For investors looking for exposure to South Africa’s long-awaited housing recovery, small-cap residential developer Balwin Properties deserves a second glance.
Balwin and Calgro M3 are the only pure housing plays available to investors on the JSE.
Last month, Balwin marked its 10-year listing anniversary. Founded 30 years ago by maverick entrepreneur Steve Brookes, Balwin has grown into the country’s largest sectional-title homebuilder, with more than 100 developments and 60,000 apartments under its belt.
Balwin’s lifestyle estates, aimed primarily at middle-income buyers and tenants, typically span 1,000-3,500 sectional-title apartments with extensive leisure amenities such as pools, gyms, padel courts, restaurants, spas, games rooms and play areas. Prices range from R600,000-R3m, which translates into an average R18,000/m²-R23,000/m².
After languishing in the doldrums for the past two years — dragged down by higher interest rates and a slump in homebuyer sentiment — Balwin’s share price is up more than 60% from its record low of 172c in early April. Last week, management released a solid set of results, which will likely further aid a recovery in investor sentiment.
Sales are up 45% in the six months to end-August year on year, albeit off a low base — 928 apartments across 18 developments were handed over to buyers compared with 640 in the same period in 2024. Pre-sales of off-plan apartments came to 1,028 vs 743 in the prior year. Demand has been particularly strong in the Western Cape on the back of ongoing semigration and rising demand for affordable housing options in Cape Town and surrounds.
In fact, a third of sales were recorded at two of Balwin’s Western Cape properties: De Aan-Zicht in Milnerton and The Huntsman in Somerset West. Sales prices in Balwin’s core Classic Collection, which vary between R1m and R2m, are up an encouraging 5%-6%.
The earnings recovery has been further underpinned by a 55% increase in revenue from Balwin’s burgeoning annuity business to R101.5m, which contributes 8.3% to total group revenue. The business includes recurring income streams from fibre and Wi-Fi services, cellular towers, padel court rental fees, and a small but growing portfolio of rental apartments.
SBG Securities analyst John Arron believes that despite the recent share price rally, there’s still value to be had. At this week’s level of close to 280c, the stock trades at a colossal 70% discount to NAV and remains way below its 2021 highs of 480c.
Balwin is one of only two housing developers on the JSE that’s heavily linked to the interest rate cycle. Arron says that means the stock is well placed to benefit from further rate cuts and a recovery in homebuying sentiment.
As a major shareholder, I, too, would have liked to see a dividend again, but we have to be careful given how sensitive the housing market is to rate movements and other macro events
— Steve Brookes
“Balwin is selling a product that’s in high demand, especially among younger, middle-income buyers who are increasingly looking for compact, fully serviced sectional-title developments with access to lifestyle amenities.”
However, Arron reckons investors will probably wait for evidence that Balwin can sustain the newfound momentum in apartment sales before they pile back in.
There’s also the million-dollar question of when management will resume dividend payments, which were halted 2½ years ago. Arron had hoped dividends would already be back on the table given the marked improvement in apartment sales. He says management is clearly adopting a more cautious approach. “The catalyst will likely be a further increase in sales on the back of more rate cuts.”
Asked when investors can expect dividends to be reinstated, Brookes says the company wants to first reduce its debt — its loan-to-value stands at 39.3% — and build its cash reserves.
“As a major shareholder, I, too, would have liked to see a dividend again, but we have to be careful given how sensitive the housing market is to rate movements and other macro events.” He adds: “We will see how it goes.”
Still, Brookes is confident that the housing recovery has legs. He tells the FM that sales volumes should reach at least 3,000 for the year to February 2026 and potentially 5,000 in the year after that, “provided we see more rate cuts”.
He believes Balwin’s commitment to environmentally sustainable building and its innovative “green bonds” offering will continue to boost sales as homebuyers become ever more focused on utility cost savings. Balwin buyers who opt for a green bond qualify for mortgage rebates and interest rate reductions.
Despite the developer not being structured as a real estate investment trust — and therefore not obliged to dish out dividends to shareholders — Brookes would like to reposition Balwin as a dividend play.
He believes plans to bulk up Balwin’s rental portfolio with 10,000 build-to-rent units over the next 10 years will go a long way to achieving this, as it will help diversify revenue streams away from the development profits made on its build-to-sell model.
The 10,000 rental apartments are in addition to Balwin’s development pipeline of 35,000 (for sale) apartments, a large portion of which are under construction in the sprawling Mooikloof Smart City, a government-designated precinct on the eastern outskirts of Tshwane.
Balwin’s first dedicated rental development, The Eastlake in eastern Joburg, achieved an occupancy of 97.4% in the six months to end-August. Monthly rentals average R8,000-R12,000. At least another six pure rental development opportunities have already been identified.
Brookes says: “At the moment, cash flows are quite lumpy. Analysts are likely to see Balwin as a more stable and predictable income payer as we grow our rental portfolio.”
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