Housing Code

Part 3

Chapter 5: Housing Subsidy Scheme

Project Linked Consolidation Subsidies

Housing Subsidy Scheme / project linked Consolidation Subsidies

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

Annexures

This chapter deals with the rules for project linked consolidation subsidies. These rules relate to the procedures to be followed by a group of households who previously acquired public financed serviced sites, and who may apply for a further benefit to improve their housing situation, on a group basis.

5.1 Overview

A consolidation subsidy is a subsidy available to a beneficiary who has already received state assistance to acquire a serviced residential site under a previous subsidy scheme, on the basis of ownership, leasehold or deed of grant. Beneficiaries of such serviced sites are eligible to apply for the consolidation subsidy for constructing or upgrading a top structure on the property.

This chapter focuses on the procedures to be followed regarding project-linked consolidation subsidies. In this regard, once a community decides they wish to apply for a consolidation subsidy, a series of steps need to be followed. 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: forming a Community Based Partner, appointing a developer, 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 set out in this chapter apply to these steps. For more information on the policy content behind the consolidation subsidy mechanism, see Section 3.3 in Part 1 of this Code.

The chapter ends with a summary of key points to remember.

 

The General Rules for eligibility, as well as for 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. Some exceptions to the General Rules also apply. These are set out in section 5.2 of this Chapter 5 of Part 3 of the Code.

5.2 Eligibility and Other Conditions for Consolidation Subsidies

The General Rules for eligibility apply (see Chapter 2 of this Part of the Code, Section 2.2), with the exception of the following:

1. Previous State Assistance and Ownership: The requirements for a beneficiary never to have received state assistance previously, or to have owned residential property, do not apply. Consolidation subsidies are only available to existing owners of state financed sites who have previously satisfied the qualification criteria in respect of public financed site and service schemes. However, neither the beneficiary nor his or her spouse must own any other property.
2. The beneficiary must have registered title to the property for which the subsidy is applied.
3. Dependents: The requirement for a beneficiary to be married or habitually cohabit and have dependants does not apply.
4. Gross Monthly Income: The gross monthly household income of a beneficiary applying (which includes the monthly income of his or her spouse) must not exceed R1 500. Within a particular project, the PHDB may grant exceptions to this requirement.
5. Subsidy Amount: The amount of the consolidation subsidy is fixed at R8 500 per subsidy. Consolidation subsidy amounts may however in certain circumstances be increased, if need be, up to the full ordinary subsidy amount, subject to setting off the price of the site, in order to accommodate projects where the minimum requirements for service sites, as set out in f. below have been met but upgrading of the services are required. Such application must be done by special motivation and application to the PHDB.

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In addition, the following conditions apply:

6. Serviced Site: The site to which the subsidy will be applied must previously have been serviced utilising public funds. The stands must furthermore be serviced to the following minimum level of engineering services:

• a piped water supply with at least one stand pipe per 25 (twenty five) households;
• a properly functioning sanitation system for each household;
• a suitable access to each property and a storm water drainage system.

7. Subsidy Use: The consolidation subsidy may only be used by the beneficiary for housing purposes in respect of the particular property for which it is allocated. This includes construction, acquiring or the upgrading of a top structure, or the purchase of building materials for that purpose. The consolidation subsidy may also be used as part equity for the purpose of raising loan finance for the provision or upgrading of a top structure.
8. In addition, the subsidy amount shall be used to cover costs for obtaining the grant of consolidation subsidy, and the costs to deliver the agreed housing product. These costs may include, where applicable:

• costs pertaining to the registration of the beneficiary for subsidy purposes;
• the management costs of the developer;
• the project management and technical advice costs;
• costs pertaining to the approval of construction;
• the payment for the administration at project level; and
• value added tax (where applicable).

