Housing Code

Part 3

Chapter 3: Housing Subsidy Scheme - Project Linked Subsidies

1. Overview
2. Eligibility and Other Conditions for Project-Linked Subsidies
3. How Developers Apply for Project Linked Subsidies
4. How the PHDB Judges The Project Linked Subsidy Application
5. After Approval of The Project Linked Subsidy Application
6. Key Points to Remember

Annexures

This chapter deals with the rules for project-linked subsidies. These rules relate to issues including how projects operate, what must be contained in project agreements, and how consultation might proceed. They also relate to the submission and approval of project applications, the criteria in terms of which projects will be assessed, and the administrative and payment procedures in respect of approved projects

3.1 Overview

Project-linked subsidies have been available since 15 March 1994. This mechanism provides for the allocation of housing subsidy funding, to developers to enable them to undertake approved housing development projects and to sell the residential properties so created, to qualifying beneficiaries. A “developer” initiates, manages and executes housing projects. A developer can be an organisation in the private sector, a public sector institution, a non-governmental or community based organisation. Furthermore, developers may comprise joint ventures between a variety of role players or other arrangements.

Once a developer identifies a piece of land and a potential market (beneficiaries) for a project, the developer needs to follow a series of steps before undertaking the development. These involve:

• Eligibility & Other Conditions: making sure that the project site and approach they have chosen fits within the overall policy for how the subsidy can be used
• Application: preparing a project application and submitting it to the PHDB
• After Approval: following approval of the project, agreeing with the PHDB on how the subsidy will be paid out to facilitate the development process

The rules detailed in this chapter of Part 3 of the Code apply to these steps.

To approve the project, the PHDB must judge the application on the basis of a series of criteria. These criteria are also set out in this chapter. For more information on the policy content behind the project-linked subsidy mechanism, see Section 3.3 in Part 1 of this Code.

Finally, the chapter ends with a focus on the role of the PHDB in respect of project-linked subsidies, and a summary of key points to remember.

 

The General Rules for eligibility, as well as for the value of the subsidy, what it can buy, and the variations in terms of geotechnical conditions or for households with a disabled member, all apply. For more detail on these, see Chapter 2 of this Part of the Code, Sections 2.2. – 2.6.

Back to Top

3.2 Eligibility and Other Conditions for Project-linked Subsidies

The General Rules for eligibility apply (see Chapter 2 of this Part of the Code, Section 2.2).

Project linked subsidies are available (to developers) to enable developers to undertake approved housing development projects and to sell the residential properties created to qualifying beneficiaries. The subsidies are therefore ultimately for the benefit of the approved individual beneficiaries.

3.2.1 Project Procedures and Rules

1. Developers: Project linked subsidies will be made available to developers who undertake approved projects.
2. Projects need not be identified and initiated by developers only. Developers will be required to satisfy the PHDB, that it has sufficient access to financial resources, technical and managerial competence in order to undertake projects successfully. If a developer is constituted as a joint venture, the legal competence, financial position and technical expertise of the joint venture will be assessed by the PHDB. The purpose of this is to ascertain whether such developer is financially, technically and managerially capable of implementing and successfully concluding the project.
3. Apart from developers, community based organisations, referred to as community based partners (CBP) may itself act as developer (and is encouraged to) and apply for approval of a housing project, and/or may identify a suitable developer and enter into a project agreement with that developer, in terms whereof the developer or, the CBP in conjunction with the developer, will make the application.
4. Subsidy Amount: The total amount of the project-linked subsidies will be determined by the PHDB when the PHDB approves a project. In this process the PHDB will –

• determine the number of residential properties contained in the project;
• determine the number of residential properties that will be sold to beneficiaries in each of the three subsidy bands based on a socio-economic profile of the beneficiary community;
• add the subsidies payable in each of the three subsidy bands in order to arrive at the total subsidy amount payable in respect of the project, (and make provision for any increase in the subsidy amounts to compensate for geophysical conditions and the special housing needs of the disabled).

5. The total amount of the project-linked subsidies will be paid to the developer in progress payments.
6. The developer will be required to sell the individual residential properties in the project to qualifying beneficiaries at the product price as determined in section 3.5.2 of this part of the Code.
7. If, in respect of any particular project, other public finance has previously been received, then such financial assistance must be deducted from the total subsidy amount. A developer must accordingly disclose in its project proposal and application for project approval full details as to such finance received.
8. Social Compacts: Housing projects, unless the MEC agrees otherwise, should be based on inclusive agreements (social compacts) between relevant stakeholders involved in or directly affected by such projects. Of particular importance is that the beneficiary communities, suppliers of infrastructure, services, housing products and finance on a specific project, are parties to such an agreement. Social compacts in respect of housing projects are a provincial requirement. The MEC of each Provincial Government may specify the consultative requirements for purposes of housing projects in his/her Province and, in his/her discretion, strengthen, relax or remove such requirements in any manner deemed appropriate by the MEC.
9. Projects will only be favourably considered if there is an undertaking from the relevant local government (municipality) other service provider to supply, at its cost, all bulk and connector services required for the project.
10. Housing projects should address the needs of the disadvantaged communities and new housing developments should strive towards the achievement of the basic points of departure of housing policy and strategy, contemplated in Section 3.4 of this Part of the Code.
11. Where a project comprises the upgrading of minimally serviced settlements or the provision of services to a settled community or where buildings are to be reconditioned or refurbished, the project should be undertaken in such a manner so as to least disturb the rights and relationships of existing occupants.
12. Social and economic benefits to the beneficiary community, local initiative, local participation in and contribution to the planning and implementation of the project, must be maximised.
13. Project planning and implementation should be based on the principle of, and create an environment conducive to, all parties meeting their respective obligations.
14. Local initiative, participation in, and contribution to, the planning and implementation of social and physical development activities should be maximised.

