ANNUAL REPORT 2011/12 FINANCIAL YEAR Dr. J. Mahachi, Pr.Eng, Pr.CPM NHBRC Acting Chief Executive Officer [email protected] 11 October 2012.

ANNUAL REPORT2011/12 FINANCIAL YEAR

Dr. J. Mahachi, Pr.Eng, Pr.CPM

NHBRCActing Chief Executive Officer

[email protected]

11 October 2012

Outline of Presentation

• Mandate & Strategy of NHBRC

• Operational Performance 2011/12

- Non Subsidy Sector

- Subsidy Sector

• Financial Performance 2011/12

• Actuarial Evaluation as at March 2012

Establishment of NHBRC

Legislation of the Housing Consumers Protection Measures Act, 1998 (Act No. 95 of 1998)

26 March 1999 – NHBRC became a statutory bodywith a mandate of protecting mortgaged homes

NHBRC Mandate

NHBRC’s primary mandate is:• To protect housing consumers by establishing,

implementing, regulating quality standards in the home building industry

• To establish a warranty fund and to provide assistance to housing consumers under circumstances where home builders fail to meet their obligations.

• To build capacity of home builders and housing consumers with specific emphasis to the historically disadvantaged

Objects of NHBRC

• To represent the interests of housing consumers by providing warranty protection against defects in new homes.

• To regulate the home building industry.

• To provide protection to housing consumers in respect of the failure of home builders to comply with their obligations in terms of the Act.

• To establish and promote ethical and technical standards in the home building industry.

Objects of NHBRC Cont…

• To improve structural quality in the interest of housing consumers and the home building industry.

• To promote housing consumer rights and to provide housing consumer information.

• To communicate with and to assist home builders to register in terms of the Act.

• To assist home builders through training and inspections

Extension of Warranty to Subsidy Houses

Government Subsidy:

Government of RSA provides a full subsidy for the acquisition of land, services and housing top structures to those households earning up to R3,500/mth.

Year 2002:•Government extends warranty scheme to cover the subsidised houses.•A cross subsidisation model for the enrolment fee between subsidy and non-subsidy houses was implemented by NHBRC.

NHBRC Warranty Scheme

Unenrolled Houses

Regulation of the Home Building Industry

Registration &Grading

Training ofHome Builders

Technical &Ethical

Standards

Defaults byHome Builders

Disciplinary(Suspensions &Deregistrations

Renewal orVoluntary

withdrawals

RegulatoryFramework

HOME BUILDER HOUSING CONSUMER

NHBRC

Housing Consumers Protection Process

Enrolment

Inspection

OccupationCertificate

WarrantyCover

Complaints

Conciliations

Remedial Work

Recoveries

PROTECTION

HOME BUILDER HOUSING CONSUMER

NHBRC

Vision

“A world class home builders warranty organization that ensures the delivery of sustainable quality homes”

Mission

“To protect the housing consumers and regulate the home built environment by promoting innovative home building technologies, setting home building standards and improving the capabilities of home builders”

Strategy

• To improve visibility and accessibility in the market while enhancing interaction with our stakeholders;

• To position the NHBRC as a leader in knowledge creation, technical and technological building solutions through strategic partnerships; and

• To provide diversified services and products in line with changing building requirements and needs.

Strategic Objectives

Our Footprint

High Level Stgructure

16

Operational Performance

% Renewal of Registered Builders

Enrolments & Late Enrolments of homes

20

Growth in Enrolments

21

Late Enrolment as % of Total Enrolments

5% target

Complaints & Conciliations

Type of Complaint Number Received Number Resolved

Structural Related 431 225

Roof Related 36 22

Maintenance Related 165 86

Others (e.g. Outside Warranty Period)

17 17

Total 649 350

Remedial Works

Year Remedial Costs (R-million) Inspection Fees (R-million)

2007/08 4 58.8

2008/09 7 83.6

2009/10 14 79.2

2010/11 22 57.5

2011/12 15 73.9

Disciplinary of Home Builders

Number

DC Hearings 87

Builders Found Guilty 46

Builders not found guilty 7

Matters settled 15

Verdicts outstanding 4

Matters withdrawn 13

Matters postponed 2

Subsidy Sector Performance

NHBRC Risk Management

The NHBRC uses various risk management tools.