9. Community Participation: Project Linked Consolidation subsidies require a process of community participation through representation in the decision making processes of the project by representatives of the beneficiary community. Where appropriate participation processes should include stakeholders such as a neighbouring community where decisions have to be taken over issues that affect such neighbouring community and to involve business and municipality interests in the housing process, where they can be of assistance. The process of establishing community participation and the relationship between the developer and the beneficiary community needs to be inclusive and of a democratic nature so that the interests of the majority of beneficiaries are truly represented.
10. Prospective beneficiaries within the area should not be unjustly excluded. However, persons should be free not to participate in the project if they so choose.
11. Choice: The consolidation process requires sufficient choice to be given to beneficiaries regarding the various housing options, including the use of the subsidy for the purchase of building materials, the construction of starter house units, the purchase of completed top structures, the extension of top structures, or a building operation which includes:

• self-help building schemes;
• housing built by emerging building contractors;
• the provision of contractible housing units; and
• the provision of industrially manufactured housing units.

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5.3 How to Apply for Consolidation Subsidies

At the centre of the project-linked consolidation subsidy process are two stakeholders: the developer and the Community Based Partner (CBP). Together, they guide the application and implementation processes.

5.3.1 Rules and requirements relating to the Developer and the CBP

The developer is responsible for the implementation of the consolidation process through to its completion, with the participation of the beneficiaries.

1. A wide variety of organisational structures are possible for developers, and are encouraged, provided the bodies conform to the following general requirements:

• A developer, as the body responsible for implementing the project, may include the following:
• A community based organisation which has the necessary technical assistance from an NGO, consultants, an authority or a contractor.
• A municipality or some other housing authority with formalised arrangements for participation of the intended beneficiaries.
• A company with a formalised arrangement with the intended beneficiaries.

2. The developer must be a legal entity (such as a duly constituted voluntary association, trust, company, or municipality). There is no single organisational model. Project applications should include specific proposals in this regard, for consideration by the PHDB in its discretion. Project applications must prove to the PHDB its efficiency in its operation and ability to efficiently facilitate and monitor the implementation of the consolidation project, which includes the administration for the payment of individual subsidies to beneficiaries.
3. The beneficiaries, (individuals living in the project area), should be represented within the developer body, or through formalised agreements, in such a way that they participate in decision-making relating to the housing implementation process realising the financial risk implications of such decision-making.
4. The developer shall be financially accountable and must organise its finances in a transparent manner so that all the costs of implementing the project are at all times properly recorded.

5.3.2 Preparations for the Application

Before the application for a project-linked consolidation subsidy can be submitted for consideration, the following preparations are necessary:

1. Stakeholder negotiations: Negotiations with all stakeholders, for reaching sufficient agreement required to enable the PHDB to sign the subsidy agreement. This process may include the actual establishment of the developer as a legal entity if it was not already finalised at the time of application.
2. Identification of beneficiaries: The identification of the beneficiary community applying for individual consolidation subsidies, which includes:

• interviewing the members of the beneficiary community and obtaining their proper identification; and
• assisting the beneficiary community to register properties into their names where such steps have not been taken, bearing in mind that an individual application for consolidation subsidy may not be submitted prior to a beneficiary having taken transfer of the property.

5.3.3 The Application for Consolidation Subsidies

A project application must be in writing, must identify the beneficiary community and its housing needs, and propose a consolidation project, which will meet such needs.

Application forms are to be submitted to the PHDB and be certified as comprehensive, true and correct by both the representatives duly authorised by the developer and community organisations. The following information and details are required to be contained therein:

1. Project area information, including:

• A definition of the project area, with a locality sketch plan, as well as details of the original public financed site and service scheme.
• Diagrams in duplicate showing the layout and location of the area.
• The current status and situation of fact regarding the transfer of the relevant properties to beneficiaries either in ownership, leasehold or deed of grant.

