 – group) • Funding Status: Self sustaining, pays income tax • Credit Rating: Long term AA-, short term A1+ • Main business: Broadening & deepening access to • affordable housing finance for the low-to- • middle income SA households • Geographic activities: National • Number of Employees:88 ( January 2013 )

5. VISION, MISSION, VALUES

6. HOW NHFC STRATEGY IS ALIGNED TO NDoHS STRATEGY • 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

7. HOW NHFC STRATEGY IS ALIGNED TO NDoHS STRATEGY Strategy Objective 1 Outcome 8: Output 1 Accelerate 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} 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

8. HOW NHFC STRATEGY IS ALIGNED TO NDoHS STRATEGY Outcome 8: Output 4 Improve Property Markets Strategy Objective 2 • 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} Facilitate the increased and sustained lending by financial institutions to the affordable housing market by

9. HOW NHFC STRATEGY IS ALIGNED TO NDoHS STRATEGY Outcome 8: Output 1 Accelerate delivery of housing opportunities Strategy Objective 3 • Mobilise Multilateral agencies (AFD EIB, etc.) co-funding into social and rental housing {aligned to Output 1 of Outcome 8 and with the NDPon 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 NDPon prioritising Inner City developments, funding wide variety of housing types and promotion of large scale integrated developments} Mobilise funding into the human settlement space, on a sustainable basis, in partnership with the broadest range of institutions

10. HOW NHFC STRATEGY IS ALIGNED TO NDoHS STRATEGY Strategy Objective 4 • 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} 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

11. CHANGING BUSINESS ENVIRONMENT CHANGE IN BUSINESS ENVIRONMENT IMPACT ON NHFC • 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 • 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)

12. How we operate

13. NHFC Wholesale Lending WHOLESALE LENDING Specialist intermediaries Non-bank financial intermediaries Joint Ventures (e.g. with private sector / DFI initiatives) Social Housing Institutions Micro Finance Intermediaries Private Landlords/ Developers Banks Wholesale loan finance Wholesale loan finance Wholesale loan finance Insurance (MDI) Subsidy (FLISP) Wholesale loan finance & strategic Investment (GPF, HIP, SPACE) Banks financial intermediaries Channels Channel Partners Typical products

14. PRODUCTS & SERVICES

15. Financial Highlights

16. KEY ASSUMPTIONS: FUNDING * interest bearingdebt to equity at 19% at 31/03/3012 18

17. KEY ASSUMPTIONS: 2013/14 TO 2015/16 11 of 19

18. HISTORICAL DEVELOPMENTAL IMPACT Return on advances: lending income/average gross loan book 3 of 19

19. DEVELOPMENTAL IMPACT

20. Examples of enterprise development

21. DEVELOPMENTAL IMPACT: ENTERPRISE DEV • 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.

22. 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 150employees. • 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 DEVELOPMENTAL IMPACT: ENTERPRISE DEV

23. NHFC Programmes

24. FLISP: IMPLEMENTATION PROGRESS • 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

25. MDI PROGRESS UPDATE

26. CHALLENGES • 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 finance • FLISP: Improve households affordability

27. Overview of Projects Funded MDIC

28. INCREMENTAL

31. THANK YOU !!