PRESENTATION TO THE DEPARTMENT OF HUMAN SETTLEMENTS PORTFOLIO COMMITTEE ANNUAL PERFORMANCE PLAN 2018/2019 FINANCIAL YEAR 18 April 2018

MANDATE, VISION AND MISSION NURCHA MANDATE “NURCHA ensures the availability of bridging finance to small, medium and established contractors, building low and moderate income housing and related community facilities and infrastructure.” NURCHA VISION “To be regarded as a partner of choice for those seeking innovative bridging finance solutions” NURCHA MISSION “NURCHA initiates programmes and takes considered risks to ensure a sustainable flow of finance for the construction of low-income and affordable housing, community facilities and infrastructure. We work in partnership with all role-players in these markets to maximize the development of sustainable human settlements”

PURPOSE To present the Annual Performance Plan to the Department of Human Settlements

INTRODUCTION NURCHA’s business: short term project finance (36 months), to developers in the affordable housing segment, Bridging finance to contractors, Targeted programmes to finance and develop small contractors focusing on youth and women, Deploy programme and fund management capabilities to support sector development efforts. NURCHA works on a ‘balanced budget principle’: Administrative costs must be covered by budgeted income from operations Sources of income are: Interest and fees from lending activities, Fees from programme and management support activities, Money market investments.

STRATEGY PILLARS Increase development impact in line MTSF Targets and Mandate. Increased lending towards delivery affordable housing, Grow loan book in the gap category of the market, Participate in sector initiatives on mining towns and respond to lending opportunities, Provide short term finance to rental projects, Develop lending products that facilitate settlement consolidation and densification. Improved access to finance for subsidy housing contractors: Consolidate the lending model and build provincial capabilities Secure buy-in of NDHS, Provincial Departments and Municipalities on an acceptable lending framework Implementation of Contractor Finance and Development Programme to focus women and youth owned small and medium contractors, Develop a lending product to enable women owned contractors to participate in business opportunities in the sector. Employ programme and fund management capabilities to provide strategic support in human settlement development programmes.

STRATEGY PILLARS Continued Restore organisational sustainability: - Sustain positive financial results, - Improve sustainability of business streams, - Strengthen operations to support provincial lending and development support activities - Establish provincial capabilities to interface with stakeholders and clients, and manage provincial development activities, - Develop and maintain controls and systems development to support business,

SOCIO-ECONOMIC BACKDROP NDP AND MTSF Policy and the programmatic measures to provide adequate shelter and of living environments, State interventions to address and counter market dysfunctions that perpetuates inequality and poor housing conditions. ECONOMIC FACTORS Performance of the economy generally Banks’ appetite to lend, affordability and credit worthiness of households Interventions to improved affordability – (FLISP, Employer Supported Housing Schemes)

SOCIO-ECONOMIC BACKDROP Continued GOVERNMENT ROLE IN UNLOCKING HOUSING OPPORTUNITIES Forward planning and availability of land, Bulk infrastructure, Speed of critical property development related approvals, FINANCING CAPACITY Access to funding at concessionary rate, Leveraging and funding mix between grant funding and private sector, Availability of takeout finance for rental projects (long term finance). STATUTORY AND FINANCIAL INSTRUMENTS ENABLING NEW DFI TO REALISE THE DESIRED CAPACITY AND IMPACT

CORE BUSINESS 1. LENDING BUSINESS Full and Sectional title, Rental * Affordable Housing, Full and Sectional title, Rental * Bridging finance to Contractors PROGRAMME MANAGEMENT * Programme management support * Fund management * CFDP

STRATEGY EXECUTION SCORE CARD Change lending model Terminate intermediaries and re-engineer model Resolve legal actions with intermediaries Attend to collection of legacy book Restore lending performance Improve reputation in the market Improve credit rules Certificate based lending Reduce infrastructure lending Lion’s share to affordable housing Diversification of affordable housing (client & geographic) Introduction of CFDP for new entrants, women and youth. Close control of loan book New controls and risk management measures Quick and sustained actions on defaulters Write-offs and recoveries write-offs pre-2012 defaults and pursue recoveries on the book Engage stakeholders on changes and recovery actions Manage reputational issues arising from litigations Buy-in on lending protocols with provinces Engage stakeholders to improve access to finance for contractors Venture on provincial presence. Introduction & formalization of PFM Position NURCHA with new offerings and flagships Secure multi-year programmes Introduce of CFDP

