VAT increase weighs on Balwin Properties

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VAT increase weighs on Balwin Properties

Published Date: 2019-05-16 | Source: Stephen Gunnion | Author: Stephen Gunnion | Comments

VAT increase weighs on Balwin Properties

The property developer slashed its dividend as profit margins declined but it expects continued urbanisation to drive demand for its apartments.

Balwin Properties says demand for its lifestyle apartments remains strong despite the weak economy and cash-strapped consumers. However, the property developer says it's still being hindered by council delays in registering its apartments, affecting its cash flow. As a result, it was unable to register 864 apartments by the end of its financial year on 28 February. It's also been affected by last year's VAT increase, which it's absorbed into its selling prices.

The group develops large-scale, sectional title estates aimed at low to middle-income buyers. It has a secure pipeline of 28,419 apartments across 23 developments with development horizon of about eight years.

Balwin recognised 2,437 apartments in its revenue during the reporting period, including 2,281 build-to-sell apartments. It also sold 156 units to Balwin Rentals, the new rental joint-venture it has a 25% stake in. This will help it derive annuity income over time. The average selling price per apartment reduced by 9.2% to R1.07 million, in line with expectations. This was due to a different product mix as well as the inclusion of the revenue it sold to Balwin Rentals, which return a lower selling price than its other apartments.

Revenue increased by 6% in the year to end-February but profit fell 8% to R452 million as the product mix eroded its gross profit margin. Earnings and headline earnings per share were down by the same degree to 96c. Headline earnings are used as the main gauge of profitability and exclude extraordinary items. It's declared a final dividend of 14.51c, down from 21c last year.

Its shares rose 7.6% to R3.11 yesterday.