Small builders shaky
Kasikornbank (KBank) does not favour giving loans to smaller property developers, even though its focus this year is on lending to small and medium-sized enterprises (SMEs).
Executive vice president Boontuck Wungcharoen said land development was not really a suitable business for small companies, because they had no track record for the most part. "By comparison, other manufacturing businesses have a factory for producing goods and a track record. But the 'factory' in the real-estate business is property projects - once the project is sold, it's as if the factory were sold," he explained. The real-estate business is suitable only for large firms, particularly those listed on the stock exchange. They have a business database and track record that make it easier for banks to assess their loan requests. This is the kind of company KBank will concentrate on in its real-estate financing, he said. Boontuck said KBank mainly considered a project's location and market demand in approving loans to property developers. However, home-buyer's demands and lifestyles are always changing, and sometimes property projects failed in previously successful locations because consumer behaviour had changed. Smaller property firms usually do not have the financial strength or capital base to cope with such market uncertainty and downturns in the business cycle. For example, some developers with a land bank of only 1 rai come seeking loans to build a residential project. In such cases, it would be unreasonable for the bank to grant a loan, he said. The country's fourth-largest bank has targeted 20-per-cent growth in lending to SMEs this year, up from 16 per cent last year, when the bank's outstanding SME loans totalled Bt270 billion. KBank ranks second in lending to this sector, with a market share of about 25 per cent. It plans to increase its share to 30 per cent next year. Property experts recently reported that more than 100 projects with a combined value of up to Bt20 billion ceased construction in the first quarter. The developers of these projects failed to receive bank loans. Most of these projects were by small and medium-sized developers and worth Bt100 million to Bt500 million each.
Somruedi Banchongduang The Nation
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