1. PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTS 25 MARCH 2015 NHFC STRATEGIC PLAN 2015-2019

2. 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

3. 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 R15 000. − 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 R15 000. − The market segment is able to contribute towards its housing costs, but unable to access housing finance from Financial Institutions. Target Market:

4. Financier ∙ Facilitator ∙ Innovator VISIO N To be the leader in development finance for the low-to-middle income housing market MISSION Provide innovative and affordable housing finance solutions to the low –to-middle income market VALUES OwnershipPassion for purposeTeamwork IntegrityCreativityAchievement STRATEGIC OBJECTIVES 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 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

6. Financier ∙ Facilitator ∙ Innovator 5

7. Basis of Revision Summary - Impact of reduced capital allocation

8. Financier ∙ Facilitator ∙ Innovator The Strategic Plan is aligned to the Medium Term Strategic Framework (MTSF). The NHFC, through its programmes as well as other interventions, such as its equity investments, is supportive of the National Development Plan (NDP) commitment of revising the housing system. Examples of these are: o Provision of housing finance options (private and social rental, home ownership, instalment sale agreements, incremental loans); o Inner-city developments; and o Leveraging of private sector funding into the affordable market. Critical to the success of the imminent DFI consolidation, is the establishment of a consolidated entity that is optimally capacitated to further support effective and efficient delivery on a “radically revised housing finance regime”.

9. Financier ∙ Facilitator ∙ Innovator Strategic Plan covers the period 2014/15 to 2018/19 (5 year cycle) o supported by Annual Performance Plan (APP) for each of 2014/15 and 2015/16 financial years o Entities were given an opportunity to revise and align their APPs for 2014/15 to the MTSF Funding assumptions o Aligned to approved shareholder support o Capital allocations significantly lower than amount requested o Delay in flow of R230 million virement o No complimentary debt funding expected Restructuring of NHFC and CTCHC - The restructuring of both the NHFC and its subsidiary has been approved for implementation in the 2014/2015 financial year. The cost of the restructuring has been included in the 2014/15 year budget.

10. Financier ∙ Facilitator ∙ Innovator Strategic Plan MTSF 2015/19 Sep-14Revised Jan-15 Developmental Impact Number of housing opportunities created 66 754 47 897 Number of beneficiaries benefitting253 665182 013 Number of jobs facilitated 41 681 28 734 BEE targeted disbursement (R'm) 740 474 Funding Impact Disbursements (R'm) 3 713 2 367 Leveraged funds (R'm) 3 775 3 096 Total funding impact (R'm) 7 488 5 463 Funding Assumptions Shareholder support (R'm) 1 160 530 Debt funding (R'm) 714 Total funding requirements (R'm) 1 874530

11. Financier ∙ Facilitator ∙ Innovator Strategic Plan MTSF 2015/19 Sep-14Revised Jan-15 Financial target within 5 years KPI within 5 years KPI within 5 years ROE5% 2.8% ROA (PBT)2.50%5.6%3.6% Cost to income ratio40%25%37% Debt to equity ratio35%21%7% Average asset growth14% 5%

12. Financier ∙ Facilitator ∙ Innovator Impact of current Shareholder prioritization of Social Housing o Influences capital allocation o Reduces overall sustainability o Reduced facilitation of private sector funding Overall reduced financial and developmental impact. Reduced contribution to MTSF. Borrowing capacity limited by support from shareholder funding. Long term financial sustainability threatened. Capital injection of R1 billion would have created platform towards sustainability over 10 year period. Further capital injection required in medium term. Subdued growth, overall market conditions.

13. Financier ∙ Facilitator ∙ Innovator Revised Strategic Plan 2014/15 – 2018/19

14. Financier ∙ Facilitator ∙ Innovator Insights from the strategy session attended by both the NHFC Board and EXCO in May 2014 were essential in informing the 2015 - 2019 (5 year) strategic plan. Current key highlights:- Infrastructure deficit is significantly hampering economic growth & socio economic development Inflation has moderated however GDP growth forecast is on a downward trend The slowing economy runs the risk of undermining the fiscal situation- revenue growth is set to slow Government impose cost cutting measures - on spending Rating agencies downgrade SA’s sovereign rating Household indebtedness remains high, aggravated by rising living costs

15. Financier ∙ Facilitator ∙ Innovator The following significant factors consistent with the re-organisation objectives were reconfirmed as critical for the NHFC to ensure realisation of the Strategic Plan: Ensuring that the capital structure of the NHFC is enhanced through the raising of debt and equity funding in the short and medium term, thereby ensuring that there is an adequate blend of debt and equity funding; Further enhancing the pricing model of the company, to ensure it better reflects the true cost of doing business and the risk associated with writing new business. Where there is cross subsidisation between clients or products in order to achieve the developmental mandate, this will be more explicit or clearer; Further enhancement of the operational structure of the company through implementing the plans of the strategic re-organisation; and Growing the loan book and mix of business at a satisfactory rate.

