1. Financier ∙ Facilitator ∙ Innovator Click to edit Master subtitle style STRATEGIC PLAN and ANNUAL PERFORMANCE PLANS 2013 to 2017

2. Financier ∙ Facilitator ∙ Innovator 22 NHFC’s Mandate, Vision, Mission To be the leader in development finance for the low to middle income housing market. Providing innovative and affordable housing finance solutions to the low and middle income households. The National Department of Housing established the National Housing Finance Corporation Limited (NHFC) as a Development Financial Institution (DFI) in 1996 with the principle mandate of broadening and deepening access to affordable housing finance for the low to middle income households. Mi ss io n Vi si on M an da te

3. Financier ∙ Facilitator ∙ Innovator 33 NHFC Values

4. Financier ∙ Facilitator ∙ Innovator Background – the economy Economic growth slowing and GDP growth forecast of 3.4% may not be achieved. Construction sector severely under pressure and not contributing positively to GDP growth. Slowdown will hit consumer and business confidence further dampening consumption and investment growth. Interest rate environments expected to remain stable on the back of deteriorating economy 3

5. Financier ∙ Facilitator ∙ Innovator Background – the housing market Average price growth in target market nominal at 1% in quarter 2 yoy, with a 3.4% decline in real terms yoy. Current market environment favours rental to ownership For a foreseeable future : remain a low interest rate environment The affordable housing market remains the most active of the residential property market : Deeds register’s > 50% Availability of affordable stock remains a challenge : < R 200 000 4

6. Financier ∙ Facilitator ∙ Innovator Background – housing market (cont.) Developers still facing bridging financing challenges Improvement in building activity registered in 1st 5 months compared to corresponding period in 2010. Inner city affordable rentals becoming a preference with households 5

7. Financier ∙ Facilitator ∙ Innovator Background – the lenders Lenders began to relax their lending criteria – remain selective Some have identified this as a growth area – e.g. 100 000 units in 5 years Shift in the market share Decreasing levels of sales in execution Institutional Lenders New “Unlikely Entrants” : Old Mutual, Future Growth, Cadiz, DBSA, PIC, etc. 6

8. Financier ∙ Facilitator ∙ Innovator Background – the households Households still struggling with high levels of debt – NCR Household affordability remains an important consideration Majority with a reasonable income still under-served : access to finance Choice on tenure option, based on affordability Favourable constitutional Court ruling – The Judge to decide : Ms Elsie Gundwana vs Nedcor 7

9. Financier ∙ Facilitator ∙ Innovator Background – the POLICY Outcome 8 : Government Priority Delivery Program – Presidential Increase in the FLISP subsidy quantum – R 53 000 to R 83 500 Formalised the provincial Land Release program The Social Housing Regulatory authority – Social Housing solution Consolidation of the Human Settlement Development Finance Institutions – NURCHA, RHLF and NHFC ( 1+1+1 = 4) 8

10. Financier ∙ Facilitator ∙ Innovator NHFC Human Settlements Interventions... 9

11. Financier ∙ Facilitator ∙ Innovator Strategic Priority Areas NHFC Strategic Plan (2013 to 2017) has 5 strategic priority areas:  Improve/normalise the property market;  Expand housing finance activities in the affordable housing market;  Mobilise funding into human settlements space;  Ensure robust, timely, relevant market research; and  Ensure sustainability of the NHFC. 1010

12. Financier ∙ Facilitator ∙ Innovator Strategic priority #1: Improve/normalise the property market Purpose: To improve/normalise the property market Strategic objective: Facilitate the increased and sustained lending by financial institutions to the affordable housing market Expected results:  128 339 housing opportunities (housing units, incremental loans and rental stock) over next 5 years (2013: 20 150).  NHFC will leverage funds from private sector, R12.4 bn over next 5 years (2013: R2 bn) Excludes results from Finance Linked Individual Subsidy Programme (FLISP) and Government Employees Housing Scheme (GEHS) 1

13. Financier ∙ Facilitator ∙ Innovator Strategic priority #1: Improve/normalise the property market (cont) Priority Activities:  Implementation of the MDI programme  Implementation of a streamlined and centralised FLISP programme  Implementation of the GEHS 1212

