Big South African property developer under pressure

Balwin Properties is under significant pressure, with the company citing South Africa’s higher for longer interest rates and stagnant economy as negatively impacting the housing market.

Balwin released its interim results for the six months through August 2024, which showed poor results for the developer.

Its revenue was down 28% to R852.7 million, which the company said reflects the country’s challenging housing market. 

Balwin’s profit for the period was down 57% to R76.9 million, while its headline earnings per share was down 57% to 16.26 cents.

The number of apartments recognised in revenue also declined to 640, down significantly from 834 in the prior year.

“As guided previously, this past six months was characterised by higher for longer interest rates and a stagnant economy which continued to impact the housing market,” Balwin Chief Executive Steve Brookes said.

However, he pointed out that sentiment is a key driver of the residential property market and said the company has seen several positive catalysts materialise during the reporting period, including: 

• Expectations of a lower interest rate cycle 
• Improved confidence following the formation of the Government of National Unity
• The continued availability of electricity 
• A series of petrol price cuts

 “Although these factors did not impact on the results we are reporting on today, they position us well for a recovery in the second half of the financial year,” Brookes said. 

“However, it will take time for additional interest rate cuts to fully flow through to the bottom line, as most households continue to battle with rising living costs and pedestrian economy growth.”

Brookes added that buyers and investors who were previously on the fence are increasingly committing to property transactions following the September interest rate cuts.

This can be seen in Balwin’s healthy recovery in forward sales to 743 apartments, up from 688 apartments in August 2023. 

These apartments are not recognised in the reporting period’s revenue but have been pre-sold for future financial periods.

Balwin also reported a contraction in the average selling price of its Classic and Green Collections during the period, as a result of economic headwinds and incentives to stimulate sales. 

The selling price of two- and three-bedroom apartments decreased on average by 5% during the period, although the popularity of one-bedroom apartments supported a 1% increase in the average selling price.

In the Green Collection, average selling prices for 1-bedroom apartments were reduced by 4% and for two- and three-bedroom apartments by 2%, respectively, mainly due to the severe pricing pressure felt in recent times by this lower LSM consumer.

Interestingly, Balwin said this six-month reporting period showed an interesting reversal in the impact of semigration, with Gauteng regaining its position as the top revenue contributor by region at 49%, followed by the Western Cape at 46%. 

In addition, delays in municipal approvals hamstrung handovers in KwaZulu-Natal, which contributed 5% of total revenue. 

However, the still group reported that demand in the Western Cape remains exceptionally strong, with land contracted for two new developments during the period as replacement projects for Fynbos, which was sold out, and De Aan-Zicht.

Developments under construction, which include the value of land and infrastructure costs, development rights and construction costs, increased by approximately R200 million to R6.5 billion. 

This increase was driven predominantly by construction and development costs as opposed to additional investment in land.

“Our business has been tempered by the interest rate cycle, and we have done a lot of work to right-size the Group and make it much more efficient. These interventions position us well as the macro environment improves,” the Brookes said.

“Although we remain cautiously optimistic about a recovery in the second half of the financial year, I want to warn against over-optimistic expectations as any further rate cuts will only trickle through over time, and at best only for three months of the financial year.”