Presentation AT IHA INTERIM MEETING DURBAN ,SOUTH AFRICA 2-4 NOVEMBER 2016 TOPIC: HOME BUILDING INFRASTRUCTURE : FINANCE-THE MISSING ELEMENT By: Siegfried Mogane

CONTEXT Estimated housing units backlog +- 2 400 000 units Estimated affordable housing backlog +- 600 000 -1 200 000 Estimated number of Informal settlement 400 000 as at 2012 and growing On average 20 000 affordable houses are financed per year. At this rate it will take approximately 60 years to eradicate the affordable housing backlog. The state supplies an estimated 80 000 – 100 000 RDP houses per year. 2

ECONOMIC OVERVIEW South Africa’s GDP averaged 2.9% from 1993 -2015; SA economy lost momentum over the past 5yrs and compares unfavourable to its BRICS peers as shown in Figure 2 below; GDP contracted by 1.2% in Q1.16 underpinned by 18% and 7.0% contraction in mining and agriculture respectively but grew by 3.3% in Q2.16. Unemployment rate decreased slightly to 26.6% in Q2.16 from 26.7 % in Q1.16. MPC at its last meeting kept repo rate unchanged at 7.0%. 3

HOUSING DEVELOPMENT VALUE CHAIN Acquire suitable land for housing Package land Obtain approval to develop houses Provide infrastructure Roads, Electricity, water, Sewer etc. Develop houses Sell houses to beneficiaries 4

TWO FINANCE CHALLENGES ARISE IN THE HOUSING VALUE CHAIN Obtaining –bulk infrastructure finance. Beneficiary finance (end user). Compounding the above challenge is the target market for which you are developing houses for: High Income Market RDP Market Low-middle income market 5

ACCESS TO INFRASTRUCTURE FINANCE High income housing Commercial funding available; Partially available from Local authorities /Eskom Developers must have deep pocket. Low - middle income housing Mostly available from Local authorities and provincial government in the form of Urban Settlements Development Grants ( USDG), subject to budgeting constraints. DBSA may make loans available for infrastructure development to the local authorities, subject to the local authority meeting DBSA credit criteria. 6

ACCESS TO INFRASTRUCTURE FINANCE CONT… Low -middle income Local authority may have Capacity constraints . Local authorities (Metros) must be accredited to manage USDG. 7

RDP HOUSING DEVELOPMENT The only source for infrastructure finance is the local or provincial authority. Human settlements Development Grant (HSDG) Urban Settlement Development Grant (USDG) . Again, the above grants are subject to budgeting constraints and the capacity of both local and provincial authorities to consume their allocated grants. Local authority must be accredited by National Department to manage grants . 8

ESTABLISHMENT OF THE HUMAN SETTLEMENT DEVELOPMENT FINANCE INSTITUTION (HSDFI) The new HSDFI shall be establishment from the consolidation of NHFC, NURCHA AND RLHF. As part of its mandate, it will; finance internal reticulation of bulk infrastructure within housing settlement developments; Scale up Retail Finance Intermediaries who will provide end-user finance (retail lending). 9

CAPITALISING THE NEW HSDFI The new HSDFI shall be funded by the NDHS from the national fiscus through HSDG The HSDFI funding has two primary objectives: ensuring self-sustainability and achieving development impact; Will borrow mainly on the strength of its balance sheet; Will leverage its capital to increase the scale of its impact; 10

CONCLUSION … Availability of infrastructure finance depends on the target market you serve. If you are developing Steyn City :finance may be readily available. RDP and low – middle income housing markets; available mainly from government. 11

Q&A . 12