Real estate projects halted as foreign banks tighten credit
Real estate projects halted as foreign banks tighten credit
Construction of a number of shopping malls, hotels and residential developments in Vientiane are facing delay because investors cannot source sufficient capital.
Several contractors have ordered their workers off construction sites since the start of this year after the project developers found they did not have enough money to continue with the work, leaving the sites idle.
“One of the main reasons for the delays in real estate developme nts is the short supply of funding,” the manager of a constructio n company in Vientiane told the Vientiane Times.
Construction of a mega mall in Sikhottabong district, Khuadin market in Chanthabouly district, and the That Luang shopping mall in Xaysettha district have all ground to a halt. There has also been no progress on the construction of a luxury hotel near Chao Fa Ngum Park even though a groundbreaking ceremony took place last year.
Various other urban development projects in Vientiane have also seen no progress since the end of last year, raising questions about whether the developers simply wanted to occupy prime locations and then resell the projects at a later date.
The cost of land and land concession fees in Vientiane has been rising over the past decade, but is still very low compared to other countries in the region. This means investors can occupy land for the time being and then sell the project in 2015 when Laos becomes part of the Asean Economic Community.
Vientiane Planning and Investment officials admitted there had been delays to development projects in the capital, saying that one of the main causes for the delays was the fact that project developers were struggling to obtain investment capital.
They said most of these projects were foreign owned or were joint domestic-foreign ventures, and typically relied on funding sourced from commercial banks in foreign countries such as China and Vietnam.
Vietnam has reined in credit growth, especially in real estate development, out of fear that long term investment projects will have a negative impact on macro-economic stability.
The Asian Development Bank is urging Asian countries including Laos to pay closer attention to credit growth. The Bank of the Lao PDR has acknowledged the warning and will screen real estate projects more carefully to prevent bad loans.
Deputy Director General of the Bank of the Lao PDR's Monetary Policy Department, Mr Phetsathaphone Keovongvichith, said the current bad loan rate was at an acceptable level, but it was necessary to ensure the rate remained below the danger point.
Economists say one of the main drivers of real estate development is domestic demand, and point out that demand for shopping malls in Laos is still limited.
They say some developers are sourcing funding from shopping mall purchasers to finance their projects, adding that many are unable to continue construction as not many people are interested in investing.
vientiane times
