The how-to in South African property development
This Cape Town-located property developer, MSP Developments (Multi-Spectrum Properties), does not sit on its laurels and wait for success to come its way. No, since the company was founded by its CEO, Riaan Roos, in 2002 —a decision which Roos calls “The best move I ever made”— through economic stress and strain, MSP has worked from dawn to dusk and into the dark to build its highly impressive portfolio of residential /commercial development projects.
“What did we do in the last year-and-a-half? We worked. We worked early hours in the mornings and late into the evenings. We did not sit back and die with what the market was doing,” John Coetzee, Managing Director, says of MSP’s continued efforts throughout the waves made by the global financial crisis.
“Whatever the market dictated to us, we took head on.”
With a keen and realistic market approach, a diverse and well-funded portfolio and a management team chomping at the bit to offer Cape Town not just homes, but communities, MSP’s story is one of hard work and great gain. Here is how to conceptualise, construct and deliver housing with attractive investment prospects, long-term benefits for the locality and investor alike, and set standards for South African housing development projects tomorrow.
Founding and foundations for MSP
The MSP portfolio spans early developments such as Villa D ‘Algarve in Muizenberg with 157 Sectional Title Units and Broadlands Village in Strand with 754 Single Residential Units, to current projects including Soralia Village in Muizenberg with 182 attractive two and three bedroom homes and Mode De Vie in Plattekloof’s Burgundy Estate with 100 modern two bedroom apartments. It is an extensive offering and Coetzee says that there are a couple of ways behind how MSP has been able to manage and grow such a large portfolio. The first of these is the company’s approach to cost, including cautiously operating at 2007 building rates and dealing conservatively with profit margins.
“Now everybody is realising that the market cannot take these massive profits. To move product they have had to reduce costs which basically comes on the reverse side of what the market said. We were always dictating the price then suddenly the market was dictating the price to us,” Coetzee explains.
“You have to look at all aspects of trying to produce the product to work with what the market wants. Then when that works, affordability comes into play, and when affordability works, you have a sale.”
This applies to the company’s latest endeavours too. Roos began MSP by supplying housing at the affordable end of the market, then built and branded up the company to enable it to offer the multitude of projects it has today. Coetzee says that MSP has just completed its Sunrise Villas project in Muizenberg—a mix of penthouse, one, two and three bedroom apartments and loft units. This project has come along well, as has the Belladonna Estate in Blue Downs, where the company is busy building the first 740 units, but there is even bigger news in the form of MSP’s Buh-Rein Estate—a 3,511 units-strong project planned to go to ground with civil work and to market this month on October 15, 2010.
“We’ve just got our 100 per cent funding from Old Mutual / Mettle Finance. That has basically moved the company back to the affordable housing market, the reason being that with the economy your top-end market was really just a handful of buyers,” Coetzee says.
“We always look at it like a triangle. The triangle has the top end of the market and the bottom, or the base, is where your multiple users are.”
Once again, MSP’s approach to the market has shone through and bagged the company a landmark project, and Coetzee says that returning to Roos route of affordable housing has enabled the company to continue to grow.
How to grow a portfolio
Coetzee says that after starting on Buh-Rein this month, MSP will start developing the top structures in March next year.
“We’ve taken a product that is worth about R729,000 and we’ve put it into the market for R424,900, making it affordable. Especially in South Africa, the land prices shot up and everybody was on the bandwagon with development which was always made out of reach for the individual to actually afford a house,” he explains.
“With Belladonna and Buh-Rein we have brought it back. Instead of making a profit on the land, we make one product. With that we can produce a well-designed, well-engineered product and make it affordable for people to purchase.”
He says that MSP’s diverse range of functional developments puts the company in a great position. After all, in order to take on projects as big as Buh-Rein, there must be a great collection of smaller endeavours in the background. The next step is finding and securing funding.
“In order to take on large developments you have to find funding, and every national bank doesn’t have the ability to take on these large developments. What we had to do was to find a funder which was willing to take on the project and become a partner in the development. That is where Old Mutual / Mettle Finance stepped up to the plate,” Coetzee says.
“They actually fund both of our large developments, Belladonna and Buh-Rein Estate. We have a good funder as a partner, therefore we can only go forward and conquer this market.”
It seems that the rest of the work is really down to MSP, and through the last year-and-a-half the company has been restructured in order to offer every conceivable business arm necessary to get these mammoth jobs done right.
“When you do these large developments, to make everything work you have to become a machine. This machine has to produce these units, sales and manufacturing,” Coetzee says.
“That’s when we had to go back and look at the whole structure of the company.”
When a lot of legal firms reduced their conveyance divisions, MSP opened its own within the company. This ensured that the timing and ratios of its registrations were rolled out as and when the company needed because, as Coetzee succinctly says, “time is money.”
“Because you have various people who need to get the bonds and registration, we created I-Mortgage, which is a company within that deals with all of those. Then we have the planning side with our project managers,” he continues.
“You cannot just suddenly say, right, we’ll do Buh-Rein. There’s a massive about of engineering, planning and meetings that need to take place. Then we have to go in and design the units based on what the market is calling for.”
With so many spectrums involved in these projects, it becomes more important than ever to make sure that the administration side can counter and manage everything, and MSP simply bridged the gap by setting up and doing this alone. This pioneering attitude to problem-solving market gripes and other unforeseen industry shifts plays out across the company’s various divisions, others of which include its own call centre, building supplies and investment set ups. With everything in place to deliver on each and every project undertaken, MSP’s strategic goals centre around making its projects attractive for investors, protecting their investments in the long-term and continuing to operate responsibly in partnerships with every local authority it encounters.
Success across the board
In addition to the large and smaller projects amongst the MSP portfolio, the other activities within the company that fall within its various sub-divisions are also a big part of looking forward to the next few years.
“We also have various other large properties because we do quite a bit of land banking, industrial and commercial, and zoning on another new development consisting of 400-odd hectares,” Coetzee notes.
“We do an incredible amount of due diligence before any land is developed or purchased. We integrate quite a bit with the councils and strive to be a good developer. A good developer gets things done. A bad developer does not work with the city.”
By operating responsibly in terms of social, environmental and legislative practise, MSP further cements its reputation for supplying a quality, affordable product. This, coupled with its manner of caring for investors is what really makes the company unique.
“Developers say, ‘invest with me and you’ll get X amount of return.’ Buh-Rein Estate is a R729,000 going for R424,900. Yes, the constraint is that it can’t be sold for five years otherwise you’ll have complete chaos inside the development with everyone trying to make a buck which reduces the person’s investment,” Coetzee explains.
“We ask, how do we protect the investor? He has a capital gain from day one because that is what the market is showing as a high purchase buy. Secondly, you’re building up a community, and thirdly, each pocket is small. When your pocket is small, you have supply and demand with a higher rental ratio and good return on your investment. That is why MSP is unique.”
MSP Developments is, as its mission statement says, ‘building new realities.’ These realities span residential and commercial development at every level of the triangle, how to go about property development independently whilst adhering to market requirement and building great relationships wherever you go. The company’s story reads like a how-to for property development in South Africa. And guess what? This is just the beginning.