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Is SA's new R30 billion city a hot investment opportunity or not?

by , 08 October 2020
Is SA's new R30 billion city a hot investment opportunity or not?
“Ramaphosa launched R30billion Mooikloof Mega Residential City Project”

I'm sure you've seen this headline, or something like it in the last few days.

But what is this project really? And is it a great investment opportunity, or even something you should take note of or not?

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JSE Property company to develop a massive property project in partnership with government
 
Balwin Properties (JSE: BWN) is set to develop this project with government as a partner to a limited extent. I’ll tell you more about how government will be involved in a moment…
 
The development is a huge sectional title scheme in the Mooikloof area, just off Garstfontein Drive and around 8km from the N4.
 
The development aims to build 50,000 apartments in the R500,000 to R800,000 range – specifically where a gap lies in affordability and availability of property at the moment.
 
Balwin has set out around 200 hectares of property worth around R325 million for this project.
 
It will only develop the residential components of the project, with land of around 20 hectares being sold to third parties for development of a filling station, educational and commercial properties.
  
Just how soon will this happen?
 
Balwin’s initial project plan is for 16,000 apartments of 1 to 3 bedrooms. It will build these in the next 10 years, over 5 development phases, with the first being a 2,500 unit development.
 
So it is important to note that this isn’t a new city that’ll arise in the next year. This is a long term project. In fact, I wouldn’t be surprised if Balwin on-sells more land, or sub-contracts other developers for some of the project down the line.
  
How will government fit in with this development?
 
A lot of questions immediately arose as soon as this development was announced…
 
Government isn’t an equity or debt holder in the project.
 
Basically the project has been categorised as a SIP. This means it is a ‘strategic infrastructure project’. This means applications for zoning, water use licences etc on the project is sped up, and enjoys priority by authorities. It is a long process with lots of red tape to get a project categorized as such…
 
Additionally, government is responsible for bulk services (water, electricity, stormwater and sewer connections).
 
Bulk services is an expensive capital outlay that needs to be done up front – and is often the reason why developers don’t take the risk on projects like this if they need to pay for services up-front. So government putting in services helps a lot on this project’s viability.
 
Lastly, government is not paying for the development or buying anything from Balwin. But government will help first time home-buyers. So, government provides grants as ‘down-payments’ to first time home-buyers that fall within the income brackets for assistance from the National Housing Finance Corporation and the FLISP scheme. If you earn between R3501 - R22 000 per month and are looking to purchase a home, for the first time government will assist with a subsidy of up to R121,626 – with a minimum of R27,960.
 
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Does this mean the project is an investment opportunity?
  
In terms of Balwin’s share price – it shot up around 40% on this news…
 
But this doesn’t mean the company is a great opportunity due to this project.
 
There’s a long way to go – as I said the minimum duration of the project is 10 years. And that’s for only 16,000 homes.
 
Surely - it is a great long term opportunity for the company.
 
But I would first wait for government to ACTUALLY come to the table and start with installation of bulk services – as proof that this project is really viable…
 
Till then – it is just a great idea.
   
Here’s to unleashing real value
 
Francois Joubert
Editor, Red Hot Penny Shares


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