Core:• Geotechnical assessment;• Impact of Civil infrastructure (Stormwater);• Structural assessments; and • 1 inspector for every 200 houses under construction.

Enrolment done in 2 stages:• Project Enrolment, and• Home Enrolment

Value for Money for Enrolled Projects

Evaluation of geotechnical problems Evaluation of proposed foundation solutions Evaluation of topographical problems &

proposed solutions (stormwater control, retaining embankments, etc)

Evaluation of the capacities & capabilities of home builders

Establishment of appropriate levels of technical specifications & construction guidelines

Value for Money (Cont…)

Continued monitoring of quality control procedures being applied by builders on site

Inspection of the quality of the product on an on-going basis

Training of Home Builders Training of provincial and municipal

inspectors and QAs 5 – year structural warranty

Project & Home Enrolment

30

Engagement with

provinces

Inspection of Homes

Non-Subsidy Subsidy

Number of Houses Inspected

62,779 156,139

Number of Inspections Conducted

223,349 290,826

Home Builders Training

Programme Number Trained

Emerging Home Builder Training 609

Disability Programme 18

Women Build 134

Youth Build 94

Youth in Human Settlements 96

TOTAL 951

Note:1.Total Males Trained = 5922.Total Females Trained = 359

Challenges Dealt With in 2011/12

Enrolment Submission during, if not after construction. All provinces have been engaged. Proper alignment of NHBRC and provincial stats. Minister developed a intervention strategy.

Misunderstanding of technical and geotechnical standards by developers and professionals. Workshops held in most provinces.

Scarcity of appropriate technical skills (NHBRC Developing training materials, particularly for inspectors)

Appropriateness of standards to rural projects

(Technical standards reviewed and re-aligned for rural projects)

Enforce compliance to norms, standards and quality within the sector

Trained the public sector on technical standardsAssisted the Govt in the rectification program of

houses NOT enrolled by the NHBRC.Started on building capacity at the provincial and

municipal spheres to undertake monitoring of norms and standards for human settlement programmes and projects through establishment of QA systems;

Ensured all enrolled projects are inspected; andAssisted Provinces in Geotech investigations

34

NHBRC Response to Outcome 8

Other NHBRC Achievements

• Transforming the organisation through improving processes and systems with a reliable IT platform (ERP System)

• Successful host of 12th International Housing & Home Warranty Conference in Cape Town

• Workforce profiles in terms of race and gender in line with national demographics

• Restructuring of organisation finalised• Staff turnover (Resignations) of 3.6% acceptable.• Repeal the Act (Draft completed)

Challenge:• Delay in the finalisation of the disciplinary hearing of CEO impacted

on delay in recruiting other Execs.

Other NHBRC Achievements

• Transforming the organisation through improving processes and systems with a reliable IT platform (ERP System)

• Successful host of 12th International Housing & Home Warranty Conference in Cape Town

• Workforce profiles in terms of race and gender in line with national demographics

• Restructuring of organisation finalised• Staff turnover (Resignations) of 3.6% acceptable.• Repeal the Act (Draft completed)

Challenge:• Delay in the finalisation of the disciplinary hearing of CEO impacted

on delay in recruiting other Execs.

