Financial director Jonathan Weltman says that by having both a build-to-sell and a rental business, Balwin can also manage interest rates changes and protect its earnings. Picture: 123RF/ AHOFOBOX
Financial director Jonathan Weltman says that by having both a build-to-sell and a rental business, Balwin can also manage interest rates changes and protect its earnings. Picture: 123RF/ AHOFOBOX

Balwin Properties, SA’s largest developer of sectional title apartments, has cut its pipeline by nearly a third as it adjusts its projections in a weak economy, FD Jonathan Weltman says. 

Over the next eight years, the group would now develop 28,000 apartments and not the 40,000 apartments it had originally envisaged building. The majority of these would be for sale but a portion would be rented out so that Balwin could earn annuity income.

Weltman said the gross profit margin on the group’s sales had come under pressure in the year to February, and that while there was optimism the economy would rebound as President Cyril Ramaphosa established a cabinet following the ANC’s election win last week, growth would only gain momentum in 2020.

“Balwin is operating in a very tricky environment. There is demand for our products but the economy isn’t soaring and that means our customers are feeling some pressure given that salaries aren’t rising. This is showing up in our margins but I think next year some confidence will return. Also, the government’s processes should become quicker over the next few months,” Weltman said. 

A VAT increase from 14% to 15% during the period also weighed on the company’s profit margin, bringing it well below the target of 35%.

Not just Balwin is seeing that its prospective customers are under pressure. Numerous investors who bought apartments to let in the past are less active in the market, while rental growth is weak, according to FNB property sector strategist John Loos.

He said the latest consumer price index (CPI) for housing and utilities showed that rental inflation decelerated from 5.39% year on year in September 2017 to 3.84% in February.

Balwin’s headline earnings per share fell 8% in the year to February even though its revenue climbed 6% to R2.6bn.

As many as 2,437 apartments were recognised in revenue in the reporting period compared with 2,084 in the 2018 year.

Weltman said the company’s rental business had sold 156 apartments to Balwin’s residential property fund.

The average selling price per apartment fell to about R1.069m from R1.177m in the previous financial year. Weltman said this was because of a different product mix and the inclusion of revenue from the apartments sold to Balwin Rentals. 

CEO Steve Brookes said Balwin was happy with its achievements in the reporting period and that its best sales performance was achieved at The Blyde in Tshwane East and Ballito Hills in KwaZulu-Natal.

“Sales rates are significantly exceeding the development average of approximately 25 apartments per month. The success of the Blyde is largely as a result of the opening of the Crystal Lagoon during the year, the first of its kind in sub-Saharan Africa. We are very proud of this initiative and look forward to many more opportunities to emulate this success,” said Brookes. 

Cash resources at year-end rose to R329.4m from R100m. Balwin’s loan-to-value was at 23% at the end of the reporting period compared with 25% a year ago.

The board declared a dividend of 14.51c per share.  

andersona@businesslive.co.za