Back to Top

3.2.2 Responsibilities of the Applicant (Developer)

Projects must be located on land that offers access to services and facilities, and that is acceptable to the beneficiary community. An applicant (the developer) for project linked subsidies is required -

1. to identify land which should -

• afford easy access to employment centres and to education and health care facilities;
• be serviced by adequate existing bulk and/or connector services, alternatively must be capable of being provided with such bulk and/or connector services within a reasonable period. Preference will be given to project applications where the land is serviced by adequate existing bulk and connector services;
• have access to adequate transportation facilities;
• direct development towards existing economic opportunities and should promote economic efficiency and the spatial integration of towns and cities; and
• comply with such additional criteria as the MEC may require, which must be consistent with national housing policy,

2. to identify all such other commercial and business concerns, landlords, public authorities, and any representative organisation of individuals sharing a specific interest or interests, which will be directly or indirectly affected by or which have a direct or indirect interest in or contribution to make to a proposed housing project (these concerns, persons, authorities and organisations are referred to in this Code as "stakeholders").
3. Where such contribution or interests are critical to the success of the project, use its best endeavours , unless the MEC directs otherwise, to:-

• obtain the approval and acceptance by all Stakeholders of the proposed project; and
• obtain, where relevant, from every Stakeholder an undertaking to participate or invest in, or contribute to, the project, in accordance with an envisaged role, function and interest.
• enter into social compacts with all the relevant stakeholders

4. prepare a project application for submission to the PHDB in accordance with the rules contained in section 3.3 of Chapter 3 of this part of the Code.

3.2.3 Assistance in Applying

Where an applicant requires advice and/or financial assistance for the preparation of a project application, the project agreement and/or a social compact, the applicant may submit a fully motivated request to the relevant PHDB for such assistance on any matter set out in Section 3.3 of Chapter 3 of this Part of the Code. Should the PHDB in its discretion agree to render such assistance, it will give assistance. The PHDB may make available resources or pay fees and compensation for essential expenditure as may be agreed upon. This assistance is subject to strict budgetary and financial controls as is normally applicable to the appointment of professional consultants. Guidelines for the approval of social compact facilitation by the PHDB is set out in Annexure A of this Chapter 3 of Part 3 of the Code.

Back to Top

3.3 How Developers Apply for Project-linked Subsidies

3.3.1 Documentation and Information required in the Project Application

Project application forms must be submitted to the relevant PHDB together with the following documentation, set out in Table 9 and in the format prescribed in the Framework for project information details contained in Annexure B to this Chapter 3 of Part 3 of the Code:

Documentation and Information Required in the Project Application
a.	a project motivation indicating:
	the number of residential properties that will be contained in the project, the product prices of the properties, details of the direct and indirect costs of the project, details of other public finance previously received, a socio-economic profile of the beneficiary community and, a full motivation of the project in order to meet the assessment criteria which must contain : an estimate of the total subsidy amount which will become payable if the project is approved, calculated in accordance with the provisions contained in Section 3.2.1(d); if application is made for an increase in the subsidy amount to provide for geotechnical, topographical or other locational factors, or to cater for the special needs of the disabled, a description of the amount of such increase, fully motivated; unless determined otherwise by the PHDB.
b.	A copy of the social compact, where required, agreed between a Community Based Partner (CBP) representing the interests of the beneficiary community, the developer (where not the CBP) and other stakeholders in the project proposal which must set out –
	the housing needs of the relevant community; a housing project that will meet the housing needs of an identified target market with particular reference to:- an appropriate location/site, and the number of residential properties that will be contained in the project; the planning of the area and the type of residential properties that will be offered (out of the range of properties identified); the full cost to the beneficiary of acquiring the residential property offered; and the level of services to be provided.
c.	a copy of all agreements or compacts entered into between the developer and any other stakeholders not in the social compact between developer and CBP.
d.	An undertaking from the relevant municipality or other service provider for the supply and installation of all bulk and connector services at its costs, including a certification that a housing product price will not include a contribution towards the capital costs of the provision of such services. This undertaking may take the form of a services agreement;
e.	a locality sketch of the proposed development, a preliminary layout and proposed house plans (sketch stage) with a full specification of the top structures to be constructed, where applicable. For the purposes of this Code "top structure" means a permanent residential structure as required in Section 2.5 of this Part of the Code;
f.	details as to:
	the quality control measures that will be adopted and proof of the registration of the developer with the National Home Builders Registration Council; a list of names of all professional consultants and contractors that will be used to plan, design and execute the project; a programme for implementation of the project; an indication of the method of execution of the construction, project management and other activities in the project, the degree to which labour based methods are to be used and which will include an indication of the number of work opportunities that will be created per trade or discipline, with particular emphasis on the extent to which training, skills transfer and local employment will take place in the implementation of the project; the employment of local labour and smaller building contractors to undertake the construction of the project will be strongly favoured, but the social and economic benefits of this approach will be carefully weighed against the need to apply resources as productively as possible; a marketing survey, where appropriate; the full cost to a beneficiary of acquiring the property; the level of services to be provided; proof of the development rights to the land to be developed e.g. the land availability agreement; the public sector finance that has been obtained in respect of the project; any other details, copies of documents or information which the PHDB may require to be provided by the project applicant under the application or at any other stage.; Where the requirement of the social compact has been waived by he MEC, the following information must still be provided: transparent and equitable criteria, structures and procedures to identify beneficiaries, to participate in the project. Those structures and procedures should be open to public scrutiny. Particulars regarding the creation of: a climate and environment that will be conducive to effective implementation of the project; Procedures and structures directed at decision making which include the participation of the CBP, where applicable, throughout the planning and implementation of the project; Oblige the developer to implement the project in accordance with an agreed development approach and programme; Each party's specific responsibilities, how the respective social, financial and political risks are to be borne, mechanisms for the resolution of disputes, breach of contract and the consequences thereof;
g.	The parties to the agreement and social compact shall endeavour to obtain the consent and co-operation of all the stakeholders. If, in exceptional circumstances, the consent and co-operation of any particular stakeholder cannot be obtained, the Project Applicant shall submit a document indicating : the steps that have been taken to endeavour to obtain the consent and co-operation of the non-participating stakeholder; and recording any objections made by such non-participating stakeholder and motivating the ground upon which the applicant believes that the interests of any particular stakeholder or party could or should be ignored or taken into consideration in some specific manner and the basis upon which the applicant believes that it will be possible to implement the project successfully, irrespective of the fact that any particular non-participating stakeholder refuses and/or has neglected to co-operate and/or any other relevant information pertaining to the application and the non-participation of the non-participating stakeholder;
h.	Memorandum/motivation of extent to which project assessment criteria in Section 3.4 of this chapter of this part of the Code have been met.

