Department of Human Settlements Briefing on the Annual Reports of Thubelisha Homes, Servcon Housing Solutions and National Housing Fund Director General: T Zulu 14 October

STRUCTURE OF PRESENTATION 1. Purpose 2.Thubelisha Homes 3.Servcon Housing Solutions 4. National Housing Fund 2

1. Purpose To brief the Portfolio Committee on Human Settlements on the annual reports of Thubelisha Homes, Servcon Housing Solutions and the National Housing Fund. In terms of Section 55 of the PFMA, the accounting authority of a public entity must submit within five months of the financial year an annual report including the audited annual financial statements to the executive authority responsible for the public entity. In terms of Section 65 of the PFMA, the executive authority must table the annual report including the audited annual financial statements in the National Assembly within one month after the accounting officer of the Department or the accounting authority of the public entity received the audited reports for the financial year to which those statements relate to. 3

2. Thubelisha Homes In 2008, the Minister took a decision to close Thubelisha Homes, hereinafter referred to as “Thubelisha”. Thubelisha was established in October 1994 as a Section 21 Company. The entity is classified as a Schedule 3A public entity in terms of the Public Finance Management Act, 1999 (Act No. 1 of 1999), hereinafter referred to as the “PFMA”. 4

2. Continued Its mandate was to facilitate the acquisition and procurement of housing stock in line with Servcon’s rightsizing programme, in terms of the Record of Understanding signed between the Minister of Housing and the Association of Mortgage Lenders in October On the 29 March 2012 the company was placed under voluntary liquidation and a liquidator appointed to close – up the company. Admiral Trust was appointed as the liquidator by the Master of the High Court effective from 6 June

2. Continued The staff together with the assets of the entity were transferred to the Department of Human Settlements. The liquidator is currently finalising: the transfer of the of 323 stands that were registered in the name of Thubelisha in Gauteng and the Western Cape, to the beneficiaries before final close – up of the company. the claims against Thubelisha by the Eastern Cape Contractors that did work on the Chetty 600 and Joe Slovo 950 projects. 6

2. Continued In the 2013/14 financial year, Thubelisha generated operating income of R97,273 for the year. The investment income was R2,629,034 accrued from the interest earned on investments. The total operating costs was R3,019,674. This includes the salary of the contract staff, the fees of the service provider and property transfer costs. The entity generated a loss of R390,640 that is mainly attributable to the property transfer costs. 7

2. Continued The total assets of the entity amount to R56,283,556 and the total liabilities to R10,621,642. With a net asset value of R45,661,914. Thubelisha received an unqualified audit report for 2013/14. The entity’s annual report was tabled in Parliament on the 29 September To close of the entity, the remaining assets need to be disposed of, liabilities settled, the statement of accounts submitted to the Master of the High Court and the entity would also have to be deregistered from the PFMA. 8

3. Servcon Housing Solutions In 2008, the Minister made a decision to close Servcon Housing Solutions, hereinafter referred to as the “Servcon”. The entity ceased operations in September 2009 and is currently in the process of closure. Servcon was established in December 1994 in terms of the Record of Understanding (RoU) between the Department of Human Settlements and the Council of South African Banks, represented by the Association of Mortgage Lenders, hereinafter referred to as the “AML”, with the Department of Human Settlements holding 50% of the nominal shareholding and the AML holding the remaining 50%. 9

3. Continued The entity is classified as a Schedule 3A public entity in terms of the PFMA. Its original mandate was to provide exclusive management services in order to normalise the lending process relating to a portfolio comprising properties in possession by the banks and non-performing loans with a value of R1.3 billion for a period of eight years from April 1998 to March In 2006, the banks resolved to terminate the right- sizing agreement with government. 10

3. Continued The Department acquired the shareholding held by the banks in Servcon effective from 1 April 2006 and the entity became a 100% government owned entity. In 2009, after the decision was made to close the entity, Servcon experienced financial challenges as it could no longer generate income from new business. Its liabilities exceeded available cash resources. The application for tax exemption was declined by the National Treasury and the entity had to pay of income tax of R 56.7 million. 11

3. Continued National Treasury advised that Servcon dispose of some of its assets in order to pay its liabilities. Approval was granted by the Minister in consultation with National Treasury for Servcon to dispose of the 32 properties it had acquired from Transnet in order to enable the entity to settle its liabilities. Seven (7) properties were sold to the Housing Development Agency (HDA). The remaining 25 properties have been categorized and are in the process of disposal through the HDA. 12

3. Continued The entity has currently advertised for closure from the 17 August to 17 November 2014 after which an application will be made to the Master of the High Court for liquidation. As a result of the financial and staffing challenges, the entity was not able to table the annual report for 2012/13 and 2013/14 in Parliament. The reports are expected to be finalised by 30 November

4. National Housing Fund The SAHF is a dormant fund A National Housing Fund was created in 1966 and subsidised housing projects were funded from this Fund. Both Provinces and Municipalities applied for funding of housing projects which was granted as loans. When the Housing Arrangements Act (Act 155 of 1993) was promulgated section 12B also provided for the establishment of National Housing Fund.

4. Continued Section 11(1) of the Housing Act of 1997 (Act No. 107, 1997) also provided for the continued existence of South African Housing Fund (SAHF). In line with the provisions of this Act, funds allocated for housing development were transferred from the national vote to the South African National Housing Fund. Funds which were not utilised remained in the fund and did not revert back to the fiscus.

4. Continued The introduction of the Division of Revenue Act (DoRA) meant that funds are to be transferred from the national vote to the provincial vote via the provincial treasury. This rendered the National Housing Fund dormant. As a result in August 2003, MinMec approved the disestablishment of the SAHF. On 18 th November 2003 the SAHF was de-listed from Schedule 3A of the PFMA.

4. Continued Since the implementation of the Division of Revenue Act no funds have flowed from the SAHF. The fund, at the end of the previous financial year, reflected a credit balance of R 32,5 million –(R25,2 million in a Pay Master General (PMG) account and –(R 7,3 million in a Corporation for Public Deposits (CPD) account). There is no interest earned currently by the SAHF on these funds. At the beginning of the current financial year, all money was transferred to the CPD account.

4. Continued R25,2 million on PMG account (13/14) An enquiry to National Treasury (NT), revealed the following: all PMG balances of the departmental accounts are invested by the NT. The Asset and Liability Management Division at NT is responsible for the cash management of all National departments. The R25 million of the SAHF forms part of the total portfolio of accounts managed on a daily basis by NT.

These funds are part of government’s total cash balances and used by Treasury to fund daily flows. The interest earned on cash balances are transferred to departmental revenue. As the fund was funded from government funds the SAHF will need to proof that they are entitled to this interest in terms of the founding legislation. 4. Continued

R7,3 million with CPD (13/14) Section 11 (4) Any money in the Fund which is not required for immediate use, must be invested with the Commissioner for Public Investments. Money to the Fund was not transferred when needed. As a result cash surpluses realised in the Fund’s CPD account. 4. Continued

R32,5 million with CPD (14/15) As this money should not have been paid to the Fund, NT borrows it from the CPD at 0% interest. As a result the SAHF and some other public entities are not earning interest on their CPD deposits. 4. Continued

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