Housing Code

Part 3

Chapter 6: Housing Subsidy Scheme / Institutional Subsidies

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

ANNEXURES

This chapter deals with the rules for institutional subsidies. These rules relate to the application and award of institutional subsidies to institutions providing accommodation to beneficiaries, the form, operations and responsibilities of the institution, the various tenure arrangements, and administrative rules that apply to the PHDB.

6.1 Overview

The institutional subsidy mechanism is specifically targeted at institutions that provide tenure arrangements alternative to immediate ownership (such as rental, installment sale, shareblock or co-operative tenure) to subsidy beneficiaries. The mechanism provides a R16 000 subsidy per beneficiary household, to institutions who provide housing for those beneficiaries.

The institutional subsidy mechanism is different from the other subsidy mechanisms in that it

• Provides a standard rate subsidy of R16 000 in respect of all households earning not more than R3 500 per month.
• Pays the subsidy out in the name of the institution and not in the name of the beneficiary.
• Does not necessarily provide the beneficiary with individual ownership.

The standard rate is provided on the condition that the household will not take transfer of the property (the institution must remain the owner of the property) for at least four years after the date upon which the household took occupation for the first time. When the beneficiary does take transfer after four years, their institutional subsidy is administratively classified as an individual subsidy of R16 000, in the name of the beneficiary. Should a beneficiary who has occupied a property on a non-ownership basis such as rental, vacates the housing stock funded with an institutional subsidy, he/or she becomes eligible to apply for a housing subsidy elsewhere. He/or she becomes eligible because, during the tenure in the housing stock owned by the institution, he/or she did not own the housing stock, and upon leaving it, did not receive any financial benefit from the housing stock.

It is not desirable to insist that all the residential properties contained in any institutional subsidy project should either be sold to or occupied by qualifying beneficiaries. Institutions may accordingly in respect of any particular project, allow people who do not qualify for housing subsidies in terms of the criteria laid down in Chapter 2 of this Part 3 of the Code, ("non-qualifying beneficiaries") to purchase and/or occupy residential properties in that project. There will be no minimum requirement in regard to the percentage of the residential properties contained in any project that are to be sold to or occupied by qualifying beneficiaries and institutional subsidies may be obtained even if only a small percentage of the residential properties contained in that project will be occupied or purchased by qualifying beneficiaries. However the institution will not receive subsidies in respect of non-qualifying beneficiaries.

The role of the institution is therefore two fold:

• to develop housing stock and provide this to beneficiaries and possibly also non-beneficiaries on a rental, instalment sale, shareblock, co-operative or alternative tenure basis
• to provide ongoing, long term management services in respect of the housing stock, for at least as long as the stock is owned by the institution

In respect of institutional subsidies, this chapter considers:

• Eligibility & Other Conditions: this sets out considerable detail concerning the institution, including its legal status and main object required, how it relates to the residents, the tenure arrangements permitted, and so on.
• Application: this relates to preparing a project application and submitting it to the PHDB, and the standard agreements required.
• After Approval: this relates to the agreement between the PHDB on how the subsidy will be paid out to facilitate the development process, as well as what happens upon conclusion of an instalment sale, shareblock or lease agreement.

The rules set out in this chapter of Part 3 apply to these steps. For more information on the policy content behind the institutional subsidy mechanism, see Section 3.3 in Part 1 of this Code.

Finally, the chapter ends with a summary of key points to remember.

Back to Top

6.2 Eligibility and Other Conditions for Institutional Subsidies

The General Rules for eligibility to housing subsidies in respect of beneficiaries, as well as for the variations in terms of geophysical conditions or for households with a disabled member, all apply. For more detail on these, see Chapter 2 of this Part of the Code.

6.2.1 The Institution

6.2.1.1 Legal Status

1. In order for institutional subsidies to be granted an institution needs to be established as a legal entity;
2. Only the following legal entities may apply for institutional subsidies:

• A company incorporated in terms of the Companies Act, 1973 (Act No. 61 of 1973), irrespective of whether such company is established in terms of section 21 of the Companies Act or otherwise.
• A company incorporated in terms of the Share Block Control Act, 1980 (Act No. 59 of 1980).
• A co-operative incorporated in terms of the Co-operatives Act, 1981 (Act No. 91 of 1981).
• An association formed in terms of any legislation based on the Communal Property Associations Act, 1996 (Act No. 28 of 1996).

3. Where a municipality wishes to apply for institutional subsidies, it will be required that such a municipality must form one of the legal entities set out in 6.2.1.1 (b), above.
4. Either the institution or a promoter of the institution to be formed may apply and lodge an application for institutional subsidies.
5. At the time of concluding a subsidy agreement with the institution, the PHDB will require proof of the institution having been properly constituted and lawfully established.

