PROPERTY DEVELOPERS

PROPERTY DEVELOPERS:

(Extension of loan periods): 4.

Er Lee Bee Wah asked the Minister for National Development (a) whether his Ministry is aware that banks are not willing to extend existing loan periods for property developers to tide them over the current difficult economic times; and (b) whether his Ministry will consider assisting the property developers through any guarantee schemes to help them extend their loan periods.

The Minister for National Development (Mr Mah Bow Tan): Sir, under the current economic climate, banks have generally become more cautious in approving loans to businesses and companies, including property developers. These are commercial decisions that the banks themselves have to take, based on their assessment of the risks as well as the relationships they maintain with their customers.

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Nonetheless, banks are still extending loans to companies that they have assessed to be commercially viable and credit-worthy. Data from the MAS show that total loans to the building and construction sector, of which loans to developers account for the majority, saw a 22% growth in the 12 months leading up to February 2009. While this growth has tapered off in recent months, the total loans to the sector are still at a high level of $50 billion.

Hence, we do not think the current situation warrants the Government stepping in as guarantor for loans to developers. Banks are still lending to developers, and they are better placed to assess the risks than the Government. Besides bank loans, a number of developers have also managed to raise capital through other means such as rights issue or private placement.

Nevertheless, the Government is aware that developers, like other businesses, may be facing financial difficulties during this economic downturn. As part of Budget 2009, we have introduced several measures to ease the cashflow of developers. These include the deferment of property tax for land approved for development for up to two years, and the 40% property tax rebates for commercial and industrial properties.

We will continue to monitor the credit situation closely. If necessary, we are prepared to introduce further measures to help developers through the current downturn.

Er Lee Bee Wah: Sir, Budget 2009 has allowed for a one-year extension to the project completion period. But feedback from a lot of the developers is that the banks will not extend loans for the one-year period at the same rate. In fact, they will be given less favourable terms. So, I would like to ask, is this in line with the original Government's intention? Second question – how much of the $5.8 billion of the Special Risk-Sharing Initiative (SRI) will flow into the market and, in particular, how much will flow into the real estate market?

Mr Mah Bow Tan: The extension of the Project Completion Period (PCP) is to allow developers to stagger or to phase in the development according to the market situation or how they assess the market situation to be.

The decision of the banks on whether to extend their loans and if so, under what terms, is a separate matter. That is to be decided by the banks based on their relationship with their customers and also based on the assessment of the risks involved. As far as the extension of the PCP is concerned, this has helped many developers and allowed them to phase their developments according to demand.

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However, what is their relationship with the banks, how they negotiate with the banks and what the banks' decision ultimately is, is for the banks to decide. The situation, as I alluded to in my reply, is that the banks are still lending, although they may not lend at the same rates or under the same terms as before. However, that is a situation that I think we have to leave to the banks.

As to her second question about the SRI – how much of it has flowed down to the construction and the property sector, I do not have the details with me off-hand. If the Member wishes to file a question, we will be happy to provide those answers. But let me just say that there are other financing initiatives that were announced, that developers as well as construction industry players can avail themselves to. For example, the Member may know that SPRING has an initiative which provides short-term financing or working capital for these Singapore companies. I believe some construction companies and some property companies, which can avail themselves to these funds, have already done so.