Speculators the big losers as property market stalls

A house up for sale in Phnom Penh. Demand has fallen off as property prices decline across all segments. (Photo by: TRACEY SHELTON)

Thursday, 18 December 2008
Written by SOEUN SAY AND GEORGE MCLEOD
The Phnom Penh Post

While some predict a turnaround in as few as two years, the fortunes of thousands are being wiped out as real estate values fall in the short term

SIX months ago, 38-year-old Hem Davuth was living large and earning tens of thousands of dollars buying and selling real estate in Cambodia's roaring property market.

Now, he says, most his profits have evaporated along with the values of his real estate holdings.
"I cannot earn money like I did in 2005 and 2007. At that time, I made at least US$4,000 per month. Now I don't earn anything," he said.

Hem Davuth's story shows how quickly fortunes have changed in Cambodia, as high-flying speculators are humbled by a hot property market gone sour.

Modern Cambodia's first-ever property boom lasted from about 2006 to mid-2008, and translated into new-found wealth for an emerging middle class, as well as thousands of construction jobs.

But the boom has come to a grinding halt as foreign investment dries up, bringing property values down an estimated 25 percent over six months, say industry players.

Now, experts estimate that thousands of speculators have been wiped out by the crunch, along with an unknown number of property-related jobs.

"the prices ... have been overinflated. Everyone jumped on the greed bandwagon."

"About 5,000 land speculators have lost their fortunes after the property market downturn brought on by the global economic crisis," said Meas Tola, managing director of Angkor Real Estate of Cambodia.

He says his company's future is in question as commissions fall to almost nothing.

Sung Bonna, president and CEO of Bonna Realty and president of the National Valuers Association of Cambodia, said that the property recession will have broader implications for the economy.

"We are very worried about all of them [speculators] losing their income. Many businesses face crisis," he added.

The crisis will cut disposable income for many Cambodians, hitting everything from luxury car purchases to high-end restaurant sales, he said.

Kang Chandararot, president of the Cambodia Institute for Development Study, blamed the global economy rather than local conditions for the sliding market.

"Some who earned a lot of income from the real estate boom are going bust," he said.

Local officials are optimistic that a turnaround could come as soon as next year, but one regional property expert said the market might take years to recover.

"The prices in Phnom Penh have been overinflated. Everyone has jumped on the greed bandwagon. ... Now we are seeing a lot of major construction projects being put on hold or cancelled," said Naim Khan-Turk, the director of research and consultancy with CB Richard Ellis in Ho Chi Minh City.

"Cambodia is going to have a reality check. Speculators have been borrowing to buy condos that aren't built and they are not going to be able to pay the banks; then the suppliers won't get paid and everyone is going to lose," he said.

"You aren't going to see as many local job losses as in places like Vietnam because most of the companies and suppliers are coming from abroad. That will insulate Cambodia to some extent," he said.

Cambodian property values dropping

November 15, 2008
ABC Radio Australia

Cambodia's land prices have fallen by up to 25 percent from a historic peak in June amid the global financial crisis and a border dispute with Thailand that scared off investors.

President of National Valuers Association of Cambodia, Sung Bonna, says the land prices countrywide dropped between 20 to 25 percent by early November.

Prices reached as high as 5,000 US dollars per square metre in June in prime locations in the capital Phnom Penh but the boom started to collapse as the country prepared for July elections.

The government is considering allowing foreign ownership of property such as apartments and office buildings to boost the country's economic growth.

Sacrava's Political Cartoon: The Meltdown of Hun Xen regime

Cartoon by Sacrava (on the web at http://sacrava.blogspot.com)

Are real estate values immune from downturn?

The values of new housing developments should be resistent to the financial crisis due to Cambodian developers limited reliance on bank financing, say experts. (Photo by: Tracey Shelton)

Wednesday, 15 October 2008
Written by NATHAN GREEN
The Phnom Penh Post

REVERBERATIONS from the collapse of global financial markets will almost certainly be felt in Cambodia's construction sector but experts are predicting that the limited penetration of financing into domestic real estate will mean very little land or property value will be destroyed.

The absence of developed securities and money markets in Cambodia means people use land as a store of wealth rather than as a creator of wealth, Union Commercial Bank PLC chief executive officer Yum Sui Sang said.

