Louis Aucamp

PLATINUM RIDGE HOUSING DEVELOPMENT IVY PARK EXT 36 1 1. SYNOPSIS: Platinum Ridge is a housing development offering investors the opportunity to become shareholders in the development Expected financial close for raising capital is 15 March 2015 Expected Equity Capital amount is 15 million rand (R-) st Expected completion date of construction of phase 1 is the 1 Quarter of 2016 2. OBJECTIVES: The objectives of this document i.e. investment proposal is to give the reader an overview of the following key points: A description of the Platinum Ridge Housing Development Present an overview of the investment offering and the proposed investment structure Highlights the anticipated Return on Investment Capital (ROIC) Highlight the Risk Mitigation Strategy to be undertaken throughout the different stages of the development 3. THE DEVELOPMENT: 3.1) The Concept: The proposed development is a middle income housing development project of: a total of 378 erven 372 freestanding dwelling units 2 high density dwelling erven for sectional title development purposes with an anticipated 116 units to be built and a commercial stand at the entrance of the development that will be utilized for the purpose of a small convenience store. Included in the plan are sufficient public open spaces provided to ensure spacious outdoor living. 2 3.2) The Property Figure 1: Site Map Property Owner's details: • The property is owned by Double Peak Properties 26 (Pty) Ltd (represented by Mr. Ian Murdoch MacDonald). An offer to purchase the land was entered into between the Tugela Group and th Double peak Properties. This offer to purchase agreement was signed on the 12 of September 2013, subject to specific conditions, which include an initial selling Price of R20 million and R147.17 p/m² for the remaining land, a kustingsbrief mortgage was concluded to this effect. The land sale agreement was signed on the 4th of June 2012. • The property description is: o o o o Remaining extent of Portion 67 of the farm Sterkloop no 915, Registration Division LS, which is located in the new Ivy Park extension 36 and is 20, 9560 Hectares in size. Title Deed Number: T18389/2000 The property is accessible on the R555 road from the Polokwane CBD and has entertainment facilities only 5 minutes away as it is a short distance from the nearby Meropa casino & Entertainment World. 3.3) The development concept: The project already has development approval from the Limpopo Development Tribunal dated 18 April 2008. The property has been subdivided into a total of 374 dwelling units across a total of two phases. The area has already been proclaimed a Township and a Township register has been opened. Phase 1 will comprise of the following number of units: • 165 free standing stands Phase 2 will comprise of the following number of units: 3 • 200 free standing stands (consisting of two high density Res 2 zoned stands to be used for Sectional Title development of 116 units, and a commercial stand to be used for retail purposes.) The size of the free standing stands is an average of 300m² per stand. 3.4) Design Typology: Plan Size: A B C D E F 53m² 61m² 70m² 80m² 91m² 98m² Description Lounge, open plan kitchen , 2 bedrooms, 1 bathroom with separate toilet Lounge, open plan kitchen, 3 bedrooms, 2 bathrooms (1 en suite Lounge, open plan kitchen, 3 bedrooms, 2 bathrooms (1 en suite) Lounge, dining room, open plan kitchen, 3 bedrooms, 2 bathrooms (non en suite) Lounge, dining room, separate kitchen, 3 bedrooms,2 bathrooms (full en suite) Lounge, dining, sep kitchen & scullery, 3 bed, 2 bath(full en suite & dress room) 4 Anticipated Selling Price: R- R- R- R- R- R- 3.5) The Professional team: The Platinum Ridge Professional team is comprised of various professionals and consultants which have worked on large scale developments ranging from Commercial Developments, Residential and Retail developments in and outside South Africa. The Professional team is essential in any development in order to ensure the best quality at the most cost effective price, which in turn increases profitability and performance of the project as well. Great care was given in selecting and employing of the professional team. The role that each professional/consultant plays in the development has been well articulated. Individual competence and the cost of their services considered were determined in advance. The Professional / Consulting team is made up as follows: Professional / Consultant Designation Name Responsibility Quantity Surveyor FM Solutions (Pty) Ltd Architect WOA Architectural Services Civil Engineers WR Partnership Electrical Engineers VSV Consulting Project Director and Project Manager Loufrandini Consult Building Contractor To be appointed Estate Agents Tugela Realtors 5 To ensure that adherence to the Bills of Quantity is maintained in order to avoid any unplanned expenses Production of building plans, and to monitor that the construction is carried according to the building plans. To ensure the integrity of the components used in the construction in order to have a sound end structure To ensure the thorough and diligent execution of the Development from concept to construction, and identify and mitigate