Table 9: Rules Regarding the Information Required in the Project Application

Back to Top

3.3.2 Function of PHDB in assessing project applications

PHDB's will handle project applications in the following manner:

1. The PHDB will accept applications to be submitted within a programme with publicly specified dates. Projects submitted by such closing dates will be evaluated on a comparative basis;
2. Upon receipt of any project application, the PHDB will register the project. Receipt of the application will be acknowledged within 14 (fourteen) days. If an application lacks necessary information, it will be referred back to the Project Applicant for completion,
3. The PHDB will assess the application in accordance with the evaluation criteria contained in 3.4 below. If the application is approved, the PHDB will, subject to the provisions of this Part of the Code, determine specific terms and conditions applicable to the approval;
4. If the project is approved, the PHDB will register that approval, and inform the Project Applicant and the relevant Provincial Housing Department. No projects will be approved unless funds are allocated to the project;
5. If the project is not approved the PHDB will be obliged to provide full reasons and the applicant will have the right to resubmit.

3.3.3 The Agreement between PHDB and the developer

Once any project has been approved and once the PHDB in question has determined the total subsidy in respect of that project, the developer shall enter into a written agreement with the PHDB, which must include a written social compact where required. Where a social compact is required the contents thereof must include the detail set out in Section 3.3.1, under item (g) in table number 9.

The agreement between the PHDB and the developer shall comply substantially with the prescribed agreement as contained in Annexure C of this Chapter 3 of Part 3 of the Code.

Each agreement between the PHDB and the developer must contain and/or include the detail set out below, must be approved by the PHDB and must be signed on behalf of the PHDB by the accounting officer of the Provincial Administration.

1. The total number of residential properties to be subsidised in the project and an appropriate location/site. Where the project is to be implemented in phases, an indication of the size and the location of each distinctively described phase.
2. The planning of the area and the type of residential properties that will be offered to beneficiaries.
3. The level of services to be provided.
4. The product prices of the properties to be sold to beneficiaries,
5. The total subsidy amount payable in terms of the project calculated as set out in Section 3.2.1 (d) of this part of the Code,
6. The agreed professional fees in respect of:

• the preparation of detailed engineering designs and specifications in respect of the engineering services to be provided to the development, including any work required in order to obtain the approval of the municipality in respect of those designs and specifications (the engineering design fees),
• all town planning work required to be done in connection with the project, including all work required to establish a township (the town planning fees);
• all land surveying work required in connection with the project, including all work required to obtain the approval of general plan (the land surveying fees);
• the legal cost of transferring the property, where the beneficiary will fund the entire acquisition of the property out of the subsidy alone or with other funds available to the beneficiary and the beneficiary will not obtain mortgage finance and the cost of transferring the property will be met out of the subsidy;

In addition to the above professional fees,

7. The PHDB and the developer must agree on the following total services and land costs that will become payable in respect of the creation of serviced sites:

• all and any fees payable in connection with the supervision and installation of the engineering services that will be provided to the project;
• all and any costs incurred by the developer in the physical installation of the engineering services in respect of the project. These costs should be agreed as far as possible on the basis of detailed tender documentation prepared in respect of the installation of services in question or on the basis of a detailed bill of quantities, taking into account the provisions contained in any services agreement, where applicable;
• all and any amounts payable by the developer in respect of the land to be developed, whether the developer has purchased the land or whether the developer has concluded a land availability agreement;

8. The total professional fees mentioned in (f) above and the services and land costs mentioned in (g) above, constitute the total cost of the infrastructure to be provided by the developer. This comprises the total infrastructure cost;
9. The per stand infrastructure cost, being the proportionate share of the total infrastructure cost to each residential property in the project calculated on a basis agreed to between the developer and the PHDB e.g. the total infrastructure cost may be apportioned equally between all the residential properties in the project or a per square meter rate may be calculated by dividing the area of all the residential properties in the project into the total infrastructure cost. That per square meter rate may then be multiplied by the total square meterage of any residential property in order to yield the infrastructure cost attributable to that site.
10. On the basis of:

• The agreed total infrastructure cost,
• The per stand infrastructure cost and;
• The provisions set out in Section 3.5.4 below, the parties shall in the project agreement, agree upon the amount of the progress draws that will be payable by the PHDB to the developer.

