Estate Living Magazine Invest SA - Issue 41 May 2019 | Page 35

D E V E L O P M E N T
&
I N V E S T M E N T
such as Melrose Arch in Johannesburg and Century City
in Cape Town, feature mainly in key urban growth nodes in
metropolitan areas where you can live, work and play. The
need for a live-work-play lifestyle is growing, in part because of
major cities’ increased traffic congestion. Instead of spending
hours in traffic, people are willing to sacrifice larger plots or
gardens to live closer to work opportunities.
Property developers now have the challenge of bringing
these specialised developments to successful completion.
Developers needed to take out different insurances to cover
construction work, project liabilities and – once buyers or
tenants move in – the structures themselves.
Real Estate Scheme Development Insurance
Not a new product at Santam, but one that has been gaining
a lot of traction in the market, is the Real Estate Scheme
Development Insurance, which is currently the only one on the
market. This market-leading product was developed to ease the
negotiation of some of the insurance hurdles that developers
faced during their construction-to-occupation period.
It consists of construction cover (as the project is ongoing), as
well as completed but vacant building cover until the project
is completed and occupied. ‘We remove any of the gaps
to get different insurance covers for the different stages of
construction,’ noted Karl Bishop, head of Santam Real Estate.
‘This product eliminates multiple claims, removing a number
of hurdles and challenges in the long process of bringing
specialised developments to completion.’
The Real Estate Scheme Development Insurance is
complemented by the Equity Guarantee for Property
Developers.
Into the future
Santam is currently also developing a product for the needs of
lesser-known and smaller developers. This is significant because of
the country’s growing housing needs – especially in the retirement
housing market, which is also a growing trend for penny-wise
retirees, and at the lower end of the general housing market. A
similar insurance product for these sectors will facilitate the supply
of housing at these levels.
By underwriting both equity and project risks, this product will
increase access to funding for small developers, which will help to
create much-needed housing for an as yet undersupplied market.
Santam is an authorise financial service provider (licence number 3416)
santam.co.za
I
In essence, the Equity Guarantee for Property Developers
provides financiers with the security of knowing that their loans
will be backed by insurance against delivery risks like abnormal
cost overruns and non-completion, and that the property will
be income-generating at the end of the development period.
Real Estate Scheme Development Insurance provides cover
against construction risks and partly completed structures,
even before final occupation. By combining these products,
Santam insures the equity, the construction work and the
completed structure, offering developers peace of mind in the
real estate chain, as well as the benefits of price and a seamless
service from sign-up to claims process.
The biggest risk to Santam is the failure of the developer during
the construction period as there are always risks like timing and
cost overruns. This is why Santam takes a very active role upfront,
and why there’s always a three-way conversation – between the
developers, the financiers and Santam.
Equity Guarantee for Property Developers
Developers may be able to raise the bulk of the funding they require
from their financiers, but they typically have to fund the balance
themselves via an equity contribution. The Equity Guarantee
for Property Developers guarantees the equity contribution (or
a portion thereof), so the development loan is backed by A-rated
security, which makes it possible for the bank to release a higher level
of funding. This, in turn, speeds up the development and releases a
significant amount of working capital (cash) for the developer.