any possible risks along the process from concept to construction To deliver the project on time and on the quality policy within the required budget constrains. Building/construction of the structures as per the working drawings To market the development in order to attract customers and to advise them on how to acquire the units (some clients qualify for FLISP - which would need to be pointed out to them and they could be assisted in the application process if need be) 4. DEVELOPMENT FEASIBILITY: 4.1) Feasibility Methodology: The sales comparison method is one of the three major approaches of property valuation methods, most commonly used in real estate valuation. This approach compares a subject property's characteristics with those of comparable properties which have been recently sold in similar transactions. The process uses one of several techniques to adjust the prices of the comparable transactions according to the presence, absence, or degree of characteristics which influence value. The sales comparison approach is based upon the principles of supply and demand, as well as upon the principle of substitution. Supply and demand indicates value through typical market behaviour of both buyers and sellers. Substitution indicates that a purchaser would not purchase an improved property for any value higher than it could be replaced for on a site with equivalent utility. The approach of the feasibility study was concluded by engaging with the professional team members in providing costing for the internal civil and electrical services. The estimation for the external bulk services was calculated by the project engineers, (no bulk construction costs are payable; as stipulated in the service agreement). The costing for the building works were calculated with reference to a proper Bill of Quantities with respect to each house plan. These were submitted to BB Construction for pricing. (Refer to Annexure A) 4.2) Competitive Analysis: The competitive analysis is made up of a list of comparable (similar) properties that were sold in Ivy Park in the past few months, this list was taken off Property24.com and features only the most recent sales. The selection criteria used to identify comparable properties was size, typology and location, namely Ivy Park Polokwane. (23 January 2015) Comparable Property Identified: Comparable Property Price: Platinum Ridge Comparable Unit: Comparable unit 1: 2 Bedroom, 1 bath • R 750 000 House for sale in Ivy Park 6 Plan A – 53m², 2bedrooms, 1 bathroom Platinum Ridge Unit Price: R 291 500 p/unit Comparable unit 2: 3 Bedroom, 2 bath • R 755 000 House for sale in Ivy Park Comparable unit 3: 3 Bedroom, 2 bath • R 760 000 Plan B – 61m², 3bedrooms, 2 bathrooms (1 en suite) Plan D – 80m², 3bedrooms, 2 bathrooms R 335 500 p/unit R 440 000 p/unit House for sale in Ivy Park Comparable unit 4: 3 Bedroom, 2 bath • R 780 000 House for sale in Ivy Park Plan F – 98m², 3bedrooms, 2 bathrooms (full ensuite & dress room) R 539 000 p/unit Platinum Ridge offers some unit typologies which fall in the GAP(Affordable) housing market and this will make therefore it more easier for first time buyers and purchasers within the GAP housing market to be in a position to access quality housing at affordable prices. ( The GAP housing market comprises people who typically earn between R3,500 and R15,000 per month, which is too little to enable them to participate in the private property market, yet too much to qualify for state assistance. Units in this market segment can be freestanding, full and sectional title units or multi-storey sectional title apartments.) 7 Trends and Statistics for Ivy Park - Property 24 Sold Properties This graph shows the number of Houses sold in Ivy Park each year, and the average sale price. Properties for sale This graph shows the number of properties on the market in Ivy Park per month, as listed for sale on Property24.com. Total properties for sale This table shows the number of properties on the market, by number of bedrooms, in Ivy Park per month, as listed for sale on Property24.com. No. of Beds Aug '14 Sep '14 Oct '14 Nov '14 8 Dec '14 Jan '15 No. of Beds Aug '14 Sep '14 Oct '14 Nov '14 Dec '14 Jan '15 0 bed 33 32 4 4 4 4 1 bed 0 0 0 0 0 0 2 bed 15 17 16 13 12 19 3 bed 91 90 88 91 93 91 4 bed 9 10 9 11 12 12 5+ bed 3 2 3 4 4 5 All 151 151 120 123 125 131 Average Asking Price Average asking price in Ivy Park, as listed on Property24.com. Number of Residential Properties Property Type Number Of Properties Houses 1 386 Apartments 16 9 Average Estimated Value Property Type Average Estimated Value Houses R 707 654 Apartments R 615 000 Who Owns Property in Ivy Park These charts give an indication of the property buying, owning and selling trends relative to age in Ivy Park, Polokwane. 