11. The subsidy agreement will stipulate that a given number of the residential properties in the project will be sold to qualifying beneficiaries who fall into any particular subsidy band, and the developer will be obliged to use its best endeavours to ensure that this number of the residential properties is sold to qualifying beneficiaries who fall into the subsidy band in question. The developer shall not, without first receiving the prior written approval of the PHDB, deviate from these agreed numbers. The agreement must also include the time period within which the developer shall sell the residential properties to qualifying beneficiaries.

Back to Top

3.4 How the PHDB Judges the Project-linked Subsidy Application

All projects should conform to the Basic points of departure set out in Part 1 of the Code. For clarity purposes these principles referred to are:

• Economically, fiscally, socially and financially sustainable;
• Effectively balances the need for increased housing delivery so as to achieve short-term impact and the requirement that approaches adopted must be broadly supported and capable of being sustained in at least the medium term;
• Recognises and reinforces the wider economic impact and benefits derived from effective and adequate housing provision in the domestic economy, while stimulating the effective functioning of a sustainable housing market with vigorous and open competition between suppliers of goods and services;
• Maximises social and economic benefits to the local community;
• Ensures security of tenure and provides for the widest feasible range of tenure options, whether individually or collectively;
• Maximises the freedom of the individual to exercise choice in the satisfaction of his/her housing needs, providing access for all people to as many housing options and opportunities as is reasonably possible;
• Facilitates co-ordination between various sectors so as to minimise conflict over demands on scarce resources, and creates an environment in which all roleplayers meet their respective obligations;
• Generates broad based support and involvement on the part of all key actors in order to maximise the mobilisation of resources;
• Promotes the establishment and development of socially and economically viable communities, with particular focus on members of historically and other disadvantaged communities. In particular, however, the most critical need is to ensure, through State intervention, affordable access for the poor to a minimum acceptable standard of housing and necessary services, within the context of both fiscal and other resource constraints;
• Upholds the principles of vertical and horizontal equity in respect of the subsidisation of end-users. This implies that only people in real need of subsidisation should benefit (vertical equity) while comparable value must be received by beneficiaries with the same eligibility profiles (horizontal equity);
• Maximises the involvement of the community and leads to transfer of skills to and empowerment of the community to ensure higher levels of appropriateness and acceptability of such projects as well as the development of skills and capacities within these communities to pursue other development objectives;
• Promotes the process of social, economic and physical integration in urban and rural areas;
• Ensures that housing is dealt with on a basis which is non-sexist, not discriminatory in terms of religious conviction or race, non party political;
• Establishes and ensures equity, transparency and accountability by the public sector in its administration of housing. It is imperative that the housing sector is led and supported by a single national policy and administration which is accountable in a tangible, measurable manner, to achieve broadly based targets which are properly quantified, through the applicable governmental structures at national, provincial and local sphere;
• Leads to effective State intervention and maximises sustained non-state involvement in housing provision; and
• Deals sensitively and responsibly with the impact of housing development upon the environment.

Back to Top

In assessing a project application, the PHDB must deal with each one of the twenty criteria listed below in explicit and fully motivated terms:

