Land defaults likely: economists

Land defaults likely: economists

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081231_02r.jpg

Experts warn that banks should prepare themselves for defaults on real estate loans as developers say they’re struggling to sell units in the slumping domestic property market

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NATHAN GREEN

As property developers face defaulting on loans amid an ongoing sales slump, they risk being locked out by domestic banks.

DOMESTIC banks are facing losses from Cambodia's ongoing real estate slump as developers struggle to repay loans on time, economists have warned.

Kang Chandararot, president of the Cambodian Institute for Development Study, said developers would be unable to repay loans on time because they have been unable to sell or rent homes they have constructed.

"The banks will suffer an economic crisis," he said, adding that banks would need to repossess property from defaulters and sell it on the open market to recoup losses.

Samnang Rithy, a developer who owns a self-named company, said he was unable to repay around $1 million owed by the end of the year.

"I cannot sell my homes due to the property market slowdown," he said. "I can say that for every 95 sellers there are only five buyers looking for a home, so how can I find the money to repay the banks?"

He warned that he was not the only developer struggling to meet repayments.

Many have called on the National Bank of Cambodia (NBC) to relax guidelines that encourage banks to expose no more than 15 percent of their total loan portfolios to the property sector, as Prime Location reported last week.

They argued that the guidelines should be raised up to 50 percent so developers could refinance in order to finish their projects, which they say would help them avoid defaulting on their initial loans.

Caution pays

Independent economist Sok Sina said the guidelines, and the traditionally cautious lending practices of Cambodia's banks, shielded the banking sector from the full impact of the property slump.

He said there was little risk of the sector facing the catastrophic losses and bankruptcies experienced in the US this year. "Yes, sure, I believe that they will suffer, but I don't know how much they will suffer if [Cambodian real estate developers] don't repay loans."

Stephen Higgins, CEO of ANZ Royal Bank, said the bank lends less than 50 percent of the total value of land and buildings and less than 40 percent for just land. "So we don't expect much of an impact on us, but we need to be conscious that some people out there will be impacted".

ACLEDA Bank President and CEO In Channy said his bank  had only limited exposure to the real estate sector. "We do not have a problem because we have only eight percent of our loan portfolio in real estate," he said.

He estimated the total exposure at around $40 million but said it was in mortgage lending rather than development loans.

Asking prices for property in Cambodia have dropped between 30 percent and 40 percent from an historic peak in June as sales activity has dropped to almost zero, according to Sung Bonna, president of the National Valuers Association of Cambodia.

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