10 5. PROJECT MILESTONES TO DATE (OVERVIEW): Item: • Township Establishment Approval. Status: Date: Approved by Limpopo Development Tribunal 18 April 2008 - Township establishment Approval Comment: And quite recently the Township was Proclaimed and the Township register opened. • Township Proclamation and opening of the Township register. • Signed offer to purchase the land • Service Level Agreement has been concluded with the Municipal Council • Civil Works and Electrical services • Marketing Campaign In process • Installation of internal services After completion of the marketing Offer to purchase was signed by representatives of Tugela Group as the purchaser and Double Peak Properties as the seller 12 September 2013 The Service Level Agreement was singed on the 3rd of February 2010 Bulk Civil services and Electrical services have been partially installed To be advise Signed agreement with Municipality for the installation of Bulk services Bank pre-approvals of bonds and plan valuations have already been undertaken by all four major Banks 11 6. FINANCIAL ASSUMPTIONS: 6.1 Project Development Summary: OVERVIEW Number of units Phase 1 Phase 2 Total Dev 160 214 374 Number of units for sale 80 107 187 Number of rental stock 80 107 187 R 490 883 R 563 509 R 527 196 60 60 60 R- R- R- R 454 667 R 405 354 R 430 010 R- R0 R- R 4 824 R 5 837 R 587 R 685 R 3 600 R 4 122 R- R- R- R- R- R- Average value of the units after construction Size of the units (m²) Total CAPEX CAPEX per unit Total equity Sales price of units (R/m²) Sales price per stand (R/m²) Construction price (R/m²) Income from sales Income from rentals (per annum) VARIABLES Increase per of land per phase 10% Increase in construction price per phase (pa.) 7% Increase in the sales price per unit per phase 10% Increase in the price of land per annum 8% Increase of land surveyor cost 10% Increase in rental price per unit per monht 8% Draw Stages Foundations 0,15 Walls 0,25 Roof 0,25 Finish 0,35 EXPENSES Estate agent Fee 5,0% Interest per annum 9% VAT 14% Architect (per unit) R 3 500 Project management (per unit) 2% Land surveyor (per unit) R 500 Plan approval fees R 100 000 NHBRC costs per unit R 1 800 NHBRC R0 Contigencies on total cost 1% Building plan approavals (per unit) R 510 Increase in asset value per annum 5% 12 LAND COST Land cost per m² (VAT excl) - phase 1 R 126,57 Land cost per m² (VAT excl) - phase 2 R 139,23 Transfer cost R 6 000 Top structure cost to land owner - phase 1 R 14 472 Top structure cost to land owner - phase 2 R 15 485 Interest on loan account 8,50% 6.2 Project Performance Overview: 2014 2015 2016 2017 2018 PHASE 1 Asset value Annual Rental Income (5% vacancy) Equity Total loan PMT per annum Positive Cash Flow R- R- R- R- R- R- R- R- R- R- R- R- R- R- R- R 385 373 R 689 488 R- R- R- R- R - 2014 2015 2016 2017 2018 PHASE 2 Asset value Annual Rental Income (5% vacancy) Equity Profit Phase 2 R- R- R- R- R- R- R- R- R- R- R0 R - ENTIRE DEVELOPMENT Asset value Annual Rental Income (5% vacancy) Equity Total loan R- R- R- R- R- R- R- R- R- R- R- R - PMT per annum R- R- R- R- R- Positive Cash Flow R- R- R- R- R- 13 7. SHAREHOLDERS PROPOSAL: 7.1) Shareholding Structure and NEWCO: For the purposes of the development, a Special Purpose Vehicle company (or NEWCO) will be incorporated with the CIPC with the intention of allowing prospective investors the opportunity to invest in the development by purchasing shares in the SPV. We intend to raise R15 million Equity Capital for the project in lieu for 85% shareholding. 8. RISK MITIGATION POLICY AND STRATEGY: 8.1) Risk Matrix: The Risk matrix identifies the possible risks associated and identified for the project based on its current stage of implementation and highlights the possibility of the event occurring and assigns a percentage of the likelihood of occurrence. It further goes on to state which mitigation strategies will be used in order to secure the investor's investment into the development. Risk Identified: Non-affordability of the clients Possibility of Occurrence: 60% Seriousness of the risk: Medium to High Risk Assessment: Risk Mitigation New Occurrence Possibility Percentage: 40% Unaffordability and ineligibility of some of the clients to obtain a mortgage bond from one of the four major banks. Some of the clients qualify for the FLISP programme which aims at making first time home ownership accessible to Medium Income households. Therefore qualifying clients must be informed about FLISP and assisted in the application process MACRO AND MICRO RISK ASSESSMENT AND MITIGATION: Over estimation of demand 50% Medium Pricing and demand are two factors which are linked and directly effect each other. Therefore caution should be taken so as not to 14 Housing demand according to National trends still outstrips the available supply. This trend is also prevalent in the Ivy Park area as can be seen in the Polokwane 2012-15 Final 30% out price the target market and therefore decreasing the demand. IDP. Bank pre-approvals and plan valuations have already been undertaken by all four major Banks which then addresses the question of pricing. Pre-sales were previously achieved, which were then used to gauge the scale of demand, however these sales have since prescribed due to the lengthy period of project packaging. Housing demand is spurred on by the growth and expansion of industries and economic activity, which then directly affects the population numbers. (Increase in times of prosperity and decrease in adverse conditions) Polokwane is the dominant municipal economy in the Capricorn district. It is also the largest municipal economy within Limpopo Province, contributing 18% to the provincial economy during 2010 and 66% into Capricorn economy. 