JSE-listed residential property developer Balwin recorded a 28% year-on-year decline in revenue to R852.7-million and a 57% year-on-year decrease in profit to R76.9-million for the six months ended August 31.

Headline earnings a share decreased by 57% to 16.26c during the period under review.

The group reduced its operating costs for the period by a further 7% to R155.1-million, which is the third straight reporting period where operating costs were reduced at company level, representing a cumulative 27% reduction in operating costs since the August 2022 interim results, said Balwin CE Steve Brookes.

The gross profit margin of the group remained flat at 32%, compared with 33% in August 2023, but improved from the 28% reported for the financial year ended February 2024, mainly owing to the increased performance of the annuity businesses.

The past six months were characterised by higher for longer interest rates and a stagnant economy that continued to impact the housing market, Brookes commented.

“Sentiment, however, is a key driver of the residential property market, and we saw several positive catalysts materialise during the reporting period, including expectations of a lower interest rate cycle, improved confidence following the formation of the Government of National Unity, the continued availability of electricity and a series of petrol price cuts.

“Although these factors did not impact on the results we are reporting on today, they position us well for a recovery in the second half of the financial year.”

However, it will take time for additional interest rate cuts to fully flow through to the bottom line, as most households continue to battle with rising living costs and pedestrian economy growth, he highlighted.

Buyers and investors who were previously on the fence are increasingly committing to property transactions following the September interest rate cuts, as demonstrated by a healthy recovery in the group’s forward sales to 743 apartments, up from 688 apartments in August 2023.

These apartments are not recognised in the reporting period’s revenue, but have been pre-sold for future financial periods, he noted.

Further, Balwin reported a contraction in the average selling price of its Classic and Green Collections during the period owing to economic headwinds and incentives stimulating sales.

Its annuities businesses continued to report robust growth on increased scalability, with an aggregate revenue of R65.8-million for the period, or a 17% year-on-year increase, contributing 7.7% of group revenue.

The business segment further recorded an operating profit of R26.9-million before intergroup eliminations. More than half of the total annuity revenue was derived from fibre and infrastructure services, which increased its active clients to 9 599.

The group had cash of R242.8-million, and its loan-to-value reduced marginally to 40.2%, which is well within covenant requirements, during the six-month period, said Brookes.

Meanwhile, developments under construction, which include the value of land and infrastructure costs, development rights and construction costs, increased by approximately R200-million to R6.5-billion.

This increase was driven predominantly by construction and development costs, not additional investment in land, reflecting Balwin’s focus on top-structure development as the group executes on its existing pipeline of projects, said Brookes.

Additionally, in line with its sustainability objectives, all new developments undertaken by Balwin Properties are aimed at achieving Excellence in Design for Greater Efficiency (EDGE) Advanced ratings. Balwin has, to date, certified 26 404 apartments with the EDGE tool, which is an initiative of development finance institution the International Finance Corporation.

The group has achieved significant milestones with 16 848 apartments certified EDGE Advanced by demonstrating energy savings of 40% or more, water savings of 20% or more, and reduction in embodied energy of 20% or more.

Additionally, ten of Balwin's lifestyle centres have achieved six-star Green Star ratings by the Green Building Council of South Africa, all of which have been accredited with Net Zero Carbon ratings, which affirm their ability to generate and maintain a net zero carbon footprint.

Balwin’s head office at 105 Corlett drive has also received a six-star Green Star rating, Net Zero Carbon and Net Zero waste rating.

Further, in the pursuit of sustainable financing options for its clients, Balwin has secured 903 green bonds for home buyers during the period. These bonds provide financial benefits, and also contribute to savings amounting to a total of R44.5-million over 20 years.

“We remain cautiously optimistic about a recovery in the second half of the financial year,  but warn that further rate cuts will only trickle through over time and, at best, only for three months of the remaining financial year.

“Our focus, therefore, remains on growth opportunities in strategic areas by leveraging the existing land bank and pipeline development opportunities, and, importantly, ongoing cost reductions.

“Although margin pressure is expected to relax towards the latter part of the financial year, we will continue to manage costs prudently by leveraging our brand, especially through Balwin Sport, Balwin Annuities and our environmentally responsible developments,” Brookes said.

“Our business has been tempered by the interest rate cycle, and we have done a lot of work to right-size the group and make it much more efficient. These interventions position us well as the macro environment improves.”