6.2.1.2 Main Object

1. The primary object of an institution applying for institutional subsidies, must be the acquisition, development and holding of immovable property stock for occupation and/or acquisition by both qualifying beneficiaries and non qualifying beneficiaries for minimum period of four years.
2. Housing institutions are accordingly prohibited from carrying on any other business activity other than that envisaged in (a) above, provided that where the immovable property held by the institution contains a non residential component, the institution will be permitted to let, sell or otherwise dispose the non residential component, in a manner in which it deems fit.

6.2.1.3 Financial viability of the institution

1. Institutions must have the necessary capacity to undertake the project: An institution will be required to demonstrate that it is financially viable and that it has the necessary managerial expertise in order to implement any proposed project successfully. Once the institutional subsidies have been paid to the institution, the institution will be required to fund the ongoing management and maintenance of the properties out of its own resources. The institution must demonstrate that its management structure and systems are in accordance with said business principles.
2. The very purpose of granting institutional subsidies is, to enable institutions to combine the subsidies with their own funds in order to provide residential products, which would otherwise be beyond the reach of beneficiaries. For that reason, projects will only be approved if institutions make capital contributions towards projects over and above the institutional subsidies to be allocated in respect of qualifying beneficiaries. Such capital contributions must result in that beneficiaries, who will obtain occupation of residential properties contained in the project, will be required to pay a consideration that is in excess of a consideration equal to the subsidy amount received by the institution in respect of the amount relevant to the beneficiary.

Back to Top

6.2.1.4 The institution’s property

1. An institution will normally be required to own the immovable property in respect of which a project is undertaken (“the institution’s property"). The PHDB may however allow the institution to undertake a project in respect of which it is not the owner of the immovable property being developed where it holds enforceable long term rights in respect of such property, and such rights are registered in the office of the relevant Registrar of Deeds.
2. For purposes of applying for institutional subsidies, the institution may not necessarily at that stage have registered ownership of the property, or may not have enforceable long term rights in respect of the property in question. Under such circumstances, the PHDB must make any approval of an application conditional upon the institution taking ownership and/or acquiring long term rights in respect of the property and restrict the payment of any subsidy amounts until the applicable registrations have been made.

6.2.1.5 Representation

1. The PHDB may appoint a director to serve on the Board of Directors of the institution.
2. An institution must ensure that occupants occupying residential properties in the project are adequately represented. The purpose for representation is to ensure that the wishes and desires of the occupants are taken into account, but not necessarily to afford the occupants a controlling role in the management of the institution. An institution must, accordingly, in its project application propose a basis upon which beneficiaries will be represented for consideration by the PHDB. The Housing Board shall consider the institution's proposal and if the Housing Board is not satisfied, with those proposals (but is otherwise prepared to approve of the project), it shall negotiate with the institution in regard to the manner in which occupants are to be represented. It is to be noted that all occupants who have not taken transfer of the residential properties occupied by them need to be represented in any representative structure created by the institution, whether or not such occupants are qualifying beneficiaries.

The PHDB has a wide discretion in determining the manner in which the occupants of the residential properties will be represented. Without derogating from the discretion of the PHDB, a structure will be considered adequate where :

3. All occupants of residential properties in the project are entitled to vote on an annual basis for a residents’ committee.
4. Such committee will negotiate and be consulted with regard to house rules of the institution dealing with, for example, matters such as amenities in the project, the use and maintenance of common areas and the control thereof as well as the conduct and manner of behaviour of occupants and any person being present or residing in the buildings.
5. The committee elects from amongst its members, one or more representative(s) to serve on the Board of Directors of the institution.
6. In cases where an institution has received institutional subsidies in respect of more than one project, the residents’ committee in respect of each project will elect (where appropriate) representatives from amongst its members to serve on a central overseeing residents committee. This central committee will in turn elect out of its membership one or more person(s) to serve on the Board of Directors of the institution.

Ultimately the manner and procedure of representation of the occupants shall be recorded by the PHDB in its approval of the project and will be included in the subsidy agreement concluded between the PHDB and the institution.

6.2.2 Nature of the project

1. If an institution wishes to obtain an institutional subsidy, it should identify a housing project. Typically an institution will identify an immovable property, and the housing project to be undertaken by an institution could then entail:-

• The development of that institution's immovable property in order to create separate residential properties; or
• Upgrading and improving residential properties that are already contained within the institution's immovable property.

2. As indicated in 6.2.1.2 above, a project may contain a non-residential component but in dealing with such a non-residential component the institution must abide by the restrictions contained in section 6.2.1.2.
3. The residential properties that will ultimately be contained in any institution's immovable property may include newly constructed multiple unit complexes including flats, units in refurbished buildings, existing housing of any kind, in situ upgrading of existing unserviced or minimally serviced settlements, and incremental housing where a serviced site is provided as the first stage and a top structure is thereafter constructed.
4. It is not imperative that a project should contain any construction or upgrading work. So, for example, an institution may purchase an existing immovable property and simply grant rights of occupation in respect of the residential properties contained therein to qualifying beneficiaries.
5. Preference will however be given to projects that entail the construction of new residential properties or the upgrading of existing residential properties and projects where the emphasis is on accommodating beneficiaries in the income category up to R2 500 per month.