2012-15 IDP All indications currently suggest that the economy will be stable for the next 3 to 5 years. Softening of the Micro Property Market (Ivy Park - Polokwane) Conditions 50% Medium Housing demand softening due to the current Macro Economic conditions. Increase in Interest Rate 60% Medium An interest rate increase in the future is inevitable, however measures can be taken to benefit from the current low interest rate level by fixing the interest rates payable on loan at current levels as a 15 30% 50% decrease in the current rate is unexpected. Extract from Polokwane IDP (2012-15): Overall Implications For Polokwane Municipality (Growth And Development) • The growth in population brings with it more responsibility on the part of government in terms of provision of services. The infrastructure (water, electricity, sanitation, health services, housing, educational and recreational facilities) should keep abreast with the growth in population. This should be done in partnership with the private sector. • As the largest and fastest growing economy in the province, Polokwane will have the largest proportion of planning and development required for the provision of adequate infrastructure and employment opportunities. An important condition is that the infrastructure investment should support employment and industry growth and enhance the overall connectivity in the area, including access by its business to a diverse, high quality pool of appropriately skilled labour. • In general the local economy is relatively concentrated-however, with reference to the Tress Index, are making progress in improving its overall level of diversity. Economic growth in Polokwane was mostly driven by consumer expenditure and by the centralization of provincial public service functions from former homelands. These drivers appear to have reached their full potential, meaning that the municipal economic growth rate has probably peaked and could weaken going forward. Accelerated economic growth and job creation will require new and innovative drivers of development, probably the development and attraction of high value-adding industries that build on the city’s current (and future) strengths. These high –value industries become the foundation for a long-term sustainable economy Project Specific Risk Mitigation Strategy: Risk Assessment: Risk Mitigation The professional team will ensure: Professional Team Project Phasing Strategy Project Management and Project Directorship Efficiency (design & construction expertise together) Improved risk management for the Project Manager and Project Director Cost savings and more certainty of final price Clear performance specifications and milestone dates Clear, enforceable performance guarantees Achievable contract schedule and performance guarantees By phasing the project income can be created through the sale and rental of completed units. • Phasing reduces the amount of Capital outlay needed to initiate the project and subsequent revenue generated from the first phase can be used as Capital for the following phases. • Phasing will also be beneficial to our Land Acquisition Strategy as it will enable us to purchase the land on a per phase basis, in order to secure the remaining land a kustingsbrief mortgage will be registered over the remaining property, thereby keeping our initial capital outlay for the land as minimal as possible and yet retaining the option to buy the remaining land as and when required for the next phase of the project Project Management and Directorship will benefit and add value to the project in the following ways: • • • • • • • 16 • • • Better efficiency and economy in delivering the project on time, on budget and up to the prescribed quality standards. simplifies communication with a single point of contact running the overall project reduces the chances of the project failing 10. CONCLUSION: Due to the current high market demand for affordable middle income housing, we envisage a successful sales projections based on previous pre-sales which were achieved and therefore recommend that this development is feasible. CONTACT DETAILS: For further information, please contact: Loufrandini Consult (Pty) Limited Contact Person: Cell: Email: Johann F. Carstens-- 11. ANNEXURE: A. Market Research Overview B. Land Sale Agreement C. Service Level Agreement with the Municipal Council D. Cash Flow Projections E. Concept House Layout F. Concept Development Layout G. Confirmation of Township Proclamation and Opening of Township Register 17 A. MARKET RESEARCH 0VERVIEW: Affordable Housing demand in SA heading for exponential growth. FNB Housing Finance CEO Marius Marais said there is high demand in the affordable housing sector with an estimated million homes still needed. With rising income level of low- and middle-class segment, South Africa's residential property market is witnessing a robust demand for affordable houses. The scarcity of houses for low- and mid-income groups, coupled with higher property prices has initiated the new concept of affordable housing in the country. FNB’s Housing Finance division reported