AFFORDABLE HOUSING OBJECTIVES AND TARGETS PROGRAMME KEY PERFORMANCE INDICATOR BASELINE 2019 PERFORMANCE TARGET Affordable Housing Finance: Grow the supply of affordable housing stock Value of loans R1.0 billion R1.7 billion Loans/projects approved for financing 65 112 Housing units in projects financed 10,656 units 16000 affordable housing units Value of projects financed R3.5 billion Improved geographical spread of financed projects beyond Gauteng 28%of loan book shared by 8 provinces 40% of loans book disbursed outside of Gauteng Grow the GAP housing component of the loan book 28% of the loan book 40% of the loan book by 2019 Develop new products and innovations Adopt energy efficiency measurement on projects financed Benchmark energy efficiency of the loan book by March 2016 Adapt financing mechanisms to respond to medium and high density housing developments New funding mechanism in place by September 2015

SUBSIDY HOUSING OBJECTIVES AND TARGETS PROGRAMME KEY PERFORMANCE INDICATOR BASELINE 2019 PERFORMANCE TARGETS Subsidy Housing Finance: Improved delivery of subsidy housing Value of loans R491 million R684 million Loans/projects approved for financing 127 171 Housing units in projects financed 45,326 62,000 Value of projects financed R3.2 billion R7.4 billion Develop new products and innovations in business fulfilment. Develop financing mechanisms targeted to benefit women owned contractors. New funding mechanism in place by September 2015 Sign protocols for collaboration in lending with provincial human settlement departments and Metros 80% of protocols signed

PROGRAMME AND FUND MANAGEMENT OBJECTIVES AND TARGETS KEY PERFORMANCE INDICATOR BASELINE 2019 PERFORMANCE TARGETS Programme and Fund Management Portfolio: Provide programme management and fund management services to provincial and municipal level development programmes. Provincial department of human settlements supported in execution of programme and mainstreaming youth 4 multi-years provincial support initiatives 1 PHP multi-year project 10 programmes supported across provinces 2 of which are PHP Establish collaborations with community based organisations and/or co-ops to deliver PHP programmes Manage R1 Billion of client programme funds in execution of programmes Small contractors benefiting from the contractor support programme CFDP pilot project in the EC, with 70% women contractors 150 contractors supported 70% youth

ACTUALS FOR 2014/15 TO 2016/17 LATEST ESTIMATES FOR 2017/18 AND BUDGETED OUTPUTS 2018/19 TO 2020/21

NURCHA PROGRESS ON COMMITTED MTSF TARGETS AS AT 31 DECEMBER 2017 OUTPUTS MTSF TARGETS 2017/18 FY   5 YEAR TARGET MTSF TO DATE TARGET ACHIEVED TO DATE PROGRESS AGAINST MTSF TO DATE % PROGRESS TO DATE YEAR TARGET YEAR TO DATE TARGET YEAR TO DATE ACTUAL % ACHIEVED YEAR TO DATE AFFORDABLE HOUSING FINANCE: GROW THE SUPPLY OF AFFORDABLE HOUSING STOCK NUMBER OF CONTRACTS SIGNED 79 72 45 63% 57% 14 8 6 75% HOUSES AND SITES IN SIGNED CONTRACTS 11,378 9,964 7,535 76% 66% 1,400 800 1,022 128% VALUE OF LOANS (‘000) R1,579,521 R1,120,000 R1,011,346 90% 64% R280,000 R160,000 R151,219 95% VALUE OF PROJECTS FINANCED (‘000) R3,736,326 R2,080,000 R3,172,442 153% 85% R560,000 R320,000 R544,711 170% HOUSES BUILT AND SITES SERVICED 7,992 7,170 6,871 96% 86% 910 520 1,100 212% SUBSIDY HOUSING FINANCE: IMPROVE DELIVERY OF SUBSIDY HOUSING 158 122 85 70% 54% 36 27 10 37% 62,184 51,260 30,026 59% 48% 10,800 8,100 3,252 40% VALUE OF LOANS (‘000) R637,304 R474,500 346,504 73% R126,000 R94,500 R35,100 VALUE OF PROJECTS (‘000) R5,319,999 R4,214,500 3,060,874 58% R720,000 R540,000 R409,537 37,596 30,639 16,023 52% 43% 7,020 5,265 1,257 24% INFRASTRUCTURE AND COMMUNITY FACILITIES: PROJECTS NUMBER OF LOAN CONTRACTS SIGNED 20 11 91% 50% 4 3 2 67% 66,555 43,500 30,246 45% R10,000 7,500 9,000 120% R245,872 R219,500 165,634 R26,000 R19,500 R98,258 504% NUMBER OF PROJECTS COMPLETED 7 30% 1 200%