Annual Report 2011/2012

FINANCE

Statement of Financial Performance Summary R’ Million

38

Actual2012

Actual 2011

Variance

Net income 741 799 (58)

Expenditure 580 437 (143)

Surplus for the year 134 362 (228)

Total Revenue Trend

39

Revenue – Premiums and Fees

40

2012 2011 Variance VarianceActual Actual R Mill %

Premium Written 426 332 94 28 Change in uneared premium / unexpired risk provisions (199) 25 (224) (909) Insurance premium revenue 228 357 (129) (36)

Fee revenue 56 32 24 75 Other income 42 1 42 4 715 Total other income 98 33 66 200

Premium Earned R’ Million Trend

41

Revenue and Contribution

42

2012 2011 Variance VarianceActual Actual R Mill %

Technical services revenue 184 80 103 128 Technical services expenditure (186) (28) (159) 573 Net Technical services surplus/(defecit) (3) 53 (55) (105)

Investment income 197 203 (6) (3) Realised profit on sale of available-for-sale investments 18 126 (109) (86) Fair value gain on financial instruments 16 - 16 100 Asset management services (9) (9) (0) 1 Net Investment Income 222 321 (98) (31)

Summary Revenue 2011/12Revenue year-on-year comparison R’ Million

43

Net Income Variance Comment

Insurance premium revenue (129) Unearned premium reserve

Fee revenue 24 Subsidy project enrolments

Technical services revenue 103 Rectification and water tanks

Investment income (98)Restructuring of investment portfolio

Other income 42 Vat / Bad debt provision

Total (58)

Statement of Financial Performance Summary R’ Million

44

Actual2012

Actual 2011

Variance

Net income 741 799 (58)

Expenditure 580 437 (143)

Surplus for the year 134 362 (228)

Expenditure

45

Loss adjustment expensesInspections and Operating

expensesTechnical Administrative Asset management

2011 12 59 28 331 9

2012 5 77 186 330 9

0

50

100

150

200

250

300

350

R m

illi

on

Expenditure

Technical Provision Definitions

46

Outstanding claims provision (OCP)

Insurance claims and related expenses paid in the year, including provisions for insurance claims incurred but not reported and related expenses.

Expenditure 2011/12 Year-on-year Expenditure Trend

47

Actual2012

Actual2011

Variance

Expenditure

Insurance claims and loss adjustment expenses

5 12 6

Operating / Technical expenses 263 87 (176)

Administration expenses 330 331 1

Asset management services 9 9 0

Total Expenditure 607 439 (169)

Insurance claims and loss adjustment expenditure R’ Million

48

Technical Revenue and Contribution

49

2012 2011 Variance VarianceActual Actual R Mill %

Technical services revenue 184 80 103 128 Technical services expenditure (186) (28) (159) 573 Net Technical services surplus/(defecit) (3) 53 (55) (105)

Financial Highlights 2011/12 Expenditure year-on-year comparison R’ Million

50

Expenditure Variance CommentInsurance claims and loss adjustment expenses

6 Lower claim provision

Operating expenses (176) Technical R 186 Million

Administration expenses 1 Constant

Asset management services 0 Constant

Total Expenditure 169

Reconciliation of budget surplus with the surplus in the statement of financial

performance R Million

51

Net surplus per approved budget 258

Adjusted forEmerging contractor reserve (5) Revenue 259 Expenditure 14 Technical Expenditure (173) Realised profit on sale of financial assets 34 Interest (58) 69

Net Surplus from Operations 327

Movement in Technical provisions not budgeted (194)

Net Surplus per the statement of financial performance 134

Actuarial Report at March 2012

Technical Provisions as at 31 March 2012

53

Enrolment fee adequacy for 2012

54

Solvency of Warranty Fund

55Table Above: NHBRC Solvency: The Actuarial Surplus has increased by 16.5% which is due to increasing assets. The Surplus as a % of Provision has increased over the year.

PLANS TO ADDRESS CONCERNS RAISED IN ANNUAL REPORT

• Extensions to contracts were not notified to the National Treasury;

• No miscellaneous payment through accounting system, has to all go through procurement system;

• All payments are managed through procurement database, which follows the National Treasury Guidelines; and

• Tenders will remain open for 21 days.

Conclusion on the Solvency

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The results of the actuarial valuation indicates that the NHBRC as a whole, including both subsidy and non-subsidy houses, is solvent and in a sound financial position as at 31 March 2012.

The actuarial liabilities are 378% funded.

THANK YOU