Bad news about one of South Africa’s top property developers

Balwin Properties warned investors that its earnings per share and headline earnings per share are expected to decrease significantly.

This information was contained in Balwin’s trading statement and business update for the reporting period ending 31 August 2024.

Balwin Properties was founded in 1996 and has been at the forefront of property development in South Africa.

The company designs, builds, markets, and sells affordable and secure sectional-title residential apartments in Gauteng, Kwa-Zulu Natal, and the Western Cape.

Balwin Properties is the largest sectional title property developer in South Africa and was listed on the JSE in October 2015.

The company has achieved strong growth in the past, but the current market conditions in South Africa have slowed this growth.

Balwin told investors that its earnings per share and headline earnings per share are expected to decrease between 54% and 59% over the prior corresponding period.

It explained that activity in the residential property sector remained under significant pressure because of the prolonged high-interest rate environment.

It said market sentiment traded positively following the announcement of the Government of National Unity (GNU) and the improvement in macroeconomic conditions.

However, this did not flow materially into the residential property market due to the over-arching high borrowing costs for prospective customers.

“The recent 25 bps reduction in the prime interest rate announced on 19 September 2024 is the first positive step for an anticipated recovery in the residential property market,” it said.

It is upbeat about the prospects of South Africa’s prime interest rate gradually declining throughout the next few Monetary Policy Committee meetings.

“These expected reductions are likely to improve the demand in the residential housing market,” Balwin said.

The property group expects to recognise approximately 640 apartments in revenue for the reporting period. It is down slightly from a year ago.

The annuity business portfolio has continued its good performance and increased its contribution to group revenue to approximately 8%.

The company anticipates its gross profit margin derived from the sale of apartments to reduce marginally to 23%.

However, the group’s gross profit margin is expected to increase to approximately 32% from last year’s 28% owing to the increased contributions from the annuity businesses.

Operating expenses were well-contained during the reporting period, and the company recorded another reduction in overhead costs.

“At a group level, overhead costs are expected to reduce by circa 5% from the prior interim period,” Balwin said.