HUMAN SETTLEMENTS PORTFOLIO COMMITTEE 15 OCTOBER 2014 NHFC ANNUAL REPORT 2014

Financier ∙ Facilitator ∙ Innovator  Overview  Business Performance  Corporate Governance  Risk Management  Our People  Financial Performance

Financier ∙ Facilitator ∙ Innovator  Established: 1996  Type of Organisation: Development Finance Institution (DFI)  Ownership: State Owned Company, 100% SA government  Total Assets: R 3,1 billion (31 Mar 2014 – group)  Total liabilities: R 716 million (31 Mar 2014 – group)  Funding Status: Self sustaining, pays income tax  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 116Company 84

Financier ∙ Facilitator ∙ Innovator 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 R − The market segment is able to contribute towards its housing costs, but unable to access housing finance from Financial Institutions. − The low- to middle-income housing market is any South African household with a regular monthly income between R1 500 and R − The market segment is able to contribute towards its housing costs, but unable to access housing finance from Financial Institutions. Target Market:

Financier ∙ Facilitator ∙ Innovator Provide innovative and affordable housing finance solutions to the low –to-middle income market OWNERSHIP 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 INTEGRITY PASSION FOR PURPOSE CREATIVITY TEAMWORK ACHIEVEMENT To be the leader in development finance for the low-to-middle income housing market VISION MISSION VALUES STRATEGIC OBJECTIVES

Financier ∙ Facilitator ∙ Innovator

6 Partnership with banks Non-banking retail intermediaries Home ownership 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: 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 R per month range, and for loans between R1 000 and R Incremental housing Incremental housing via approved or selected intermediaries to end-users with household incomes in the R3 500 to R per month range, and for loans between R1 000 and R 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. Social rental (R – 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 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

Financier ∙ Facilitator ∙ Innovator

Board Governance Structure Board Credit & Investment Committee (BCIC) Audit Committee Board Risk Committee (BRC) Executive Committee (EXCO) Board Human Resources Ethics & Remuneration Committee (HRER) Board Development Impact & Strategy Committee (DISC) BOARD Social & Ethics Committee (SEC)  NHFC conforms to the requirements of the King III Report and the Protocol on Corporate Governance.  NHFC remains a Schedule 3(A) entity.  Board charter reviewed annually. Specific powers and authority have been delegated to the Board committees, each of which has a clearly defined mandate in its written Terms of Reference.  Unqualified audit report since inception.

Financier ∙ Facilitator ∙ Innovator NHFC sustains a comprehensive Enterprise Risk Management Framework and strategy to meet both statutory and best business practice requirements. STRUCTURE ROLE ROLES, RESPONSIBILITIES AND ACCOUNTABILITY The Board Management Continuous Risk Assessment and Monitoring Risk Governance  The Board approves the risk tolerance level.  The Board has delegated the Governance of Risk to the Board Risk Committee.  Through the Board Risk Committee, the Board ensures that the NHFC Top Risks and emerging risks are identified and risk mitigation strategies put in place.  The Board ensures that Risk Assessments are performed on a regular basis.  The Board ensures that Framework and methodologies are in place to ensure timely anticipation of unpredictable risks.  The Board approves the risk tolerance level.  The Board has delegated the Governance of Risk to the Board Risk Committee.  Through the Board Risk Committee, the Board ensures that the NHFC Top Risks and emerging risks are identified and risk mitigation strategies put in place.  The Board ensures that Risk Assessments are performed on a regular basis.  The Board ensures that Framework and methodologies are in place to ensure timely anticipation of unpredictable risks.  Management is responsible for implementing appropriate Board approved risk responses.  Management is responsible for monitoring risks and ensuring that approved action is taken to mitigate such risks.  Management is responsible for reporting on risk on a quarterly basis, or as the need arises, depending on the severity of the identified risk.  Management is responsible for implementing appropriate Board approved risk responses.  Management is responsible for monitoring risks and ensuring that approved action is taken to mitigate such risks.  Management is responsible for reporting on risk on a quarterly basis, or as the need arises, depending on the severity of the identified risk. Governance of Risk

Financier ∙ Facilitator ∙ Innovator

Business Performance

Financier ∙ Facilitator ∙ Innovator Key Highlights Impact through NHFC funding housing opportunities created job opportunities facilitated Experiential learners 12 learner-ships undertaken Five bursaries awarded Corporate social investments Sponsorships to beneficiaries of the built project in Port St Johns Renovation of Langa High SchoolCape Town Sponsorship of Alexander Orphanage Financial Funding impact through NHFC funding Disbursements of R675 million - highest level to date. Leveraging of R2.2 billion of private sector funding into the human settlement space. Secured second facility from EIB (R250 million), subject to necessary approvals. Challenges Funding remains critical to NHFC growing its loan book Delays in housing project development process in the housing market and high indebtedness of households have both constrained the supply and lending, respectively, in the NHFC’s target market. Constrained mortgage lending by banks delayed the uptake that is critical to housing delivery. Revise policies and processes to enable the scaling up of FLISP.

