G5 flees residential property

Johannesburg - High interest rates, falling sales and lower profits are forcing the South African-based construction firm Group Five to move away from the softening private residential property market.

Speaking to reporters here on Thursday, Group Five management said the group was realigning its portfolio by divesting selectively from the residential property sector.

Group Five is exposed to the residential property market through its property development unit, its fibre cement-making business Everite and its housing construction business unit.

The group now develops A-grade properties in the commercial, industrial and retail sectors within southern Africa, where it seeks returns through, among others, development fees, lease rentals and on sale of properties.

Nearly 90% of profits are derived from property sales.

New A-grade projects include Waterfall City in Midrand, Marina Glenn in East London and Greeenoaks and Wedgewood in Sandton.

Eric Vemer, head of Group Five's investments & concessions, is however not optimistic about the property developments' prospects in the short term, saying that revenue and profits are expected to be depressed over the next two years as new developments take time to realise.

The latest annual results show that property development revenues fell by 17% to 225.1 million, while operating profit declined to R22.7m from R25.2m.

Group Five's building materials unit, Everite, is also refocusing its attention from the cyclical private building merchants to developing product ranges to serve government's drive to deliver low-cost housing units.

"The changing sales emphasis towards low/medium cost housing and systems housing will be evident in the income statement from H1 2009 onwards," said John Wallace, head of Group Five's Manufacturing unit.

In addition, Group Five's building and housing division plans to build low-cost government-backed housing units, costing between R50 000 and R60 000 and bonded units costing ranging between R250 000 and R700 000 with far less focus on sectional title market.

Paul le Sueur, head of Group Five's Construction-Building and Housing, said the group was already involved in the construction of government's Breaking New Group housing projects worth about 225 million rand in Soshanguve, Esselen Park and Princess Plot.

In the private sector, the group is focusing more on the commercial and industrial sectors, where it said demand for properties was still high, but that sites with approved rights and power would dictate.

For the year to June 2008, Building and Housing revenue decreased by 9% to R2.8bn, while operating profit increased by 66% to R140.2m.

- I-Net Bridge