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Santam 1 - Santam real estate scheme development insurance

Santam real estate scheme development insurance

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Santam’s seamless insurance product continues to receive enthusiastic support from developers and development financiers alike.

There are a number of hurdles and challenges in the long process of bringing specialised developments like shopping centres, office and industrial developments, hotels and conference centres, schools, hospitals, and large-scale residential developments to successful completion. It was to ease the negotiation of some of these hurdles that Santam created its developer-specific seamless insurance. This consists of two complementary elements – the Real Estate Scheme Development Insurance and the Equity Guarantee for Property Developers.

In essence, the Equity Guarantee provides financiers with the security of knowing that their loans will be backed by insurance cover against delivery risks like abnormal cost overruns or non-completion, and the property will be income-generating at the end of the development period, while the Real Estate Scheme Development Insurance provides cover against construction activities and partly completed structures even before final occupation. By combining these products, Santam insures both the equity and the contract work.

Head of Santam Specialist Real Estate, Karl Bishop, explains that – in the past – developers typically had to take out different insurances to cover construction work, project liabilities, and – once buyers or tenants move in – the structures themselves. But that means different policies from different insurers, so who pays for what when a claim arises?

‘Santam Real Estate Scheme Development Insurance, which covers all aspects of the project, removes that worry by offering developers peace of mind, as well as the benefits of price and a seamless service,’ he says.

Equity Guarantee for Property Developers

The Equity Guarantee for Property Developers guarantees the 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.

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.

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.



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.
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.

And that sounds like a win-win situation.

Santam is an authorise financial service provider (licence number 3416)

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