Sunday, August 20, 2017

Construction association helps struggling firms

A new initiative from the Myanmar Construction Entrepreneurs Association (MCEA) is helping smaller construction and contracting firms secure bank loans, amid a slowdown in the residential real estate market that has left companies facing abandoned projects, court cases and financial distress.

Workers sit on the edge of a building under construction in Yangon. Photo: EPAWorkers sit on the edge of a building under construction in Yangon. Photo: EPA

MCEA vice chair U Shein Win said that the association was collaborating with Construction and Housing Development Bank (CHDB) and AYA Bank to help small firms get approval for loans.

The initiative has been in place since early October, and so far has helped 17 firms receive bank loans, U Shein Win said.

The MCEA was established in 1996 and has more than 1000 members, ranging from small and medium to large-scale construction companies.

Smaller firms in particular are struggling amid a stagnant real estate market. In a recent third-quarter report on the wider real estate sector, Yangon-based Slade Property Services said, “The condominium market has shown no sign of recovery over the last few months.”

“Hopes that post-election stability would reinvigorate the market have proven unfounded,” it said, “and the government’s high-rise review has given potential buyers even more reason to hesitate.”

A Condominium Law that would allow foreigners to purchase apartments was passed in January, but the rules and regulations accompanying the law have not been released and the legislation is not yet in force.

Many construction and contractors rely on pre-selling apartments to fund construction of residential projects. But with few buyers to be found many firms have run into financial difficulty. Those that have won government tenders for projects are struggling to reach the 30 percent completion that typically triggers an initial payment from the government.

“We’re providing construction companies with help to complete their suspended projects,” said U Shein Win, adding that the loans were typically between K10 million and K20 million.

“For unsold apartments we are working together with banks to sell them on instalment plans, and also helping companies with government tenders [get funding] to reach the 30pc [stage],” he said

Small firms find it hard to secure bank loans by applying to lenders individually. Collateral requirements for loans are onerous and credit assessment is difficult because of a lack of available information on many firms.

“MCEA is linking with banks to help construction companies that are in need of financing because it is not easy to apply for bank loans individually,” said CHDB director U Tin Aung Myint.

The MCEA is not guaranteeing loans to small firms or providing help with collateral. The association is simply acting as an intermediary, coordinating with companies that are in need of financial help and helping write recommendation letters, U Shein Win said. But this is enough to help facilitate loans.

In order to qualify for a loan, the construction company has to be an MCEA member, and submit a letter to the association detailing the location of their project and the stage of completion, and explain the specific difficulties they are facing and how much financing they need.

“It is a very good that MCEA is helping us like this,” said U Yan Aung, general manager of Asia Construction. “If you have made an agreement with the landlord but not sold enough units under pre-sale or if construction has stopped because of financial issues or other problems then [often] banks won’t lend.”

In making use of the MCEA assistance program, developers still have to “make their businesses [situation] as clear as possible,” he added. “You may get a loan if you have irrefutable documentation.”

Firms with partially finished projects will find the program useful, but there are also many companies embroiled in court cases over unfinished buildings or projects that never broke ground, he said.

In some cases landowners and developers have mutually agreed to tear up contracts for residential projects before work begins. But other projects have ground to a halt with apartments pre-sold, contractors having spent money and landowners left with an unusable building.

“There are a lot of court cases among contractors, land owners and buyers for unfinished buildings,” said U Yan Aung.


Translation by Zar Zar Soe