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Banks cautious on lending to small condo developers

By on Aug 14, 2012 in Property News

Commercial banks are open to lending to small property developers, though they are more inclined to focus on medium-sized to large companies, which are more financially sound and less likely to default, bank executives say.

To be eligible for financing, small developers must have projects in prime locations andtheir presales should exceed 50 per cent of target revenue, they said.

Sarut Ruttanaporn, head of the commercial banking division at Siam Commercial Bank, said most banks chose to lend for condominium projects located in areas with high potential, and the developers must have sufficient capital of their own.

In general, banks are ready to finance condominium developers when presale volumes are 50 per cent of total units, he said.

He noted that SCB provided financing to developers of all sizes but would consider the project, the location and the marketing strategies before approving a loan.

Most developers have their own sales offices and cash to buy land, he said.

The bank has not seen any sign of a slowdown of the condominium market.

Building-project financing represents 10 per cent of SCB’s commercial banking portfolio.

Tinnakorn Boonyakalin, a senior vice president at Krung Thai Bank, said it was selective on lending to developers, taking note of the location of each project. Financing projects near mass-transit lines developed by medium-sized to large firms is the comfort zone for KTB.

“To support such projects, we offer post-financing with special promotions to condominium buyers. This help boost presales for the developers as well as bringing in new lending to the bank,” he said.

New loans for condominiums in the first six months were Bt30 billion on a target of Bt40 billion for the entire year. However, the bank has not changed the full-year target.

For CIMB Thai Bank to be comfortable with a project loan, presales should reach 50 per cent of total units on average. Vorakarn Dhepchalerm, its head of corporate banking, said it based its lending decisions on the expertise of developers, and it preferred branded projects because these have enough capital to defend against unexpected situations.

He said the bank set tight conditions for condominium developers because the outlook is for oversupply, while growth of condo presales is slowing.

Property-project financing ac-counts for 9-10 per cent of the outstanding loans in CIMB Thai’s corporate banking portfolio, and condominiums account for 30 per cent of that.

Vorakarn said loans to small developers who don’t have sufficient cash flow could default if their projects do not sell well.

According to a survey by Colliers International (Thailand), condominium projects launched in Bangkok in the first half of this year amounted to 24,100 units, up 7.1 per cent from the same period last year. More than half of these were launched by listed property firms.

Tossaporn Saksanguanma-noon, managing director of Thonglor Seventeenth, which has developed a condominium project on Sukhumvit 34 in Bangkok, accepted that the commercial banks had to restrict their lending for condo projects by targeting presales of at least 50 per cent of the total project value.

However, its condominiums are in the central business districts where demand is strong enough to meet the banks’ requirements, he said.

Source : The Nation 14 August 2012

Nora has been in the Corporate Communications arena for a number of years. Nora's role is to communicate all newsworthy items that are of a PR nature.

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