2. A description of the developer which includes :

• Details of the developer’s legal status.
• Confirmation of the developer’s registration with the National Home Builders Registration Council where construction will be undertaken by it or at its instance.
• Details as to the establishment of the developer.
• The constituency of the beneficiary community which the development applies for.
• Details as to the members of the Board of Directors or committee, and their affiliations, if any.
• A detailed description as to the arrangements made and agreements achieved pertaining to the incorporation of the beneficiary community into the decision making process.
• A description of the nature of agreements reached between the developer and any other stakeholders in the area, having an interest in the project.

3. Details regarding the incorporation of community representatives, which includes:

• The names of representatives of the beneficiary community,
• The manner in which the representatives had been elected and/or appointed.
• The method of involving both representatives and the beneficiaries themselves in the decision making process, which includes representation on Boards, committees, type of meetings to be held, etc.
• Details of the form of agreements reached between the developer and the community, where appropriate.

4. A general description of current circumstances pertaining to the project area which includes:

• The number of beneficiaries in relation to the total number of sites in a particular area, also indicating, where applicable, the number of sites which are to be excluded from the project as well as the reasons therefor.
• The municipality area within which the project is situated.
• The current tenure situation, as more fully described in paragraph 5.3.3(a).
• The present housing situation, the number of top structures and the quality thereof.
• Details as to the existing and/or future service provision and services in the area.
• A record as to the extent to which service charges and rates have been paid to the municipality.

5. A description of project, including the following information :

• The various top structures or improvements to be made available together with a description of the prices, plans, where applicable, and specifications.
• Any retention period or undertakings given or warranties issued by contractors and/or suppliers of materials.
• Identification of the names and structure of organisations to be involved in the delivery process, the process of beneficiary registration, management and inspection procedures, the accounts administration and auditing of the project and/or any other form of involvement or assistance and participation.
• Tenure delivery arrangements, if ownership, leasehold or deed of grant is not yet held. Details as to the process and legislation to be followed in the process of tenure delivery.
• Financial details as to any additional end-user finance arrangements: the extent to which financiers have been engaged and commitments that have been obtained from them.
• A motivation for the variation of the subsidy in respect of geotechnical and topographical conditions, if applicable.

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5.3.4 Proof of site ownership

Where a beneficiary's details, for whatever reason, have not previously been recorded or registered against the National Housing Database as having received a “site and service subsidy” and such beneficiary is eligible to receive a consolidation subsidy, the developer must obtain and submit to the PHDB:

• A certificate from a conveyancer certifying that ownership, leasehold or a deed of grant in respect of the property has been registered in the name of the beneficiary; and
• additional sufficient proof that the beneficiary is entitled to a consolidation subsidy in respect of the property.

5.3.5 Facilitation Assistance

A beneficiary community may make a fully motivated application to the PHDB for specific advice and assistance in the preparation of a proposal and the agreement between the developer and the PHDB.

Should the PHDB in its discretion agree to render assistance, it will give such assistance and/or make available such resources or pay such fees and compensation for essential expenditure as may be agreed upon subject to such strict budgetary and financial control as is normally applicable to the appointment of professional consultants. The guidelines for the approval of social compact facilitation by PHDB's are set out in Annexure A of Chapter 3 of this Part of the Code.

5.4 How the PHDB Judges the Application for Consolidation Subsidies

The PHDB judges the application on the basis of the eligibility criteria set out in Chapter 2: General Rules, the criteria set out in 5.2 of this chapter, above, and any other requirements that may be identified by the particular province.

The project proposal must deal with each one of the criteria for evaluating and prioritising an application for consolidation subsidies listed below in explicit and fully motivated terms -

