CAMBODIA

Shady retreat: a villa in Boeung Keng Kong offered for rent at $3,500 a month

Annual overview

Real estate realities

18 SE GLOBE

Phnom Penhs property market seems to have happily survived in a world of its own until investors stopped splashing the cash
All photos: Ryan Plummer for SE GLOBE

hod be a property developer or an estate agent in Phnom Penh? The global financial meltdown has played havoc with inward investment, foreign companies that previously were queueing up to take advantage of Cambodias booming economy have cancelled their return tickets and non-governmental organisations are feeling the pinch as donations dry up and costs escalate.

Theres less money around and as a result the building boom has virtually ground to a halt with skeletal towers, offices and luxury apartment complexes standing as unfinished monuments to Mammon. Its a far cry from the post-Khmer Rouge era when the city was a magnet for diplomatic missions, aid agencies and avaricious corporations keen to stake their claim to a share in the recovering marketplace. Those Untac (United

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Nations transitional authority in Cambodia) years are referred to by many in the property business as the golden age, a time when they could ask for several thousand dollars a month as rent on a secure and upmarket villa. Over time more and more organisations were drawn to the honeypot of booming businesses, a growing middle class and the concomitant construction of spacious apartments, houses and villas. In the boom years of 20052008 money was seemingly no object and the cash just kept on being splashed with sheer abandon. Theres even a story about a home owner, keen to raise the $700 rent on one of his properties last year, being told by his UNemployed tenant that it was okay because his housing allowance was $1,500 a month. Then came the crash in the rest of the world and the bust in Cambodias fledgling but overvalued property market. Yet the industry seems not to have caught up with the news and prices continue to be maintained at premeltdown levels, which means that some of the larger real estate groups are struggling and theres talk of limited discounts of up to 50% until the market recovers. The crash has also highlighted one of the great inequities of the Cambodian property market: the law that prevents foreigners owning land or property, which many in the business believe has stunted growth and price volatility. Observers also point to the urban alternatives in the region, such as Ho Chi Minh City and Bangkok. Compared to Phnom Penh, a comparison made regularly by local real estate agents, they are pinnacles of modernity: clean, hygienic and relatively safe with tree-lined avenues, spacious parks and a modern, people-friendly infrastructure. Phnom Penh has a long way to go to catch up. It cannot guarantee or in some cases even offer round-the-clock electricity and water supplies and regular rubbish collection. The traffic is chaotic, driving in the city is a lottery based on luck rather than skill and roadside policing is based on revenue collection rather than civil order. Personal safety is a citywide gamble as pedestrians are forced to walk in the

Building block: the expensive 1st commercial area on Sihanouk

30 real estate agents have closed this year

I flats
RENT
E0* E0 + E1 E0 + E1 + E2 E0 + E1 + E2 + E3 E1 E2

Central Phnom Penh

(USD) 1st commercial** 2nd commercial River front 950 1,200 1,600 1,650 300 275 750 850 900 1,000 300 200 1,500 1,800 2,000 1,750 400 400

Figures have been collated from various real estate agencies in Phnom Penh

Central market 470 600 700 800 300 250

Residential 200 400 600 700 300 200

*E0 stands for ground floor, E1 stands for 1st floor etc; **1st commercial (Sihanouk Blvd, Norodom Blvd, Monivong Blvd); 2nd commercial (Mao Tse Toung Blvd, Norodom south of Independence Monument, Monivong Blvd south of Independence Monument)

I flats
SALE
E0 E0 + E1 E0 + E1 + E2 E0 + E1 + E2 + E3 E1 E2

Central Phnom Penh

(USD) 1st commercial 210,000 330,000 370,000 420,000 41,000 40,000

2nd commercial River front 150,000 220,000 260,000 300,000 40,000 40,000 260,000 330,000 425,000 475,000 85,000 80,000

