NATIONAL HOUSING FINANCE CORPORATION

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PRESENTATION TO THE PORTFOLIO COMMITTEE HUMAN
SETTLEMENT FRIDAY, 12 JUNE 2009
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Contents

1. Mandate
2. Vision and Mission
3. Strategic Objectives
4. Financial Performance 2009 Summary Income
   Statement (draft unaudited)
5. Financial Performance 2009
6. Impact 2009
7. Retail Offering
8. Key Assumptions
9. Implications of lack of funding
10. Strategic Plan 2010-2012 Overview
11. Key Performance Areas
12. Target Market
13. Current Provincial Involvement
14. Planned Provincial Involvement
15. Collaboration with Nurcha and other DFIs
16. Public / Private Strategic Partnerships
17. Deepening and Broadening Access To Housing
    Finance
18. Budgeted Income Statement
19. Balance Sheet

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Mandate

• The National Department of Housing established
  the National Housing Finance Corporation Limited
  (NHFC) as a Development Finance Institution in
  1996 with the principal mandate of broadening and
  deepening access to affordable housing finance
  for the low to middle income households

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Mandate (cont.)

• Our Value Proposition
• NHFC supports and participates in the BNG
  strategy by
• Making housing finance accessible and affordable
  for the low to middle income households
• By facilitating the development of sustainable
  human settlements
• Facilitating the development of a viable and
  sustainable low to middle income housing finance
  market

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Vision and Mission

• Vision
• To be the leader in the development financing of
  the low to middle income housing market.
• Mission
• Providing innovative and affordable housing
  finance solutions in the low to middle income
  market.

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Strategic Objectives

• Effective delivery of housing finance to support
  governments strategy of reducing housing
  backlog.
• Intensify delivery through strategic
  partnerships.
• Providing housing finance directly to the end
  user with the development and implementation of a
  retail home loans offering.

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Financial Performance 2009 Summary Income
Statement (draft unaudited)
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Financial Performance 2009

• Operating Expenses
• Under expenditure in employee, marketing, travel,
  office and computer costs.
• (21 below)
• Investment and sundry income
• Higher than budgeted interest rates for most part
  of the year.
• (51 above)

• Financial Performance
• Profit before tax
• (73 above)

• Operating income
• Increased level of impairments and write off on
  book sold (Protea Financial Services Group)
• (11 below)

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Impact 2009

• Wholesale

Intermediaries Number Number Value Value
Actual Budget Actual Budget
Incremental Housing Loans 2,924 11,812 40,2 62,0

Units financed through intermediaries 221 155 35,5 21,4
With the rise in building material costs the
average incremental housing loan has increased in
value and therefore the number provided has
reduced the increase in units financed. In
addition the more stringent NCA requirements
caused a review in this market and the first half
of the year showed very little
activity.
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Impact 2009 (cont.)

• Wholesale continued

Projects Number Number Value Value
Actual Budget Actual Budget
Units financed 11,718 7,649 435,388 340,353
Projects funded include Social Housing
Institutions, Inner City Landlords, BNG
Contractors and Integrated Housing Project
Developers. Although a difficult market, the
results for 2009 were pleasing.
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Impact 2009 (cont.)

• Total Wholesale

Impact Number Number Value Value
Actual Budget Actual Budget
Total Opportunities 14,862 19,616 511,109 423,808
Although the drop in the number of incremental
housing loans caused the total impact number to
be 25 below budget the increase number of
housing units financed resulted in disbursements
being 20 above budget.
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Impact 2009 (cont.)

• Funds Leveraged
• NHFC in providing funding also seeks
  opportunities to leverage that funding with
  Private Sector money and in the 2009 the
  following amounts were leveraged.
• Incremental Housing
• Through supporting a client, NHFC facilitated
  further incremental housing funding of 500
  million from a financial institution resulting in
  some 46,000 loans.
• Projects
• In disbursing R435 million to fund projects, NHFC
  leveraged an additional R705 million into the
  housing market through co-funding arrangements.

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Retail Offering

• In May 2007 NHFC began a pilot retail project,
  using the Post Office as a partner. For various
  reasons, the pilot did not meet expectation and
  was discontinued in mid 2008. In October 2008 a
  retail offering, HomeFront Finance was quietly
  launched using various channels, viz call centre,
  mortgage orginators and employers.
• The intention of retail was to fulfill the
  commitment of the expanded mandate and the
  Presidents Statement in the State of the Nation
  address in February 2006 announcing the
  transformation of NHFC into a bank.

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Retail Offering (cont.)

• In the 2009 year the systems and process were
  developed and business commenced by year end
  2,238 loans had been approved (including 1,559
  from an employer) but a model R3.29 million
  disbursed.
• With NDoH and National Treasury the retail
  business of the NHFC in being reviewed.