16. Financier ∙ Facilitator ∙ Innovator Harmony Village – Cape Town Capital injection of R300 million over MTEF. No complimentary debt funding expected. Includes commitments and new business. Operational efficiencies. Optimal pricing.

17. Financier ∙ Facilitator ∙ Innovator Strategic Plan MTSF 2015/19 Developmental Impact Number of housing opportunities created 47 897 Number of jobs facilitated 28 734 BEE targeted disbursement (R'm) 474 Funding Impact Disbursements (R'm) 2 367 Leveraged funds (R'm) 3 096 Total funding impact (R'm) 5 463 Funding Assumptions Shareholder support (R'm) 530 Debt funding (R'm) - Total funding requirements (R'm)530

18. Financier ∙ Facilitator ∙ Innovator NDOHS MTSF Target NHFC Contribution to MTSF MTSF 2015/19 % MTSF Number of Social Rental housing units 27 000 5 89922% Number of Private Rental housing units 25 000 15 39062% Total number of Rental housing units 21 289 Affordable housing units 9 110 Incremental housing loans 17 498 Total Affordable housing 110 000 26 60824% Total 47 897

19. Financier ∙ Facilitator ∙ Innovator Programme Expand housing finance activities through effective provision of housing finance opportunities OutcomesAdequate housing and improved quality of living environments Performance indicatorStrategic Plan Target Medium term targets 20152016201720182019 Estimated number of housing opportunities facilitated through disbursements 18 668 3 151 3 885 3 575 3 909 4 148 Number of beneficiaries benefitting70 938 11 973 14 76313 58514 85415 762 Value of funds disbursed( R'm)2 367 677 406 381 439 464 Value of approvals (R'm) 2 380 309 464 498 535 574

20. Financier ∙ Facilitator ∙ Innovator Performance indicatorStrategic Plan Target Medium term targets Number of housing opportunities facilitated through disbursements 2014/152015/162016/172017/182018/19 Number of Social Affordable Housing Units* 5 899 1 297 958 1 145 1 213 1 286 Number of Private Rental Housing Units*2 800 531 398 532643696 Total Rental8 699 1 8281 3561 6771 8561 982 Number of Affordable Housing Units** 4 137 1 323 1 196 485 555 578 Number of Incremental Housing Loans*** 5 832 - 1 3331 4131 4981 588 Total Affordable Housing 9 969 1 3232 5291 8982 0532 166 Total 18 668 3 151 3 8853 5753 9094 148 Housing units include completed, transferred or occupied rented units. *Social and Private Rental - estimated number of units arising from disbursements. ** Affordable Housing – estimated number of mortgage loans originated through Strategic Partnerships such as HIP and IHS, the average loan size being R400 000. Instalments Purchase Agreements originated through intermediaries, units from previously funded integrated developments mainly Space, Mettle and CTCHC. The decrease over the MTSF is due to market conditions impacting integrated developments and intermediaries as well as the projected forecast of key significant existing commitments relating to strategic partnerships which in one instance is completed and not repeated at the same scale and in another instance forecasted for later periods. *** Incremental - Average loan size of R15 000. Incremental loans for 2015 revised and reallocated to secured lending; clients in distress and market conditions impacting unsecured lending.

21. Financier ∙ Facilitator ∙ Innovator Programme Expand housing finance activities through effective provision of housing finance opportunities Outcomes Housing finance needs met through options of renting, owning or incrementally building. Performance indicator Strategic Plan Target Medium term targets R'million Value of disbursements 2014/152015/162016/172017/182018/19 R'm Social Affordable Housing 619 136 101 120 127 135 Private Rental Housing 784149111149180195 Total Rental Housing 1 403285212269307330 Affordable Housing 877 392 174 91 110 Incremental Housing Loans 87 - 20 21 22 24 Total Affordable Housing 964 392 194 112 132 134 Total value of disbursements 2 367 677 406 381 439 464

22. Financier ∙ Facilitator ∙ Innovator Programme Expand housing finance activities through effective provision of housing finance opportunities Outcomes Housing finance needs met through options of renting, owning or incrementally building. Performance indicatorStrategic Plan Target Medium term targets R'million Value of approvals* 2014/152015/162016/172017/18 2018/19 Social Affordable Housing 1 275 148 250 270 292 315 Private Rental Housing 945161174188203219 Total Rental Housing 2 220309424458495534 Affordable Housing - - - - - - Incremental Housing Loans 160 - 40 Total Affordable Housing 160 - 40 Total value of approvals 2 380 309 464 498 535 574 Facilities approved by the relevant governance structure in line with the delegated authority. Facilities may be withdrawn and/or not taken by the client.

