Balwin launches rental business as fewer South Africans can afford to buy houses
Balwin Properties has turned its focus to the rental market to cope with an oversupply of residential property
Balwin Properties, SA’s largest seller of sectional title property, has turned its focus to the rental market to cope with an oversupply of residential property aimed at the middle-income segment.
To this end the group, which is backed by elusive billionaire Jonathan Beare, launched a rental business on Wednesday, which it intends to list within the next five years.
The group, which has a market capitalisation of R1.46bn, said it had to supplement its income by renting out apartments and not just selling sectional title units.
Balwin Rentals is 75% owned by a consortium of ultrawealthy investors including Beare, with the remaining 25% held by Balwin.
In terms of the initial agreement, Balwin will dispose of 156 units to Balwin Rentals for a total cash consideration of R98.43m. Profit after tax from the disposals of R18.54m will be reinvested into Balwin’s existing development pipeline. As many as 144 units will come from Balwin’s Greenpark development while 12 will come from its Amsterdam development.
Balwin subscribed for its 25% interest in Balwin Rentals at no cost, enabling it to share in 25% of the net rental income on an annuity basis.
Balwin Properties’ plan over the next few years before listing, is to build up a significant rental pool so that it will be in a position to rent out 2,000 units. It will at the same time sell about 3,000 units.
Rentals will range from R4,500 to R8,500 a month.
“Our ambition has always been to develop and retain a rental model that would ensure annuity income for the company,” said Balwin CEO Stephen Brookes.
He said SA is entering a rising interest-rate environment, which bodes well for the rental business.
“It is defensive, as rentals are more popular in a higher interest-rate environment, while prospective clients opt to buy when interest rates are low,” he said.
Research by TPN has shown that more South Africans have chosen to rent in 2018 because of weak economic conditions in which a lack of disposable income is making it harder to get deposits together to buy houses.
TPN MD Michelle Dickens said there is a slight oversupply of housing.
“The TPN national market strength index for 2018 quarter four is 49, which means we have a market with marginal oversupply given that 50 is a market in equilibrium. Anything above 50 indicates good demand and below 50 indicates oversupply,” she said.
Chareen Mota, Pam Golding Properties’ Hyde Park manager, agreed there is an oversupply of houses for sale.
“It is currently definitely a buyers’ market, with an oversupply of property stock in some places, giving buyers lots of choices, which in turn puts pressure on pricing,” she said.
More rental stock is being developed and coming onto the market.
Dickens said fewer people are also buying second properties and developers are aware of this.
“Currently 19.47% of property deeds transactions are for second property buying. This has been fairly flat since the property boom period in 2006 to 2007, when it peaked at 25.66%. Many developers are taking the view of holding onto a portion of their development as rental stock,” she said.