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

2. 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

3. 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

4. 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 R
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

5. VALUES,MISSION VISION 5 5

6. 20 YEAR SNAPSHOT 6

7. BUSINESS MODEL 7

8. 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 R per month range, and for loans between R1 000 and R
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
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

9. CUMULATIVE DEVELOPMENTAL IMPACT9

10. CUMULATIVE DEVELOPMENTAL IMPACT (continued)10

11. NHFC’S REACH 11

12. CORPORATE GOVERNANCE 12

13. ENTERPRISE WIDE RISK MANAGEMENT13

14. OUR PEOPLE 14

15. 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

16. 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

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

18. 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)
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: 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

19. STATEMENT OF FINANCIAL PERFORMANCE19

20. 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

21. PERFORMANCE AGAINST MTSF TARGETS AND FORECAST

22. 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
62 172
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

23. 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
26 608
24%
56 909
52%
Total
47 897
83 477 23

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

25. 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

26. 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