Presentation TO PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTS 1 NOVEMBER 2016 ANNUAL REPORT 2016

CONTENTS NHFC Overview 20 Year Snapshot Business Model Corporate Governance & Risk Management Business Performance Financial Performance Forecast contribution to MTSF DFI Consolidation Acacia Park, Msunduzi - Pietermaritzburg, KZN 2

NHFC OVERVIEW Established: 1996 Type of Organisation: Development Finance Institution (DFI) Ownership: State Owned Company, 100% SA government Total Assets: R3,1 billion (31 Mar 2016 – group) Total liabilities: R386 million (31 Mar 2016 – group) Funding Status: Self sustaining, pays income tax (Draft Tax Amendment Bill) Credit Rating: Long term AA-, short term A1+ Main business: Broadening and deepening access to affordable housing finance for the low-to- middle income SA households Geographic activities: National Number of Employees: Group 75 Company 55 3

NHFC MANDATE Target Market: Strategic Objectives The National Housing Finance Corporation Soc Ltd (NHFC) is a state owned Development Finance Institution with a principal mandate to broaden and deepen access to affordable housing finance for the low- and middle-income households.  The low- to middle-income housing market is any South African household with a regular monthly income between R1 500 and R15 000. The market segment is able to contribute towards its housing costs, but unable to access housing finance from Financial Institutions. Target Market: 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;   Facilitate the increased and sustained lending by financial institutions to the affordable housing market; Mobilise funding into the human settlement space, on a sustainable basis, in partnership with the broadest range of institutions; 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; and Provide robust, timely and relevant market research Strategic Objectives 4

VALUES,MISSION VISION 5 5

20 YEAR SNAPSHOT 6

BUSINESS MODEL 7

HOW WE DELIVER ON OUR MANDATE Partnership with banks Through co-financing and risk-enhancement mechanisms, bank lending in this segment of the market is increased and sustained through leveraged funding provided by the NHFC NHFC provides wholesale funding to non-banking retail intermediaries, that on-lend to households in the NHFC target market. Access to home loans is increased and delivered through a nationwide branch network of intermediaries. Rental housing Provision of loans that offer the following types of rental accommodation: Incremental housing Incremental housing via approved or selected intermediaries to end-users with household incomes in the R3 500 to R15 000 per month range, and for loans between R1 000 and R20 000. Social rental (R 3 500 – R 7 500) Subsidised rental housing provided by social housing institutions . These institutions receive subsidies in the form of restructuring capital grants from the SHRA as well as top up institutional subsidies from provincial government. In addition to these grants and subsidies, the NHFC provides long-term debt funding (up to 20 years) for the balance of funding for development of the housing project. Strategic Partnerships NHFC develops strategic alliances and partnerships with developers, investors and housing development funds etc. through investment in equities, mezzanine and junior debt capital structures in projects or companies that operate within the affordable housing market. Home ownership Is achieved through the indirect provision of mortgage bonds for buying an existing home or building one, through partnerships with banks, and non-banking retail intermediaries Non-banking retail intermediaries Private rental (up to R15 000) Rental accommodation is provided by private landlords, who do not receive any subsidies or grants. It caters for the affordable rental market, including inner city rental developments. NHFC provides long term funding for the development/refurbishment of Inner City buildings for rental accommodation. 8

CUMULATIVE DEVELOPMENTAL IMPACT 9

CUMULATIVE DEVELOPMENTAL IMPACT (continued) 10

NHFC’S REACH 11

CORPORATE GOVERNANCE 12

ENTERPRISE WIDE RISK MANAGEMENT 13

OUR PEOPLE 14

HIGHLIGHTS AND CHALLENGES Creation of 30 386 housing opportunities, transforming the lives of 115 466 beneficiaries. Creation of 9 157 job opportunities. Disbursements profile has significantly changed; over 70% of disbursements are to broad-based black economic empowerment clients (in terms of majority ownership). Strategic partnerships to leverage private sector funding and achieve scale mobilised R1.5 billion into the sector. Liquidity improved through shareholder recapitalisation (of R100 million) and early settlements. Improved cost to income ratio from 60% in 2014/15 to 41% in 2015/16. Annual credit rating confirmed by Global Credit Ratings at national level. Market maker : New players (banks and real estate investment trusts) that are investing in affordable rental housing (including inner city housing) and social housing. Current economic and market conditions negatively affected both the NHFC’s beneficiaries and clients. Concerns around the viability of the current social housing funding model, which discourages large institutions from accrediting new projects. Graduation of our seasoned clients into the formal banking sector has seen more start-up or emerging clients come on board, affecting the quality of projects. Higher than expected impairments and reduced revenue resulted, for the first time, in a consolidated deficit before tax for the year. 15

AUDIT OUTCOMES Audit opinion of financial statements Unqualified Predetermined Objectives No material findings on usefulness and reliability of the reported performance information. Compliance with laws and regulations Did not identify any instances of material non-compliance. Performance Information Did not identify any significant deficiencies. 16

