STRATEGY
New regulations are being introduced in Cambodia to protect property investors from fraud as the country's real estate industry booms.
Developers will be required to deposit a sum with the National Bank of Cambodia before being allowed to begin construction on a project under new regulations aimed at curbing fraud.
Payments from buyers will be held in this account with the aim of making the whole payment system more transparent and avoid developers using money illegally. It will also allow the government to intervene if developers fail to honor their contracts.
Real estate agents and developers will have to obtain a license from the Ministry of Economy and Finance to sell projects and face legal action and even closure if they fail to do so. The new rules mean developers and agents must comply by the end of September, a spokesman for the Economy and Finance ministry said.
There will be costs to the developers and agents involved but officials believe this will deter cowboys. Real estate developers will be required to deposit 2% of the projects' total value at the National Bank of Cambodia,' said Mao Pao deputy chief of the ministry's real estate division.
We will require a developer to open a housing development account at any commercial bank to enable buyers to make payments through the bank,' he added.
The price for the new licenses for selling or renting will depend on the scale of the project. Until now developers only needed a letter of permission from the Ministry of Land Management, Urban Planning and Construction and an investment license from the Council for the Development of Cambodia.
There are estimated to be around 100 developers currently operating in Cambodia, many of them quite small. Some said the new regulations will be too costly and put them out of business.
Capital Phnom Penh has undergone an unprecedented construction boom over the last several years, including a number of residential and commercial mega-projects that are set to transform the capital from a sleepy backwater.
Real Estate and Properties Development in Cambodia
Ten years ago, there was not a single traffic light in Phnom Penh. Nowadays, high-rise buildings and swanky hotels have changed the city's skyline. The country's first skyscrapers, Gold Tower 42, a pair of gold sheathed towers by Korean developer, Yon Woo Cambodia Ltd, are due for completion in 2011.
In early 2008, the company maintained that 75% of the condos had been sold, for between US$460,000 to US$1.6 million, mainly to wealthy Cambodians. That is an example of the property gold rush that has led to a 200-300% increase in Phnom Penh property prices in the past few years. Brisk price increases were also seen in Sihanouk ville and Siem Reap.
Phnom Penh's Satellite Cities
Other large scale projects and satellite cities include the International Finance Complex, the US$2 bn Camko City and US$500m Grand Phnom Penh International City. The multi-phase Happiness City Site, is on reclaimed swampland within site of the Japanese Friendship Bridge.
Cambodia's First Property Bubble
Benefiting from strong global markets, capital inflows, private equity funds and foreign investment, property prices in Cambodia rose 60% in 2006, 80% in 2007 and 30% from January to May 2008.
In the wake of the unprecedented and continuing global credit crisis, the situation reversed course. Property sentiment has soured and confidence is waning. Pundits are expecting a further drop of 30% in property prices in 2009 after an accelerated 30-50% fall between May-December 2008.
With credit tightening at home, Seoul-based GS Construction ad engineering has delayed further construction on the IFC complex for a year and has downscaled the previous US$1bn 7-tower mega complex to a more modest 3-tower construction. Meanwhile, Koh Pich's developers are offering a discount on the first phase of villas and houses, which are priced between US$200,000-US$1 million.
Phnom Penh Master Plan
Under a Phnom Penh Master plan, around 10,000 units, especially low-cost housing is required per year. The private sector has so far accounted for 3,000-5,000 units annually, but this number is likely to fall in 2009. Meantime, the ongoing satellite cities will house around 60,000 middle income families when completed. The Master Plan also calls for doubling Phnom Penh from its current 375 sq kms to 738 sq kms.
Long Term Growth
The Cambodian property market is likely to cool off further before it recovers. More large-scale projects may be put on hold but it is however not likely to suffer as much pain as the rest of the world. Very few property owners have borrowed, a large majority is not compelled to sell and there is not a large oversupply.
Its property prices are still low compared to other regional capitals. Prices in early 2008 were around US$2,500 psm in Phnom Penh and a high of US$4,000 on Monivong Blvd versus US$5,000 in downtown Bangkok and US$15,000 in red hot Ho Chih Minh city. These figures are likely lower now, but nonetheless, the discount is steep.
Further down the line, as oil and gas discoveries are made, properties around Sihaoukville will appreciate in price and its pristine beaches will attract luxury resort developers. Property prices in Siem Reap will be supported by the continuous tourist draw to Angkor, but its ups and downs will be shaped by the broader global economy.
Foreign Ownership
Foreigners are not allowed to directly own property in Cambodia but can do so through renewable leases and majority locally owned holding companies. Speculation has arisen recently that the government may lift these restrictions in view of the current property market weakness.