14. Financier ∙ Facilitator ∙ Innovator Strategic Priority#2: Accelerated delivery of housing opportunities Purpose: Accelerated delivery of housing opportunities Strategic objective: Expand housing finance activities through effective provision of housing finance solutions (with choice of renting, owning and incrementally building) Expected results:  Targeted value of approvals over 5 years: R9.2 bn (2013: R1.5 bn) with actual disbursements targeted at R6 bn (2013: R1 bn) 1313

15. Financier ∙ Facilitator ∙ Innovator Strategic Priority#2: Accelerated delivery of housing opportunities (cont) Priority Activities:  Provide wholesale funding for affordable private rental, social housing and inner-city developments.  Provide wholesale funding for incremental housing including the Land Release and Informal Settlement Upgrade programmes  Implementation the GEHS 14

16. Financier ∙ Facilitator ∙ Innovator Strategic Priority#3: Making funding available for affordable housing Purpose: Making funding available for affordable housing Strategic objective: Mobilise funding into the human settlements space in partnership with broad range of institutions Expected results:  Raise R3.8 bn primarily through debt markets, subsidies over next 5 years.  Seek to lower the weighted average cost of capital (of NHFC) to then pass benefit to end user.  Diversify sources of funding to include as broad a range as possible. 1515

17. Financier ∙ Facilitator ∙ Innovator Strategic Priority#3: Making funding available for affordable housing (cont) Priority Activities:  Develop a strategy around sourcing funding from diverse range of institutions locally and offshore.  Approach capital markets and other development finance institutions.  Seek concessionary funding from shareholder. 1616

18. Financier ∙ Facilitator ∙ Innovator Strategic Priority#4: Provide robust, timely and relevant market research Purpose: To be the foremost repository of knowledge in the affordable housing market Strategic objective: Provide robust, timely, relevant market research Expected results:  Research and information  Market analysis and forecasts  Advocacy Priority Activities:  Source timely, reliable and relevant affordable housing information.  Contribute to innovative housing finance solutions and efficient affordable housing market. 1717

19. Financier ∙ Facilitator ∙ Innovator Strategic Priority#5: Sustainability of NHFC Purpose: Ensure NHFC becomes a better corporate citizen and becomes financially sustainable in the medium to long term. Strategic objective: Ensure economic, social and environmental sustainability of the NHFC. Expected results:  Maintain financial sustainability: ROE (target): minimum of CPI to be achieved within 5 years Credit loss ratio: 2%  Improve operational efficiency: total expenditure to total income ratio  22 364 jobs to be created  10-20% of project loans per annum will be targeted towards energy efficient building initiatives over the next 5 years 1818

20. Financier ∙ Facilitator ∙ Innovator Strategic Priority#5: Sustainability of NHFC (cont) Priority Activities:  Product pricing exercise to be undertaken in light of increased cost of funding and target ROE.  Review of criteria for evaluating funding of projects to ensure increased focus of developers on environmental sustainability. 1919

21. Financier ∙ Facilitator ∙ Innovator Critical Success Factors... Successful partnership with the 4 major banks on MDI and FLISP. SARB acknowledgement of the insured mortgages as qualifying for a lower capital reserve requirement – Basel III. SHRA effectively regulating and capacitating social housing institutions – support the social and affordable rental housing focus. Strengthening of the regulation of the Home Mortgage Loan Disclosure Act (HMLDA) – who gets declined and why? Successful raising of projected funding : blending of sources of funding. Improvement in the households indebtedness situation – economic growth, jobs, low inflation, etc. The DFI Consolidation is completed synergistically – shortest time- frame. 2020

22. Financier ∙ Facilitator ∙ Innovator Strategic Plan Overview 2222 20, 15 0 23, 38 1 24,8 88 20132014 2015 Housing Opportuniti es R1, 03 5 m 2013 R1, 19 5 m 2014 Disburseme nts R7 50 m 201320142015 Funding Requireme nts R1,2 79 m 2015 Note: The above figures exclude the Mortgage Default Insurance (MDI) implementation 2121

23. Financier ∙ Facilitator ∙ Innovator NHFC Contribution to Outcome 8 22 Outcome 8 Outputs NHFC’s Current ProgrammesAccelerated Delivery of Housing Opportunities (Output 1) Access to Basic Services (Output 2) More Efficient Land Utilisation (Output 3) Improved Property Market (Output 4) Wholesale Social Rental Private Rental Inner City Ordinary Affordable Rental YYYY NNNN NNNN YYYY Home Ownership Partnership with Banks NBL Intermediaries NNNY Incremental HousingYNNY