Back to Top

6.2.3 Quantum of the institutional subsidies

1. An institution shall, in respect of any particular project, qualify for an institutional subsidy only if, and to the extent to which, it allows qualifying beneficiaries to occupy the residential properties contained in that project.
2. An institution will, in respect of an approved project, be entitled to receive R16 000 for each and every residential property that will be occupied by a beneficiary that earns not more than R3 500 per month. The stepped scale of subsidy amounts does not apply to institutional subsidies. The institution may not receive any subsidies in respect of the properties that will be occupied and/or purchased by non-qualifying beneficiaries. When approving the participation of beneficiaries, PHDB's will emphasise households in the income categories up to R2 500 per month.
3. If any application for an institutional subsidy is approved, the relevant PHDB shall determine the amount of the institutional subsidy which will become payable to the institution. That determination shall be made on the basis of the qualifying/non-qualifying beneficiary mix suggested by the institution in its application, or on the basis of an alternative mix agreed upon between the PHDB and the institution.

6.2.4 Tenure Arrangements

1. Institutional subsidies will be made available only to institutions who will allow beneficiaries :

• to occupy residential properties in any particular project; or a portion of the residential properties in the particular project (if some of the properties will be occupied by non qualifying beneficiaries) for a minimum period of 4 years after the date upon which any property is occupied by a beneficiary for the first time (“the occupation date”);
• on the basis that during the 4 year period, the institution will remain the owner of the properties occupied by beneficiaries.

2. Only beneficiaries, who have been approved to participate in the project by the PHDB, on the basis of an agreement between the beneficiaries and the institution, (be it an instalment agreement, a shareblock agreement, a lease agreement or an agreement which confers other rights of tenure), may occupy properties in respect of which institutional subsidies have been paid.
3. Subject to 6.2.4.7 below, Institutional Subsidies will not be made available to institutions who will sell residential properties to qualifying beneficiaries on the basis that:-

• the purchasing qualifying beneficiaries will be entitled to take transfer of the properties purchased by them prior to the expiry of a period of 4 years after occupation date;
• the qualifying beneficiary is obliged to pay the full purchase price of the residential property purchased by him or her prior to the expiry of that 4 year period.

6.2.4.1 Non Qualifying Beneficiaries

An institution may sell, rent or otherwise dispose of the properties in any project earmarked for non-qualifying beneficiaries in any manner in which it deems fit.

6.2.4.2 Qualifying Beneficiaries

The institution must ensure that beneficiaries are granted secure rights of tenure, which may include:

• lease
• instalment sale
• shareblock
• individual ownership after four years

The rules in respect of each of these are set out below:

6.2.4.3 Lease

Tenure in the form of lease shall be with or without an option to the beneficiary to purchase the property. In this regard, the following rules apply:

1. Subject to section 6.2.4.3 (c), (d) and (f) below, the lease agreement shall be at the will of the beneficiary, in the sense that the institution may not cancel the agreement if the beneficiary has complied with all his or her obligations in terms of the agreement.
2. If the beneficiary who leases the property is given an option to purchase the property, the beneficiary may only be entitled to exercise that option after the expiry of a period of 4 years after the occupation date. The purchase price at which the beneficiary may purchase the property must be stipulated in the lease agreement.
3. The institution may, if the beneficiary fails to exercise any option given to him or her, cancel the lease agreement on 6 months written notice to the beneficiary.
4. If no option to purchase is given to the beneficiary, the institution may nevertheless require the beneficiary to purchase the property concerned on 6 months written notice given at any time after the passing of 4 years following the occupation date. The purchase price of the property will be the market value of the property, to be determined by agreement between the institution and the beneficiary and failing such agreement be determined by an independent valuator appointed by the Chairperson of the PHDB.
5. If the beneficiary fails to purchase the property within the 6 months period set out in (d), above, the institution may cancel the lease agreement on the giving of at least ninety days written notice to the beneficiary.
6. If the beneficiary is employed by any person who controls the institution (“an employer”) the institution may terminate the lease agreement if the beneficiary’s employment with the employer terminates for any reason. An employer will be considered to control an institution if it holds more than 50% of its shares or if it directly or indirectly is entitled to exercise the majority of the voting rights in the institution or to appoint the majority of its board of directors.

Back to Top

6.2.4.4 Instalment Sale

The option of a sale agreement shall require the purchasing beneficiary to pay the purchase price together with interest thereon (to be calculated at a market related rate) in monthly instalment payments over a period of not less than 4 years. In addition the purchasing beneficiary may not, subject to the provisions of the Alienation of Land Act, 1981 (Act No. 68 of 1981) take transfer of the property, until the purchase price has been paid (“instalment sale agreement”).

6.2.4.5 Shareblock

If the institution is a shareblock company, the beneficiary may purchase a shareblock in the share capital of the institution. The beneficiary concludes a use agreement, which entitles him or her to the exclusive use of the property to which the shareblock is linked (as more fully allowed for in terms of the Share Blocks Control Act, 1980 (Act No. 59 of 1980)). A shareblock agreement must be concluded on the basis that the total amount payable by a beneficiary together with interest thereon (which shall be calculated at a market related rate), must be paid over a period of not less than 4 years.