1. Inclusiveness of social compact where applicable: The degree to which all relevant stakeholders are included in the social compact underlying the project proposal and the significance and possible impact on the project of the exclusion of any stakeholder.
2. Housing needs: The extent to which the project satisfies the housing needs of an identified and defined target market and the relative urgency of such needs. These needs may include the upgrading, rehabilitation, consolidation, densification and augmentation of existing housing, especially in existing townships and elsewhere in urban areas, as well as inner city land infill, the upgrading and consolidation of existing formal settlements and the promotion of new development areas, including rural areas.
3. Location: The extent to which the location of the project satisfies the requirements set out in paragraph 3.2.2(a) above.
4. Holistic development: The extent to which the project promotes holistic development and provides for the variety of community needs in a balanced and integrated manner. Preference should be given to projects that will include social and business facilities.
5. Community self-management: The extent to which the project caters for the need for capacity building within the beneficiary community. This must be done through deliberate measures to facilitate the acquisition of skills and knowledge to enable it to take responsibility for developmental issues, the preservation and maintenance of fixed community assets and the management, in general, of its own interest and destiny on a sustainable basis.
6. Sustainability: The degree to which the project promotes the sustained physical and social development and vitality of the beneficiary community, with particular reference to the nature and scope of amenities, facilities and opportunities provided by the project, both directly and indirectly. Particular attention must be paid to education, health, social welfare, employment, shopping, sport and recreation.
7. Employment potential: The extent to which the project contributes, both directly and indirectly, to the gainful employment of members of the beneficiary community through the use of emerging local small building contractors and labour intensive building methods.
8. Norms and standards: The extent to which the project meets both national “Norms and Standards” in respect of engineering services and the permanent residential structure, contained in Section 2.5.2 of Chapter 2 of this Part of the Code, as well as minimum norms and standards regarding health and safety and are acceptable to the beneficiary community.
9. Planning and design: The extent to which innovative and well considered planning and design contribute to a wholesome living environment that will instill pride and a sense of belonging amongst prospective residents. Specific attention will be given to the nature, extent and level of involvement of prospective beneficiaries that was achieved in the planning process.
10. Affordability: The extent to which the beneficiary community and its members will be able to afford the costs of property, ongoing maintenance and related services and facilities, including both capital and running costs, provided as part of the project.
11. Compatibility and environmental impact: The extent to which the project is integrated and compatible with surrounding development in a manner that impacts positively on the natural and built up surroundings.
12. Technical feasibility: The extent to which construction methods employed in the project are effective, viable and practicable in relation to physical, climatological, geotechnical and topographical characteristics of the project site.
13. Replicability: The extent to which methods employed are replicable, thereby contributing to a comprehensive and sustainable housing delivery process.
14. Accountability and gearing of public resources: The extent to which the project employs state financial support in the most economic, effective and efficient manner possible, by providing value for money, and the degree to which the highest possible gearing of state funds is achieved through non-state investment in the project.
15. Municipal capacity: The capacity of the municipality to deliver and perform effectively and productively.
16. Socio-economic multiplier effect: The contribution that approaches adopted in the project will make towards optimising the longer term social and economic benefits of the project to the beneficiary community.
17. Choice: The extent to which a project affords beneficiaries a choice in satisfying their housing needs.
18. Stakeholders: The extent to which stakeholders support the project, and the extent to which they have agreed to co-operate in its implementation.
19. Value for money: The value for money to be received by beneficiaries in terms of the pricing of the housing products.
20. The developer: The capacity of the developer, whether it has sufficient access to financial resources and technical and management competence to implement the project successfully.

Back to Top

3.5 After Approval of the project-linked Subsidy Application

Once the project agreement has been entered into between the PHDB and the developer, the developer and the land owner must finalise the “sale agreement” or a “land availability agreement” for the land designated for the project, as the case may be and where required. The developer will then commence with the execution of the project on the basis of the agreed progress payment structure.

3.5.1 Sale Agreement

The developer shall sell all the residential properties in the development to qualifying beneficiaries within such a time period as may be agreed upon between it and the PHDB in the subsidy agreement as referenced in section 3.3.3. In selling those residential properties the developer shall use its best endeavours to ensure that it sells to qualifying beneficiaries who fall into each one of the three subsidy bands, the number of residential properties stipulated in the subsidy agreement.

The sale must be concluded in terms of a written sale agreement complying with the provisions of any relevant laws.

The sale agreement must be upon the suspensive condition of the PHDB accepting and granting the beneficiary a subsidy and agreeing to pay the developer in respect of the beneficiary the subsidy in an agreed amount.

3.5.2 Defining a Selling Price

Where the property purchased is funded entirely out of the subsidy amount, and if applicable other funds available to the beneficiary, the developer may agree with the beneficiary that the legal costs pertaining to the transaction, which includes the transfer fees, will be paid out of the subsidy amount. The amount of the legal costs shall be stated clearly in the written agreement. Where loan finance is required in addition to the subsidy amount, the legal costs in transferring the property costs may not be paid out of the subsidy amount.

The selling price at which a developer will sell a property where no loan finance is required will be the agreed product price as set out in the subsidy agreement less the nett amount of the subsidy for which the beneficiary qualifies, i.e. the amount of the subsidy which the beneficiary is qualified to receive less the legal costs which may be paid out of the subsidy amount.

Where the selling price of the property requires loan finance i.e. where the property is not funded entirely out of the subsidy amount, the selling price of the property must be the agreed product price set out in the subsidy agreement, less the amount of the subsidy which the beneficiary qualifies to receive from the PHDB.

3.5.3 Application forms to be completed by beneficiaries

Coinciding with the sale of the property to a beneficiary, the developer must ensure that such beneficiary completes the application form for the grant of a project linked subsidy to that person in the format of Annexure F of this Chapter 3 of Part 3 of this Code.

Submission of Application

The developer shall submit, in respect of each qualifying beneficiary to whom it sells any residential property in a project, the application form, to the relevant Provincial Housing Development Board Secretariat ("the Secretariat"). That application shall be accompanied by all documentation set out in the application form, including an agreement of sale concluded by the qualifying beneficiary ("the applicant") in respect of a residential property.

The Secretariat

On receipt of any application the Secretariat shall:-

• within 7 (seven) days acknowledge receipt thereof in writing;
• thereafter verify the legitimacy of the applicants identity number and ascertain whether the applicant's name and/or identity number and/or those of his or her spouse appear on the National Housing Data Base ("the data base") and if any of them do, forthwith advise the developer accordingly, in which case the application shall be deemed to have been rejected;
• ascertain by means of a deeds search of all the deeds offices, whether any immovable property is registered in the name of the applicant and/or his or her spouse, and if any property is in fact registered in the name of the applicant and/or his spouse, forthwith advise the applicant accordingly, in which case the application shall be deemed to have been rejected;
• if the application is procedurally correct, if the names and/or identity numbers of the applicant and/or his or her spouse do not appear on the data base, and if no immovable property is registered in the name of the applicant and/or his or her spouse, forthwith submit the application for consideration to its Housing Board.