"People use their own funds to acquire land. They just transform assets from liquidity into land. Developers may use short-term finance but very few people dare to buy or acquire property through bank loans."

With banks out of the loop, there is little pressure on owners to meet financing costs and little systemic exposure to the global financial crisis. "Cambodia is not really affected because it never joined the game," Yum Sui Sang said.

A prominent banking source said it was hard to get accurate figures on bank leverage in the property sector. However, Campubank has reported to the National Bank of Cambodia that 14 percent of its loan portfolio was for financing ‘property projects', and Canadia has put its exposure to the property sector at 12 percent.

$1 million in a briefcase

These banks are by far the most active in the property sector with lending levels near the 15 percent of capital reserves limit set by the NBC in June. These figures give guidance as to the portion of bank assets tied up in the sector, but they don't indicate how much the sector itself is indebted to bank loans.

Bonna Realty Group president Sung Bonna agreed it was minimally exposed. "When you use banks to finance properties you are always thinking about interest, thinking about return," he said. "But Cambodian people always have cash. Only in the last two years have we had mortgages." It was not unusual for people to come into his office with US$1 million in cash in a briefcase to buy property, he said.

"That's why I always predict our property market won't be affected. It's always going up."

Anecdotal evidence that land values were falling was also overstated, Sung Bonna said. While it was true that uncertainty over the global credit crunch was causing people to delay purchases, transaction prices remained stable. The only change was that unrealistic asking prices seen over the last half year were moving closer to the prices people were already actually paying.

Local capital

"What [the pessimists] are talking about is only the speculator price, not the real market price which is down just five percent to 10 percent," he said.

Brokers reported sales off by up to 50 percent this year, but prices would only fall if economic conditions deteriorated to where property owners had to free up liquidity, Sung Bonna said.

"They have a lot of money, the rich locals," said Yum Sui Sang. "With no restrictions on the movement of capital, political instability is the biggest threat. Only then would locals be likely to take their money out of Cambodia."

Sung Bonna said the market would gradually become more responsive to monetary and fiscal conditions as foreign investors gave Cambodians greater exposure to modern financing tools.

"Some local investors now are starting to calculate [financing]. Maybe 10 percent to 20 percent are knowledgeable about financing but the other 80 percent don't care."

Cambodian real estate market to tank?

Cambodian property market fears crisis

PHNOM PENH, Oct. 10 (Xinhua) -- Cambodia's real estate boom maybe coming to an end, with the global financial meltdown threatening foreign investment, national media reported Friday.

"Our property markets are closely connected with the stock markets in South Korea and other Asian countries. If these markets fall, we are affected," Kang Chandararot, the head of the economists at the Cambodia Institute of Development Study, was quoted by the Phnom Penh Post as saying.

"We will see a recession in the short term, perhaps in six to 12 months," he said.

The South Korean government issued a statement this week urging banks to sell foreign assets to increase liquidity, the Post said.

South Korea is Cambodia's biggest investor and a fall in South Korea would be especially harmful to local growth, it said.

"South Korean and other Asian markets are very closely connected to the U.S., and these countries are our biggest investors," said Kang Chandararot.

Cambodia's real estate sector has enjoyed unprecedented growth since 2007, but began to slide in mid-2008, industry sources say.

No figures on the depth of the declines were available, but industry experts said the crisis' impact could be felt soon.

Meanwhile, Cheam Yeap, a lawmaker with the Cambodian People's Party and chairman of the National Banking and Finance Committee, said the U.S. crisis might affect the Kingdom's real estate market, but not the economy as a whole.

He said Cambodia's economy is sufficiently diversified in tourism, agriculture and garment manufacturing to withstand the global crisis.

Real-estate sector is in danger of collapsing in Cambodia?

The Chinese apartments: the market is saturated

22-09-2008
By Ky Soklim
Cambodge Soir Hebdo in English
Click here to read the article in French

The real-estate agencies and investors will meet on Tuesday 23 September at the Ministry of Economy in order to assess the situation and supervise the sector.

The housing availability in Phnom Penh is likely to be higher than the demand, believe several observers of the sector, forecasting a burst of the real-estate bubble.

“The real-estate sector is in danger of collapsing if the crisis continues further, particularly regarding the Chinese apartments”, believes Sung Bunna, director of the largest agency of Phnom Penh, Bunna Realty.

