owners of construction companies around Phnom Penh have gathered at their sites, looking sadly on under-constructed homes they've been unable to sell
- From: Chim <ChimS1@xxxxxxx>
- Date: Fri, 26 Dec 2008 15:27:50 -0800 (PST)
Real Estate Crunch Hits Local Banks
By Ros Sothea, VOA Khmer
Original report from Phnom Penh
26 December 2008
Nearly every morning over the last few weeks, owners of construction
companies around Phnom Penh have gathered at their sites, looking
sadly on under-constructed homes they've been unable to sell. These
investors worry constantly over how to collect the large sums they
need to pay back loans they made for real estate investment.
Experts worry that this inability to repay loans on large mortgages
will lead local banks into their own economic crisis, echoing the
global downturn that was itself caused by the failure in part of the
US housing market.
Nearly 50 percent of Cambodian real estate investors, from almost
20companies, depend heavily on borrowed money from local banks, which
had until recently provided them with great benefits in a booming
sector, real estate agents say. But after the global financial
crisis,the price for land and houses in Cambodia fell dramatically.
Somaly, who owns a self-named company, told VOA Khmer recently she
owed the banks around $500,000, which must be paid back at the end of
the year. Unfortunately, she said, she can't even pay the
interest,about $5,000 per month.
"A lot of houses got stuck [and] can't be sold because there are many
sellers and no buyers," said Somaly, who only gave one name. "If
so,how can we find the money to pay them back?"
Investors like Somaly worry that their properties will be seized by
the banks if they have no money to pay the interest.
Equity loans rapidly emerged at the end of 2006, as several large
commercial banks competed with each other for investors. Land prices
were high and rising, and by the end of 2007, property development
loans reached $100 million, according to statistics gathered by the
National Bank of Cambodia.
The market slowed in 2008, with a sharp drop in the final quarter, and
investors will face collection from the banks in the first four months
of 2009.
"Those who used bank credit, they now have no choice," said Sung
Bunna, head of the Bunna Realty Group. "That will cause our land
market even more silence."
In such a climate, economists worry that banks will not only fail to
collect debt but can ruin their own credit in the process, as they
collect confiscated property instead of cash.
Kong Chandararoth, president of the Cambodian Institute of Economic
Study and Development, said banks in Cambodia could face a financial
crisis if they couldn't get their loans back in cash.
"If [investors] are not unable to pay back the banks, mortgaged
property will be confiscated," he said. "So the banks will face
theirown financial crisis, because what they get back is not liquid
cash."
"There will be a problem," said Sam Genthy, a banking expert at the
Royal University of Law and Economics and former adviser to the
National Bank. "We'll wait and see what happens. If the bank can't
find resources to replace their ruined credit, they will suffer."
Economists worry Cambodia's banks will suffer the same fate as US and
European banks that offered up nearly 100 percent of their credit to
real estate loans and are now bankrupt, despite a regulation put out
by the National Bank in July that permitted only 15 percent of total
credit to be loaned to real estate borrowers.
Stephen Higgins, chief executive officer for ANZ Royal bank, said his
bank had been insulated from the crunch through the selection of
valued customers.
"We have some loans, property development loans, but they are from
very good customers who have plenty of cash flow," he said. "So for
ANZ Royal bank, we don't have a problem."
However, representatives of other local banks confessed anonymously
that some of their resources were already stuck with real estate loans
in collection.
Tal Nay Im, general director of the National Bank of Cambodia, saidshe
hasn't received any reports of crisis, but she said banks thatface
market downturn difficulties will have to sort the problems
forthemselves.
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