Partnering government in housing delivery

Posted On Wednesday, 19 October 2011 02:00 Published by eProp Commercial Property News
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There is now more statistical and research information in respect of lower income earners available, enabling the banks to better assess their risk. This represent significant opportunity in quality low-cost housing for the private sector and the partly-subsidised Social Housing category

Wikus LateganAltX property developer Calgro M3 Holdings (“CalgroM3”) returned strong growth for the six months to August 2011 (“the period”), more than doubling both top and bottom line year-on-year despite tough trading conditions in the property and construction sectors.  Revenue grew 117% to R209 million while headline earnings rose 372% to R21,7 million.  As promised the group’s five-year, R5 billion pipeline of projects began translating into profit, with four of the eight projects up and running and the fifth to kick-off in the six months ahead.  Two of the four current projects mark CalgroM3’s first forays beyond Gauteng.

HEPS increased 372% from 3,61 cents per share to 17,03 cents per share while net cash and cash equivalents were up 92% from R10,9 million at year-end  to R20,9 million.  Margins improved substantially, which Financial Director Wikus Lategan attributes to a good mix of public and private sector work.  “We installed services infrastructure on a number of integrated housing developments for government, and began building units in the developments for private clients.”  Gearing stabilised although Lategan cautions that this will escalate going forward when more cash is needed for working capital as the balance of the pipeline rolls out.  The group ended the period cash-flush with R21 million in hand compared to half that at the same time last year.  

Overheads increased in line with the higher revenue and Lategan points out that the expenses were not fixed costs to be repeatedly incurred in the future, save in respect of two new executive appointments.  “We have a conservative fixed costs structure.  Increases in overheads going forward are expected to remain largely variable and related to increasing capacity when needed on current projects.”

CEO Ben Pierre Malherbe is pleased with the group’s performance and attributes better margins to CalgroM3’s in-house property development and construction.  “This has also enabled the group to deliver high quality low-cost housing, making CalgroM3 a suitable partner for government in addressing the dire housing backlog in South Africa.”  Echoing Lategan, he points out that in the future sub-contractors may have to be employed on an ad hoc basis as the group is nearing full capacity, with a number of projects still to be completed and others still to start.  

He says CalgroM3 met its geographical expansion objectives with its first projects outside of Gauteng in Bloemfontein and the Western Cape.  “We are comfortable with our current geographical footprint and would look to bed down operations in new provinces before expanding further in these regions.”  The group won Brandwag, Bloemfontein’s foremost social housing project on which CalgroM3 has started construction, and recently scooped Cape Town’s R554 million Scottsdene development comprising 3 053 units. “The four-year Scottsdene project is expected to springboard the group’s further growth in the Western Cape,” says Malherbe.

On current projects CalgroM3 services infrastructure for the Fleurhof (phase 1) and Jabulani CBD developments are nearing completion.  Fleurhof off Main Reef Road west of Johannesburg is one of the largest integrated housing developments in Gauteng, while the four-year Jabulani CBD is a 4 200 unit development in Soweto in partnership with Inkanyeni.  In addition, the first sectional title units in Fleurhof were handed over to buyers and building of further units in both developments is underway.  The first 500 units for Jabulani Hostel, a two to three year redevelopment programme, were also completed. 

“The Affordable Housing sector continued to recover during the period with bond finance becoming more readily available,” says Malherbe.  This upturn continued to drive demand for CalgroM3’s Jukskei View development.  In contrast an improvement in the Mid- to High-Income Housing sector is taking longer than expected, and the group is continuing to hold back on these projects while reducing finance exposure on the land.

He says two positive factors are helping to offset the negative impact of delayed government funding for integrated developments.  “We are successfully accelerating the privately financed components of our integrated developments underway.  And government’s recent commitment to roll-out 80 000 Social Housing units should fill the gap left by fully-subsidised housing (BNG/RDP), which the government has acknowledged to be unsustainable.”

Malherbe says there is now more statistical and research information in respect of lower income earners available, enabling the banks to better assess their risk.  He continues to see significant opportunity in quality low-cost housing for the private sector and the partly-subsidised Social Housing category, as well as in the provision of bulk infrastructure to support government’s housing commitments.  He concludes:  “CalgroM3 has weathered some difficult years in anticipation of our pipeline starting to roll out.  With half of our secured projects underway and the balance to commence in the next few years, we are optimistic of continued controlled growth provided we maintain our prudent approach to cost and cash management and our accurate targeting of growth sectors within the Housing market.”

 

Last modified on Tuesday, 11 March 2014 09:42

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