According to the director of Visal Realty, the purchasing price per square meter is allegedly even decreasing in some neighbourhoods of the capital city: if the market doesn’t take off within a year, it’ll result in a crisis”, he says, emphasising that the current slowdown could be the consequence of the election period, traditionally bad for business.

However, other professionals of the real-estate sector think that the commotion observed during these last months is due to a speculation which isn’t linked to the market reality: “The land prices increased because well-off people bought several houses with the intention to sell them again”, indicated a real-estate broker.

Two other factors explain the recent increase: the foreign investments in the real-estate sector and the economical development.

It is estimated that between 8,000 and 10,000 apartments are built each year in Phnom Penh.

The expected meeting on Tuesday 23 September at the Ministry of Economy will allow the professionals to prepare themselves for the coming market changes and to supervise the sector: out of approximately one hundred real-estate agencies in Phnom Penh, only about twenty have the required license.

Korean investors reach for Cambodian skies

Sep 16, 2008
By Geoffrey Cain
Asia Times (Hong Kong)

Some analysts believe fast rising property prices, fueled by rapid South Korean capital inflows, might even be inflating Cambodia's first-ever property market bubble.

PHNOM PENH - Planned to tower 52 stories above this city's low-slung skyline, the US$1 billion International Finance Complex (IFC) embodies the bold new ambitions of Cambodian capitalism. If South Korean investors actually complete all the projects they have announced and launched, the once colonial Phnom Penh will soon come to resemble a mini version of high-rise Seoul.

Led by property developers, South Korean investors accounted for over 70% of the $1.5 billion worth of foreign direct investment (FDI) that entered Cambodia in the first half of this year, nearly three times higher than the $520 million it received all of last year. South Korean investments have since 2006 dwarfed Chinese inflows, which have been more critically scrutinized, but only represented 10% of total FDI in the first half of 2008.

Cambodia has long been one of Southeast Asia's laggard economies, plagued by its war-torn past and a backward period of communist-led central planning. With economic opening and market reforms, Cambodia's economy is zipping along nicely, with gross domestic product surging at 9.5% last year. Nowhere is that fast growth more noticeable than in the city's fast-changing skyline.

With all the building activity, some are beginning to wonder if the economics of the building spree compute and how the broader Cambodian economy might be affected if South Korea goes into financial meltdown, as some analysts have predicted. South Korean investors are overseeing and building at least eight major property projects in Phnom Penh, but that number is constantly changing as new concepts arrive at and leave the drawing boards.

There are clear risks to the high-end developments, which are banking heavily on the arrival of high spending foreigners once a purported major oil and gas find on the country's southwestern coast is realized and exploited. The World Bank once estimated the country's total offshore production potential to be at around 2 billion barrels, though Chevron, the US energy company managing the concession, has remained tightlipped about the details and viability of the fuel find.

Consider, for instance, Gold Tower 42, a $240 million condominium project financed by South Korea's DaeHan Real Estate Investment Trust and built by developer Yon Woo. The high rise project is selling units for between $460,000 to $1.5 million and the developer claims 75% of the tower's space has already been sold, mostly to Chinese and South Koreans. Considering 33% of all Cambodians earn less than US 50 cents a day, according to government statistics, the project's pricing is out of reach for nearly all local buyers.

The same is true of the $2 billion Camko City, a satellite city built and owned by South Korean developer World City Company, which entails an international university, condominiums, exercise centers and modern shopping for a community of over 1,000 well-heeled residents. Another South Korean-built mini-neighborhood, Sun Wah International Finance Center, is also on the drawing board and promises similar top-notch amenities.

Camko City, like several other South Korean-led developments, has stirred local controversy and carries big political risks. To make way for the project, the developers completely filled Pong Peay Lake, once a main outlet for the city's dysfunctional drainage system, while evicting long-term residents with compensation at one-tenth of the property's market value, rights groups say. According to Cambodian land laws, lakes are public property and may be developed only in a "rational" manner.

