Background Information

Background Industry Information

Necron Properties (Pty) Ltd operates within two industries:  New Home Construction and Renovation.  In Centurion-Midrand area where the Company conducts business, the construction industry currently accounts for 4, 8% of employment.  In the late 1990’s the interest rates started dropping and opened up the housing market across the country. In 2006 60 000 new properties were registered on a monthly basis.  In January 2009 the least deeds were registered (12000) and this is seen as the bottom of the property market.  The high deposits required by banks in general were the main cause of the decline.  “The current reality is that all normally mortgage-able deals in a pre-recession environment, only 50% of these are actually been approved, as the lending Institutions continue with their stringent lending criteria” (Dr Andrew Golding, CE of Pam Golding Property Group, 29 May 2009).  However the following months, the registration of deeds have increased with a steady 5% and are showing promise to steadily return to the 2006 figures. (Registered Deeds Jan 2009-May 2009).

In Centurion-Midrand area the average number of homes for sale and/or sold each month, has risen since 1994, with the most registered in September 2006 and is foreseeable that this market has turned due to the new deeds registered in May 2009.  Tshwane has proven to be a market leader in property development, as the figures suggests.  According to SA Statistics, in 2007 it was estimated that there was 63 110 households living in Centurion and have increased by more than 16% in 2008.  In 2008 the number of homes available for sale decreased and rentals increased, thus causing a “letting” market.

In 2008 it was estimated that more than 22% of the middle to up-market homes were built in Security Estates (including townhouses exceeding 150 square meters), all relative to the crime figures and assumption of safety within these Estates.  The industry has stabilized as far as growth and is remaining consistent, however the last 12 months has shown a decline of 3.8 % in sale and values of properties due to interim higher interest rates and Bank’s Credit and Approval criteria.  (Information:  SA Statistics)

Current and Future Trends

In Centurion-Midrand areas there is a fairly stable growth pattern in new home construction.  Affordable homes, deemed at R1m or less, are lacking throughout Centurion-Midrand area.  As cost of land increases in these areas, it will be exceedingly more difficult to offer new homes in that price range.  Leading economic indicators place the average close-in rural sales price in Centurion-Midrand area for new and existing homes at R1, 375m.

Although interest rates are beginning to decline, the real estate industry does not expect a large impact on the housing market until the Financial Institutions change their filters.  Even with a possible slight increase in future rates, homes are still affordable to the average family.

Positive impact in the market will be Financial Institutions changing there approval criteria.  These are possible positive trends that indicate that new home construction will remain steady and return to the September 2006 figures.  “Many experts are warning investors to steer clear of the property market.  This is completely the wrong move to make!  In fact, now is the best time to invest in property”. (Money Week, May 2009)

Business Fit in the Industry

Company works to keep overhead and employee cost low, in order to provide homes of high quality from R1, 7m to R1,95m in Centurion-Midrand Necron Properties (Pty) Ltd builds five to six homes per year.  The area.  These properties are valuated by Financial Institutions at R2, 4m to R2, 5m and immediately gives the buyer equity for re-sale purposes.

Although it is tempting to build bigger, more expensive homes, Necron Properties (Pty) Ltd chooses to remain with their mission to provide quality affordable custom homes.  By remaining true to its mission, the Company is able to offer homes to a broader section of people in the niche market, which is least effected by fluctuations of interest rates.  At present there is only a small number of builders offering new quality home construction in this price range.