Back to Top

The Provincial Housing Development Board

The PHDB shall once it has received any particular application from its Secretariat, consider that application and advise the developer of its decision within 21 (twenty one) days after the Secretariat's aknowledgement of receipt of the application form.

If an application is rejected the PHDB shall, via the Secretariat, give reasons in writing.

Data Base

If any application is approved, the Secretariat shall record the name and identity number of the applicant and his or her spouse (if any) on the national data base.

Upon approval by the PHDB of the application set out in section 3.3 and the developer having been advised accordingly, the developer must proceed to -

• transfer the property to the beneficiary; and
• complete the housing product in accordance with the subsidy agreement on the relevant property.

3.5.4 Progress Payments

The five payment stages are at the time of:

1. municipal approval of engineering service specifications;
2. approval of general plan;
3. issuing of services completion certificate;
4. transfer of property to beneficiary; and
5. at three points of top structure development.

The order of these five payments may not be changed.

To avoid adverse cash flow implications in the course of the development of a project, five main progress payments may be made against the total subsidy amount at different stages in the course of the development. The first three of these progress payments may be made before the purchasers of properties have been identified and the last two progress payments once the identity of the purchasers of the properties are known.

The PHDB may in its discretion and after careful consideration, stipulate additional milestone payments in respect of the third progress payment provided that the total amount paid at the attainment of the milestones should not exceed the total amount payable, as contemplated in the formula for determining the amount payable in respect of the third progress payment. Furthermore the PHDB may at its discretion in exceptional circumstances, stipulate three additional milestone payments under progress payment No. 5 on condition that the total amount paid in each milestone should not exceed the total amount payable in respect of progress payment No. 5.

Back to Top

There are five main payment stages, the order of which cannot be changed. The five milestones representing an entitlement to progress payments are:

1. the first progress payment, being in respect of the engineering design fees, once the engineering designs and specifications in respect of the engineering services to be provided to the project have been approved by the relevant municipality;
2. the second progress payment, being in respect of town planning fees and land survey fees against proof of the general plan having been approved by the Surveyor General in respect of the project.

If the developer will undertake any project in phases, the developer shall be entitled to obtain the approval of the engineering designs and specifications and/or the general plan, either in respect of the entire project or in respect of any one or more phases. If engineering designs and specifications and/or general plans are prepared and approved in respect of phases of the development the progress payments in respect of the agreed engineering design fees and the agreed town planning and land survey fees, shall become payable in respect of the residential properties contained in any particular phase on approval of the engineering designs and specifications or general plan for the phase in question (as the case may be);

3. the third progress payment, being the difference between the agreed two payments envisaged in 1. and 2. above and,

• the amount of the lowest subsidy amount that will become payable to the developer in respect of any beneficiary who purchases a residential property in the project as described in the project agreement; or
• the per stand infrastructure cost in respect of any such a stand; whichever is the lesser, only once the engineering services in respect of the project have been handed over to the relevant municipality and a services completion certificate has been issued. The progress payment will not become payable unless and until the general plan in respect of the project has been approved by the Surveyor General.
• servicing of the project may also take place in phases. In this case, the developer will become entitled to the progress draw in respect of the services and land cost (the third progress payment) on the issue of a hand-over certificate for the services in that phase (provided that a general plan has been approved in respect of that phase).
• the PHDB may, at its discretion and after careful consideration, stipulate additional milestone payments in respect of progress payment No. 3 within the framework of the progress payments system, provided that the total amount paid at the attainment of the milestones should not exceed that total payable as contemplated in the formula for determining the amount payable in respect of progress payment No. 3.
• In order to encourage developers to allocate stands in any particular project at an early stage, the third progress payment may be increased as indicated below. The increase of the third progress payment may only be considered if, the developer has already entered into a sale agreement with a beneficiary, and that beneficiary’s application for a project linked subsidy has already been approved. Once the beneficiary is defined in this way, the amount of the subsidy that will be payable to the developer in respect of that beneficiary will also be defined. Under such circumstances there will be no reason to insist on the limitation that the amount of the third progress draw may not exceed, in respect of the residential property concerned, the amount of the lowest subsidy that will become payable to the developer in respect of any property in the project.

The developer must furnish proof to the relevant PHDB to the effect that it has given instructions to a conveyancer to attend to the transfer of that property to the beneficiary. Proof of the fact that instructions have been given shall take the form of a certificate in which the conveyancer certifies that he or she holds such instructions.

Back to Top

Where the abovementioned conditions have been met, the third progress payment may be increased to an amount equal to the lower of the difference between the first two progress payments and:

• the per stand infrastructure cost in respect of the property, less the transfer costs (to the extent to which those costs have been included in the per stand infrastructure cost); or
• the subsidy payable to the developer in respect of the beneficiary having purchased the site;
• if the third progress payment is increased in this way, the fourth progress draw payable in respect of the property will either fall away or will be equal to the amount of the transfer cost only (if transfer costs have been included in the per stand infrastructure cost).

4. the fourth progress payment is payable upon transfer of a property to a beneficiary, in an amount being the lesser of -

• the difference, if any, between the per stand infrastructure cost in respect of that stand transferred and the total of the first three progress payments received by the developer in respect of that stand; or
• the difference, if any, between the subsidy payable to the developer in respect of the beneficiary having purchased the site and the total of the first three progress payments received by the developer in respect of that site;

5. The fifth progress payment being the remainder of the subsidy, if any, in respect of the top structure completed by the developer on any particular residential property, purchased by a qualifying beneficiary.

