SUREN NAIDOO: Welcome to The Property Podcast, the second instalment in our new weekly feature on Moneyweb focusing on the South African property industry. In studio today we are joined by Steve Brookes, CEO of JSE-listed residential developer Balwin Properties. Hi Steve, your group is making quite a splash in the industry, you’ve just signed an exclusive agreement with Crystal Lagoons.
STEVE BROOKES: Ja and the problem is every time I sign an exclusive agreement, I get a new speedo, so watch this space. No, seriously, guys, we really are making a splash, we’re a proudly South African company and we really, really are pushing the boundaries with residential. We have signed an exclusivity with Crystal Lagoons to develop six Crystal Lagoons in South Africa in various metropolitan locations around the country. We have already done our first one at The Blyde in Pretoria, which is a tremendous success and the second one, Munyaka in Waterfall, is launching on March 7.
SUREN NAIDOO: So Munyaka is going to become the biggest Crystal Lagoon, tell us specifically what is so special about this Crystal Lagoon because the one in Pretoria was the first in South Africa, the one in Waterfall is going to usurp it as the biggest in the Southern Hemisphere. But Crystal Lagoons is quite popular in the States and other countries, give us a little bit more insight on what exactly it is if our listeners haven’t heard about it before.
STEVE BROOKES: Crystal Lagoons is an incredible concept because what it does is bring water to people and, as you know, water and property are a fantastic combination but a lot of the time the water is dangerous. In other words, the beaches are steep, the water is cold, there are sharks in the water and so on. So Crystal Lagoon offers a an opportunity for a safe environment inland and it can also be at coastal areas. The beauty of Crystal Lagoon is the incredible IP in keeping the water clean and potable, which is fantastic. The water quality of a Crystal Lagoon is exceptional and that’s what we looked for in an international company like Crystal Lagoon, worldwide they have done numerous projects, Africa is a new venture for them and they are extremely proud of the relationship between Crystal Lagoons and Balwin Properties. The one at Munyaka in Waterfall, to give you an idea of size, it’s seven rugby fields long. So if you want to come there and join me with my speedo, we can have one hell of a swim, I don’t know if I’ll make it all the way across but it’s a really fun event. We’ve added a lot of value to this Crystal Lagoon, we’ve put vuvuzelas in as a fountain, which are a tribute to our world cup that he had here a few years ago. We’ve also put a lot of fountains into the lagoon to add a bit of excitement and we have a spectacular A-frame signage, which is 50 metres high, with a zipline that is very carefully controlled, where you can scare yourself and have some real, real fun on the zipline. So it really is an exciting Crystal Lagoon that we’re creating.
World class developments in Waterfall
SUREN NAIDOO: Are you taking advantage of the location of Waterfall, you’ve already got a couple of developments at the node like The Polofields. It’s interesting that this is taking Crystal Lagoons to another level, it’s almost like Valley of Waves, and Johannesburg doesn’t have a beach, so this is probably going to be quite popular because beyond just being a residential estate, will there be public access possibly, it’s going to be the biggest in the Southern Hemisphere.
STEVE BROOKES: That’s a lot of questions, let me try and break it down.
Firstly, we are exceptionally proud of our relationship with the Mia’s Waterfall Foundation is an incredible structure that’s been set up in honour of the Islamic Foundation, we are very, very proud to have the development rights for this land. The infrastructure that’s been developed at Waterfall is world class, we’re adding to it, we have nearly completed a R100 million road called the Mia Drive in honour of Ibrahim and Yahya Mia and the Mia family, so we are very proud of the naming of that road.
We definitely are taking advantage of Waterfall, Waterfall is really becoming an exceptionally good node with a lot of facilities and a lot of international brands and companies moving in there. We really are proud of it.
As far as the exclusivity is concerned, it is only for residents, it is not public access. However, we are limiting people who live there to have friends and family around, and there is also going to be a small boutique hotel on the premises.
SUREN NAIDOO: Sounds exciting, just in terms of The Blyde, which was the first one, how have sales gone there, how popular has that development been?
STEVE BROOKES: The Blyde has been exceptionally popular, I always say that The Blyde is the bridge between Mamelodi and Silver Lakes. We’re about to cross the highway into Silver Lakes and we believe that will make a massive difference. We are also bringing a 100-key hotel into The Blyde, which we believe will attract a lot of conferencing and so on. Sales have exceeded our expectations, we’ve had to accelerate our construction to keep up with the demand and we are just about to touch, I think we actually went over it last weekend, over our eight hundredth sale.