Bypassing donors

South Korea's building spree comes just 11 years after the two countries re-established formal diplomatic ties, which were broken off in 1975 when the communist Khmer Rouge regime took power. Cambodian Prime Minister Hun Sen has warmly welcomed Seoul's capital inflows and even presided over the launch of certain South Korean-led big ticket property projects. The former communist guerilla-cum-market reform champion was recently reelected to a new five-year term and has successfully leveraged the country's recent fast economic growth to his political advantage.

During an inauguration event in May for a new road project, funded by the South Korea International Cooperation Agency (KOICA), Hun Sen pointed to the South Korean-built Gold Tower 42 as a sign of coming Cambodian prosperity. He lauded South Korea for being at the forefront of eight Cambodian business sectors and said that "diplomatic relations with the Republic of Korea are remarkably developed".

He attended in person the inauguration earlier this year of South Korean President Lee Myung-bak and surprised many when he told a local television reporter that Lee was his former "economic adviser".

South Korean investment signals a shift from Cambodia's traditional reliance on multilateral development aid funded by the likes of US Agency for International Development (USAID) and the Japanese International Cooperation Agency (JICA), towards more private investment-led growth. The South Koreans' no-strings-attached approach to business is also believed to be favored by Hun Sen's government, which often found itself at loggerheads over issues of transparency and corruption with multilateral lenders.

At the same time, there are mounting and apparently unhedged market risks to the breakneck growth. The building spree in Phnom Penh notably coincides with a spike in inflation, which rose a dramatic 25% in the first half of 2008, according to the National Bank of Cambodia. That's driven up substantially the prices of imported building materials such as glass and steel.

Some analysts believe fast rising property prices, fueled by rapid South Korean capital inflows, might even be inflating Cambodia's first-ever property market bubble.

The National Bank of Cambodia recently projected gross domestic product would slow to 7.2% in 2008, down substantially from last year's 9.5% clip. The report noted that the construction sector is now the country's biggest urban employer.

Some economic and financial analysts have drawn worrying comparisons to neighboring Vietnam, where land and property prices skyrocketed in line with rapid FDI from Taiwan, Singapore and South Korea in 2007, but fell back around 25% in the first half of 2008 due to softening economic conditions and dried-up finance for buyers. In response, Vietnamese banks have restricted their lending to property buyers and developers.

South Korean property developers in Phnom Penh have so far defied economic gravity, with representatives from IFC and Gold Tower 42 claiming that the impact of inflation on their ventures will be minimal and that construction would continue on schedule. So far most developers have not increased their asking prices, despite the fact existing housing prices and rents have increased five-fold or more since 2005, when the projects were first drawn up. Scaffolding prices alone have jumped to $1,035 per ton this from $400 in 2007, property analysts say.

Other analysts say South Korea's mounting economic troubles at home, including a ballooning short-term debt profile, could soon impact on Cambodian ventures as credit conditions tighten. It's still unclear how much South Korea's own softening economy has served as a push factor in outward investments into Cambodian property.

The South Korean won has depreciated around 10% against the US dollar this year and foreign capital outflows from Seoul are gathering pace. Some analysts estimate South Korea became a net borrower as of July, witnessed in the country's narrowing foreign reserve stock. If the won-dollar depreciation continues, as some analysts predict, it will create new burdens to South Korean companies through higher external lending rates.

Add to that mix fast rising prices for building materials and it seems possible the more ambitious of the South Korean property projects could become financially unviable before they are completed. To fill all the high end space now scheduled to be built - assuming it's actually completed - Cambodians will eventually need to occupy a substantial percentage of many developments, some property analysts say.

Yet with a national GDP per capita of $1,800, it's not clear yet that locals, apart perhaps from government-linked elites, can afford the prices South Korean developers and their financial backers still expect to fetch. There are also potential cultural barriers: middle class and elite Cambodians' have long favored to live in stand-alone, colonial-style villas rather than cement and glass skyscrapers.

While South Korean developers continue to ramp up their building spree, the sky may yet be the limit to their Cambodian designs.

Geoffrey Cain is based in Phnom Penh and a contributor to the Far Eastern Economic Review and Integrated Regional Information Networks (IRIN), a United Nations-run news wire service. He may be reached at geoffrey.cain@gmail.com.

Phnom Penh’s real estate boom [... at what cost?]

Phnom Penh is being heralded by many as SE Asia’s latest property hotspot.

