After a plan where they would manage the project's cash flow failed, customers at Usilk City are no closer to knowing when they will receive their apartments.
Trust. It’s the key to all relationships. Yet it’s now sadly lacking in the relationship between a group of customers and one property investor. Kicked off in August 2009 then going through a string of broken promises, Song Da Thang Long (STL) Joint Stock Company’s Usilk City project, which was considered the pride of STL at one point, is still not finished for handing over to customers. Trust became non-existent some time ago. In a bid to turn the situation around, the customers and the investor agreed on a solution whereby the customers will manage the cash flow, in the hope that construction progress may get back on track. Eventually, though, it also met with failure.
Located on Le Van Luong Street, one of Hanoi’s major arterial roads these days, Usilk City is still the largest project in Ha Dong district, with four blocks, from CT1 to CT4. CT1 consists of five buildings, CT2 two, and CT3 and CT4 three each, of between 25 and 50 storeys with a total of 2,500 apartments. Total investment capital is VND10 trillion ($476 million). When it began the project promised give the district something of a facelift.
Work started in 2009, with a commitment to hand over apartment in three buildings - 101, 102, 103 - to customers in the first quarter of 2013 and the remainder in 2014. But the investor then lacked the financial resources to continue with the project. Not surprisingly, this created a wave of indignation among customers, some of whom had paid 70 to 80 per cent of the apartment price off plan. Customers were unwilling to wait anymore, and the plan for them to manage the cash flow was agreed upon in the hope that work would continue and their apartments would be finished.
Under the plan, customers would continue to pay money to the investor via an account at the Thanh Xuan branch of the Bank for Investment and Development of Vietnam (BIDV), opened by a representative of the investor and three representatives of the customers. From this personal account, the bank was to transfer funds to SLT’s account based on the results of an inspection regime at the project. STL was not permitted to withdraw money from its account under the plan, with the bank transferring amounts to contractors as required. The plan was wholly accepted by both STL and BIDV. According to Mr. Nguyen Ngoc Thanh from the Usilk City’s customer community, customers believed that their money could not be used by STL to invest in its other projects. For his part, Mr. Nguyen Tri Dung, General Director of STL apologized for delays and admitted that this is the best solution not only for Usilk City but also for other projects that had fallen behind schedule.
STL and the customer community decided to split block CT1 into two stages. In stage 1, STL had to complete all systems such as elevators, water supply, fireproofing and stairways by October 31, 2014. In stage 2, STL had to complete the interiors of all apartments by December 31, 2014. When these timelines had passed, however, the investor has only transferred one basically-completed apartment to a single customer, with work on the interiors of the remainder being delayed yet again. Moreover, blocks CT2, CT3, CT4 and CT5 all fell quiet. Despite the efforts of customers, the plan for them to manage the cash flow had also failed.
The failure of the plan, which was seen as a “magic ward” for Usilk City, broke the trust of its customers. According to Mr. Nguyen Hong Ha, a member of the customer community, some homebuyers who paid 100 per cent of their apartment’s value have waited so long they’ve had rent somewhere else to live. They no longer believe in any of STL’s promises.
Some experts suggested that the plan represented a good solution for delayed projects such as Usilk City. But its effectiveness depends on the investor. STL had sunk its financial resources into many projects without due consideration. According to its financial report released at the end of 2013, STL and its subsidiaries were investing in 17 projects throughout the country. When the real estate market hit problems, so did STL’s projects.
STL is far from alone when it comes to thinly spreading out its financial resources. According to Mr. Dang Hung Vo, former Deputy Minister of Natural Resources and Environment and now an independent property analyst, spreading out investment capital in this way is unprofessional. “Many real estate investors believed that their project would sell regardless of the circumstances,” he said. “But such thoughts were mistaken, because property supply is now increasing and buyers have a choice,” he said. He added that, in other countries, professional developers conduct careful market research before deciding to invest in any project, to avoid spreading their capital too thinly.
There can be no doubt that spreading out their investment in this way has put many investors in dire predicaments, as the case of STL attests. Such delays, however, are expected to ease this year the due to amendments to the Law on Housing. According to Mr. Nguyen Trong Hien, Manager of the Housing and Real Estate Market Department at the Hanoi Department of Construction, local administrators will be responsible for urging investors to implement projects on schedule. Moreover, investors must sign a guarantee contract with a guarantor of the homebuyers. If investors can’t ensure progress, they must pay a fee regulated in the contract. Regarding STL, the most important question is when Usilk City will be completed and whether some customers at least may receive their apartment this year. Problem is, it appears to have exhausted most if not all of the available solutions.