Collapse of Hillview, Joo Chiat projects stokes fears of more small developers going bust

In what is likely the first case of a Singapore developer going bust since the Asian Financial Crisis, the party behind two unfinished projects has been put under receivership - sparking fears that there may be other such cases.

The Business Times understands that three partners of KPMG led by Bob Yap are acting as receivers for the projects - the 70-unit freehold condominium at Laurel Tree along Hillview Terrace and the 96 residential units and 17 shops in the Sycamore Tree project in Joo Chiat.

The projects - developed by vehicles of Tan Hock Keng - were supposed to obtain their temporary occupation permits by December 2016, but have stalled since the end of last year as their project accounts have insufficient funds for the next phases of construction. Project accounts hold payments from buyers that can only be used to pay construction and other costs relating to the project.

The Sunday Times reported that the Controller of Housing at the Urban Redevelopment Authority (URA) is examining the project accounts of the two projects to check whether money earmarked for them has been misused, and if there have been other regulatory breaches.

Ironically, the two projects were supposed to be a quiet comeback for Mr Tan, a former property bigwig. He was once known as one of the "Geylang kings" in the property business before his businesses were hit by the Asian Financial Crisis in the late 1990s. He was also chairman and chief executive officer of Malaysia-listed Pilecon Engineering Bhd, which has since been delisted by Bursa.

In 1999, his property portfolio was estimated to be worth at least S$200 million. It included the 170-room Katong Park Hotel in Meyer Road, Asia Radio Hotel in Bencoolen Street, land in Delta Road, Zion Close and Upper Serangoon, and shophouses in Geylang which housed a KTV lounge. Since then, most of his properties have been seized by banks or sold to repay debts.

Market observers said cases of incomplete projects or holes in the ground are very rare in Singapore given the strict regulations.

The last time Singapore witnessed a case where the developer ran into financial difficulties before project completion was when the developer of office and residential skyscraper Springleaf Tower, a subsidiary of the now defunct Ban Hin Leong Group, faced problems in the late 1990s.

*It was unable to pay its contractors, including Yongnam, for the completion of the 37-storey building. UOB, which was the mortgagee, later foreclosed on the building.

But unlike the Springleaf case, the Laurel Tree and Sycamore Tree projects involved HDB upgraders, some of whom had sold their flats and are incurring rents while waiting for the completion of their new homes (See related story).

Two townhall meetings had been convened for buyers of Laurel Tree and Sycamore Tree development with Mr Yap, who was appointed receiver by UOB, buyers told BT.

In the first meeting, the receivers told buyers they had two options. The first is to cough out a "premium top-up" as it seeks to appoint a contractor to resume construction. The "premium" is to ensure the appointment of a quality contractor to finish the project. The second is for the receivers to sell the land and return the money to the bank and whatever that is left - which is most likely to be nothing - to the company. The buyers can then sue the developer for liquidated damages. Understandably, the buyers were upset, and banded together to seek the help of Members of Parliament and the URA.

A second meeting was then held ahead of the initial scheduled date. Receivers then told buyers that the bank would drop the premium top-ups - on condition that buyers waive their rights to claim liquidated damages, which are compensation that developers must pay buyers for delays - against their progress payments. Based on the sale and purchase agreement, the developer will have to pay liquidated damages of 10 per cent per annum of what buyers have to pay.

"Most of us want the project to be completed. We cannot afford lawyers to fight UOB or the receivers at KPMG,'' said Ashok, whose family bought two units at Sycamore Tree.

Buyers are also left wondering what happened to the money in the project account.

"In both options, buyers are disadvantaged. The developer defaulted in its payment. We have been paying diligently. So why are we buyers bearing the brunt of the burden?'' Ashok asked.

According to buyers, the receivers said the liquidated damages waiver was necessary to ensure there is enough money to complete the project, and not have buyers suing the developers before they can do so.

Some market observers said the latest fracas could be symptomatic of the actual state of the current property market, where small developers would be the most vulnerable.

Lee Nai Jia, Knight Frank's head of research in Singapore, said buyers and sellers are playing a waiting game.

"We see many buyers, but they are waiting on the sidelines for prices to come down. But if you look at the price index, it is flattish. Resale volume has come down a fair bit. There is a gap between buyers and sellers.''

Based on past records, buyers will eventually return, but it takes one to two years to clear potential surplus units.

"This can spell trouble for smaller developers who are over-stretched as construction and other costs increase. The smaller ones will face the pressure first," said one market observer.

This is why experts say it is paramount that buyers buy from reputable developers.

"These two cases are reminders that it is best to look at the track record of the developer of the project... For these buyers, it must be a very painful experience. Buyers have to be very cautious,'' advised Knight Frank's Mr Lee.