that it was going strong with around 20% growth in the market over the last financial year. The business division, which is 10 years old, has grown its loan book to close to R13 billion and recently reached its 10 year target of over a 100 000 units financed. “There is still an enormous amount to do in this market and we are confident that we will see good growth in our business and loan book in the years to come. There is high demand in the affordable housing sector with an estimated million homes still needed and an average of only 20 000 units developed a year without taking into account future demand,” says Marius Marais, CEO of FNB Housing Finance. LOW INCOME AREAS SHOW HIGHEST PRICE GROWTH IN 2014, BUT NOT BY FAR - Source: FNB Blog (Economics) https://blog.fnb.co.za/2015/01/property-barometer-area-value-band-house-price-performancesjan-2015/ After the end of the 2008/9 Recession, and the big interest rate cutting by the Reserve Bank (SARB) though 2009, the house price growth recovery appeared to be led more strongly by the Low Income Area end of the residential market. This stands to reason. These low end areas had experienced more extreme price deflation around 2009, and thus came off a lower base. Households in these lower end areas are arguably more credit dependent and interest rate sensitive, too, so big interest rate cutting caused them to “emerge from the woodwork” in more significantly growing numbers. Then, around-, with a considerable lag the Middle-to-Upper Income Area Segments began to strengthen more noticeably, and Low Income Areas no longer had the highest house price inflation in these years. As 2014 progressed, though, it appeared that the Low Income Areas once again began to outperform the higher priced areas, admittedly not by far though. For 2014 as a whole, our FNB House Price Indices by Area Value Band point to the Low Income Metro Areas (average 2014 price = R448,6596) showing 8.6% average house price inflation. This was followed by the Middle Income Area Segment (Average 2014 price = R1.315m) with 7.7%, Upper Income Areas (average 2014 price = R2.192m) with 6.6%, and the Lower Middle Income Areas” (average 2014 price = R834,064) showed the slowest average price inflation of 6.3%,. 18 While the difference between segments is not yet that big on an annual basis, examining the growth rates on a quarter-on-quarter basis it becomes far more significant, with the Low Income Segment having accelerated to 3% quarter-on-quarter by the 4th quarter of 2014, well higher than the Middle Income Area’s 2%, the next highest Area Value Band. What’s changed in 2014? 2 things perhaps. Firstly, 1st time buyers are a highly cyclical bunch, and appear to have gained renewed confidence during 2014. After what appeared to be the start of a declining trend around 2012-13, 1st time buyers expressed as a percentage of total home buyers started to increase once more in 2014, to levels above 25%, according to the FNB Estate Agent Survey. Article written by John Loos: Household and Property Sector Strategist, Market analytics and scenario forecasting unit: FNB Home Loans 4.3) Micro Property Market conditions and market demand: Since 2004 the Polokwane Municipality has developed a Municipal housing demand database which was upgraded in 2008 and in the 2011/12 financial year. The database has always had high figures which at present have 77 456 households in need of housing assistance. This figure fluctuates monthly as more households register themselves and others after being offered a formal housing opportunity are marked off. For the past four years (2007 – 2010) the City delivered 33 200 housing opportunities. This clearly indicates that the demand for housing far exceeds supply. The situation therefore requires an intervention that will also address the increasing demand brought about by rapid population growth and urbanisation. Existing housing situation: The housing problem in Polokwane is not confined to the City/Seshego cluster and surrounding areas only. At the rapidly growing area of Mankweng, the need for housing development has reached crisis proportions while the provision of the basic services is manageable in other areas. To deal with the housing needs and to expedite the delivery of housing in different typologies and tenure forms the municipality has established an entity known as Polokwane Housing Association, with the sole aim of developing and managing rental housing (social housing and CRU) for different income groups. Source: Polokwane Final IDP 2012/15 Even though an entity was established by the Municipality to address the housing backlog, this entity's sole priority is the establishment of rental housing units, which then leaves a large number of the middle income households who desire to purchase their own property un-catered for. This is the group now commonly know as the GAP market, and this is the group which we are targeting with this proposed development. 19 B. LAND SALE AGREEMENT: 20 C. SERVICE LEVEL AGREEMENT WITH MUNICIPAL COUNCIL: 21 D. CASH FLOW PROJECTIONS: 22 E. CONCEPT HOUSE LAYOUT: 23 F. CONCEPT DEVELOPMENT LAYOUT: 24 G. CONFIRMATION OF TOWNSHIP PROCLAMATION AND OPENING OF TOWNSHIP REGISTER 25