Myanmar developers face penalties amid construction ban

Construction News Myanmar
Construction on residential projects taller than nine stories has been indefinitely halted by the Yangon Region government.
Construction on residential projects taller than nine stories has been indefinitely halted by the Yangon Region government.

As a city-wide suspension on high-rise projects continues, developers in Yangon say they will have to pay penalty fees to buyers for failing to complete their projects on time and may be forced to default on their bank loans.
Last month Yangon Region government ordered a construction freeze on all projects with nine floors or more, while it carried out a review. Around 200 major developments have been stopped; they were all approved by the previous government and many were already under construction.

Contractors say the review is taking far too long and is hurting the entire industry. Thousands of workers lost their jobs when construction stopped almost a month ago, while uncertainty about the future of the project has spooked buyers, resulting in cash-flow problems.

Developers in Yangon usually sell units through pre-sales: Buyers pay for an apartment before it is built, either upfront or through an instalment system, with payments tied to progress at the construction site. Buyers reserve units on trust and companies use the advance money to fund the project. Now that work has stopped, developers are unable to meet their construction targets and buyers are refusing to pay, said U Zay Win Htut, chief executive officer of Myanmar New Generation Design, part of Naing Group.

“If condominiums are not built in time it will be a big problem, as buyers will not make regular payments and some new customers will not dare to buy rooms,” he said. “Also, if developers cannot transfer the apartments to customers on the agreed date, they will have to pay penalty fees.”

Typically a developer will agree to pay between K500,000 to K5 million for every month of delay, he said. However, some companies have clauses in their contracts that exempt them from payments in case of “disaster or government policy”.

“Companies that did not add this into the contracts will get into trouble. Our company already told customers that they need to make an exception in the case of unexpected problems such as disaster or government decisions,” he said.

If the construction ban continues the entire industry will be hurt, including engineers and architects, he said. “Developers are still paying a salary to their employees, even though nobody is doing any work. When these huge projects stop, related businesses cannot work either.”

Developers are also worried that they will be unable to repay their bank loans on time, said U Nay Min Thu, managing director of real estate website Domestic banks only issue short-term loans of up to one year, at interest rates of around 13 percent. Construction delays can impact a developer’s ability to repay, he said.

“Many construction projects are funded partly through bank loans, so if they are suspended for a long period, customers stop paying and developers are forced to default on their loans,” he said. “This will impact their cash-flow and have a negative effect on other related businesses.” held a property exhibition last month and again this month but high-end condo developers were unable to exhibit, said U Nay Min Thu.

“When the property market is slow we hold exhibitions to boost sales of apartments and condos, with promotions of between 5pc and 20pc,” he said. “In the past, lots of developers of large projects were involved; they promoted their projects and made a lot of sales. But this time, they couldn’t participate because of the government ban.”

U Than Htay, head of the department of engineering (building) at Yangon City Development Committee, said the regional government has already inspected the structure and design of all the suspended projects, but needs to complete another site visit.

“We are working very hard on these inspections,” he told The Myanmar Times. “We do not want to take a long time, but we need to inspect these projects closely. As soon as we finish, we will allow construction to continue.”