Steve Brookes, founder and CEO of South Africa’s largest JSE-listed residential developer Balwin Properties, is unperturbed about having to shelve the group’s much-hyped R1.6 billion Wedgewood high-rise development in Sandton.
Speaking to Moneyweb following the release of Balwin’s full-year results on Monday, Brookes insisted that it was the correct decision and said the cost of shelving the project was “insignificant” in the context of the overall business.
“Admittedly, I spent much of last year putting the project together and we spent some money on marketing it, but it was not a lot of money … Ultimately, the risk of the project was simply too high and Balwin’s executive committee decided not to go ahead with the development. This decision was supported by the board,” he notes.
Brookes did not reveal what the final costs were but confirms that the group did not end up purchasing the site originally earmarked for the development from JSE-listed real estate investment trust Fortress.
Balwin launched the Wedgewood development to the market in November last year as its first high-rise – a 20-floor apartment block that was to be located just down the road from the Gautrain Sandton Station and envisioned as an affordable housing project.
Read: Balwin bets R1.6bn on new Sandton high-rise (Nov 2020)
In January, it trumpeted that it had done over R1 billion in sales for the 1 340-unit project.
However, it seems Balwin counted its chickens before they hatched.
Risky, ultimately unviable
Brookes concedes that only around 20% of these sales ended up translating into actual bankable deals, which resulted in the development becoming too risky and ultimately unviable. Last month, Balwin canned the project.
“We learnt a lesson here that we need to stick to our core business and what we know well [large scale mid-level residential developments],” he says.
“However, I am an entrepreneur and will always look for new opportunities … We may relook the model again, but in the current market it seems investors and the target market for such a development are not ready to commit, especially if they have to wait a few years before it is complete,” adds Brookes.
He stressed that for such a scheme to work, a developer needs to secure around 75% in pre-sales.