There's no denying it. Property is one of the best performing sectors of the JSE, year in, and year out.
In fact, a quick look at the SAPY property index shows that it returned 1,035% between the start of August 2004 and August 2016.
In comparison the JSE All-Share index returned 626% including dividends…
Clearly property is a top performing sector.
What's even better - with listed property you can become a landlord without having to do rent collection, repairs or research into new property acquisitions.
But what if you want to be where the real money is made - development of property… Are there any investment options for you?
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Look around you. Taxes are rising, independent, unbiased financial advice is disappearing, and mis-sold pensions and equities are taking their toll on people’s savings. In any given year, less than 20% of the more than 800 unit trusts in South Africa beat the market for their investors. So much for the abilities of ‘experts’.
Now more than ever, due to the current economic landscape, it’s only those with access to specialised knowledge and expertise who will really prosper in 2016 and in years to come…
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The hottest property developer the JSE has to offer
Right now there are two residential property developers on the JSE that excite me.
These companies are Balwin and Calgro M3.
And these companies sure have their work cut out for them…
Within the next five years it’s estimated that another 2.5 million people will move into our three major cities, Johannesburg, Pretoria and Cape Town.
In addition to these people, there will be more than 656,322 new births (net of deaths) in Gauteng alone per year. So that’s another 3.2 million new people in Gauteng over the next five years.
As things stand, the Gauteng housing shortage is already one of epic proportions – and nationally it stands at a shortage of 3 million homes. Obviously many of these are low cost homes. But it also includes affordable family houses and student housing.
Just think of recent student protests at the University of Johannesburg – because students couldn’t get into residences and there are no available apartments in close vicinity….
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Which of these two companies are the better investment?
Balwin is all about the middle class. It builds homes that cost between R500,000 and R1.6 million each.
Balwin just signed a deal to buy 232.8 hectares of development land in the Waterfall City and Kyalami areas.
After having spent all the time since it was founded to build 13,500 homes, this deal sets Balwin up to go into high gear.
You see, Balwin had a project pipeline in place for around 15,000 homes in the next 8 years, which is already about twice as much as it’s built in the past ten years.
With this deal it adds another 15,000 homes to its project pipeline.
And what I really like in the way Balwin does this, is the fact that it takes on minimal risk.
It’s not borrowing R1.5 billion to buy all the land for these homes.
It’s got a deal to pay R190 million upfront, with annual payments thereafter. The company will pay varying amounts, averaging around R121 million a year until it’s paid off the full purchase price of the land.
Alternatively, if it manages to develop sooner than anticipated and pays off the land in a shorter time span, it will get a R350 million discount!
But that doesn’t mean you should write Calgro off…
Calgro operates in the lower cost housing segment. Specifically, RDP houses and its bread and butter comes from properties in the R100,000 – R700,000 range (although it also operates in Balwin’s range to a lesser degree).
A big deal just signed by Calgro caught my attention
Calgro just signed a R1.639 billion deal with a Real Estate Investment Trust, SACorp.
SACorp will put in 51% of the cash for the deal and Calgro 49%.
Under this deal, five residential property developments Calgro is building will be bought by a joint venture company. These properties will then be used as rental property to generate an income.
The expected income from these properties will be around R176 million a year!
SACorp will be responsible for the management of the rentals.
This sounds like a great deal – because it ensures Calgro can make recurring income from properties it develops. But the risk is also lowered with SACorp as a partner managing the rentals, instead of Calgro trying to do so without any experience…
These are certainly two property developers to keep an eye on. Even more importantly, if you want to make profit from property without the hassle of building and managing your own, then these companies provide a great alternative to bricks and mortar…
Here’s to unleashing real value,
Editor, Red Hot Penny Shares