Central market 125,000 190,000 240,000 270,000 47,000 45,000

Residential 100,000 150,000 190,000 225,000 39,000 35,000

Brownstone: flats in a residential area for rent at $200-$300

20 SE GLOBE

Hot house: a sub commercial district in the north of Phnom Penh (left); and a residential property near Toul Kork market

road and purse-snatching and other criminal activities are perceived to be on the rise. One growing sector supporting the property market is security related: corrugated iron doors and metal grilles are being installed and balconies are made intruder-proof as burglaries increase. No wonder many people are looking to buy and rent in guarded communities. Phnom Penh has a long way to go. An army of gardeners to spruce up open spaces, the introduction of sophisticated communications networks and current improvements to its Stone Age drainage system are a short step on the long journey to modernity. Some real estate agents contacted for this

feature refused to talk about the situation, claiming any story on the market would be negative and damaging to their business. They spoke a lot in the past, though, pumping up a market that was sure to fail. A few blinkered real estate agents believe the property market is gradually recovering and the days of a return to rapid growth are on the horizon. Others, perhaps more pragmatically, are not so sure and talk gloomily of renewed growth in the next five-10 years. Closer examination tends to bear out this latter, less optimistic prediction. Growth in recent years relied on foreign, mainly South Korean investors who entered the market in

How to rent
Prepare to negotiate on the rental terms Ask for a rental contract Provide character and bank references or allow a credit check Sign a statement with the landlord on the condition of the property Demand a receipt for any deposit paid

Leasehold, Company LEGAL ASPECTS

Leasehold Although Cambodia restricts foreign ownership of land, foreigners may hold total interest in Cambodian land and house leases. Cambodia lease law allows a 99-year maximum lease period. Condominiums Cambodia allows foreigners to own condominiums although the specifics of this are still developing. Company ownership Cambodian-registered companies with majority Cambodian ownership are able to buy land. In the past it has been common for foreign nationals to act as minority shareholders in a Cambodian majority company. Cambodian spouse A well drafted prenuptial agreement should prevent settlement problems in case of divorce.

II villas
RENT
E0 E0 + E1
*Sub commercial (e.g street 51, 63)

Central Phnom Penh

(USD) 1st commercial 2,000 3,500

2nd commercial Sub commercial* Residential 1,500 2,700 1,500 2,700 1,100 2,500

II villas
SALE
E0 E0 + E1

Central Phnom Penh

(USD) 1st commercial 1,200,000 1,400,000

2nd commercial Sub commercial Residential 975,000 1,150,000 800,000 925,000 600,000 730,000

June 2009 21

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House proud: centrally situated Bassac Garden City (above) and construction at Camko City on Phnom Penhs outskirts (right)

III flats
RENT
No of bedrooms 3 4 4 Size (m2) 245 310 345

Northbridge community

Price (USD) 3,500 4,000 4,500

Service charge* 55 55 55

* includes security, rubbish disposal and compound cleaning

III villas
RENT
No of bedrooms 2 2 3 Size (m2) 93 117 210

Northbridge community

Price (USD) 1,290 1,590 2,690

Service charge 55 55 55

III condos
SALE
No of bedrooms 3 4 2 2 Size (m2) 198.4 224.5 118.2 113.8 49.8

Camko City

Land size (m2) 61.58 100.78 49.96

Price (USD) 184,047-203,245 sold out 149,139-161,794 143,575-156,278

2005-2006 expecting a property boom that others suggested was a bubble just waiting to burst. According to the Ministry of Land Management, the steepest drops during the past year were in projects funded by similar foreign direct investment (FDI). The disappearance of soft loans has also slowed the dash for cash. We have a big plot of free land nearby that we want to sell or develop with a new project, but we havent decided yet and are waiting for a better situation to come, says Sam Sochenda, customer relation manager at Northbridge Community in the north of the capital. Bank loans have virtually dried up and property prices in the city centre are said to have fallen by about 30% since last July; 40% in the outskirts. This drop is not officially acknowledged by estate agents, as our tables show. In recent years Phnom Penh saw an unprecedented rise in the number of planned satellite cities, but many have either stopped or are progressing extremely slowly. The number of new construction activities has declined due to the economic crisis, but small construction projects such as extensions of current, privately owned buildings are still going on and increasing, says Neang Neadthanith of LCH Development. Some projects continue as usual and some have been delayed as investors are waiting to see the outcome of the current crisis. The investors should also consider that Cambodia does not have a middle class that could afford the high-end apartments and the lifestyle that goes with it. No assessment has been made on how many people could actually afford to live in these buildings. Its not all bad news, however. The cost of construction materials has dropped by 30%40% since last year. For example, steel today