RISKS AND ENABLERS Economic conditions Affordability and creditworthiness, Traction of state interventions to counter impact of economic constraints and stimulate the market, Financing capacity to meet anticipated lending demand from Developers and Contractors, Unwillingness of some provinces to co-operate with NURCHA on lending instruments, Diversion of funds by contractors Delays by employer departments to pay contractors financed by NURCHA. This contributes to capacity constraints currently experienced by NURCHA. Management of DFI amalgamation process, New financing facilities on hold, Staff turnover and challenges of attracting talent, Business migration risk.

CRITICAL INDICATORS IN PERFORMANCE TRENDS

PROGRESS AND PERFORMANCE: LENDING PORTFOLIO

CURRENT PROVINCIAL SPREAD 31 DECEMBER 2017

LENDING CAPACITY 31 DECEMBER 2017   Funding Capacity Committed Loans (December 2017) LVS as % of Capacity Actual Exposure (December 2017) Exposure as % of Capacity Affordable Housing R 370,000,000 R 575,644,445 156% R 240,249,915 65% Subsidy Housing R 90,000,000 R 231,059,729 257% R 82,813,178 92% Infrastructure R 8,800,000 R 31,830,194 362% R 11,189,880 127% Total R 468,800,000 R 838,534,368 179% R 334,252,973 71% NOTE NURCHA continues to experience capacity constraints. Employer departments are not paying contractors on time and this impacts negatively on NURCHA’s cash flows. NURCHA is unable to negotiate funding from the private sectors during the transition to the new development bank

FINANCIAL RECOVERY TREND SINCE 2008/09

GROSS REVENUE PROJECTIONS 2017/18 TO 2020/21

TOTAL PROVISIONS AND DEBTORS TREND

FINANCIAL PERFORMANCE PROJECTIONS

ASSUMPTIONS MADE NURCHA will not be funded by the shareholder during the year under review. No other funding will be available from the private sector until the merger of the 3 DFI’s is finalised. The performance of Programme and Fund Management Portfolio will drop in view of staff capacity in this portfolio.

STATEMENT OF FINANCIAL PERFORMANCE FOR THE PERIOD 2017/18 TO 2020/21

STATEMENT OF FINANCIAL POSITION AS AT 2017/18 TO 2020/21

STATEMENT OF FINANCIAL POSITION AS AT 2017/18 TO 2020/21 Continued

STATEMENT OF CASH FLOWS FOR THE PERIOD 2017/18 TO 2020/21

CONCLUSION: KEY CHALLENGES Slow payment to contractors by departments and municipalities, Lack of sector alignment and buy-in on lending/financing instruments thereby; Artificially closing the market and denying contractors access to finance, Directly raising the level of defaults New wave of rise in loan defaults. Lending capacity constraints Suspended signing of new loans in November 2016 to May 2017, Impacts on delivery momentum and a negative market signal, Prolonged transition an impediment to raising facilities in the private sector, Talent attraction and retention challenge in the transitional period,

RECOMMENDATION The APP is hereby presented for discussion and approval, taking into account the socio-economic conditions and the business environment.

THANK YOU