Among the countries in Asean, Cambodia could be seen as a laggard. In recent times, even Myanmar has garnered more headlines with its slew of reforms and Aung San Suu Kyi’s formal entry into the country’s politics. However, things are changing and Cambodia — which only three decades ago was ravaged by the tragedy of the Killing Fields — is now seen as part of the nascent emergence of the Indochina economies.
Malaysian banks like Public Bank Bhd, Malayan Banking Bhd (Maybank) and CIMB Bank have been making inroads into Cambodia. However, the same cannot be said of our property developers, who are conspicuous in their absence from the country’s property hotspots. The only Malaysian developer with a significant presence there is Sunway Bhd, which tied up with Cambodia’s Canadia Bank to develop Sunway Toul Kork City in Phnom Penh, a gated and guarded development with 142 two-storey villas.
Even then, Sunway is known more for its string of hotels and resorts there than its single luxury development that was completed in 2009. Sunway declined to comment on its property development venture in Cambodia when contacted. Knight Frank Cambodia chairman Eric Ooi suggests that the reason for the lacklustre response of Malaysian developers could be due to Cambodia’s opaque market, where the data is not always available and regulations not always clear. He is, nonetheless, optimistic about the country’s real estate market prospects given its economic growth amid more foreign investments.
From 2002, Cambodia’s average GDP rose by 6% annually while foreign direct investment from 1995 to 2011 stood at US$24.7 billion, mainly from China, followed by South Korea and Malaysia. This steady growth has caused property values to soar. Ooi says the price of development land in Cambodia’s main cities — namely Phnom Penh, tourism hub Siem Reap, the resort, port and potential oil and gas hub Sihanoukville, and paddy-farming Battambang — have risen over 10 times from 2002 to 2007, partly due to speculation.
Apartment rents too are rising. Ooi says a “four-star apartment” in Phnom Penh can command rentals of RM5 to RM6 psf, double the RM2.50 to RM3 psf of some more upmarket condominiums in Mont’Kiara in Kuala Lumpur due to a low supply of quality homes. “A lot of landowners build apartments to rent, getting returns of probably 8% to 10% a year,” Ooi, who is also Knight Frank Malaysia managing director, tells City & Country.
Ooi points out that supply cannot keep up with demand due to high land prices and a lack of bridging finances for construction. This provides opportunities for foreign developers who wish to partner local landowners. Foreign developers bring to the table the strength of their balance sheet and offshore fundraising options, he adds. Ooi believes opportunities abound in Cambodia’s mass housing sector. The growing agriculture, manufacturing and professional services sectors are expected to fuel demand for these homes. “There is demand for homes in the US$50,000 (RM159,841) to US$100,000 range in main cities like Phnom Penh.”
Although only Myanmar’s pay packets are lower than Cambodia’s in Asean, Ooi says salaries are rising as more jobs are created due to economic growth. This has caused prospective employees, especially professionals, to seek higher wages.
Currently, factory workers earn about US$70 per month and an extra US$30 with overtime while fresh graduates can command around US$150. Meanwhile, the population is around 14.95 million, with about 20% of them in the urban areas, according to the CIA World Factbook. The population was growing at 1.68% per year as at last year. Other potential ventures are commercial centres, business parks and industrial parks as more manufacturers are expected to operate in Cambodia, Ooi points out.
While various weaknesses need to be addressed, the industry as a whole is taking steps to elevate standards. The country gets assistance from various parties, including foreigners such as Ooi, who was roped in by Cambodia’s Ministry of Finance to monitor the licensing of real estate agencies as valuers. He also helped form the Cambodia Valuers and Real Estate Agents Association.
The ministry also wants to regulate the industry through the establishment of an association of developers. Currently, the market is not well regulated and payment schemes are skewed in favour of developers. For instance, buyers are required to fork out a whopping 30% to 40% down payment. Following that, 10% of the property’s price must be paid each month, regardless of actual work done, which may take up to 1½ years, says Ooi.
However, the situation is improving as international banks and larger local banks have begun offering end-financing of up to 80% to facilitate purchases. “Fixed deposit rates are 4% but borrowing rates are 10%! So the banks enjoy a fat 6% spread. But I think competition will drive down rates and raise the maximum loan-to-value ratio,” Ooi opines.
The World Bank currently estimates that only 4% of Cambodians have a savings account, posing a challenge to capital-raising activities. However, Ooi feels this number will grow as banks take the opportunity to grow the market.
