Bonum buys the apartment building at Orknøygata 2

The property developer Bonum bought this dilapidated apartment building for 34 million. The apartment building market is reaching new heights, and the company is set to increase its turnover sixfold in three years.

We are always on the lookout for more property, says Alexander Yan, responsible for property acquisitions at the property developer Bonum.

After a viewing with 60 interested parties and six bidders, Bonum had its offer of 33.8 million kroner accepted for the dilapidated apartment building at Orknøygata 2 (pictured). Bonum will renovate the building's flats and common areas.

Both we and the seller were satisfied with the transaction. Of course the price was high, but the project suits our organisation well and so it made sense, says Yan about the investment.

The estate agent who sold the property has sold apartment buildings worth half a billion this year, and believes the market is in an "all time high".

Focusing on the city centre

It is particularly housing close to the city centre that is identified as the best investments, as demand for these has grown significantly in recent years, and this is expected to continue.

Most of our projects are located within Ring 3 in Oslo. Demand is high here and we expect that to continue. Bonum expects a continued increase in housing prices, but supports Statistics Norway and leading banks' forecasts of a reduced price increase going forward, says Yan.

The housing market as a whole has had a very strong development in recent years, and several players believe the apartment building market in particular is in an "all time high" period.

Prices for apartment buildings with housing follow the property market generally. And this is, as is well known, at an "all time high", so it is natural to assume that this also applies to the apartment buildings, he says.

High prices push down returns

Several of Norway's wealthy investors are dissatisfied with the interest rate at the bank and developments on the stock exchange, and are instead looking to property investments. This pushes prices up, and margins and returns down. Where property investors previously accepted annual returns of between seven and eight per cent on investments, margins in the market are closer to four per cent.

Both competition and demand have intensified in the market, and that means Bonum must deliver better than the rest to achieve good margins on our properties. We still have high demands on the return from our business, but of course one must adapt to market conditions and make assessments based on what is available in terms of projects, says Yan. He is positive about the market going forward:

High demand for housing close to the city centre, combined with low interest burden for investors and still relatively high rental prices, is reflected in the prices of apartment buildings.

Expecting sixfold turnover growth

Bonum works on developing, building and rehabilitating housing. In recent years the company has had significant growth, and has tripled its turnover since 2012, when it had a turnover of just over 30 million. In 2014 the company exceeded 100 million kroner in turnover, with an operating profit of over nine million. This year Yan expects to double the turnover from 2014. A turnover of around 200 million kroner for 2015 would in that case correspond to a sixfold increase in three years.

One of the main reasons for the turnover growth is a shift from external contracting assignments to developing projects on our own account. We expect continued strong growth and anticipate at least a doubling of accounting turnover this year from 2014. Bonum will then also have some completed housing that will only be realised in 2016, he says.