Published by Straits Times on Sep 10, 2017, 5:00 am SGT
Dozens of investors have been left in the lurch following the failed construction of an Indonesian property project in which they invested a total of $12 million.
At least 69 investors from Singapore forked out between $140,000 and $500,000 for a unit in The Heritage condominium-hotel at Lagoi Bay, in the northern part of Bintan.
They had paid nearly all their installments, but the developer, PT Stareast Sejahtera, pulled the plug on construction a year ago with the project far from complete.
Representatives from a group of 28 buyers told The Sunday Times that Stareast has not refunded them even though it promised to do so.
The buyers made a police report against Stareast in Medan, Indonesia, on June 14, and investigations are ongoing.
Stareast group chief executive officer Edwin Ng has disputed their account, claiming he refunded more than a third of existing buyers of The Heritage’s 219 units, in part or in full. He also hired a Singapore law firm in July to mediate and negotiate refund terms with the group of 28.
A 50-minute ferry ride from Singapore, The Heritage was launched in 2013 and marketed in Singapore as one of several new beachfront resorts that would open in Lagoi Bay over the next few years.
Investors were told they could ride the wave of Bintan’s renaissance, with tourist arrivals poised to swell, given a new international airport that was expected this year.
Buyers were promised annual returns of 9 per cent, and guaranteed they could later sell their unit back to the developer if they wished. They were told construction would be completed by end-2015, but their concerns mounted as deadline after deadline was missed.
In a June 2015 letter, Stareast told investors the project would be delayed due to changes in contractors.
Said regional finance manager Luigi Fiore, 43: “I saw red flags when he started sending us letters and pictures to say the project was a bit behind schedule. From those pictures, it looked miles behind.”
A new August 2016 deadline was set, but it passed with the project “30 per cent completed”, said a Stareast update that month.
By then, the 28 buyers opted to rescind their contracts. They were entitled to full refunds of payments.
Mr Ng told them Stareast would get a bridging loan, and promised them refunds, they said. In a letter sent in February, seen by The Sunday Times, he asked for an extra year to raise funds by selling another hotel in Bintan developed by Stareast, the Grand Lagoi Village.
But buyers said they lost faith after he issued cheques that bounced and delayed his repayment schedule. Said Mr Christophe Chapel, 52, a project manager in the oil and gas industry: “We reached the conclusion that the guy was not willing to compensate us. He never had a basic, honest plan from the beginning.”
The buyers, who started a chat group and a file-sharing account, went to the police. Some visited the project site in June and found the ground floor only partially finished, and parts of the foundation exposed.
In an e-mail to The Sunday Times, Mr Ng blamed his failing business on the delayed opening of the Bintan international airport, now pushed back to 2020. “When we decided to invest in Bintan about six years ago, we were informed that there would be an international airport that will connect Bintan Resorts to the whole world, therefore opening the huge potential for tourism businesses in Bintan island,” he wrote.
Nearly all visitors to Bintan’s resorts now arrive by ferry via Singapore’s Tanah Merah Ferry Terminal as the airport is too small for frequent domestic or regional flights.
In a letter to investors on Feb 23, Stareast said it was “disappointing that Gallant Venture did not fulfil and deliver what had been promised to investors”, and announced it was halting its investments in Bintan.
Singapore-listed investment firm Gallant Venture, which manages Bintan Resorts, is project developer for the Bintan airport.On the delay, Gallant Venture said the airport was originally planned as a regional chartered flight airport, but later got the chance to convert its domestic airport licence to an international one. This means the airport can receive regular international scheduled flights and domestic flights, said its executive director and chief financial officer Alvin Choo Kok Kiong.
In his e-mail, Mr Ng also noted Stareast’s Grand Lagoi Village hotel had suffered for the past two years, saying: “Business has not been entirely robust since we opened.”
In the Feb 23 letter, he hinted that low visitor numbers were the cause of Stareast’s woes, citing how Bintan Resorts’ Plaza Lagoi mall in Lagoi Bay “only has a 30 per cent occupancy rate because there aren’t many visitors”.
But Gallant Venture’s Mr Choo disagreed. “PT Stareast Sejahtera’s current financial situation is not reflective of general business sentiment in Bintan and we are doubtful that factors raised in their letter are contributors to their failure,” he said.
Six hotels and resorts opened in the past three years and Bintan Resorts has many more visitors these days, he said. Tourist arrivals to Bintan Resorts grew from 487,475 in 2012 to 676,034 last year, buoyed by a spike in domestic tourists.
Mr Choo also said the occupancy rate at Plaza Lagoi mall has no direct correlation with hotel occupancy rates in the area. Most hotel operators on Bintan have healthy growth and operating margins, he added.
On how he will refund investors, Mr Ng said Stareast found an overseas investor looking to invest in The Heritage in June. “With the new investor’s funds scheduled to be received within this month or next, we will resume the construction and partially refund back to our buyers by instalments,” he said.
But he added that all refunds must be “put on hold” until the authorities conclude investigations.
The buyers said they received legal advice that the police investigation is their best option for now.
Said Mr Chapel: “With us going public with this story, Edwin may end up with his reputation at risk and his business impacted, so he can’t do this again to other people.
My advise to Singaporeans who want to invest in foreign countries, please be carefully and understand the local laws, avoid those countries with weak laws. Preferably through a Singapore real estate company.