Af­ford­able hous­ing still prof­itable

Finweek English Edition - - Companies & Markets - JOAN MULLER joanm@fin­

LOW-IN­COME HOUS­ING ap­pears to be the only sec­tor of the res­i­den­tial prop­erty mar­ket where de­vel­op­ers are still mak­ing money. The lat­est an­nual re­port of hous­ing de­vel­oper Cal­gro M3 shows the AltX-listed com­pany’s ex­po­sure to the lower end of the hous­ing mar­ket helped prop up the sub­stan­tial losses re­ported by its mid­dle and up­per in­come clus­ter de­vel­op­ments.

Cal­gro’s clus­ter divi­sion – res­i­den­tial com­plexes mostly lo­cated in Jo­han­nes­burg’s north-west­ern sub­urbs, typ­i­cally priced be­tween R600 000 and R1,6m – re­ported an op­er­at­ing loss of R12,6m in the year to end-Fe­bru­ary 2009.

In stark con­trast, Cal­gro’s in­te­grated hous­ing divi­sion – af­ford­able hous­ing de­vel­op­ments in Soweto and sur­rounds, typ­i­cally priced be­low R340 000 – made an op­er­at­ing profit of R21m over the same pe­riod. That brought to­tal op­er­at­ing profit for its 2009 fi­nan­cial year to R8,3m. Though that’s way down from the R47,5m profit re­ported in 2008 act­ing CEO Ben Mal­herbe says Cal­gro still man­aged to achieve a pos­i­tive per­for­mance in the midst of chal­leng­ing eco­nomic con­di­tions.

Mal­herbe says the com­pany has re­struc­tured its medium-and high-in­come seg­ments of its busi­ness, al­low­ing the com­pany to “land bank” prop­er­ties un­til this end of the mar­ket starts to re­cover.

Mean­while, Cal­gro plans to shift its fo­cus to af­ford­able hous­ing de­vel­op­ments, where Mal­herbe says sales haven’t dried up to the same ex­tent as they have in the mid­dle and higher ends of the mar­ket. He says while af­ford­able hous­ing sales have no doubt also been hit by SA’s Na­tional Credit Act and stricter bank lend­ing, de­mand still out­strips sup­ply by far, with af­ford­able hous­ing gen­er­ally be­ing viewed as a ne­ces­sity rather than a lux­ury.

In ad­di­tion, Mal­herbe be­lieves Gov­ern­ment’s com­mit­ment to build 2,2m houses by 2014 – plus banks’ lend­ing com­mit­ments to lower in­come house­holds in terms of the Fi­nan­cial Ser­vices Char­ter – should sup­port strong growth in af­ford­able hous­ing ac­tiv­ity over the next few years.

Says Mal­herbe: “SA’s cur­rent hous­ing back­log sits at 2,5m homes, grow­ing by 200 000 an­nu­ally. The op­por­tu­ni­ties for hous­ing de­vel­op­ers will­ing to help erad­i­cate the prob­lem in the in­te­grated and af­ford­able hous­ing seg­ment of the mar­ket are there­fore end­less.”

Cal­gro is ex­pected to break ground on its big­gest af­ford­able hous­ing project to date within the next few months. The de­vel­op­ment – known as Fleurhof – is lo­cated on a mas­sive tract of land 12km south­west of the Jo­han­nes­burg CBD and will even­tu­ally con­sist of 6 500 homes. Mal­herbe says Fleurhof will gen­er­ate turnover of an es­ti­mated R1,6bn over the next three to four years.

Cal­gro’s most re­cent coup was to sell a 30% stake in Fleurhof for R30m to a pri­vate eq­uity hous­ing, which is owned by In­ter­na­tional Hous­ing So­lu­tions (IHS), a joint ven­ture be­tween US mort­gage lender Mu­niMae and Ir­ish prop­erty group Howard Euro­cape. Cal­gro’s deal with IHS also in­volves a fur­ther ad­vance of R50m in the form of a share­hold­ers’ loan. Mal­herbe says the deal with IHS will in­ject cap­i­tal into the busi­ness at a time when mar­ket con­di­tions are un­cer­tain and tra­di­tional de­vel­op­ment fund­ing isn’t that read­ily avail­able.

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