If an institution concludes instalment sale agreements or shareblock agreements with qualifying beneficiaries as contemplated in 6.2.4.4 and 6.2.4.5 above, the amount of R16 000 which becomes payable by the PHDB to the institution in respect of any particular qualifying beneficiary, shall be regarded as the final instalment made by the beneficiary to the institution in terms of his or her agreement with it. The institution may not sell properties, which have been disposed of in terms of instalment sale or shareblock agreement to third parties, except if the beneficiary defaults in his or her obligation.

6.2.4.6 Other tenure options

The institution may also offer an alternative form of tenure as the PHDB may approve that ensures secure tenure for the beneficiary.

If the institution will grant alternative rights of tenure to those envisaged above to qualifying beneficiaries;-

• the institution shall give to any qualifying beneficiary the benefit of the amount of R16 000 paid to the institution by the PHDB in respect of him or her;
• the institution and the PHDB shall agree upon the basis on which the qualifying beneficiaries will be given that benefit;

The institution shall be entitled, at any time after expiry of a period of 4 years after the occupation date to require the qualifying beneficiary on 6 months written notice to purchase the property from it, and if the qualifying beneficiary fails to purchase the property, to cancel the agreement between it and the qualifying beneficiary on 90 days written notice to the beneficiary. The purchase price of such property shall be determined as set out in 6.2.4.3 (d) above.

6.2.4.7 Exception: Option for immediate transfer of properties to beneficiaries

The above notwithstanding, the PHDB shall be entitled to grant institutional subsidies to institutions which will sell all or any portion of the properties that comprise the institution’s property in the project to beneficiaries, on the basis that:

1. The properties will immediately be transferred to the beneficiaries.
2. The beneficiaries will pay the agreed purchase prices against transfer.

If any project is approved on this basis:

3. The institution shall, in respect of any properties sold by it on the basis set out in (a) and (b) above, receive as an institutional subsidy only the amounts to which the beneficiary who purchases the residential property is entitled in terms of the provisions as set out in the General Rules described in Chapter 2 of this Part of the Code. In other words, the subsidy amounts as applicable to individual subsidies must apply.
4. The name of any such beneficiary and his or her spouse, if any, must be recorded on the National Housing Database as a person who has received an individual subsidy.
5. The institution must in its project proposal estimate the number of purchasing beneficiaries that will fall into each subsidy band and the total institutional subsidy amount shall be based on that estimate.
6. The amount of the approved institutional subsidy must be paid at such milestones as the PHDB may determine.
7. The institution must ensure that each property is sold to a beneficiary whose participation in the project has been approved and is transferred to that beneficiary no later than 6 months after the date upon which all work required to be done in respect of the residential property concerned is completed.
8. If the institution fails to transfer a property within the 6 months period the provisions regarding occupation certificates, as set out below in section 6.5.4 apply.

It is stressed, however, that the purpose of the provision of institutional subsidies is to ensure that a developer grants credit to qualifying beneficiaries, at least in respect of a portion of the residential properties to be contained in any project. For that reason, and if an institution proposes to sell all the residential properties to be contained in its development on the basis set out in this paragraph, PHDB's should, except if there are compelling reasons to do otherwise, require the institution to apply for the approval of its project in terms of Chapter 3 of this Part of the Code.

Back to Top

6.2.4.8 Special Rules

1. The institution may prescribe special rules in respect of any particular project. If any such special rules are prescribed, they must -

• be detailed in the institution’s application for the approval of the project; and
• be recorded in the agreement concluded between the institution and beneficiaries who purchase and/or occupy the properties in the project.

2. Special rules prescribed by the institution may deal with any appropriate matter. Without limitation, those special rules may include :

• Rules of succession in terms whereof defined family members of any beneficiary of a property will be entitled to occupy that property on the death of its beneficiary.
• If residential properties are at any stage sold, the measure of control, if any, that the institution will retain over those properties. In particular, an institution may provide that any person who purchases such a property may not without the consent of the institution sell the property for a defined number of years.
• The consideration, if any, to which the institution will be entitled in respect of the giving of its consent to the sale of any property previously purchased from it if a restriction of the nature contemplated in the preceding paragraph is imposed.
• Any rights of pre-emption that may be created in favour of the institution in respect of any properties that it has sold.
• Any amounts payable to any beneficiary in the event that the beneficiary ceases his or her occupation of the property.

Back to Top

6.3 How to Apply for an Institutional Subsidy

Institutions apply to the PHDB for institutional subsidies.

An application for the approval of an institutional project must comply with the criteria set out below. Any reference to a project means the entire project to be undertaken by the institution and not only those properties contained in the project that will be occupied and/or purchased by beneficiaries only.