The PHDB may, at its discretion in exceptional circumstances and once maximum percentages payable under each milestone has been determined, stipulate three additional milestone payments as indicated below in respect of the provision of a top structure within the framework of the progress payment system, provided that:

• the total amount paid at the attainment of each milestone should not exceed the total amount payable in respect of progress payment No. 5 (total top structure cost);
• the necessary control measures and procedures are in place to ensure accountability and that the rights of beneficiaries are protected; and
• no milestone payment within progress payment No.5 be made unless the developer has met his or her obligation in terms of progress payment No. 4 (the transfer of a serviced site into the name of a beneficiary).

The three sub-milestone payments, are -

• an agreed payment for all labour and materials to provide the foundations, foundation plinths and surfacebed;
• an agreed payment for all labour and materials to build the top structure to wall plate level;
• the balance of the subsidy amount upon completion of the top structure.

No top structure will be funded unless transfer of property has taken place.

Back to Top

3.5.4.1 Claims

As and when a developer becomes entitled to receive any progress payment, the developer may submit a claim in respect of that progress payment to the PHDB, together with proof of the fact that the milestone which entitles the relevant progress payment has been reached. If the claim is properly made and supported, the PHDB will effect payment of a claim within 30 days of receipt thereof.

The following proof shall be required in respect of each progress payment:-

Progress Payment Milestone	Document Required as Proof for Payment
Engineering Design Fees	a certified copy of the approval of the engineering designs and specifications issued by the municipality
Town Planning and Land Survey Fees	a copy of the approved general plan
Infrastructure services and Land Cost	a copy of the handover certificate in respect of the engineering services, and in terms of the exception applying to this progress payment, the handover certificate and a certificate of acknowledgement by the conveyancer of his or her instruction to transfer
Transfer of Property to Beneficiary	a certificate from a conveyancer certifying that transfer has taken place
Completed Top Structure	a certificate from a suitably qualified professional person and an official of the Provincial Housing Department and/or the municipality concerned certifying that the top structure and/or the various additional milestones contemplated under progress payment number five on the property has been completed. It is recommended that a PHDB require, in addition to such a completion certificate, either or both of the following two certificates :- an occupation certificate signed either by the beneficiary who has purchased the property, or by the CPB, certifying that the beneficiary has taken occupation of the property; and/or a certificate signed by the beneficiary who has purchased a property in which he or she certifies that he or she is satisfied with the property.

Table 10: Documents to be Submitted for Each Progress Payment

Annexure D contains an illustrative calculation of the progress payments to which a developer will become entitled to a typical project. A flow chart setting out the details of the stages in which any approved subsidy will be paid is annexed as Annexure E.

3.5.4.2 Existing subsidy agreements

The initial policy directives provided only for the following two payments to be made to the developer:-

• an amount equal to 70% of the costs incurred by the developer in creating a serviced stand, against registration of transfer of that stand into the name of the qualifying beneficiary who purchased it from the developer;
• the balance of the subsidy payable in respect of any particular beneficiary, once the top structure to be provided on his or her stand had been completed.

Accordingly developers who have concluded subsidy agreements with the previous National Housing Board prior to November 1995, are, in terms of their subsidy agreements, not entitled to receive any progress payments.

In the circumstances any PHDB may, in its discretion, agree to enter into an agreement with any such a developer in terms whereof:-

• the original agreement concluded with that developer is amended; in order to provide for the payment of the progress draws contemplated in Section 3.5.4 of this Part of the Code, to the developer.

Back to Top

3.5.4.3 Refunding the PHDB

There may be situations where a developer has received an amount in excess of what it is entitled to receive, or where a subsidy agreement is cancelled and money has already been paid out to the developer. In such cases, the developer will have to refund the PHDB. The following rules apply:

1. If for whatever reason -

• the PHDB has paid the developer an amount in excess of the amount to which the developer is entitled, the developer must on demand (in terms of a certified letter that is either hand delivered or registered) refund the overpayment to the PHDB;
• If the developer fails to repay any amounts as set out above, then such unpaid amounts will accrue interest at a rate equal to the published prime overdraft rate charged from time to time by First National Bank of Southern Africa Limited to its most favoured customers. Interest will be calculated and compounded monthly in arrears, with effect from the date upon which the refund of the overpayment is demanded, up to and including the date upon which that amount is repaid by the developer to the PHDB; and/or
• the PHDB may set off the amount of any such an overpayment against any later amounts due by the PHDB to the developer in respect of the project.

2. If, for whatever reason:-

• The subsidy agreement is cancelled, whether as a result of the fact that the developer has failed to perform its obligations timeously or at all, or as a result of any other event which entitled the PHDB to cancel the agreement, the developer must within 30 days after cancellation of the subsidy agreement and subject to section 3.5.4.3(c), repay to the PHDB all and any payments received by it from the PHDB together with interest on those payments calculated at a rate equal to the published prime overdraft rate charged from time to time by the First National Bank of Southern Africa Limited to its most favoured customers. Such interest is to be calculated and compounded monthly in arrears, with effect from the date upon which any particular payment was made by the PHDB to the developer, up to and including the date upon which that amount is repaid by the developer to the PHDB.