1. Community self management: The extent to which the project caters for the need for capacity building within the beneficiary community. This must be shown 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.
2. Sustainability: The degree to which the project promotes the sustained physical and social development and vitality of the community.
3. Employment potential: The extent to which the project contributes, both directly and indirectly, to the gainful employment of community members through the use of local emerging building contractors and labour intensive building methods.
4. Norms and standards: The extent to which the project meets the National norms and standards in respect of permanent residential structures, 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.
5. Responsibility: The extent to which the occupants of the beneficiary community are paying for services.
6. 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.
7. Innovation and replicability: The extent to which innovative methods or materials employed are replicable, thereby contributing to a comprehensive and sustainable housing delivery process.
8. 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 though non-state investment in the project.
9. 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.
10. Choices: The extent to which a project affords beneficiaries a choice in satisfying their housing needs.
11. Stakeholders: The extent to which the municipality and other stakeholders support the project and the extent to which they have agreed to co-operate in its implementation.
12. Value for money: The value for money to be received by beneficiaries in terms of the pricing of services and products to be offered, and in terms of efficient and cost-effective administration and management.

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5.5 After Approval of the Consolidation Subsidy Application

Upon approval of the project application, the developer must enter into an agreement with the relevant PHDB, and that agreement regulates the manner in which any particular consolidation project will be implemented. A typical agreement is attached as Annexure A.

5.5.1 Construction and the Certificate of Completion

Once the PHDB has granted approval, the actual construction of top structures, the upgrading thereof or the purchasing of building materials or any other of the options to upgrade and/or improve the properties may begin.

Upon completion of construction on each property or delivery of building materials, and before payment is made by the Account Administrator, a certificate must be signed by an agent or person approved of by the PHDB certifying that construction has been satisfactorily completed or delivery satisfactorily effected in accordance with the requirements of the agreement with the PHDB. The developer should propose the agent or person at the time of the application. This agent must be independent of the developer, of professional standing or if such person is a member or part of a local municipality, be properly authorised by the municipality to act in such a capacity.

5.5.2 Subsidy payment

Payment of subsidies will be made by the PHDB into a specified account set up by the developer. A specified account means a trust account at a registered financial institution at which the developer is to open in its name, a bank account and in respect of which only the Account Administrator has signing powers. The use of the description as being a "trust account" expressing the diligence and security measures to be applied pertaining to the protection of funds in such account, rather than being a trust account prescribed by law.

In the case of a developer who is a public body, a special account is to be set up by its treasury. The following rules apply to the payment of consolidation subsidies:

1. A suitably qualified account administrator needs to be appointed by the developer.
2. Auditors need to be appointed to audit the account.
3. The account administrator will have signing powers in respect of the account.
4. A project database needs to be set up giving the details of the potential and registered beneficiaries and the status of payments made into and out of the account on their behalf.
5. Payments will only be made into the account once the developer has been established as a legal entity and once the particular beneficiary has been approved by the PHDB and has been registered on the national database and title has been registered in the name of the beneficiary.

Where the beneficiary has not previously been registered on the national database as having received a "site and service" subsidy for a particular property for which he or she applies for a consolidation subsidy, the developer should obtain and submit to the PHDB:-

• a certificate from a conveyancer, confirming that ownership, leasehold or deed of sale rights in respect of a particular property has been registered into the name of the beneficiary; and
• other sufficient proof that the beneficiary in question is entitled to a consolidation subsidy in respect of the property.

6. With regard to payments out of the account, preference should be given to single lump sum payments, equal to the subsidy amount, being paid out once for each beneficiary. However, provided that adequate controls can be put in place, part payment of the subsidy amount can be made against certification of delivery of a product or service.
7. Payments from the special account may only be made by the account administrator;

• to providers of services and goods with whom written agreements have been concluded to provide such service or render the goods;
• against the name of the beneficiary who has received the goods or services, such payment being recorded in the project database, against the beneficiary's name;
• only against due certification for delivery, For example :

• for building materials: evidence that these have been delivered, either to the developer or the beneficiary;
• for delivery of housing products: payment on completion of construction as certified by a competent person in accordance with the requirements of the agreement with the PHDB;
• for the developer's management fee: in accordance with a claim completed by the developer only once a supply of building materials and/or the person who has constructed a top structure has been paid;

h. Interest accruing on balances held on the special account must be for the benefit and account of the Provincial Housing Development Fund.

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5.6 Key Points to Remember

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