27/08/08
By Stephen Small
Property Report

Phnom Penh is being heralded by many as SE Asia’s latest property hotspot. The real estate market appears to be growing exponentially, but can the country’s fledgling market economy sustain such rapid expansion?

For three decades Cambodia has struggled to recover from the legacy of the genocidal Khmer Rouge regime. The country has only recently achieved a moderate level of political stability, but with double-digit growth and rapidly rising land and real estate prices, international investors are already heralding Cambodia as Southeast Asia’s latest property hotspot. Major new residential developments are sprouting up across the capital, and the country is increasingly the target of private equity funds, but this new inflow of capital has so far been of little benefit to Cambodia’s poverty-ridden population. As deprived communities are evicted from their homes to make way for new high-rise developments, it remains to be seen whether there will be a genuine demand for luxury apartments and penthouses in Phnom Penh, or whether the city’s construction boom is being fuelled more by speculation and the lure of short-term profit.

Following Japanese occupation in World War II, Cambodia gained full independence from France in 1953. In April 1975, after a five-year struggle, Communist Khmer Rouge forces captured Phnom Penh, marking the beginning of Pol Pot’s brutal reign during which at least 1.5 million Cambodians died from forced hardships, starvation or execution. The December 1978 Vietnamese invasion drove the Khmer Rouge into the countryside, and touched off almost 13 years of civil war. The 1991 Paris Peace Accords finally paved the way for UN-sponsored elections in 1993 and allowed the formation of a coalition government, led by Hun Sen’s Cambodian People’s Party (CPP). A new round of elections in 1997 forced Prime Minister Hun Sen to share power, but he subsequently staged a coup, and has ruled the country ever since, making him one of Southeast Asia’s longest serving leaders. Elections in 2003 were relatively peaceful, but it took one year of negotiations between contending parties before a coalition government was formed under the stewardship of Hun Sen.
With a ubiquitous presence across the country and a tight grip on every level of government, at the time of writing Hun Sen and his CPP are widely expected to maintain power in the latest round of general elections scheduled for July 27. Hun Sen has notoriously undermined political opponents during his 23 year rule, but he has also steered the impoverished country out of the ashes of civil war and overseen a growing economy by promoting trade and tourism. Since 2000 the economy has grown at an average rate of 9.5 percent, driven largely by an expansion in the garment sector and tourism. Despite pressure on US led exports in the wake of the sub-prime crisis and ensuing slowdown, coupled with the negative impact of higher energy and commodity prices, the IMF is forecasting that economic growth will remain at about seven percent at least until the end of 2009.

The rapid expansion of the economy has prompted an upsurge in interest from overseas developers and investors in Cambodia’s burgeoning real estate and construction sectors. In this context land and property prices are spiraling. According to Bonna Realty, a leading real estate agency in Phnom Penh, the price of prime land in the capital doubled last year to US$3000 per square metre, compared to less than US$500 in 2000. House prices have appreciated in a similar fashion. A small family home on the outskirts of the capital that could be bought for as little as US$600 10 years ago will now be worth in the region of US$35000. The rush to profit from these substantial price increases is on, as shanty towns and old villas are razed to make way for Cambodia’s first skyscrapers and major new “satellite city” residential developments. Much of the early investment in real estate and construction has come from South Korea, the leading investor in Cambodia since resumption of diplomatic ties between the two countries in 1997. The 42 storey Gold Tower, set to be Cambodia’s first ever skyscraper at three times the height of the country’s current tallest building, is being financed by Korea’s DaeHan Real Estate Investment Trust and built by compatriots Yonwoo. A director at Yonwoo in Seoul, who asked not to be named, says his company began exploring real estate development opportunities in emerging economies three years ago, when Korea’s domestic construction market began cooling. “In view of a number of wealthy Cambodians and a growing number of foreign investors arriving in Cambodia, we are confident Gold Tower 42 will be a success” he says.

GS Engineering & Construction Corp., South Korea’s third largest builder, in January also announced plans for a 52-storey skyscraper, as well as a mixed-use project near the Russian embassy comprising 280 serviced apartments and several floors of apartment blocks on top, plus shopping facilities and an international school. GS spokesman Choi Byoung Geun says, “Cambodia really needs this kind of class A facility. By the time the project is built, the demand will be there”.

