Annual report 2023

At Selvaag Bolig, all projects are placed in separate project companies. Most of the project companies are wholly owned by Selvaag Bolig ASA, and do not have their own employees. They are subsidiaries that are consolidated 100% in the group accounts. In addition, Selvaag Bolig ASA has joint ventures projects that are mainly owned 50/50 with other actors, and are classified as joint ventures/associated companies. The earnings from them are included in the consolidated accounts according to the equity method. For more information, see note 2.6 Investments in associates in the group accounts. Selvaag Bolig has also separated operations of Pluss Homes into a separate company. Selvaag Bolig has 86 employees of which 62 are employed in Selvaag Bolig ASA. The remainder are employed in Selvaag Pluss Service AS, Selvaag Eiendomsoppgjør AS and in Selvaag Bostad AB including its subsidiaries.

Selvaag Bolig mainly constructs flats and large projects in urban areas, and the average home size is around 70 square metres of living space, and the types of homes and concepts are tailored to target groups with varying needs and preferences. The largest share of the homes is designed for the biggest customer group – households with normal incomes, and the share of Pluss homes, i.e., homes with shared facilities and services, has increased in recent years. Thanks to the size of its projects, the different types of homes can be combined in each project. This contributes to creating socially sustainable neighbourhoods by offering homes for people in all life situations and age groups. The combination of housing types also leads to a product offering that reaches a larger share of the market and optimises the sales and income profile of each project.

Selvaag Bolig is solely a developer without its own construction organisation, and manages the whole value chain from the purchase of land to the sale of turnkey homes. The company has an efficient approach to housing development which helps to ensure cost efficiency and reduce market risk. The key to this is the competitive tendering of all construction activities, and that the company mainly enters into turnkey contracts. This offers several advantages:

• Focused organisation: 65 employees in the core business. A small organisation focusing on development and sales.
• Predictable and competitive construction costs: Tenders from several contractors, based on standard descriptions, always ensuring the right market price and construction at fixed prices. Costs are fixed before sales start. Collaboration exclusively with contractors who have leading-edge expertise in implementing assignments.
• Lower execution risk: Using turnkey contracts reduces execution risk in the construction phase.
• Lower market risk: Construction costs are locked before sales start and the need for big staffing adjustments in the event of market fluctuations is low.
• Improved capacity: Scalable model and no capacity problems when several projects are being built simultaneously.

In addition to subjecting construction to competitive tendering, Selvaag Bolig’s strategy for buying and developing new sites is central to value creation at the company. The company has access to a substantial portfolio of land. That permits purposeful selection of new sites which fit with the existing portfolio and meet the company’s current requirements, including sustainability, location, size, price and development potential. The company purchases land in line with an acquisition strategy which gives priority to large land plots in its defined core areas.

Most of Selvaag Bolig’s available land portfolio is owned by the company’s financing partner Urban Property, who sells land back to Selvaag Bolig when construction starts on the projects. This model makes it possible for Selvaag Bolig to refine its core activities, increase its operational focus and manifest value in Selvaag Bolig’s day-to-day activity. Urban Property is a financially sound, well-capitalised and predictable partner for Selvaag Bolig. The cooperation is long-term and strategic.

The collaboration agreement with Urban Property, summarised:

• Urban Property has a pre-emptive right to purchase new land in Norway which Selvaag Bolig wants to develop. If Urban Property does not avail itself of this right, Selvaag Bolig can use other financing solutions and/or collaborate with others.
• Selvaag Bolig has an option to buy back the land from Urban Property.
• The land is bought back in stages by Selvaag Bolig at the original purchase price plus an annual option premium of Nibor plus 3.75 per cent. A transaction fee of 0.5 per cent is also payable when Urban Property buys land from the landowner, and 2.0 per cent when Selvaag Bolig buys the land from Urban Property.
• The agreement contains financial covenants. See note 29 for further information about the covenants.

Advantages for Selvaag Bolig:

• Limited need for equity to buy land. Selvaag Bolig pays 50 per cent of the purchase price to Urban Property when taking over a site (at the start to construction) and 50 per cent on project completion.
• Higher return on equity because of less use of equity.
• Ability to pay out a higher share of profit as dividend over time.
• Efficient and predictable financing of existing and new sites.
• Downside risk limited to 48 months of option premiums (break fee).

Selvaag Bolig also has land on its own balance sheet, as well as land plots it controls together with joint venture partners.

In Sweden, Selvaag Bolig primarily makes agreements on land purchases through land allocation by local authorities. The allocation is normally in conjunction with a bidding competition with many actors where price is one of several criteria. Payment for the land typically occurs when the land is ready for construction to begin, and the planning permission risk is thus eliminated. In addition, an agreement has been made that Urban Property can finance land lots that are acquired in Sweden.

The company's sales strategy is the key to ensure optimal progress and profitability in the projects. Segmentation of housing projects and optimisation of complex projects with a broad range of housing types, including extensive use of the company's trademark-protected Pluss concept, have yielded positive sales and a favourable progression of sales. As a general rule, Selvaag Bolig does not start construction until 60 per cent of the value of a building stage has been sold. The rest of the building stage is sold during the period up to completion. This makes it possible to price the units in the project in line with market price developments, and ensures income optimisation. Furthermore, the attention devoted to detailed planning, standardisation, site utilisation and strategic land development helps to secure sustainability, low construction costs and good project margins for the company and competitive house prices.

Selvaag Bolig sets high standards for quality at all levels internally and has extensive requirements for products, operations and ESG with its suppliers. This helps to reduce the risk of errors in the projects, and ensure that all the homes have a high standard and meet the company's ESG requirements. Read more about this in the ESG report.

Selvaag Bolig aims to be one of Norway’s leading housebuilders, and contribute to inclusive local communities and facilitate a sustainable lifestyle. The company has a long-term objective of growth. which will not be pursued at the expense of profitability. The company’s strategy helps to secure its position as market leader and to strengthen its competitiveness. Selvaag Bolig has a stated goal of achieving project margins of at least 10 per cent.

Selvaag Bolig’s ambition is to pay high and stable dividends to its owners. The company aims to pay dividends of minimum 60 per cent of net profit, paid in two instalments over the year. However, the size of the dividend will be weighed against the company’s liquidity forecasts and capital adequacy.

Selvaag Bolig works actively to reduce the risk of cost overruns and delays. This is minimised by turnkey contracts with solid construction companies which are well financed and have a high level of expertise as well as a documented ability to deliver. The turnkey contractor is responsible for delivering the project at the agreed time and price. In addition, the greater proportion of the project cost is assured because construction does not start before advance sales reach 60 per cent. Furthermore, a high degree of standardisation, combined with considerable detailing in the specifications to contractors, reduces the risk of delays in the construction process. Continuous learning at the contractors contributes further to efficient project execution and reduced risk of errors and delays.

Low interest rates, low unemployment, substantial household purchasing power and a high level of population growth in urban areas have contributed to a large demand for new housing – particularly in Greater Oslo, where Selvaag Bolig has the bulk of its business. However, during 2023, purchasing power and housing demand were negatively impacted by interest rate increases, energy prices, inflation and geopolitical tension. In addition, higher construction costs have delayed sales and construction starts. Negative shifts in demand could also occur because of regulatory changes that impact purchasing power or construction costs. One example of this is that stricter environmental requirements can influence project development and affect access to new land and raw materials. See the separate section about risk in the chapter about corporate governance.