Business and financial Performance Mountain View Villas – Maitland, Cape Town, Western Cape

KEY BUSINESS PERFORMANCE INDICATORS Actual Budget Variance Comments   2015/16 Estimated number of housing opportunities facilitated through disbursements and leveraged funds 30 386 10 358 20 028 Target exceeded Number of beneficiaries benefitting (factor of 3.8 applied) 115 466 39 360 76 106 Value of funds disbursed (R'm) 241 406 (165) Reduced business pipeline (due to previous funding constraints). Prevailing subdued economic and market environment. Challenges impacting the social housing space. Lack of bankable projects. Project delays of committed funds. Value of approvals (R'm) 340 464 (124) Value of leveraged funds from the Private sector (R'm) 1 509 650 859 Other developmental impact Estimated number of jobs facilitated* 9 157 4 339 4 818 Value of disbursements targetted towards women, youth and emerging BEE entrepreneurs (R'm)** 226 90 136 * Formula applied: 11.13 jobs created for every R1 million spent in a project. (Based on outcome of research by NDOHS). ** Funds disbursed through Strategic Partners TUHF and GPF/NHFC Entrepreneur Empowerment Property co-funding agreement. 18

STATEMENT OF FINANCIAL PERFORMANCE 19

GROUP STATEMENT OF FINANCIAL POSITION Key movements - Overall decrease of 6% in total assets Loan assets Decrease of 12% Below budgeted disbursements; Increased level of impairments; and Settlements. Instalment sale agreements Increase of 26% Properties developed for sale Decrease of 50% Construction activity of CTCHC and ongoing sale in the underlying projects. New IPAs relating to Harmony Village. Other non-current assets Increase of 48% Increase in fair value of investment in TUHF (Jobs Fund) Increase in deferred tax. Capital and reserves Increase of 4% Capital injection of R100 million. Funds under management Decrease of 77% Returned funds managed under the KZN subsidies (project related) as well as FLISP. Current liabilities Decrease of 69% Payment of SARS assessment iro regularisation of the Development Fund. 20

PERFORMANCE AGAINST MTSF TARGETS AND FORECAST

5YR STRATEGIC PLAN COMMITMENTS AND MTSF TARGETS 5 YR Targets 2014/15 – 2018/19 Budget YR1 +YR2 (2015 & 2016) Actual % Achieved 5YR Targets Approvals R'm 2 380 773 526 68% 22% Disbursements R'm 2 367 1 083 970 90% 41% Funds Leveraged R'm 3 096 1 172 2 330 199% 75% Disbursements: Broader BEE R'm 474  217 370 171% 78% Disbursements + Leveraged 5 462 2 255 3 300 146% 60% Housing Opportunities 47 897 16 361 39 498 241% 82% Number of beneficiaries benefiting 182 009 62 172 150 091 Estimated number of jobs facilitated 28 734 12 563 21 044 168% 73% Approval targets remain under threat - quality and quantity of the deal flow in both private rental and social housing Leveraged programmes continue to yield success 22

PERFORMANCE AGAINST MTSF FORECAST   NDOHS MTSF Target APPROVED STRATEGIC PLAN NHFC MTSF Target % MTSF LATEST FORECAST Social Housing Units* 27 000 5 899 22% 6 849 25% Private Rental Housing Units** 25 000 15 390 62% 19 718 79% Total Rental 52 000  21 289  26 567 Affordable Housing Units*** 9 110  9 555  Incremental Housing Loans**** 17 498  47 355  Total Affordable Housing 110 000 26 608 24% 56 909 52% Total 47 897 83 477 23

Dfi consolidation Fairview Link and Willowdene Village – Port Elizabeth, Eastern Cape

QUALITATIVE OUTPUTS ACHIEVED AS AT MARCH 2016 Consolidation of the Human Settlements Development Finance Institutions has commenced - The relevant directives have been issued by Minister Sisulu and being actioned by the Department in conjunction with the NHFC, RHLF and NURCHA. A tax amendment is pending that will allow for the transfer of assets and liabilities of RHLF and NURCHA into the NHFC. This allows for the operational integration. Currently dealing with finalisation of the NURCHA and RHLF Donation Agreements which includes obtaining an exemption from the NPC Listing Requirement (Administrative Order.) A policy foundation for the creation of a single DFI was developed, allowing for the development of a draft business case and commencement of the process to draft a bill. All three entities are participating in workstreams towards consolidation and operational integration with oversight provided by the Project Steering Committee chaired by the Department of Human Settlements. 25

ENVISAGED END STATE Single Human Settlement Development Bank (HSDB) with: Flexibility to address end-to-end Human Settlement funding and financing needs. Robust Balance Sheet and Greater Private Sector Leveraging Capability. Increase Scale of delivery. An Efficient and Effective Human Settlement delivery vehicle. Enabling the Long Term Financial Sustainability of the HSDB. 26