SUREN NAIDOO: Waterfall is going to be launched, Munyaka, you’re talking R9 billion, it sounds big because R9 billion is a lot of money but those are 5000 units over a certain period of time. So it’s not Balwin investing R9 billion, it will become a R9 billion development over time. How much is Balwin investing in each of these lagoon-focused developments?
STEVE BROOKES: Well, the infrastructure for a lagoon is a couple of hundred million, the lagoon itself is in excess of R200 million, so there’s a large amount of capital needed to get this development off the ground. But what’s very, very interesting, just to digress slightly, is when the Johannesburg City Council came out with inclusionary housing we were absolutely thrilled because the Balwin model has always catered for inclusionary housing and, very simply, we have a range from one bedroom to three bedrooms.
On this development we have the most spectacular one bedroom that I have ever designed in my 25 years’ experience and that’s going to start at R799 000. So we have a range of apartments from R799 000 for a one bedroom, all the way up to two absolutely spectacular penthouses that are on top of the lifestyle centre, selling at R30 million each.
‘Balwin has always catered for the middle market’
SUREN NAIDOO: Within the context of what you say that it’s not only targeting the super-rich essentially, The Polofields development, in the last results you talked about the upmarket sector being under stress at the moment, is this how you are dealing with also targeting a little bit of middle market, one would say?
STEVE BROOKES: 100%, Balwin in its 24 years of history has always catered for that middle market, we’re in our exact core business, we are very proud of our two penthouses but there’s only two out of 5000, the bulk of the apartments are between R799 000 and R2 million, so it’s very affordable for people to own property at Munyaka.
SUREN NAIDOO: Just going into more detail on Crystal Lagoons, did you always plan to sign an exclusive-rights and develop five or six of these lagoon-focused developments in South Africa? The reason I ask is because I am sure you would have seen a competitor launch Steyn City development with their own lagoon, what are your thoughts on this because Crystal Lagoons is a global brand?
STEVE BROOKES: First of all, I had absolutely zero intention of going with Crystal Lagoon, when my partner, Rodney Gray, who’s been an exceptional partner since the beginning of Balwin, phoned me and said to me, I was actually in Dubai at the time at the awards ceremony, and he phoned me and said he’s seen these guys who create crystal lagoons. I said to him, oh please, I have never heard of such nonsense, they must be selling you snake oil. He said they are coming to pick you up at three o’clock from the hotel to show you. I was moaning and groaning but I went.
As I saw it, I phoned him back immediately and I said to him please buy some of this snake oil because it’s one of the best things I have ever seen.
Since then we have had a fantastic relationship with Crystal Lagoon, and I was adamant to sign up exclusivity. One of our competitors is doing a lagoon, there are many ways to skin a cat, but I really wish, despite us having exclusivity, I really wish they would engage with Crystal Lagoon because I really believe that Crystal Lagoon are world class and they really do know what they are doing.
SUREN NAIDOO: Waterfall is the next location but you are talking about five or six other locations outside Gauteng, in KZN and the Cape as well. Do you want to give us a teaser of where these possible lagoons will be located in those provinces?
STEVE BROOKES: The lagoon positioning is quite critical, it’s not quite as simple as it sounds.
You need to be fundamentally in areas where the weather is hot at least for seven to nine months of the year, otherwise the duration of usage of the lagoon is low.
So we have targeted another one in Pretoria, we’ve got another very good site that we’re looking at in Pretoria but we haven’t done anything yet. We are targeting Nelspruit because it’s a good couple of degrees warmer, we’ve got another one that we’re looking at in the south of Johannesburg. So that will fundamentally be two in Pretoria, two in Johannesburg, one in Nelspruit and then the north coast of KwaZulu-Natal, and simply because the beaches are extremely dangerous up the north coast but the weather is good, so it’s a perfect opportunity for a lagoon. Then the last one, and quite a contentious one, is in the Western Cape but we are looking at a site where we will, with permission, be able to pump water out of the sea, which is actually what Crystal Lagoon started doing in their early years.
