INTRODUCING THE HUMAN SETTLEMENTS DEVELOPMENT BANK (HSDB) 28 FEBRUARY 2017

Rationale … Rationale for the new entity derives from BNG Policy Framework and the Treasury Review of DFI’s and an Assessment of the Needs of the Sector… IMPROVE EFFECIENCIES Mandates lack clarity in goals, are overly broad and lack focus resulting in overlap and duplication, and unserved areas INCREASE SCALE OF IMPACT DFIs are not realizing their developmental potential, as they operated at too small a scale ACHIEVE LONG TERM SUSTAINABILITY Financial stability concerns are often used to justify reduced risk taking (DFIs are very risk averse

Land Assembly and Packaging Top-Structure Development SOUTH AFRICA CONTINUES TO FACE SIGNIFICANT HUMAN SETTLEMENTS DEVELOPMENT CHALLENGES …… There are currently problems, blockages or challenges in every part of the human settlements value chain – these are often exacerbated by funding issues … Planning Land Assembly and Packaging Servicing (Bulk and Internal) Top-Structure Development AFFORDABILITY Spatial planning has improved through SDFs and IDP Lack of coordination in respect of infrastructure, social and economic amenities Long time frames to package land Project packaging is poor Limited access to affordable well located land Insufficient funding for land assembly Bulk infrastructure often not available Development contributions are high Limited or fragmented funding for bulk and link infrastructure Quality of construction poor Poor management of contractors by Provinces and Municipalities Limited contractor and developer finance Limited equity funding for new developers Constraint Household Incomes High Levels of indebtedness Limited innovative end user finance Weak Govt assistance for the GAP market Human Settlements Development Bank (HSDB): Concept and Roadmap 21 November 2016

HSDB aims to deliver… The sustained, equitable and accessible value creation by effectively and efficiently providing quality funding and financial support for the development of integrated human settlements in South Africa.

Human Settlement Development Bank’s Business Model What the HSDB will Do… Strategy Vision Strategic objectives Outcomes An efficient and effective Human Settlements Development Bank delivering quality financial support for the development of sustainable and integrated human settlements in South Africa. Increase the provision of finance across the human settlements value chain Support effective transformation of the human settlements sector Expanded access to financing, while maximising social outcomes, ensuring a more effective housing market and reducing the cost of human settlements financing Enhance Integration and coherence of Human Settlements grants with other sources of funding to create scale (housing opportunities). Increase the Private Sector Leveraging Capacity Remain sustainable while pursuing development objectives. Human Settlement Development Bank’s Business Model Treasury: Investment & Fund Raising Lending: Retail Intermediaries / Housing Institutions Credit Enhancement: Guarantees & Insurance Land, Developer Infrastructure and Contractor Finance Equity Funding & Strategic Investments Advisory / Technical Assistance Functions Human Capital Financial Sustainability Robust Balance Sheet Good Credit Rating Critical enablers Research & Market Intelligence ICT Infrastructure Treasury Management Risk Management Human Settlements Development Bank (HSDB): Concept and Roadmap 21 November 2016

Delivery Model of the HSDB…

HSDB Footprint The new HSDB will operate across South Africa and target all sectors of the economy The new HSDB will operate nationally covering all provinces and key municipalities on a gradual basis with key areas to include: Gauteng, also covering North West Nelson Mandela Metro and Buffalo City in the Eastern Cape) Ethekwini, South and North Coast in KZN Cape Town and Western Cape hinterland Polokwane and environs in Limpopo Mpumalanga Free State and the Northern Cape Location infrastructure will be underpinned by the need for efficiencies and a mixed model comprising larger stand-alone offices as well as shared service centres (with other entities of Human Settlements) are a consideration.

HSDB Funding Sources … SHAREHOLDER CAPITALISATION, COMMUNITY REINVESTMENT AND INVESTOR EQUITY OPERATING SURPLUSES (FROM INTEREST AND FEE INCOME) BORROWINGS INCOME TAX EXEMPT

CONSOLIDATED PRO –FORMA FINANCIALS (BASE CASE = YEAR 0)

Contents Summary of Capital Allocations over the MTEF Draft Group Summary Statement of Financial Position Overview and analysis of Draft Consolidated DFI

Summary of Capital Allocation NHFC R’m NURCHA RHLF TOTAL 2015/16 100 61* 161 2016/17 2017/18 50 150 2018/19 80 2019/20 Total 430 61 541 * Repayment of loan commitments

Draft Group Summary Statement of Financial Position

Overview and Analysis – Draft Consolidated DFI Liquidity ratio (Liquid Assets : Short-Term Liabilities and opex) – level of capitalisation. Losses in prior years as a result of high impairments and bad debts. Quality of income – Interest on loans vs interest on investments and other income. Positive trend in efficiency and cost to income measure. Marginal growth in advances portfolio Achievability of growth assumptions; operating environment Level of capitalisation

The Transaction & Progress To Complete the Transaction 1.1.1 NHFC Tax Amendment Bill now an Act (effective 1 April 2016) 1.1.2 NHFC Application to the Company Tribunal 1.1.3 Approval from All Funders 1.1.4 NURCHA and RHLF Assets and Liabilities transferred to NHFC, meeting all CP's and confirmation of Take On Balances October 2017 1.2 Governance and Organisational Structure 1.2.1 Restructured NHFC Board 1.2.2 Expanded NHFC Organizational Structure 1.3 Consolidate APP's of the three entities

Establish HSDB & Progress 2.1 Draft Business Case, Policy & Legislation 2.1.1 Secure Approvals & Funding 30 June 2017 2.1.2 Promulgate Legislation 2.1.3 Announcement HSDB (Minister’s Human Settlements Budget Speech) April 2017

Super NHFC Organogram Board of National Housing Finance Corporation SOC Limited (“NHFC”) National Department of Human Settlements (“NDoHS”) Chief Executive Officer (CEO) NHFC Managing Director (RHLF) (NURCHA) NURCHA RHLF Executive Management Minister

Summary Evaluation - Institutional Options… No Option Key features Facilitates Good Governance Ensures Effective Accountability/ policy alignment Supports Effective Lending & Collection Ability to raise funding Ability to facilitate market innovation Ability to attract / retain scarce skills 1 Public Entity Separate legal entity Powers / functions determined by legislation Political and administrative autonomy Outside of the Public Service Reliant on transfers from the National fund 2 Government Business Enterprise Required to raise own revenues and can raise loans etc. 3 Public-Private Partnership Formally structured vehicle that substantially transfers management & risk to private sector party to deliver a particular service, e.g. concession Typically used to raise capital or secure management & other expertise 4 Private Company Private Companies with appropriate governance and management structure Operates in line with memorandum and articles of association Could be a Not-For-Profit

The Consolidation & Progress 3.1 Administration Activities 3.1.1 Payroll & Admin integration of all entities 3.2 IT Systems 3.2.1 Arrange for NURCHA & RHLF to transfer their current IT & systems 3.2.2 IT Integration 3.3 Physical Movement of RHLF & NURCHA staff 3.4 Change Management 3.5 Stakeholder Engagement Management

Infrastructure of the HSDB…

THANK YOU Conclusion