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Homeowners await collapsed building compensator

By Yu Hongyan (chinadaily.com.cn)
Updated: 2009-07-03 13:29

With the collapsed 13-storey building lying on the ground in Shanghai, a big question mark is looming for many as to who will hand out refunds and compensation to affected homeowners of the ill-fated apartments and adjacent buildings, after the developer was found financially incapable of doing so.

The concern comes after a building that was still under construction crumpled in Shanghai's Minhang District on June 27.

More than 400 homeowners in the Lotus Riverside residential community, where the collapsed building was located among 11 apartment blocks, have already claimed damages, including 18 homeowners whose apartments were set in the collapsed one.

Related coverage:  Housing in China  Related readings:  'Improper planning caused building collapse'   Poor construction blamed for Shanghai building collapse   Anger and tears over collapse of building  Building collapse kills one worker in Shanghai

According to statistics from Uwin, a property information provider in Shanghai, 506 apartments in the community have been sold since last year, valued at a total of 734 million yuan.

Should the court order the developer to pay back all 506 apartment owners, the developer, Shanghai Meidu Real Estate Company, will have to pay at least 770 million yuan, including contracted payments as well as the penalty, which is 5 percent of the contracted price.

As most home owners pay for their apartments through bank loans, the developer may also have to pay compensation on their interest.

Financial statistics show that as of March 31, Meidu Real Estate's total assets amounted to 216 million yuan. Sales since April amounted to 405 million yuan, indicating Meidu's current assets are insufficient to complete the claims.

Meanwhile, the developer's sales revenue in the first quarter reached 238 million yuan.

But as shown in its balance book, only 150 million yuan was recorded as advances from customers and 22 million yuan as cash in the bank. The company's other payables were 48 million yuan less compared with the beginning of this year.

The changes indicate that Meidu Real Estate used part of its sales revenue to pay debts or to transfer to related enterprises, said an auditor from Ernest & Young, one of the big four auditing firms, to the National Business Daily.

As a limited liability corporation, Meidu Real Estate's liability to home owners may be limited to its current assets, excluding debts. The limitations could mean remaining compensation to be paid out to homeowners may be collected from other channels—most likely the government.

The Minhang district government is set to release the investigation results on the building collapse July 3.