SA’s largest sectional title developer
SUREN NAIDOO: There’s lots happening. Just on the company front, maybe a little bit of background, you’ve been listed on the JSE for about four years now, you’ve become South Africa’s largest sectional title developer and one of the biggest residential developers and also the biggest JSE residential player, just give us a short account of how the company has grown, where it started and how big the company is now, both in market cap as well as in terms of number of developments and units in the pipeline.
STEVE BROOKES: I started the business in 1996, I’ll never forget, with one staff member and the lady at the end of the day said to me that she has to resign. I said that’s not a great start. So she said, well, the phone hasn’t rung the whole day. I said don’t worry, it will start ringing soon. That was in 1996, which is now 24 years ago.
We have grown in strength and I attribute our strength to exceptionally good management, exceptional partners who I partnered up along with during my career. I have yet to lose a partner, my partners are extremely loyal, extremely hard working and good at what they do. I think the success of Balwin going forward is our complete uncompromising attitude towards quality and design.
We do make mistakes, we’re sorry, we are builders, but we do honour our mistakes and we go back and fix it if there’s a leaking roof and so on. Our motto for this year is zero defect, we are trying harder and harder with all our contractors and suppliers to be better and better builders. It isn’t an easy task out there, I am sure most of you who have built have realised that.
We want to continue from strength to strength in South Africa, we believe in this country, we believe strongly in inclusionary housing.
Our new green brand that we’ve brought into the market and we are very proud of that brand. We’re a proudly South African company, 99% of our commodities come from South Africa only, it’s one of the things that I drive very hard. I am also the chairman of the Balwin Foundation, we have a foundation that achieves about R10 million worth of revenue a year and it gets distributed to a lot of…we’ve got 20 university students and we do a hell of a lot of good for the community.
SUREN NAIDOO: Maybe some specifics on the financial side in terms of market cap and how many units are in the pipeline at the moment, obviously you are always looking for sites and mega-developments across the country but how many units are in the pipeline currently?
STEVE BROOKES: I’m a bricklayer, how do you expect me to answer financial questions?
Looking for land in strategic areas
SUREN NAIDOO: I’m sure you know the company in and out.
STEVE BROOKES: [Laughing] I do. Look, being listed is a tough ask, I’m very proud of our listing. Every six months you get measured and it does give an incredible discipline to my management. It is a tall order being listed, especially in the property cycle where, as you all know, it takes a bit longer to build anything. But I believe we are doing well, results are coming up soon, which we will obviously announce in due course. We’ve got a nice pipeline, we are watching our capital deployment and our cash reserves, so we are not hastily building a bigger pipeline than we’ve got.
But we have basically got enough land for eight to eight-and-a-half years’ work, but we are still looking for land in strategic areas.
For example, areas in Umhlanga, some areas in Cape Town we are still looking for land but not aggressively.
SUREN NAIDOO: Total amount of units in the pipeline?
STEVE BROOKES: We’ve got close to 28 000 apartments in our pipeline. We are in a growth spurt, cautiously. We have an ability to go up to 5000 apartments a year, currently we are just below 3000. So there’s a nice bit of growth without increasing our overheads or our staff. I believe we can achieve the 5000 apartments a year, which will translate roughly into a turnover of R4 billion because obviously some of the product is our green brand, which is a lower value.
SUREN NAIDOO: Any hint on anything new that you’re dabbling with other than Crystal Lagoon, any innovative other offering that we might look out for going forward?
STEVE BROOKES: Yes, I’ve got a great idea to build without bricks.
SUREN NAIDOO: Okay, we’ll have to watch that space.
STEVE BROOKES: The most important thing I am driving at the moment is the green bonds, that is about to be announced, where as part of our accreditation of being green, Balwin achieved the world record of registering 16 000 apartments on [indistinct] certification, we’re immensely proud of that. We’ve got our first six-star grading on our lifestyle centre and they are continuing. So we really are at the forefront and cutting edge of green.
I have also established Balwin Parks and we really are trying harder and harder to give our clients more and more green space within our developments, and also making sure that we’re not isolated.
I worked with an exceptional urban planner and the urban planner once said to me, please try to integrate with the local community. So we are working hard with the local communities to upgrade their parks, upgrade their standard of living and I think that’s a proud achievement. So it’s not to just be this big, bad, ugly, greedy developer that comes into communities and leaves. We like to improve communities and add value.
SUREN NAIDOO: That was Steve Brookes, the CEO of Balwin Properties. Thanks for the opportunity, Steve.