6.3.1 Information required in the application

The contents of the application for the approval of institutional subsidies must contain the information and must be supported by the documentation set out below:

1. Details of the Institution including:

• The name and the nature of the institution.
• Certified copies of the institution's founding documentation, and in particular if :

• the institution is a company, incorporated in terms of the Companies Act, 1973 (Act No. 61 of 1973), a copy of its memorandum and articles of association must be enclosed;
• the institution is a co-operative, a copy of its statutes must be enclosed.

Full details of the proposed project must be given including:

2. Details of the institution’s property which will be developed:

• The property must be clearly defined together with reference to a deeds office description thereof.
• Full details of the institution's rights in respect of the institution’s property together with documentation evidencing such right which have been given.
• If the institution is not the owner of the property nor to become the owner thereof, details of the rights which the institution holds or will in future hold in respect of the institution’s property and any indication of when such rights will be registered in its favour.
• Full details as to the zoning and land use pertaining to the property.

3. Full details as to all work that will be undertaken by the institution in the development or upgrading of the institution’s property, as well as the total cost to be incurred in this regard.
4. Finance: full details of the manner in which the institution will finance both the development costs of the project and the ongoing maintenance and management of the institution's property. The institution will be required to demonstrate that it will be financially viable.
5. Management Ability: the institution will be required to demonstrate that it will be in a position to manage the project effectively. Full details of the management structures and the management experience of the institution and its officials should accordingly be given.
6. Programme Milestones: a full and comprehensive programme pertaining to the project as to how and when the various milestones are to be achieved.

The proposal should contain:

7. Beneficiaries: an indication of the institution's proposed qualifying/non-qualifying beneficiary mix.
8. Subsidy amount: the total subsidy amount for which the institution is applying and the detailed calculation thereof. In this regard, the institution must indicate :

• The total number of properties that will comprise the project.
• The number of properties that will be occupied by beneficiaries and the number of properties that will occupied by non beneficiaries.
• The total amount of institutional subsidies for which it applies.

9. Rental Income: the rental or consideration that will become payable by beneficiaries who conclude lease or other agreements with the institution.
10. Product Prices: the product prices of the residential properties that will be contained in the project.
11. Progress Payments: the institution's proposals as to progress payments, (as contemplated in section 6.5.5 below).
12. Participation: the institution's recommendations in regard to the participation in the management of the institution that will be given to beneficiaries and non-beneficiaries who will occupy the properties in the project, (as contemplated in section 6.2.1.5 above).
13. Special Rules: special rules that will apply to the project, (as contemplated in section 6.2.4.8 above).
14. Services: if appropriate, an undertaking from the relevant municipality or other service provider to supply, at its cost, all bulk and connector services required for the project. The product price of any of the institution's residential properties may not include a contribution towards the capital costs of those services.
15. Plans: a locality sketch, a preliminary layout plan of proposed residential units plans (sketch stage) with specifications for substructures.
16. NHBRC Registration: confirmation that the home builders (institution or the developer contracted by it) are registered with and the developers enrolled by the National Home Builders Registration Council and details of quality control measures that will be adopted and details of the warranties that will be given in respect of building defects.
17. Consultants & Contractors: a list of the names of all professional consultants and contractors that will be used to plan, design and execute the project.
18. Construction Approach: an indication of the method of execution of the construction, project management and other activities on the project. If labour-based methods are to be used, an indication must be given of the number of work opportunities that will be created per trade or discipline. Particular emphasis must be placed on the extent to which training, skills transfer and local employment will take place in the implementation of the scheme. The employment of local labour and emerging building contractors to undertake the construction of a project will be strongly favoured, but the social and economic benefits of this approach must be carefully weighed against the need to apply resources as productively as possible.
19. Annexures: as annexures, copies of the proposed agreements between the institution and beneficiaries.
20. Project Motivation: A detailed project motivation should be enclosed, motivating the project with reference to the assessment criteria contained in section 6.4.

Back to Top

6.3.2 Standard agreements to be included in project proposals

The institution must in its project proposal include copies of the standard agreements which the institution intends entering into with beneficiaries. In particular:

1. Where lease agreements are to be concluded, it must stipulate the current selling price of the particular unit the rental payable from time to time and how such rentals may escalate. The agreements must comply with any rental legislation.
2. Where options to purchase the properties are given in the lease agreements, the purchase prices at which such options can be exercised as well as when such options may be exercised by the beneficiary.
3. If the institution is to conclude instalment sale agreements or shareblock agreements with beneficiaries, then those agreements must comply with the relevant laws and clearly stipulate the relevant prices at which those agreements are to be concluded.
4. If the institution will grant other rights of tenure to qualifying beneficiaries, stipulate the consideration that will be payable by beneficiaries in respect of those rights.

Back to Top

6.4 How the PHDB Judges the Application for an Institutional Subsidy

The PHDB judges the application on the basis of the eligibility criteria set out in Chapter 2: General Rules, the criteria set out in section 6.2 of this chapter, above, and any other requirements that may be identified by the particular province.

