Big property expansion in South Africa – over 7,000 new apartments

Balwin Properties is expanding its rental portfolio by developing 7,300 apartments over the next decade.

In a SENS announcement released on 24 July, Balwin Rentals, a wholly owned subsidiary of Balwin Properties, announced that it is expanding its rental portfolio.

The company explained that, at the time of listing, Balwin envisaged the strategic development and management of a separate rental portfolio that would complement the group’s core business.

“Over the past few years, Balwin has steadily built the capacity, skills, technology, and systems to be in a position to roll out a scalable, modern, and efficient rental portfolio without detracting from the company’s existing build-to-sell model of approximately 2,000 to 3,000 sectional title apartments per annum,” it explained.

“Based on market demand, Balwin can scale up further.”

In addition, Balwin said it intends to leverage its strong brand and position the rental portfolio as an incubation hub to transition qualifying tenants to purchasing Balwin apartments.

It said the apartments and estates that are developed for rental will maintain the EDGE Advanced certification that is synonymous with Balwin’s build-to-sell model. 

The rental estates will be developed exclusively for rental purposes, and none of the apartments will be available for sale in the open market. 

“Balwin expects that the addition of a more defensive asset class will further diversify the group’s revenue streams and grow annuity income that will complement the cyclical nature of its build-to-sell development business,” the company explained. 

“Moreover, the group will benefit from the improved usage of its unused land portfolio.”

Balwin has identified existing land parcels owned by the group for the first six build-to-rent developments, which will aggregate up to 7,300 apartments. 

This represents approximately 20% of the company’s current unused land portfolio. Existing land parcels have been identified in Johannesburg East, Tshwane East, and the Western Cape for the rental model.

The rental portfolio will be housed within Balwin Rentals, which is an existing wholly-owned subsidiary of Balwin.

“Balwin Rentals envisages raising long-term debt finance from commercial lending and Development Finance Institutions at preferential interest rates to fund the development,” it said.

“As with Balwin’s build-to-sell model, developments will be constructed and tenanted in phases to minimize risk.”

Balwin Rentals will have full control over the rental estates, allowing Balwin to optimally manage costs. 

The management of the rental portfolio will be internalised and as far as possible, be tech-driven to reduce operating costs and enhance yield performance. 

The rental portfolio will target market rentals of one-, two-, and three-bedroom apartments between R6,000 and R13,000 per month.

“These developments have been sufficiently cost-engineered to feasibly generate above-market-related yields at the target monthly rentals,” the company said. 

“The revenue contribution from Balwin Rentals will be negligible for the financial year to 28 February 2025. However, over time, the group expects Balwin Rentals to increasingly contribute to the group’s annuity income and net asset value growth.”

Balwin referenced preliminary studies which show that the rollout of the rental portfolio will, over time, create approximately 39,000 direct and indirect job opportunities.

“Importantly, it will act as a catalyst for important construction skills retention, as development will be on a similar rotational basis as with Balwin’s build-to-sell model,” the company said.