22 SE GLOBE

costs $650 a ton as compared to $1,100 a ton in June 2008, which makes continuing construction worth it to those with the money. The problem now is a lack of demand rather than a lack of investment in new buildings, leading to rapidly falling property prices. Approximately 30 real estate agencies have been closed this year alone, says one agent. While the property sector continues to add new units to the market, prices have dropped as nobody is buying or renting at the moment, says Sin Sotheareak, Cambodia Estate Agents valuer. But prices havent plummeted despite peoples expectations. The asking price of a home and land is much higher compared to the previous year, but there are only a few

There is no real system yet to calculate property prices or values

CAMBODIA

IV land
SALE
Price (USD /m2) BKK I Norodom Toul Kork 2,000-3,000 3,000 600-1,000

Muck and brass: a vacant plot towards Pochentung (above); and a house on the outskirts of the city for rent at $300 a month

Its not all bad news. The cost of construction materials has dropped by 30%-40% since last year

buyers. A lot of people would actually like to sell their properties, to sell off the debt they accumulated during the boom. A few customers are interested in buying cheap land to cash in during the anticipated next boom, while others are waiting to see prices fall further. Owners try to get the highest price, but the buyers are still waiting for the price to go down. The price or value of properties in Cambodia is usually not consistent with the infrastructure development or real market values, says Visal, a freelance estate agent. Simply

V flats
RENT
1 room 1 bedroom 2 bedroom

Central Phnom Penh

Price according to SE Globe survey* 35-75 150-300 250-400

Price (USD)

Facilities

/
450-700 700-1,500

/
AC, kitchen, cable TV, furniture

Individually owned flats which dont have their own entrance, security or parking space * SE Globe surveyed landlords for individual rather than market prices

V flats
RENT
1 bedroom 2 bedroom

Central Phnom Penh

Price (USD) 400-550 500-800

Facilities AC, kitchen, cable TV, furniture

Conventional flats that come with entrance, security, parking space and lift

talking, there is no real system yet to calculate property prices. Its all up to your selling skills and what real estate companies and developers think they can get. They say what they think its worth, and many of their clients dont care as the rent is paid by their employer or an NGO. Estate agents and land speculators are now facing uncertainty regarding the property market because they do not know whether or not they will come out of the whole mess unscathed, says Sung Bonna, president of the National Real Estate Valuation Association of Cambodia and director of the Bonna Realty Group. The government has to create standards on valuations and real estate transaction fees. Real estate remains a risky business, and there is lots of corruption involved in getting building permission. Many make monthly payments to officials, says a developer living in Phnom Penh, who preferred to remain anonymous. The government officially charges 10% Vat on the sale of properties and 4% transfer tax on the sale of land. It collected $21.35m in property transfer taxes in 2007. In general it is evident that since the beginning of this year the Cambodian property market is soft and buyers are few and far between. Prices are still high along Sihanouk, Monivong, Sisowath and Norodom boulevards, however proposed parking restrictions in the inner city will put a cap on what can be asked of business owners on these main arteries (see table). The so-called Cambodian flats are also looking at a dim future. On the road to Pochentong airport are rows of empty shop-houses, which do not appeal to foreigners. Also, in

24 SE GLOBE

High five: an apartment on street 51 with a monthly rental of around $500

the current economic climate, Cambodians find it hard to pay cash and credit is not available either to buy the property or to purchase stock for a shop. The design also precludes exploiting the upper floors, reached only via the lower floor, for rent to a third party. Most independent experts suggest that buyers should wait until the end of the year

when there will have been more foreclosures and prices will start to bottom out. For now, the future looks uncertain and dependent on global events and on how Phnom Penh can be made an attractive residential and working destination.
Yos Katank, Niran Vishnu

Real estate remains a risky business