Residential projects ‘on hold’

charisma_sukumvitBank restrictions stymie small developers – customers lodge complaints with Department of Special Investigation

Small and medium-sized property firms are continuing to hold many residential projects in suspension because of a liquidity crunch following the imposition of loan restrictions by commercial banks.

Property agency Colliers International Thailand said the construction of some projects was delayed when most commercial banks began restricting financial support to only those projects with presales amounting to at least 50 per cent of total project value.

“Developers in both Bangkok and tourist destinations delayed the construction of residential projects when they saw purchasing power drop,” said Risinee Sarikaputra, head of research.

Some of these projects are now finding new strategic partners, she said. However, others seem bound for deeper trouble.

Last week, home-buyers who paid reservation fees and down payments on units in the Charisma Sukhumvit 63 condominium project filed complaints with the Department of Special Investigation (DSI). They claimed the project’s owner, In Style Estate Ekamai, had delayed construction and delivery of the project after most customers signed up and paid their fees in 2007.

The firm’s managing director, Peerasak Klinsunthorn, said In Style Estate Ekamai had faced a liquidity problem even before the sub-prime crisis last year, when the bank declined provision of a project loan.

“We did not want to miss the contract with our customers, but when we faced the credit crunch, we had to try to solve our problems by finding new strategic partners. But at the time the economy slumped, most investors were also delaying their decisions to invest,” he said.

When buyers began complaining about delays to the project, this forced the company into a hard period, because it felt compelled to close a deal with a strategic partner, he said.

“We’ve tried to solve our problems, and we promise our customers will receive their deposits and down payments back on demand, but they’ll have to wait until we can close a deal with our strategic partner,” he said.

Last week, 31 people who had paid deposits for units in the planned luxury block lodged a complaint with the DSI. The buyers are accusing the project owner of fraud after four years with little progress on the building.

The buyers made statements and presented evidence to show they had paid a total of Bt28 million in reservation fees and a fifth of the price of each unit to the managers of In Style Estate Ekamai.

Peerasak said the company had received a loan of Bt180 million from Siam City Bank after opening the project for presales in 2007. This had been spent on developing the infrastructure for Charisma Sukhumvit 63, but it was not enough to construct the entire building. When the bank declined to provide a new project loan, the company was forced to suspend construction. That was in 2007, and the situation remains unchanged.

Other property firms who are listed on the Stock Exchange of Thailand are also facing difficulties obtaining project loans from banks. The situation is forcing many of them to study project plans more seriously than usual, before going ahead.

SC Asset chief operating officer Kree Dejchai, for example, has spoken of his company’s need to exercise care before launching new projects, because banks are restricting the provision of project loans by setting rigid presale targets of 40-50 per cent of a project’s value before loans can be approved.

About the author

Somluck Srimalee Somluck Srimalee
Somluck Srimalee is a journalist with The Nation, Bangkok's independent English language newspaper and specialises in the property and real estate sectors.
Other posts by Somluck Srimalee ( 63 )

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