The following assessment criteria will be used in evaluating and prioritizing any institutional subsidy application and the project proposal submitted by the applicant in its application must deal with each one of the criteria listed below in explicit and fully motivated terms.

1. 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. Emphasis must be given to projects that will cater for the housing need of beneficiaries in the below R2 500 per month income category. Areas of need that can be addressed include the upgrading, rehabilitation, consolidation 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.
2. Extent of construction/upgrading work: The extent to which the project will create new housing stock or the extent to which the project will upgrade existing housing stock. Preference will be given to projects in which new housing stock is created and/or in which existing stock is upgraded (as opposed to project that will merely consist of the sale of acquisition of an existing property and the granting of occupation rights in respect thereof).
3. 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.
4. Community self management: The extent to which the project caters for the need for capacity building within the beneficiary community 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.
5. Sustainability: The degree to which the project promotes the sustained physical and social development and vitality of the community, with particular reference to the nature and scope of amenities, facilities and opportunities provided by the project, both directly and indirectly. Particular attention will be paid to education, health, social welfare, employment, shopping, sport and recreation.
6. 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.
7. Norms and standards: The extent to which the national “Norms and Standards” in respect of permanent residential structures, as well as minimum norms and standards to satisfy the demands of health and safety are met and are acceptable to the beneficiary community. In particular, the standards of the institution’s projects should satisfy the minimum health and safety requirements applied from time to time by relevant authorities. Projects that comprise newly constructed units, such as greenfield developments etc., must comply with the National Norms and Standards in respect of permanent residential structures as described in section 2.5 of Chapter 2 of this Part of the code. In respect of projects that comprise the upgrading and/or improvement of existing dwelling units, these projects must also comply with the said national Norms and Standards but may require a degree of flexibility to accommodate existing conditions. Where deviations from the provisions of the National Norms and Standards are required to accommodate existing conditions, such deviations must be approved by the MEC for Housing.
8. Planning and design: The extent to which innovative and well considered planning and design contribute to a wholesome living environment that instills pride and a sense of belonging amongst beneficiaries. Specific attention will be given to the nature, extent and level of involvement of beneficiaries that was achieved in this planning process.
9. Affordability: The extent to which the project will provide affordable housing to beneficiaries. The PHDB shall, in considering any project, either approve or decline to approve the rentals, prices or consideration envisaged in 6.3.2 above. If the PHDB declines to approve those rentals, prices or considerations, it shall decline to approve the project. If the PHDB approves those rentals, prices and considerations, the institution shall contract with qualifying beneficiaries at the rentals, prices or considerations (as the case may be) approved by the PHDB.
10. Compatibility: The extent to which the project is integrated and compatible with surrounding developments in a manner that impacts positively on the natural and built up surroundings.
11. 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.
12. Innovation and replicability: The extent to which innovative methods or materials employed are replicable, thereby contributing to a comprehensive and sustainable housing delivery process.
13. 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.
14. Municipality's capacity: The capacity of the relevant municipality to deliver and perform effectively and productively.
15. 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 target community.
16. Choice: The extent to which a project affords beneficiaries a choice in satisfying their housing needs.
17. 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.
18. Value for money: The value for money to be received by beneficiaries in terms of the pricing of products to be offered and includes the PHDB's consideration and approval of the rental prices, selling prices or other consideration payable by beneficiaries. If the PHDB declines to approve the rentals, prices or other considerations it shall decline to approve the project. If the PHDB approves those rentals, prices and considerations as described in the application, the institution shall contract with beneficiaries at those rentals, prices and considerations approved by the PHDB.
19. Property to be developed: The extent to which the property to be developed -

• affords easy access to employment centres, and to educational and health care facilities;
• has access to adequate transportation facilities;
• directs development towards existing economic opportunities and promotes economic efficiency in the spatial integration of towns and cities.

Back to Top

6.5 After Approval of the Institutional Subsidy Application

Once the institutional subsidy application is approved, the institution and the PHDB conclude a subsidy agreement setting out all the procedures for implementing the project and the responsibilities of the respective parties in this process. Because the subsidy is paid out in the name of an institution, rules governing the transfer of both the stock and the subsidy benefit to individual households are detailed in this section. In addition, rules governing the effect of transferring property prior to the four year period required for an institution to hold stock, are set out below.

6.5.1 Subsidy Agreement

If an institutional subsidy is approved, the institution must conclude a subsidy project agreement with the PHDB in order to regulate the basis upon which the project will be undertaken and upon which the subsidy will be paid to the institution. Any subsidy agreement must be approved by the State Attorney before it is concluded. A subsidy project agreement must contain:

1. The institution's details, including its name and legal status.
2. The name of the project.
3. Detailed description of the project with reference to the institution’s property that will be developed, the work that will be done by the institution, the residential properties that will be created and a programme. Reference may be made in the subsidy project agreement to an agreed project proposal or project description containing these details.
4. The agreed beneficiary / non-beneficiary mix.
5. The amount of the institutional subsidy and the manner in which it has been calculated.
6. The progress payments in which the subsidy will be paid to the institution, with specific reference to the milestones that will entitle the institution to receive any particular progress payments.
7. The product prices of all residential properties to be provided in the project.
8. The rental or other consideration payable by beneficiaries who will hire or receive other rights of tenure in respect of their properties, and the basis upon which annual increases in that rental or consideration are to be calculated.
9. The basis upon which the occupants of residential properties in the project will participate in the management of the institution.
10. The special rules, if any, that will apply to the project.
11. As annexures, the terms and conditions upon which the institution will contract with any particular beneficiary in respect of any particular residential property.
12. Clauses dealing with breach of contract committed by the institution and the consequences thereof.