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Key Assumptions

• Mandate revision in place
• NHFC was challenged to deepen and broaden its
  footprint and in 2006 reviewed its business model
  to do this by offering a more comprehensive
  product range, including retail and expended
  project funding.
• Final confirmation of the expanded mandate is
  awaited but in the interim the DFI review has
  been undertaken and could impact on the mandate
  of the Corporation.
• The business plan incorporates the broadened
  mandate.

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Key Assumptions (cont.)

• Reclassification to a 3(B) National Government
  Business Enterprise
• NHFC will require funding to meet the outputs of
  the business plan and has developed a funding
  model to access additional funding.
• It has, therefore, applied to be reclassified
  from a 3(A) National Public Entity to a 3(B)
  National Government Business Enterprise.
• This transfer has been recommended by the
  Minister of Housing and is now with National
  Treasury.

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Implications of lack of funding

• Developmental role and cost of funding
• As a DFI and one of the agents in the delivery of
  sustainable human settlements to low income
  earners, the NHFC needs to fund its activities at
  no cost or in a least expensive manner that will
  translate into lower cost of funding to the
  target client and align with market norms.
• Capital preservation and sustainability
• The NHFC is well capitalized and has been
  sustainable since inception which allowed its
  capital base to grow from R1,08 billion to R2,5
  billion in 2008. The cost of funding for
  expansion in the MTEF period will have a direct
  impact on the long term sustainability of the
  Corporation that would be enhanced through the
  strengthening of the capital base and minimizing
  exposure to external borrowings.

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Implications of lack of funding (cont.)

• Market conditions
• While interest rates have reduced, one of the
  results of the credit and liquidity crisis, is
  the aversion by lenders of the subprime housing
  market making external debt an expensive
  solution.
• In particular external debt capital market
  appetite for retail mortgage-backed paper is
  weak, given the impact of global sub-prime
  housing lending".

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Strategic Plan 2010-2012 Overview
Funding Requirements
Housing Opportunities
Disbursements
R1,377 m
R1,064 m
R909 m
R800 m
R550 m
32,600
R300m
29,012
26,013
2010
2011
2012
2010
2011
2012
2010
2011
2012
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Key Performance Areas - Impact
Current Financial Year Forecast 2009 Budget 2010 Budget 2011 Budget 2012
Projects (Units) 9,671 7,760 7,362 7,354
Commercial (Loans/Units) 12,430 15,582 17,309 18,473
Retail (Units) 300 2,671 4,341 6,773
Total Impact 22,401 26,013 29,012 32,600
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Key Performance Areas - Disbursements
Current Financial Year Forecast 2009 Budget 2010 Budget 2011 Budget 2012
Projects (R000) 380,135 545,760 537,726 590,400
Commercial (R000) 89,022 117,055 127,552 163,200
Retail (R000) 27,600 245,750 399,392 623,070
Total Disbursements (R000) 496,757 908,566 1,064,670 1,376,670
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Target Market

• NHFC has a target market in affordable housing
  that covers households with total income of less
  than R15 000. However, it estimates that 60 of
  its funding goes to those earning less than R7
  500. These would include many of those in inner
  city private rental units, social housing subsidy
  beneficiaries, BNG housing beneficiaries in
  Integrated Housing developments and incremental
  housing borrowers

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Target Market (cont.)
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Current Provincial Involvement
NHFC Wholesale Footprint
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Planned Provincial Involvement
RM
Gauteng 425
Mpumalanga 843
North West Province 27
Eastern Cape 279
Western Cape 334
Northern Cape 28
Free State 327
KwaZulu Natal 352
Limpopo 300
2,915
These numbers include amounts to be leveraged
from other funders
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Collaboration with Nurcha and other DFIs

• Where there are opportunities in the market NHFC
  seeks to work with other housing institutions and
  DFIs.

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Public / Private Strategic Partnerships

• Housing Investment Partners (HIP) previously
  PACH
• The company now has 3 shareholders
• NHFC 25
• PACH 25
• Old Mutual 50
• A CEO has been appointed and the Company will
  commence operations in April 2009.
• TUHF
• NHFC has funded TUHF from inception. It has
  provided R210 million out of total funding of
  close to R1 billion made by TUHF. It is
  undergoing a commercialisation exercise at
  present and has attracted a further R800
  million in private sector funding.

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Deepening and Broadening Access To Housing Finance

• The Kuyasa Fund
• NHFC has recently signed a R10 million facility
  with The Kuyasa Fund that provides incremental
  loans to the lower end of the market in the
  Western and Eastern Cape. This is considered a
  long term partnership that will improve
  access to housing finance to some of the most
  disadvantaged home owners. A further request for
  funding from Kuyasa will be considered during
  this financial year.

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Budgeted Income Statement
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Balance Sheet
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Conclusion

• The Business Plan for 2010-2012 takes into
  account the realities of the current economy but
  also the understanding that housing demand
  remains and NHFC has responsibility in addressing
  the backlog in the target market.
• The NHFC is very active in the housing finance
  arena and is constantly looking for partnerships
  and products that will better serve the consumers
  needing the benefit of housing and the resultant
  opportunity to build wealth.