Dunedin City Council subsidiary Delta Utility Services has moved into property development, taking a long-term $4 million 50-50 stake in the second stage of Central Otago businessman Jim Boult's Luggate subdivision.
Delta chief executive John Walsh confirmed the move when contacted yesterday, saying it was the first time Delta had invested in property development, having looked at several opportunities in recent years.
Mr Walsh expected there would be criticism of a council-owned company investing in property, especially when there was a downturn in the market.
But with $50 million of assets behind the company, the $4 million investment was relatively small and there was a good potential return.
"We're here for the medium to long term.
"Subject to demand, we would expect our investment would take about five years," Mr Walsh said.
The $4 million would be funded by Delta, not bank debt or loans.
The move would result initially in lower dividends to the council, but the long-term profit would eventually go back to council coffers.
He expected a return on investment "well beyond 10%", but said profit would come from the last homes sold.
The stage 2 Luggate subdivision consists of 150 sections, which will be developed and sold in three tranches of 50 during the next five years, depending on consumer demand.
Stage 1 has 45 lots in the township zone and 46 lots in the rural-residential zone, plus a subdivision road network.
Stage 2 was scaled back following opposition.
Mr Walsh said each home would be in the "affordable housing" range of $400,000, including landscaped section, house, whiteware and fittings.
Delta had undertaken the contracting work for stage 1, and some of Mr Boult's previous developments, and the company would be doing the stage 2 contracting work.
• Delta, an electricity management and maintenance business, has work contracts for several South Island councils, including line maintenance, operation and maintenance of water, wastewater, stormwater networks and treatment facilities It employs about 500 staff.
In March, it posted an after-tax profit of $1.04 million for the six months to December, compared with $1.72 million for the previous corresponding period.
Revenue increased 7% from $34.7 million last year to $41.2 million for the six months to December.
A dividend of $2 million was paid for both the six months to December 2006 and six months to December 2007.