24. Financier ∙ Facilitator ∙ Innovator Budget Overview Profit after tax of R57 million. Funding raised externally – borrowing cost evident over planning period. Strategic Investments – CTCHC made profit in previous financial year and projecting positive results going forward. Disposal of majority shareholding completed at the end of 2014. – HIP is set to launch during 2012 financial year. Expected to generate profit from 2015 having incurred losses to date. – TUHF continues to project positive results. Retail Sold in 2012. Assumed HFF and two other Retail books sold at a discount of 15% and 30% respectively. Gradual increase in interest rates. 2323

25. Financier ∙ Facilitator ∙ Innovator Budget Assumptions 2525 CPI PRIME RATE DISBURSEMENTS IMPAIRMENTS STAFF SALARY INCREASE 5.7 % 10 % R 1, 035 m 2%2% 9090 6%6% 5%5% 9%9% R816 m 1.13 % 8 6.5 % FY 2013 FY 2012

26. Financier ∙ Facilitator ∙ Innovator Summary of Financial Performance 25

27. Financier ∙ Facilitator ∙ Innovator Financial Position 26

28. Financier ∙ Facilitator ∙ Innovator Changes 2012 vs 2013 2828 Interest on advancesBudgeted disbursements of R1,035 million. Increase in interest rate of 1%. Sale of houses and Cost of sales Carry over of projects delayed in previous year. Confirmed Projects as well projects in final stage of negotiation. Forecast for the sale of legacy stock revised to slower and long term release of the value of the stock following a non responsive outcome to the RFP. ImpairmentsGrowth in book. Impairments at 2%. Operating expensesForecast for 2012 includes potential loss on sale of Retail. Valuation and pricing of book, in preparation for the sale, currently underway which will inform the additional impairments to be raised. If this cost is removed in 2012 the increase in operating expenses will be 11% and the forecast ROE for 2012 improves to 2%. Finance costIncreased borrowings from R338 million in 2012 to R750 million in 2013. 2727

29. Financier ∙ Facilitator ∙ Innovator Key Performance Indicators 2929 28

30. Financier ∙ Facilitator ∙ Innovator Impact of funding 3030 Funding raised externally – borrowing cost evident over planning period. The Corporation’s gearing ratio increases substantially over the 5 year forecast Whilst the Corporation can raise additional capital within the next year without placing undue financial pressure on the business, this is not sustainable in the long term. The optimal funding structure will require a blend of capital from the shareholder and external funding. The Corporation will request the Shareholder to recapitalise the Corporation in order to strengthen its Statement of Financial Position thereby allowing it to deliver on its developmental mandate. Funding requirements2013 R’m 2014 R’m 2015 R’m 2016 R’m 2017 R’m Total R’m Disbursements R’m9651 1151 1881 3561,5676 191 Funded by Retained earnings2154655286068172 631 Capital required from shareholder-390 400 1 580 External borrowings750260270350 1 980 2929

31. Financier ∙ Facilitator ∙ Innovator Governance Structure 30

32. Financier ∙ Facilitator ∙ Innovator The NHFC sustains a comprehensive integrated risk management framework and strategy to meet both statutory and best business practice requirements. The Board Risk Committee is tasked with the responsibility of assisting the Board in executing its responsibilities. The amended ERM Framework, Policy and Strategy were approved by the Board at its 31 March 2011 meeting. Within the Risk Management Framework, key strategic risks for the Corporation are identified as well as controls and management actions to mitigate these risks. The NHFC sustains a comprehensive integrated risk management framework and strategy to meet both statutory and best business practice requirements. The Board Risk Committee is tasked with the responsibility of assisting the Board in executing its responsibilities. The amended ERM Framework, Policy and Strategy were approved by the Board at its 31 March 2011 meeting. Within the Risk Management Framework, key strategic risks for the Corporation are identified as well as controls and management actions to mitigate these risks. 31

33. Financier ∙ Facilitator ∙ Innovator Materiality Framework The Board, at its meeting held on 30 June 2011, approved the revised materiality framework for the 2011/2012 financial year. The materiality framework provides guidance on the following: Disclosure of material losses in term of Section 55(2)(b) if the PFMA; and Significance in terms of Section 54(2) of the PFMA. 32