Balwin sales fall as financially battered consumers defer buying homes

Balwin Properties is considering building apartments in Kenya and Mauritius once interest rates start to decline in South Africa. Photo: Supplied

Balwin Properties is considering building apartments in Kenya and Mauritius once interest rates start to decline in South Africa. Photo: Supplied

Published May 21, 2024


Balwin Properties experienced the toughest year in its 28-year history as escalating interest rates, higher fuel and food prices, and political uncertainty about the elections impacted housing demand.

The group which develops apartments for the upper to middle income markets, reported a sharp 48% decline in headline earning per share to 47.94 cents for the year to February 29.

This fall was also reflected in the latest Rode Report on the South African Property Market, which said both FNB and Lightstone’s house-price indices recorded the lowest growth rate for the past four years in the last quarter of 2023 - significantly, this period includes the Covid lockdown period.

Balwin CEO Steve Brookes, said in an interview yesterday that the long period of high interest rates, combined with other rising administrative costs such as for electricity and water, “is really beating the consumer to death.”

He said currently, the group’s sales were down 50%, and a recovery would hinge upon lower interest rates, which he hoped would begin declining in June.

He said they were exploring how to position the group to be less affected by interest rate spikes in future.

They would do this possibly by deriving up to 30% of revenue from rentals, with the group owning entire developments, increasing annuity income to about 20% of revenue, while an international expansion likely to begin once interest rates start to decline in South Africa, would also help to diversify revenue, he said.

The group had identified two possible developments in Mauritius and one in Kenya. He said that they were also adopting a cautionary stance with regard to a final dividend declaration, particularly as it related to the cash position.

He said the housing sector decline appeared to have stabilised, as the first quarter of 2024 showed a reversal of this trend. Several macro-economic headwinds however remained.

Profit for the year fell substantially by 50.4% to R217.4 million versus R437.4m in 2023, after revenue fell to R2.4bn against R3.3bn in 2023. Operating expenses decreased 11% to R351.2m.

Balwin recognised 1 892 apartments in revenue for the year, down 32% from the 2 788 apartments in the 2023 financial year.

Coastal regions contributed 63% of revenue, up from 52% in the 2023 financial year, mainly as a result of semigration.

“For the first time, the Western Cape has emerged as the group’s top revenue earner, contributing 46% of group revenue, from 35% previously. We however remain positive on the longer term contribution of Gauteng as the main driver of sales,” said Brookes.

He said their short-term focus would be to protect margins, with the practice of using sales incentives as a strategy to drive sales expected to continue.

Brookes said they had slowed the rate of construction to match the rate of sales. In addition to cost containment, the land bank and pipeline of developments would be leveraged, with acquisitions considered on an ad-hoc basis, especially in the Western Cape.

“The emphasis will however be on prudent cash management and responsible environmental practices,” he said.

He said there had been a good contribution from the annuity business, which resulted in a consistent gross profit margin of 28%.

Developments under construction, which included land value and infrastructure costs, development rights and construction costs, increased by R607.8m to R6.3bn. This was driven mainly by construction and development costs, as opposed to additional investment in land, reflecting the focus on developing the existing pipeline of projects.

A significant component of costs in Tshwane related to infrastructure costs. These were necessary to secure council approval for the registration of the initial phases of apartments at Greenkloof, the first development in the Mooikloof Smart City node. The first four phases were complete, with 144 apartments recognised in revenue.

These upgrades formed part of the government’s Strategic Integrated Projects (or SIP) from 2018.

The annuities businesses produced R132.5m revenue, 70% up on the prior financial year. Half the revenue came from the fibre and infrastructure services, which has 9109 active clients.

The group closed the year with a strong cash position of R289.6m.