Balwin Properties’ headline earnings fell 57% to 16.26 cents a share for the six months to August 31 after activity in the residential property sector remained under significant pressure, mainly due to the prolonged high interest rate environment.
The developer of large, middle-to-upper income sectional title estate's revenue decreased 28% to R852.7 million, while profit for the period fell by 57% to R76.9m.
The estates typically consist of between 1 000 and 3 500 sectional title apartments in targeted nodes of Johannesburg, Tshwane, Western Cape and KwaZulu-Natal.
“While market sentiment traded positively after the announcement of the Government of National Unity and the improvement in macro-economic conditions in the period, this encouraging trend did not flow materially into the residential property market, due to the overarching high borrowing costs for prospective customers,” Balwin CEO and founder, Steve Brookes said in the results.
He said the 25 basis point reduction in the prime interest rate in September was the first positive step for an anticipated recovery in the residential property market. The reduction was, however, post the reporting period.
In response to the challenges, management responded by reducing the rate of construction of apartments to match the rate of sales to preserve cash flows, and they were managing construction costs better without compromising on quality standards.
Marketing activities and sales incentives were continuing, while operating expenses was being reduced wherever practical, and overhead costs were being tightened.
Brookes said the lower group revenue was largely due to the decline in apartment sales where 640 apartments were recognised in revenue, down 23% on the 834 apartments for the prior period.
The Gauteng node re-emerged as the largest contributor to revenue, with 326 apartments (August 2023: 279) and growing its revenue contribution to 51% (34%).
The Western Cape continued to show strong demand with 94% of the apartments brought to market being recognised in revenue in the corresponding period. The region contributed 295 apartments (402) to revenue, maintaining a 46% contribution to the total apartments recognised in the period.
The annuity business portfolio continued to growth well and its revenue increased by 17% to R65.8m. On the back of this, its contribution to the group revenue increased to 7.7% (4.7%).
The group gross profit margin remained steady with the prior period at 32% (33%). This was up from the 28% reported for the last year end to February 29, 2024.
The gross margin was strongly supported by higher contributions from the annuity businesses, with gross profit margin from the sale of apartments under pressure owing to the tough trading environment, reducing to 23% (28%).
While the margin declined from the prior interim period, it remained materially flat with that recorded for the 2024 financial year of 24%.
Operating expenditure fell 7% to R155.1m. Taxed profit was down 57% to R76.9m. The period was closed with a healthy cash balance of R242.8m. No interim dividend was declared and the board said they would reconsider a dividend when reviewing the full year results.
The group has a development pipeline of about 42 000 apartments equating to approximately 15 years. The group plans to “cautiously” introduce rental developments by utilising existing land parcels to create a separate rental portfolio.
BUSINESS REPORT