3. If the subsidy agreement is cancelled between the PHDB and the developer, and if the developer accordingly becomes obliged to refund to the PHDB the progress payments received by it, the PHDB must deduct from the amounts that become payable by the PHDB the amount of all progress payments made by it to the developer insofar as those progress payments relate to properties that have been transferred by the developer to beneficiaries.
4. If the developer has concluded a land availability agreement in respect of land to be developed in terms of any particular project, it must, as security for its obligations in terms of b. and c. above to the PHDB, cede all its rights in terms of such land availability agreement to the PHDB.

Back to Top

3.5.5 Variations in the implementation of the Project Linked Housing Subsidy guidelines in respect of site and serviced townships, developed under the previous housing dispensation

Certain variations in the application of the project linked subsidy scheme may be considered by PHDB's to enable a more practicable approach in solving specific problematic housing development initiatives regarding some site and service townships. The following rules apply.

3.5.5.1 Inconclusive sale transactions and new purchases

In some townships where site and service schemes were undertaken, it appears that in a large proportion of transactions, proper formalities for sale or lease might not have been completed, or prices might not have been determined. In such cases there would be no valid existing agreements and occupants might not qualify to apply for the discount benefit, unless satisfactory evidence of allocation to particular individuals could be shown. In addition, it appears that many of the occupants are not the persons to whom the sites were allocated. They might have entered into informal acquisition transactions or they might have taken possession with or without the knowledge or consent of the persons to whom the sites were allocated.

It is therefore necessary, that some kind of formalised enquiry is undertaken to determine whether sufficient certainty exists with regard to the previous allocation; and if so to proceed to effect transfer in terms of the Discount Benefit Scheme directives and to entertain Consolidation Subsidy applications to provide top structures, or if it is deemed more feasible to entertain an application for approval of project linked subsidies. In such instances, the PHDB will deduct the original cost of each stand from the subsidy. The municipality or the PHDB to whom the serviced site belongs, will accordingly transfer the property without having paid the original cost. The balance of the subsidy will be paid to the municipality or PHDB, as developer, to upgrade the services where necessary and to build the top structure in accordance with the national norms and standards determined by the Minister.

Where insufficient certainty exists regarding the previous allocations, or where it is found through the formalised enquiry that a considerable portion of the existing occupants of the properties are not the persons to whom the sites were allocated, the PHDB may in its discretion approve that conditional sales should rather be made anew to the persons identified as being the present occupants and to entertain an application for approval of project linked subsidies. The same rules regarding the payment of the subsidy as described in the previous paragraph will apply.

3.5.5.2 Inadequate Engineering Services

In certain instances, it may be more appropriate for the PHDB to entertain project linked subsidies rather than consolidation subsidies. In such cases, the following rules apply:

a. In cases of less formal township areas which do not meet the minimum infrastructural requirements as set out in Section 5.2 (f) of Chapter 5 of this Part of the Code, and where transfer has not yet been given, the PHDB could in its discretion entertain a project linked subsidy application. In this case, the purchase price of the site must be deducted from the subsidy amount and the balance of the subsidy should then be utilised to upgrade the infrastructure in situ in accordance with appropriate specifications and to provide a top structure.

3.5.5.3 Properties serviced to minimum requirements but transfer has not yet been registered

In some cases, properties have been serviced to the minimum requirements and agreements of sale have been concluded but transfer had not yet been registered. Instead of first effecting transfer in terms of the Discount Benefit Scheme, and then submitting a consolidation subsidy application to build a top structure, it may in some instances be more efficient to enable housing delivery to the occupants utilising project-linked subsidies. Therefore:

• The granting of project linked subsidies for payment of the purchase price of a serviced site and provision of a top structure is permissible in the PHDB’s discretion in cases where –
• services do comply with minimum requirements; and
• some of the agreements entitling purchasers to take transfer had been concluded previously but transfer has not yet been registered, provided that the same arrangement regarding the subsidy apply as set out in sections 3.5.5.1 - 3.5.5.2.

Back to Top

3.5.5.4 Rationale for dealing with the payment of the subsidies as described in section 3.5.5.1 to 3.5.5.3

Where projects are undertaken in terms of the variations contemplated in sections 3.5.5.1, 3.5.5.2 and 3.5.5.3, the cost originally incurred when the township (in which the stands are situated) was established and those stands were serviced; must be determined and indicated in the application to have the whole project approved. The original cost of the stand comprises the land acquisition cost, cost of providing engineering services, township establishment costs and excludes the cost of bulk services and any interest.

Prior to 1 April 1998 when the Housing Act, 1997, came into operation, the original cost of the stand would be deducted from any loan obligation which the Municipality or Provincial Premier as owner of the stands, had to the former national Housing Board. (The Local Government or Provincial Government concerned would have borrowed money from the former National Housing Board and its predecessors to pay for the servicing of the stand and the establishment of the township in which the stand is situated).

The Housing Act, 1997, effective from 1 April 1998, states that the loan obligations of Provincial Premiers or Local Government were extinguished, as of 1 April 1998. The serviced sites accordingly became the unencumbered assets of the municipalities concerned and of the relevant PHDB as successor-in-title where the sites previously belonged to the Premier of the province concerned. Since there is nothing against which the original cost of the stand can be offset, the PHDB will retain the original cost of the stand and the developer will be obliged to transfer the stand to the beneficiary (neither the developer nor the Municipality or PHDB concerned will get paid the original cost by the PHDB). The PHDB must therefore deduct the original cost of each stand from the subsidy that the beneficiary will get, if the project is approved.

Back to Top

3.6 Key Points to Remember

Back to Top