Financial woes stall mainland projects

PUBLISHED : Wednesday, 14 January, 2009, 12:00am
UPDATED : Wednesday, 14 January, 2009, 12:00am

Funding squeeze leads to missed payments

Work on two big mainland property projects ground to a halt before the Lunar New Year break amid market talk of missed payments as developers battled to secure continuing funding to finish the building work.

Caught in the crunch are two hotel towers in Shanghai's city centre and a mixed development in central Beijing.

The hotels development is jointly owned by Leo Investment of the United States and the Shui On Private Group, which is privately owned by Hong Kong businessman Vincent Lo Hong-shui.

The Beijing project is being built by mainland developer Beijing Yao Hui Real Estate.

'Construction of the two hotel towers is almost complete but work was suspended recently,' a source said, adding it was rumoured that building work came to a halt partly because construction payments had not been settled.

The suspension was confirmed by an official of the Luwan District government, and the managers of one of the hotels to be developed in the project confirmed that the hotel opening would be delayed.

'The problem of an individual project will not affect the development plan of the district,' a government official said.

Neither Leo Investment nor Shui On was available for comment.

In Beijing, sources said construction work had been suspended for the past month on the mixed development project known as the Premier.

Beijing Yao Hui was unavailable for comment but mainland media reports said the company faced a funding problem and that the scheduled pre-sale launch had been postponed.

Premier, on Jianguomen Road opposite the China World Trade Center, occupies a prime site in Beijing and comprises residential, hotel and retail spaces.

The hotel was originally scheduled to open in the middle of last year but building work is not yet complete.

Leo Investment, the majority owner of the Shanghai two-hotel project with an 85 per cent share, is run by businessman Leo Koguan.

Shui On Private has the remainder. Leo Investment is responsible for all financial arrangements, according to a source close to the joint venture.

'There was delay in construction payment. But the latest payment was paid a week ago,' the source said.

News of the funding difficulties at the two developments has triggered alarm in the industry that the tightening credit environment could continue to take its toll on domestic and international developers, and that further high-profile suspensions may be expected.

Industry watchers are now waiting to see if work will resume at the two projects once the Lunar New Year break is over now that construction workers have started to make their way home for the holidays.

The two hotel towers development is in the Luwan district, next to the trendy Xintiandi entertainment area. One of the hotels will be run by the Dubai-based Jumeirah chain.

In 2006, the group said it intended to open the 338-room Jumeirah Han Tang Xintiandi Hotel last year. The other hotel will be managed by Conrad Shanghai, part of the Hilton Group.

Jumeirah confirmed via e-mail that the opening date of the hotel had been delayed and it was now expected to open 'in the course of 2009'.

'Jumeirah will take care of the core team already hired in the interim. Some will use the time for further training in Dubai and for further immersion in the Jumeirah service culture,' the company said.

Jumeirah added that it would continue to support its partners in their efforts to open this flagship property and that the delay would not affect the group's ambition in China.

'Jumeirah remains on target to have 60 hotels and resorts under construction or under management by 2012,' the group said.