Calgro M3 tackles 2 million unit housing shortage with its lowest priced home

Calgro M3 Holdings has launched its lowest priced home yet, a one bedroomed unit for R399 000 in a bid to begin to tap into the growing demand for lower price homes estimated at more than 2 million units, CEO Wikus Lategan said yesterday.

Interviewed at the developer of lower income housing units and memorial parks’ release of its financial results for the six months to August 31, Lategan said the financial position of consumers was worse than people thought and it would take some time before their situation improved with the gradual easing of interest rates.

He said Calgro had done “a great deal of research” into why South Africa’s low-cost housing developers appeared to be unable to make an appreciable dent into lower income housing demand, and their conclusion was that they were not making places available that were affordable enough.

“We believe these units will be able to capture market interest. It is all about scale, and being able to build using less space and about passing the savings onto the home buyer,” he said.

Calgro M3’s national average sales price for its core two-bedroom family apartment during the period was R636 617, excluding VAT.

Lategan said the recent interest rate cut of 25 basis points had meant only an average R230 per month reduction on a bond for R600 000, which he believed was not yet sufficient to attract more home buyers, and that demand might pick up when interest rates reduced by 100 basis points and which could result in a R1000 per month saving on the same bond.

The group increased headline earnings per share 28.5% to 101.40 cents per share in the six months to August 31 after improved margins had offset lower housing unit sales, while there was also strong cash generation from the memorial parks business which would help offset group administrative expenses in the future.

Lategan said they were pleased at how well they were managing administration expenses, which had amounted to about R49m in the interim period, versus R55m a decade ago.

Revenue fell 26.4% to R507m. Some 869 residential units were handed over (August 2023: 1 193 units), while 1 539 residential units were under construction.

While the number of units handed over was lower, positive product mix and lower infrastructure costs offset this, leading to an improved gross profit margin.

Lategan said they expected the margin to remain above their target for the short to medium-term.

“Our focus in the coming months is twofold: to accelerate the transfer of completed units, drive sales for sustainable growth to enable the group to roll out the pipeline over an approximate 15 year period, and ensure efficient execution and cash flow conversion,” he said.

He said they were “poised for a growth phase” as they entered the second half.

“Our robust pipeline, consisting of large-scale developments Fleurhof, South Hills, Bankenveld and Belhar, combined with the trading out of other developments, positions us to deliver a future pipeline in excess of 38 000 units,” he said.

Strategic capital allocation remained a priority, with significant investments made to ensure the pipeline supported sustainability and a formidable platform for growth.

Their residential property development pipeline exceeded 38 000 opportunities, and that of memorial parks was 120 000 graves.

Net debt to equity stable. No interim dividend was declared, the same as at the end of the same period last year.

The lower revenue was primarily driven by lower unit sales due to pressure on the already constrained consumer, and delayed transfers. The group, however, banked over R200 million in cash in the first two weeks of September,.

Most of the units under construction were expected to be completed by the end of February 2025. A further 1 592 would begin construction after that, and these were targeted for completion in the next financial year.

There were also 2 609 serviced opportunities ready for top structure construction, and a further 2 416 being serviced.

Gross margin growth to 29.69% reflected the move to a higher mix of open market and non-public sector units, as well as the project and product mix, which benefited from historic land and infrastructure costs.

The Memorial Parks segment grew revenue to R31.7m, accounting for 6.26% of group revenue. The segment's main goal remained cash generation for the group. In line with this, cash generation “has shown remarkable resilience” and growth, with cash receipts increasing by 52.8% to R52.1m, said Lategan.

The growth in reservations, particularly through the lay-by option, indicated consumer preference for flexible payment options in the current environment.

BUSINESS REPORT