6.5.2 Implementation

After conclusion of the project agreement the institution must implement the project in accordance with the agreement.

6.5.3 Evaluation of application forms for each beneficiary

Any agreement concluded by an institution with a beneficiary, be it an instalment sale agreement, a shareblock agreement, a lease agreement or an agreement conferring any other rights of tenure must be concluded subject to the condition that the PHDB approves of the participation of the beneficiary in the project.

As soon as the institution has concluded such an agreement it must submit to the PHDB a copy of that agreement together with the completed application form pertaining to the beneficiary. Upon receipt of an application form, the PHDB must, if it satisfied that the beneficiary is a person who qualifies for a housing subsidy in terms of the eligibility criteria, formally and in writing approve the application of the beneficiary. The subsidy amount will be a standard amount of R16 000 in respect of the project. When approving the participation of beneficiaries, emphasis should be given to household in the below R2 500 per month income category. The application form is contained in Annexure A of this Chapter 6 of Part 3 of the Code.

Back to Top

6.5.4 Occupation certificates

The institution must no later than 6 months after the date upon which a residential property is completed, deliver to the PHDB an occupation certificate signed by the beneficiary whose participation in the project has been approved by the PHDB in terms of section 6.5.3. In that certificate the beneficiary must certify that he or she has occupied the property. If, for any reason whatsoever, any beneficiary vacates his or her property at any stage, the institution must, within sixty days after the beneficiary vacates his or her property:

1. conclude an agreement with another beneficiary approved by the PHDB in terms of section 6.5.3 in respect of the property; and
2. deliver an occupation certificate by that beneficiary to the PHDB.

If in respect of any property the institution fails to comply with its obligations described in sections 6.5.3 and 6.5.4 (a) and (b) above:

3. The PHDB may request the institution to make written submissions to it within a period of fourteen days in regard to the institution's failure.
4. On receipt of those submissions and after the expiry of a period of fourteen days, if no submissions are made, the PHDB must consider the matter and may require the institution to repay the subsidy amount to it.
5. If the institution is required to repay the subsidy amount to the PHDB and if thereafter the institution delivers to the PHDB an occupation certificate in respect of the property signed by a beneficiary approved by the PHDB in terms of section 6.5.3, the institution will again become entitled to receive payment of the subsidy amount from the PHDB.

6.5.5 Milestones must be determined for payment stages

In order to ensure that any institution which undertakes a project does not face adverse cash flow consequences the amount of the approved Institutional subsidies are paid by the PHDB to the institution as and when it progresses with the project. The following procedures will apply in order to determine when institutional subsidies will be paid:

1. The institution must, in its project application, propose milestones for progress payments.
2. The PHDB must consider these proposals taking into account the following:

• The need to ensure that the institution does not face adverse cash flow consequences; and
• The fundamental principle that public funds are utilised and paid out only as and when value has been created.

3. The PHDB must in its approval of the project determine the milestones at which the approved subsidy must be paid and the amounts that will be paid on reaching each particular milestone.
4. The various milestones, the progress payments and related aspects pertaining to the agreement between the PHDB and the institution must be recorded in the subsidy agreement.

6.5.6 Purchase of the property, after four years have expired since occupation

The result of a sale being concluded in respect of a property between the institution and the beneficiary under circumstances set out in section 6.2.4.3 (b) and (d) and 6.2.4.6 will be that -

1. The subsidy amount originally paid by the PHDB to the institution in respect of the beneficiary will be considered to be a payment made to the institution on account of the purchase price payable by the beneficiary.
2. The institution may therefore retain this amount.
3. The beneficiary will be considered as having received an individual subsidy from the PHDB upon transfer of the property.

Back to Top

6.5.7 Protection of a Lease or Other Agreement

1. If an institution has concluded a lease agreement or has granted other rights of tenure as set out in section 6.2.4.6 in respect of residential properties, the institution may at any time sell the property to any person other than the beneficiary with whom it has concluded the agreement if:

• the purchaser agrees to be bound by the agreement between the institution and the beneficiary.

2. If the institution avails itself of this right it must in respect of each and every property so sold by it, pay to the PHDB the actual amount of the subsidy it received for the property or the amount calculated in accordance with the formula below, whichever is the greater

A = (S/OP) x PP

in which formula:

A	is the amount payable;
S	is the actual amount of the subsidy it received for the property;
OP	is the original selling price of the residential property, indicated in the institution's project proposal as more fully envisaged in 6.3.2 above; and
PP	is the price obtained by the institution for the property.

