Low-cost housing thrives

Posted On Friday, 30 September 2011 02:00 Published by eProp Commercial Property News
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RBA Holdings - Traversing the rocky path

Ben Pierre MalherbeThe private sector’s solution to providing midlevel housing appears to be making headway, despite the myriad challenges.

Low bond approvals from banks, high consumer indebtedness, shortage of land in Gauteng, and the administrative hurdles of new township development are just some of the factors that have plagued home builders over the past three years.

At least some of that, says RBA Holdings chief operating officer Barry Stegmann, is beginning to change.

The AltX-listed developer of affordable homes released its interim results to end-June this week. If the increase in revenue and growth margins is any indication, demand for the houses it builds is high.

RBA’s revenue grew 133%, to R82,9m, which Stegmann says is a result of more bond registrations. The company had 431 bonds approved and awaiting registration at the end of June , compared with 394 in December 2010.

Part of the reason for the improvement is that banks have relaxed their lending criteria. FNB Housing Finance was the only bank aggressively lending to the middle-income housing market during the recession and it continues to lend. Standard Bank began to lend earlier this year, and Stegmann hopes other banks will follow suit . Absa, he says, has begun to lend, though it has been cautious.

The bond approval rate of RBA’s clients went from 35% a year ago to between 45% and 50% now. Its client base, however, is still indebted. The effect of reckless lending issued before the introduction of the National Credit Act still persists, but Stegmann says the situation is improving.

The group’s gross profit from property development was 37,2%, compared with 36,4% the previous year . The improvement has been attributed to RBA’s development of its own land. It used to rely on stand allocations from external developers. After 2007, when it listed, it began to develop its own land.

The higher revenue has not yet translated into profit, however, and the group reported an attributable loss of R2,4m, down from R10,4m previously. But financial 2009’ s loss stood at R31m.

RBA and its competitors, AltX-listed Calgro M3 and Cosmopolitan Projects, operate in the fully bonded sector of the market.

RBA has developments in Gauteng, Limpopo and KwaZulu Natal. Calgro M3 recently expanded its footprint into the Western Cape with the construction of a R554m integrated housing project comprising 2200 units.

Its developments in Gauteng include Fleurhof, an integrated development on the West Rand, Jabulani, a sectional title residential development and a hostel redevelopment project. It also recently expanded into Bloemfontein.

Calgro CEO Ben Pierre Malherbe says the recovery in the integrated housing sector has been much faster than in the rest of the residential market. This has been because of the participation of financial institutions , he says.

The group’s interim results for the six months to August will be released next month. In the year to February, Calgro reversed its prior-year headline losses into headline earnings of R17m.

Low-cost home builder Sea Kay Holdings, which builds houses for the state, has seen its performance knocked because it has not been paid by government authorities.

The company recently sold Falcon Trading and other assets, which will help pay some of its debt.

Though it has managed to strike a repayment deal with the National Housing Finance Corp, on a R128m loan , Sea Kay’s future is fraught with uncertainty.

RBA also builds housing for mining companies. In addition, it has a rental portfolio which the company hopes to grow. The long-term capital appreciation of its rental stock is the driver behind this strategy.

The group, like its competitors, targets households that earn more than R7000 a month, though all its clients’ applications are still subject to bond approvals by banks.

Households earning less than that, however, are falling through the cracks. A gap exists in the affordable housing sector for a company which could provide housing for those who earn between R2500 and R7000 a month. For that, Stegmann says, a solution has to be found working with government as it is the biggest landowner.

Developers who can build large numbers of houses at low cost could fill that gap if government put in place an enabling policy and provided land for development.

As it stands, RBA says it has enough land to grow its business over the next five years. It will also explore joint ventures with other developers.

As long as the banks keep lending — even though new uncertainty has hit financial markets — the sector is poised to benefit from the rising demand for affordable housing, particularly in Gauteng.

Last modified on Tuesday, 11 March 2014 10:34

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