Calgro M3 says sales from its four residential development projects contributed about 75% to group revenue for the 12-month period to the end of February.
Rising demand for affordable housing coupled with limited supply resulted in sales of homes priced between R500,000 and R600,000 increasing during the period. The projects include Fleurhof, Jabulani, South Hills and Belhar in Cape Town.
The affordable housing and memorial parks developer used cash generated through operations to fund R249m of bulk and link infrastructure on these four projects and plans to spend an additional R150m in the next financial year.
“Our affordable and value-offering lifestyle estates continue to drive sales, and we have full support from lenders in this segment of the market,” CEO Wikus Lategan told Business Day.
Lategan said their projects are priced between R500,000 and R799,000 for apartments, with freestanding homes starting from R750,000 and up to R4m at the high-end of the market.
He said their target market are buyers with household incomes of between R10,000 and R12,500 — mostly families and single professionals.
“We are seeing demand for smaller apartments, and to this end, we are exploring introducing 1.5-bedroom apartments to entry-level buyers,” he said.
Calgro M3 specialises in residential developments, including subsidised, social housing and grassroots affordable people’s (GAP) housing. The residential property development segment of the business generates most of the profit with the memorial parks bringing in a sliver.
Lategan said the residential property development business remained the largest contributor to group revenue and profit with nine active projects in Gauteng and the Western Cape.
During the reporting period, the company handed over 3,186 completed houses, with 2,719 houses under construction and more than 3,100 being serviced.
Lategan said improved housing design and layout resulted in the addition of more than 1,600 houses to the pipeline at no additional capital cost.
“We aim to manage cash flow more evenly by distributing handovers throughout the year and generate more consistent cash flow over the next six to 12 months.”
Though the residential property market remains under pressure due to rising interest rates, he said Calgro has been lucky in that all major banks are still giving 100% bonds to the affordable market segment.
Lategan said the group had a development pipeline of 22,000 houses with a revenue of about R15.9bn scheduled for completion in the next five years.
This excludes the addition of Frankenwald situated next to Alexandra Township and Marlboro Gautrain station in Johannesburg. The project, expected to come on stream in mid-2023, will yield about 20,000 houses. It is also the last remaining large-scale property development project in the greater Sandton area.
The memorial parks side of the business reported fewer sales as higher vaccination rates and less lethal Covid-19 variants reduced the number of deaths and consequently burials.
Lategan said with affordability continuing to be a challenge especially in a rising interest-rate environment, the group introduced a lay-by offering, where customers can pay for graves over a 24-month period at zero interest, in mid-July 2022.
Normal graves at Calgro M3 parks start from R8,000 and can go up to R50,000 at Fourways Memorial Park. For example, with graves priced at R13,500, buyers who take up the lay-by option pay as little as R562 per month for 24 months.
For the period to the end of February, gross profit (revenue minus the cost of sales) came in 26.9% stronger year on year at R357.7m and profit after tax 40.9% higher to R186.3m, but no dividend was declared, just like in 2022.
Revenue rose 15.4% to R1.5bn from R1.3bn in 2022.
Net asset value (NAV) per share, used to assess the value of a real estate investment trust (Reit), increased almost one-fifth to 951c while the net debt-to-equity ratio decreased 12.7% from 0.71 to 0.62.
“The business is poised for growth boosted by robust consumer demand for our affordable and value for money offering,” he said.
Update: May 15 2022 This article has been updated with new information from Calgro M3 CEO.
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