how we do business

Though our housing portfolio continues to grow at a significant rate, to best serve our target market Madulammoho strives to maintain low staff components while keeping our overhead costs at a minimum and our services in-house.

To maintain financial sustainability, we also endeavor to maintain a high rental collection rate and keep vacancies and bad debt as low as possible. As of 2010, our vacancy rate sits at zero per cent with a rental collection rate of 92 per cent and a bad debt ratio of just 0.6 per cent.

In the last financial year Madulammoho introduced fair-value adjustments to our properties, resulting in a considerable increase to our property value. Madulammoho's balance sheet is currently valued at just over R63.5 million - a figure that encompasses debt, equity and grant funding.

economic cost recovery

No single financial model works as a blueprint for Madulammoho's housing projects, as each development requires a slightly different model in accordance with the following variables:

• The subsidy provided by government;
• Bulk infrastructure;
• Land costs;
• Costs of construction;
• The scale of the building; and
• Loan finance costs

Broadly speaking, Madulammoho works on a system of economic cost recovery wherein rentals are geared to cover the costs of any capital repayments on the redevelopment of the project, as well as all administrative and managerial costs. This means that rental levies and service charges are billed against the actual cost of delivering the units.

The most important factor in Madulammoho's financial sustainability is that overheads are covered by our rentals. For the fourth year running, our rentals have been the company's primary form of income and Madulammoho is no longer dependent on operational funding for sustainability.

While the break-even point for Madulammoho's complete financial sustainability was originally projected at 1,000 units (this means that the company is, in 2010, nearly at break-even point with 952 units), to sustain our work and grow further our break-even point now stands at 2,000 units.

Madulammoho's next step is therefore to fund the additional capacity required for development. This requires technical professional expertise for packaging projects - both through purchasing and redeveloping existing buildings, new Greenfields projects and even exploring project densification.

maintenance

Because many of the buildings that Madulammoho redevelops are old stock, they incur high maintenance and operational costs. In response, Madulammoho is exploring ways to reduce these costs in the future, such as installing open water ducts or densifying existing buildings by using new technology to build extra floors.

utility costs

One of the biggest financial challenges in the forthcoming years is likely to be around managing utility costs. With the increase in electricity tariffs tenants may soon be facing a situation where they pay as much in utilities as they do in rentals.

Madulammoho has attempted to overcome a lack of service and efficiency by installing our own electricity and water meters on each floor and in individual units. Madulammoho can then manage the situation independently, though it should be noted that we have nothing to do with service provision and are only recovering what is owed to us by the utility provider. The installation of meters in each Madulammoho building is also important for transparency, as tenants can see how much electricity they have consumed.