<\/p>\n
Ask the average person what a property developer earns and you\u2019ll get the same answer every time: too much. Sell an apartment at R50 000 a square metre and surely you\u2019re printing money.<\/p>\n
I\u2019ve spent the better part of a decade funding small and mid-tier developers in this country, and I can tell you the opposite is true. Most of them work harder for less than almost anyone else in business, and almost nobody outside the industry has any idea.<\/p>\n
Start with the maze they have to walk through before a single brick is laid. The engineer knows the applicable regulations. The fire consultant knows their regulations. The town planner knows what can and can\u2019t be built on a given erf, and the architect knows what they\u2019re allowed to design.<\/p>\n
The problem is that none of them fully knows what the other three know, and a developer is the one left standing in the gap.<\/p>\n
Something as simple as putting a window from a bedroom onto a passage can turn into a fire-engineering debate, a mechanical ventilation requirement, or a redesign \u2013 and because getting plans approved can take months if you trip a rule nobody flagged, every professional on the team has a strong incentive to say \u201cbetter check\u201d rather than \u201cgo ahead\u201d. So they do. Over and over.<\/p>\n
Designs get over-engineered defensively, and the cost of that caution lands on the developer.<\/p>\n
Then there\u2019s time, which in this business is the same thing as money. Get a professional team aligned and it\u2019s a realistic six months just to get plans submission-ready. If the design fits squarely within zoning \u2013 no departures \u2013 council approval takes roughly another six months.<\/p>\n
Ask for anything outside the as-of-right zoning and you\u2019re looking at 12-24 months, assuming your neighbours don\u2019t object. All the while, someone is paying interest on the land and fees to a professional team, which can run to 10-15% of total development cost.<\/p>\n
How this translates<\/p>\n
Let\u2019s put real numbers on it, because that\u2019s where this stops being an abstraction.<\/p>\n
Take a fairly typical opportunity in a middle-class Cape Town suburb: a developer buys a 1 500m\u00b2 GR4-zoned site for R10 million.<\/p>\n
GR4 zoning allows 24 metres in height, but by the time you weigh up build cost and time, most developers land on three or four storeys \u2013 call it 2 250m\u00b2 of bulk, all of it sellable for simplicity.<\/p>\n
At R50 000 a square metre, that\u2019s R112.5 million in revenue. Sounds like a great trade.<\/p>\n
Now work through what it actually costs to get there.<\/p>\n
Land to shovel-ready, assuming no departures, is 24 months, so the R10 million purchase price is carrying roughly R1 million a year in interest before a spade goes into the ground.<\/p>\n
A good contractor, decent finishes \u2013 think vinyl flooring, basic 20mm granite, average joinery \u2013 runs to about R20 000 a square metre excluding value-added tax (Vat), so 2 250m\u00b2 costs R45 million to build.<\/p>\n
The professional team (architect, quantity surveyor, fire engineer, structural and mechanical engineers, town planner) adds another R10 million, roughly 10% of project value.<\/p>\n
The bank funds the build in stages, releasing money as it\u2019s satisfied value has actually been added to the land, which in practice means a developer without other means to bridge the weekly and monthly draws to contractors and consultants runs straight into delays and, often, real friction with the build team.<\/p>\n
At a prime-linked rate of around 10% for this example, and a typical two-year build, interest on the construction and professional fees comes to roughly R5.5 million, before you even add the R1 million a year still accruing on the land.<\/p>\n
Add six months post-completion waiting for an occupation certificate before transfer (and the bank is still charging interest through all of it), and total interest across the roughly 54-month project comes to about R15 million.<\/p>\n
Then there\u2019s the list nobody budgets for properly until it bites them \u2026<\/p>\n
Finance structuring fees, bond registration, brochures and marketing material, insurance across the build (contractors all-risk, public liability, Sasria, property development cover), legal fees, plan scrutiny fees, site development plan (SDP) approval, environmental impact assessment costs, sectional title registration,\u00a0National Home Builders Registration Council (NHBRC) registration (compulsory regardless of contractor), service connection fees for sewerage, water and stormwater, and electrical connection and bulk services contributions: easily 5% of project value \u2013 R6 million in this example, excluding Vat.<\/p>\n
And when the units finally sell, 15% of the price goes to Vat and 5% goes to the estate agent \u2013 for taking on none of the risk.<\/p>\n
Put it all together and it looks like this \u2026<\/p>\n
Line item
\nAmount<\/p>\n
Expected revenue (including Vat)
\nR112\u00a0500 000<\/p>\n
Vat
\nR14\u00a0673 913<\/p>\n
Estate agent fees
\nR4\u00a0891 304<\/p>\n
Land acquisition
\nR10\u00a0000 000<\/p>\n
Professional fees
\nR10\u00a0000 000<\/p>\n
Build cost
\nR45\u00a0000 000<\/p>\n
Interest costs
\nR15\u00a0000 000<\/p>\n
General costs
\nR6\u00a0000 000<\/p>\n
Profit after 54 months
\nR6\u00a0934 783<\/p>\n
Internal rate of return (IRR)<\/p>\n
2.3%<\/p>\n
That\u2019s a profit of roughly R6.9 million after 54 months of risk, funding, delays and professionals second-guessing each other \u2013 an IRR of about 2.3% a year. I\u2019m not sure about you, but I won\u2019t get out of bed for 2.3%.<\/p>\n
So why does anyone still do this?<\/p>\n
Because the actual return in property development almost never comes from the development itself \u2013 it comes from what the land does while you\u2019re waiting.<\/p>\n
A developer who can hold that land through a four-year process, rather than being forced to sell at today\u2019s price, is usually betting correctly that land values will be meaningfully higher by the time they\u2019re shovel-ready.<\/p>\n
That\u2019s the real trade. The building is mostly a break-even exercise dressed up as the business.<\/p>\n
At Geddes, this is the gap where we spend most of our time: helping developers structure projects correctly from the outset, securing the land early in the process, and providing the working capital alongside the bank that keeps a build moving instead of stalling on a missed draw.<\/p>\n
Because the number that actually matters to a developer isn\u2019t the R50 000 a square metre headline.<\/p>\n
It\u2019s whether they can survive long enough, on the right land, to be the one holding it when the market catches up.<\/p>\n
Brent Geddes is CEO of Geddes.<\/p>\n
Brought to you by\u00a0Geddes Capital.<\/p>\n
Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.<\/p>\n
#property #development #isnt #profitable #people<\/p>\n","protected":false},"excerpt":{"rendered":"
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