23. Financier ∙ Facilitator ∙ Innovator ProgrammeFacilitate the increased and sustained lending by financial institutions Outcomes Increased and sustained lending by private sector to human settlement developments Performance indicatorStrategic Plan Target Medium term targets 2015 2016201720182019 Estimated number of housing opportunities facilitated through leveraged funds 29 230 2 853 6 473 6 332 6 696 6 876 Number of beneficiaries benefitting 111 075 10 842 24 598 24 060 25 446 26 129 Value of leveraged funds from the Private sector (R'm)3 095 522 650 568 669 687

24. Financier ∙ Facilitator ∙ Innovator ProgrammeFacilitate the increased and sustained lending by financial institutions OutcomesIncreased and sustained lending by private sector to human settlement developments Performance indicatorStrategic Plan Target Medium term targets Number of housing opportunities facilitated through leveraged funds 20152016201720182019 Number of Private Rental Housing Units12 590 2 1902 600 Number of Affordable Housing Units 4 974 663 1 206 905 1 100 Number of Incremental Housing Loans 11 666 - 2 667 2 827 2 996 3 176 Total 29 230 2 853 6 473 6 332 6 696 6 876

25. Financier ∙ Facilitator ∙ Innovator ProgrammeFacilitate the increased and sustained lending by financial institutions OutcomesIncreased and sustained lending by private sector to human settlement developments Performance indicator Strategic Plan Target Medium term targets Value of leveraged funds from the Private sector 201520162017 20182019 R'm Rental Housing 3408545607278 Affordable Housing 2 581 437 565 466 552 561 Incremental Housing 175 - 40 42 45 48 Value of total funds leveraged 3 096 522 650 568 669 687

26. Financier ∙ Facilitator ∙ Innovator

28. FINANCIAL PERFORMANCE

29. Financier ∙ Facilitator ∙ Innovator

34. Finance Linked Subsidy Programme (FLISP) The achievement of the FLISP targets is dependent on the successful resolution of a set of recommendations currently under review by the Department.

35. Financier ∙ Facilitator ∙ Innovator Actual 2014 Forecast 2015 2016 2017 2018 2019 Total Number of approved applications1 6968521 7043 4084 0904 90714 961 Number of beneficiaries benefitting5 7662 8974 79411 58713 90616 68449 868 % of MTSF Target (70 000) 21% Private Sector Investment (leveraging) Rm 2022214438861 0631 2763 889

36. Financier ∙ Facilitator ∙ Innovator Actual 201420152016201720182019Total Cost to Fiscus (Rm) 5.9 5.25.5 5.86.16.529.1 Operational Cost 2015 2016201720182019Total DORA allocation (Rm) 34 72144174208632 FLISP Disbursement Capital Grant – once off IT capex requirements Consultancy (legal, IT etc) Business development costs R10.0m R.2m R.3m Total initial set-up cost (excl Opex)R10.5m

37. 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.

38. STRATEGIC OBJECTIVES Expand housing finance activities, through the effective provision of housing finance solutions, thus enabling low-middle income households to have the choice of renting, owning or incrementally building, thereby meeting their housing needs; Facilitate increased and sustained lending by financial institutions to the lower end of the housing market ; Mobilise funding into the Human Settlements space on a sustainable basis, in partnership with the broadest range of institutions; Conduct the business activities of the NHFC in an ethical manner that ensures the continued economic sustainability of the NHFC, while promoting lasting social, ethical and environmental development; and Stimulate the low-middle income housing sector, by providing robust, relevant and timely research and market analysis to practitioners and housing customers. KEY FOCUS AREARS 2015/16 - 20 Increase Utilisation of Private Sector capacity The mandate directs sustained and growing mobilisation of funds into the housing process within the target market, on a financially and economically sustainable basis. Optimise the Balance Sheet Optimise capital structure – the NHFC balance sheet on its own is insufficient to meet the demands sustainably. Given the size of the mandate-defined target market relative to the NHFC equity base, the NHFC will have to leverage its resources in order to have meaningful development impact. Promote Ownership and Accountability within the organisation There is need for NHFC resources to take greater ownership of their responsibilities in order for the organisation to efficiently achieve its objectives. Capacitate and Elevate the Research and Advocacy Function As the knowledge leader on the GAP market the NHFC is well positioned to play an advocacy role to Government and thereby influence policy decisions. There is a great need for reliable and accurate source of information on the “GAP market”. The NHFC is well placed to fulfil this function which will provide direction to both its own initiatives as well as those of other stakeholders. Drive the Development Finance Institution Consolidation Process The NHFC is well positioned to take a leadership role in this process and should proactively engage with all stakeholders as well as provide thought and process leadership on the most effective manner in which to bring the envisaged outcome efficiently RISK PLAN Focus Of Risk Management Plan. The Risk Management Plan is designed to ensure that NHFC achieves its strategic objectives by detecting, identifying and managing risks that may prevent achievement of its goals. The focus is on the following top risks : Financial Risk Credit Risk Investment Funding Risk Business Performance Operational Reputation Human resources DFI Consolidation Operational RISK MANAGEMENT PLAN

39. Financier ∙ Facilitator ∙ Innovator Kwa shenge Kempton Park :Gauteng Mountain View Villas: Cape Town Highlands: Tshwane Avoca Hills : KZN

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