Bridging finance outdated – Shareda

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KOTA KINABALU: The present bridging finance is outdated and not suitable for high-rise condominium as the drawdown is adopting the pyramid format, said Sabah Housing and Real Estate Developers Association (Shareda) president Chew Sang Hai.

Chew said one of the terms and conditions for the bridging loan was also to achieve 80 per cent sales of the property.

“If I have reached 80 per cent sales, I wouldn’t need the money (bridging finance).”

He said the risk sharing for bridging finance was presumed unfair, while the approved loan was also capped at a low ratio of development cost.

“This will cause a project to be easily abandoned if the developer does not have a deep pocket or fail to achieve above 70 per cent of the total sales,” he said when speaking on the financial issues and challenges facing the property industry during the CEO Roundtable Conference organized by Shareda here yesterday.

Chew said many developers had problem obtaining bridging finance due to low coverage of region exposure and poor knowledge of Kuala Lumpur-based risk committee towards Sabah market despite the project might be feasible.

In some cases, he said some small and medium enterprises (SMEs) also experienced temporary suspension of their banking facility, which would be an additional burden to developers at this challenging time.

After the issuance of Occupancy Certificate (OC), he said many developers could not restructure their bridging finance to term loan within the company as some companies might be listed in CTOS, a credit reporting agency in Malaysia.

He said developers also needed to bear additional cost for transferring unsold units to a new holding company.

As such, Chew proposed several innovative solutions to overcome the financial challenges faced by developers, including requesting the Bank Negara Malaysia (BNM) to impose the requirement for all commercial banks to establish a regional risk office with an approval authority of up to RM150 million.

The association also proposed to BNM to impose a fixed rate regional exposure of 7.5 per cent for Sabah and Sarawak.

“BNM should initiate a study of fair risk sharing which is friendlier, helpful and congruent with the latest market development of bridging finance to ease developers’ financial burden,” he said.

Additionally, Chew encouraged developers to explore alternative finances such as bond issuance, private equity finance or unlisted real estate investment trust (REIT) to finance their development business and real estate investment.

“Also, developers are encouraged to tap on the equity market, especially the newly-established Leading Entrepreneur Accelerator Platform (LEAP) board.

“Listed Sabah developers are encouraged to help SME developers through merging and acquisition or joint venture,” he added.

Earlier, Chew said the overall volume of property transaction for Malaysia was showing a downward trend and was expected to be stabilized in the beginning of 2018.

He said the year 2016 also recorded the highest percentage of total overhang units at 18.37 per cent for residential, shops and industrial properties.

Since 2013, Chew said the launches of property development in Sabah were on a downward trend, with 75 per cent of the launched properties priced below RM400,000.

“Eighty per cent of the new launches are located in the west coast with a substantial percentage of the buyers from the east coast.”

On Shareda’s projection for the property market, Chew said the association expected the price to stabilize in the beginning and the volume of transaction to remain stagnant.

He said the new launches by developers would be at the affordable range, that was below RM400,000.

“Most of these new launches will be of high rise stratified apartment due to high land cost, given that development land has appreciated by about 500 per cent from 2009 to 2014.”

Meanwhile, Shareda deputy president cum organizing chairman Datuk Chua Soon Ping said developers must embrace changes and resonate with advances in new technology in order to move forward and continue to be successful.

“We must adapt to new ways of doing business.

“In short, businesses have to be in tune with changing trends or run the risk of failing.

“The property sector, therefore must pursue sustained efforts and synergy to ensure it remains vibrant and dynamic and most importantly, remain relevant.”

He said Shareda also encouraged Shareda Youth to focus more on the digital economy and to capitalize on this trend.

“Just look at the tremendous successes of businesses such as Airbnb, whose business platform soared because of its ability to link with the internet highway and platform.”

He said Airbnb was the largest operator for lodging or hotel accommodation without owning a single room.

“To date, it has over three million lodging listings in 65,000 cities, in more than 190 countries and counting.”

Chua also thanked the State Government under the dynamic leadership of Chief Minister Datuk Seri Panglima Musa Haji Aman for the staunch support to Shareda’s initiative and agenda.