Meanwhile, a few notable foreign-backed property developments are the new satellite city Camko City coming up near Phnom Penh and Morakot Island. Camko City is a joint venture between Korean and Cambodian developers. The master plan of the 294-acre, US$2 billion development features commercial buildings, exhibition and trade centres, homes, international schools, a technical college, hospital, cultural centres and government offices.
However, only the first phase of the project comprising townhouses, villas and condos was completed in 2010 after the collapse of South Korean Busan Savings Bank, which funded the project. The bank was subsequently bailed out by the South Korean government, which is now in a legal battle with South Korean investors over ownership of the project. Some of the homes in phase one are already occupied.
Ooi opines that it was a good thing the first phase of the project was completed. “It is halted and not abandoned. They had to delay the launch following the dispute,” he stresses. Morakot Island, a luxury residential and resort development on a 0.29-acre tract at the scenic Koh Puos island, is being jointly developed by Russian and Cambodian developers. It is understood that the project was initially targeted at locals looking at renting these properties out to foreigners. However, the timing of the project, which coincided with the global financial crisis, rendered it unpopular among local investors. The project will now be marketed to foreign buyers.
Under Cambodia’s ownership laws, foreigners are only allowed to buy strata-titled property, usually condos and apartments, from the first floor onwards. Non-locals may take up to a 49% stake within a locally incorporated company to buy land. However, investors approved by the Council for Development of Cambodia may own buildings on leased land.
Other challenges to foreign investors include a lack of transparency in regulations, lack of legislation, weaknesses in key institutions and inconsistent enforcement. Corruption is also a concern, which critics argue has caused controversies, such as the Beoung Kak lake land reclamation. The 328-acre tract, including a 200-acre lake, was occupied by farmers before they were forcefully evicted to make way for a high-end mixed-use development.
Phnom Penh authorities had granted a 99-year-lease to the developer, Shukaku Inc, owned by a ruling party politician. The tract is considered prime real estate because of its size and strategic location within the capital. Protests against the allegedly violent evictions culminated in a spate of arrests and a clash between the settlers and armed forces that killed a 14-year-old girl. The World Bank suspended loans to the country amid criticism from local and international observers over the issue.
“Some foreign companies that had earlier cooperated with Shukaku to develop the lake have withdrawn their stakes because of the forced evictions, which have damaged their reputation internationally,” says Ooi. However, he says such cases are uncommon as land rights are generally honoured in Cambodia. “They have a hard and soft title. The hard title is very strong. With it, nobody can move you. A soft title is right of possession. The commune head recognises you as the landowner. You can always convert your soft title into a hard title by making certain payments to the land office. But most people don’t bother because it incurs additional cost.”
With some exceptions, boundaries are clear cut as land parcels and their occupants, if any, are already accounted for in the national census, he adds.
Some major infrastructure projects to boost connectivity across Cambodia and, indirectly, property development are Hun Sen Boulevard, Stung Mean Chey flyover, Chroy Changva Bridge, Ta Khmao Bridge and the Cambodian railway network. These are mainly backed by China, notes Ooi. Once completed next year, the 9.16km-long Hun Sen Boulevard will connect the south of Phnom Penh to Takhmao, Kandal, while the Stung Mean Chey flyover will alleviate traffic at its namesake intersection in Phnom Penh.
Chroy Changva Bridge, also known as the Cambodia-China Friendship Bridge, will connect Phnom Penh to the Chroy Changva peninsula. Ta Khmao Bridge is designed to connect two national roads running on either side of the Bassac river southeast of Phnom Penh.
The Cambodian railway network, part of the greater Asean-Kunming railway project, will feature two links. The first link will comprise three lines. One will be an upgrade of the south line that runs from Phnom Penh to Sihanoukville. The second will be a north line that will link the capital to Poipet in the northwest, near Thailand’s border. The third will be the “missing link” from Poipet to neighbouring Sisophon.
Meanwhile, the second link will comprise two lines. One will connect Bat Deng, Kampot, to Snoul, Kratie, followed by an extension from Snoul to Vietnam. With these infrastructure developments, Ooi is optimistic about Cambodia’s prospects. “Cambodia is like Malaysia 20-odd years ago. Phnom Penh only has two high-rise buildings now, but it does not need 20 or 30 years to catch up with us. It can make a quantum leap as long as investors believe the country has potential.”
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 917, July 2-8, 2012