6.5.8 Effect of transferring property prior to the 4 year period

If for any reason whatsoever an institution transfers ownership in respect of any particular property to a beneficiary prior to the expiry of the 4 year period after the occupation date:

1. the institution must against transfer of the property to the beneficiary, pay to the PHDB the amount calculated in accordance with the formula set out in section 6.5.7;
2. the beneficiary may, despite his or her participation in the project, obtain an individual subsidy before such transfer takes place in accordance with his/her income category as contemplated in Chapter 2 of this Part of the Code.

6.5.9 Financial Accounting and Auditing

The management structure and management system of the institution must be in accordance with sound business principles. In this regard:

1. The institution shall at all times keep proper books of account in accordance with general accepted accounting principles. If the institution has received institutional subsidies in respect of one or more projects, it shall keep separate sets of accounts in respect of each project.
2. Every institution which has received an institutional subsidy must no later than three months after the end of each and every financial year of the institution, submit to the PHDB copies of audited financial statements, together with a certificate from the institution's auditor in which the auditor:

• confirms that the books of account of the institution have been maintained properly and that they fairly reflect the state of the financial affairs of the institution;
• gives details of the number of residential properties previously occupied by beneficiaries by virtue of lease arrangements or other forms of tenure that have been sold during the year in question;
• gives details of the selling prices of any properties contemplated in the preceding paragraph and details of the share of those selling prices which the PHDB is entitled to receive;
• certifies that rentals and/or other contributions and considerations charged by the institution in respect of lease agreements or other forms of tenure or income are in accordance with the approval granted by the PHDB;

3. If at any stage during a project all the residential properties earmarked for beneficiaries have been sold or transferred, the institution in question need no longer be obliged to comply with the provisions of paragraph (b), above.
4. The PHDB may at any time, if it deems is appropriate to do so, appoint an independent auditor in order to undertake a detailed audit of the books of account of the institution and so far as these books of account relate to any particular approved project. The PHDB will be liable for the costs of such audit and the institution must give full and complete access to all its relevant books of account and documents to the appointed auditor.

Back to Top

6.6 National Housing Database

The rules in respect of registering beneficiaries on the National Housing Subsidy Database are somewhat different than for other subsidy mechanisms, given the condition that the subsidy be paid out in the name of the institution. These rules are set out below.

The following rules apply to the national housing subsidy database that records the details of subsidy beneficiaries:

6.6.1. Information required in the case of a lease agreement

If an institution concludes lease agreements in respect of its residential properties with beneficiaries or if it grants other rights of tenure in respect of those properties to beneficiaries:

1. the name of the beneficiary and his or her spouse, if any, must be recorded on the National Housing Subsidy Database but the endorsement “institutional” shall appear next to the entry;
2. the effect of that record will be that neither the beneficiary nor his or her spouse, if any, whilst he or she occupies the property, may receive a housing subsidy;
3. if the beneficiary vacates the property occupied by him or her for any reason whatsoever, his or her name and the name of his or her spouse, if any, must be removed from the National Housing Subsidy Database, so that he or she and his or her spouse, if any, will once again qualify for a housing subsidy;
4. if he or she wishes to take transfer before the expiry of the period of four years after the occupation date, he or she may apply for an individual subsidy in accordance with his/her income category as contemplated in Chapter 2 of this Part of the Code, to defray a portion of the purchase price. If the individual subsidy is approved, the endorsement "institutional" against the name of the beneficiary and his or her spouse, on the National Housing Subsidy Database, will be replaced with an indication that an individual subsidy has been granted.
5. if the property is sold and transferred to the beneficiary at any time after the expiry of a period of 4 years after the occupation date, the endorsement “institutional” which appears next to the name of the beneficiary and his or her spouse, if any, on the National Housing Database must be removed. The effect of removing this endorsement will be to record that the beneficiary and his or her spouse, if any, has received an individual subsidy and may therefore not obtain a further subsidy.

6.6.2 Information required in the case of an “instalment sale” and/or shareblock agreement

If the institution concludes an instalment sale agreement or a shareblock agreement with any beneficiary in respect of a property:

1. the name of the beneficiary and his or her spouse, if any, must be recorded on the National Housing Database as a person or persons who has/have received an individual subsidy;
2. if the instalment sale agreement or shareblock agreement is thereafter cancelled for any reason whatsoever, the name of the beneficiary and his or her spouse, if any, must nevertheless remain on the National Housing Database.

If any event occurs which requires the name of a beneficiary and his or her spouse, if any, to be recorded on the National Housing Database or to be deleted from it, or which requires any endorsement reflected on the National Housing Database in respect of any beneficiary and his or her spouse, if any, to be deleted, the institution must forthwith in writing advise the PHDB of the occurrence of the event.

Back to Top

6.7 Key Points to Remember

Back to Top