Financier ∙ Facilitator ∙ Innovator Profit before tax R35 million Profit before tax R35 million Housing opportunities created: Affordable Rental, Ownership and Incremental Housing opportunities created: Affordable Rental, Ownership and Incremental Number of beneficiaries benefitting Number of beneficiaries benefitting Jobs facilitated Jobs facilitated Value of disbursements targeted towards women-managed / owned companies - R32 million Disbursements R675 million Private capital and investment leveraged R2,2 billion Disbursements R675 million Private capital and investment leveraged R2,2 billion Funding Impact R2,8 billion OUTCOMES

Financier ∙ Facilitator ∙ Innovator 14 Cumulative Leveraging: R 15,3 billion FLISP: Approved R40 million subsidies : Leveraged R138 million mortgage loans from banks

Financier ∙ Facilitator ∙ Innovator

Enterprise Development Co-funding arrangement between the NHFC and the Gauteng Partnership Fund (GPF) designed to promote participation of Historically Disadvantaged Individuals companies in the affordable rental property market. An amount of R332 million has been set aside with the NHFC portion being R233 million as senior debt funder and GPF R100 million. R130 million of the senior facility has since been taken up with 18 HDI’s having benefitted from the programme, translating into 698 housing opportunities. Experiential Learners 12 learner-ships undertaken Five bursaries awarded Corporate Social Investments Sponsorships to beneficiaries of the Women’s Build Project in Port St Johns. Renovation of Langa High School Cape Town, Youth Build. Sponsorship of Alexander Orphanage. Environmental sustainability initiatives : Formalised an Environmental Policy towards an integrated approach to both internal and external environmental issues. Evaluation of projects from an environmental perspective and compliance with regulations and best practice.

Financier ∙ Facilitator ∙ Innovator Financial Performance

Financier ∙ Facilitator ∙ Innovator

Harmony Village – Cape Town

Financier ∙ Facilitator ∙ Innovator 424 Commissioner Street, Johannesburg The NHFC, together with Gauteng Partnership Fund (GPF), financed the renewal, conversion and refurbishment of the dilapidated 424 Commissioner Street. NHFC provided a mortgage loan of R7,4 million. The property consists of 34 units, comprising one- and two bedroom units. It is owned, developed and managed by a black female. 424 Commissioner Street, Johannesburg The NHFC, together with Gauteng Partnership Fund (GPF), financed the renewal, conversion and refurbishment of the dilapidated 424 Commissioner Street. NHFC provided a mortgage loan of R7,4 million. The property consists of 34 units, comprising one- and two bedroom units. It is owned, developed and managed by a black female.

Financier ∙ Facilitator ∙ Innovator 120 End Street, Johannesburg NHFC provided funding of R110 million for the conversion and refurbishment of two buildings, Frank & Hirsch and Khan Corner, into rental accommodation. The property is now called 120 End Street, and has 479 units comprising one- and two-bedroom units. It is owned, developed and managed by Affordable Housing Company, a leading investor, landlord and property manager in the inner city of Johannesburg. 120 End Street, Johannesburg NHFC provided funding of R110 million for the conversion and refurbishment of two buildings, Frank & Hirsch and Khan Corner, into rental accommodation. The property is now called 120 End Street, and has 479 units comprising one- and two-bedroom units. It is owned, developed and managed by Affordable Housing Company, a leading investor, landlord and property manager in the inner city of Johannesburg.

Financier ∙ Facilitator ∙ Innovator Lakehaven Social Housing Project - Phase 1 and 2 The NHFC provided mortgage loan financing of R35,5 million for the development of 312 units, for social housing rental. Other funders of this project are the KwaZulu-Natal provincial government and the Social Housing Regulator. The project has 34 double-storey blocks of eight units on 17 hectares of land in Durban. All the units are two-bedroom. The developer is First Metro Housing Company, a social housing entity. Lakehaven Social Housing Project - Phase 1 and 2 The NHFC provided mortgage loan financing of R35,5 million for the development of 312 units, for social housing rental. Other funders of this project are the KwaZulu-Natal provincial government and the Social Housing Regulator. The project has 34 double-storey blocks of eight units on 17 hectares of land in Durban. All the units are two-bedroom. The developer is First Metro Housing Company, a social housing entity.

Financier ∙ Facilitator ∙ Innovator Kenwick Close: East London Mettle: Karino Development - Nelspruit SPACE: Kimberley FRESHCO: Bloemfontein