Estate Living Magazine #liveyourbestlife - Issue 46 December 2019 | Page 33

D E V E L O P
equity contribution (or a portion thereof) that financiers usually
require from developers – thus allowing the developers to
access higher levels of funding.
Outlining the process, Bishop says that developers may be able
to raise the bulk of the funding they require from their financiers,
but they’ll typically have to fund the balance themselves via an
equity contribution.
Crucially, the financier now has a development loan backed by
A-rated security; therefore, Santam’s Equity Guarantee makes it
possible for the bank to release a higher level of funding, which
gets the development going quicker.
This product is attracting enormous enthusiasm in the
marketplace, says Bishop: ‘Even the big companies like listed
developers are buying into it, because it reduces their gearing
and frees up their cash, which they can then either distribute to
shareholders, or use to accelerate the number of developments
they can undertake in a year.’
Real Estate Scheme Development Insurance
The biggest risk to Santam is the failure of the developer during
the construction period. 
‘There are always development risks like timing and cost over-
runs, but we usually build these into the agreement with the
financiers. This is why we take a very active role up-front, and why
it’s always a three-way conversation between the developers,
the financiers, and ourselves,’ Bishop explains.
Feasibility
Santam’s decision on whether to issue a guarantee for a project
is always informed by its own overall feasibility assessment,
which means that the product isn’t only focussed on high-end
products, or, for example, the number of units sold off plan.
Other factors would include the developer’s track record as well
as the typical property fundamentals: Is the product right for the
market? Is the price right for the market? Is it correctly located?
Are other developments planned in the area?
This, Bishop explains, was a crucial part of developing the
product.
Costs, financiers, and underwriters
The cost of Santam’s Equity Guarantee for Property Developers
depends on Santam’s assessment of the risk. Typically it is
priced as a percentage of the developer’s equity that is insured
by Santam – depending on the developer’s history with the
company and other underwriting factors.
Payment can either be made as a one-off, upfront premium, or it
can be structured into the development finance. He emphasised
that Santam works only with reinsurance partners that are A-rated
in the international community.
This is important for financiers, since it reassures them that the
company will always be able to pay in the event of a legitimate
claim.
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, and at the lower end of the general
housing market.
‘A similar insurance product for those sectors will facilitate the
stock and supply of housing at those levels,’ says Bishop.
And that sounds like a win-win situation.
Santam is an authorise financial service provider (licence number 3416)
By underwriting both equity and project risks, this product will
increase access to funding, which will help to create much-
needed housing for an as yet undersupplied market.
R I
And while each transaction is tailored to the particular
development and the particular developer, the guarantee will
generally remain in force until practical completion, which may
not necessarily be achieved at the same time as the project is
sold out. As long as the developer has delivered the product
on time and on spec, ‘it’s there, it’s built, and it can now start
generating income,’ says Bishop.
I N V E S T
This is also where the Real Estate Scheme Development
Insurance product comes in. By covering the risks during the
building process, and in the interim period between completion
and the time when the scheme is registered and occupation is
allowed, Santam guarantees a seamless transition. This is why
Santam involves itself in the planning stages of the project, and
why it remains part of the process through site visits, progress
reports, updates, quantity surveying, etc. ‘Rather than putting
pressure on anyone, our involvement becomes more of a
monitoring role,’ says Bishop.
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