A Korean developer is also behind Camko City, a suburban development situated to the northwest of Phnom Penh worth US$2 billion. The project is currently in its early stages, and the first phase of development is scheduled to be completed by the end of next year. At least five multi-million dollar new urban centres, or “satellite cities”, are planned for the fringes of the capital. Under the city’s master development plan, these projects will help manage population growth by shifting growth patterns away from the city centre. According to reports in the Phnom Penh Post, officials see these satellite cities as an answer to overcrowding and traffic congestion and a means to increase commercial development beyond downtown areas.

“I think if everything goes smoothly as planned, all of the satellite city projects will break ground by 2009” said Phnom Penh deputy governor Pa Socheat Vong. “To my knowledge, the satellite city projects are moving ahead on schedule, and I don’t see any of them as likely to fail”.

It is not just Korean developers that have their sights locked on Cambodia, in recent months the country has emerged as a prime target for international private equity, with three major funds looking to pour upwards of US$450 million into the Kingdom’s economy. Douglas Clayton, a managing partner of Leopard Capital, that aims to raise US$100 million for its Cambodia fund, says the country can offer a safe haven from the global credit crunch due thanks to its un-leveraged economy and bountiful natural resources.

“Cambodia offers the best reward to risk profile in the region now, as competition is still low and the country has such vast potential”, he said.

Leopard Cambodia launched in April this year after raising around 10 percent of its targeted $100 million. It is currently looking for investments of between US$5 million and US$15 million, and its first project is a tourism property development in Siem Reap.

At the start of June Leopard was joined by the US$250 million Frontier Investment and Development Partners fund, which has already met with strong interest from investors according to CFA Marvin Yeo.

“Cambodia has untapped oil and gas reserves, large amounts of fertile agricultural land, low labour costs, a stable democratic political system and a dollarized economy with no capital controls where companies can be 100 percent foreign owned”, he said.

A third major new fund, Cambodia Emerald Limited Partnership is looking to raise US$100 million in the agri-business, tourism and real estate sectors. The fund closed its seed round of financing in late April when two investors, whose identity has not been disclosed, came on board with an unspecified amount of capital. The company is now operational and actively looking for projects to invest in.

Further proof that Cambodia’s real estate sector is on the up comes from the fact that both CB Richard Ellis (CBRE) and Knight Frank have recently established offices in the capital. In April CBRE opened a temporary office to sound out the market, with personnel working under its CB Richard Ellis Vietnam banner. Managing Director of Cambodian operations Edward Hopkins says, “CB Richard Ellis is carefully evaluating the market with a view to market entrance. We don’t have a company here yet, but we are writing business and we have the right to assign those contracts back over to the Cambodian company when and if it’s operational.”

The business already manages the Colonial Mansion serviced apartments in Phnom Penh, and has other projects underway. Hopkins explains that with instability and lack of security no longer an obstacle, the company believes economic development can now flourish. “Cambodia is now acceptable – the Cambodian People’s Party has done a very good job in this department” said Hopkins.

CBRE was closely followed into the market by Knight Frank, another leading real estate consultancy. Knight Frank’s Phnom Penh office opened in May, and will be run by Eric Ooi, who is also head of Knight Frank’s Malaysian office. According to Nick Thomlinson, senior partner at Knight Frank, the office hopes to achieve a turnover of about US$6 million within three years.

Foreigners are not permitted to own property on a freehold basis in Cambodia, but regulations do allow for 99 year leases. However, analysts say that the Kingdom needs to improve its lease registry system to more effectively safeguard investments. “Relying on a lease in a country where the rule of law is not yet fully developed and the court system is notoriously corrupt is a deterrent for foreign investment in the real estate sector”, says Matthew Rendall, a partner at the law firm Sciaroni & Associates.

Cambodian investment law was amended back in 2005 to allow foreign ownership of permanent fixtures, but this change in the law was never ratified, and now seems to have been side-lined. Prime Minister Hun Sen recently stated that non-Khmer nationals will never be allowed to own land outright. Such a move could, Hun Sen argued, pave the way for Thai and Vietnamese nationals to buy up land along the borders and thereby threaten Cambodia’s territorial integrity.

Currently, rather than using the poorly regulated lease system to acquire property, many foreigners have chosen to work with Khmer partners to invest in real estate. This option however entails a not insignificant degree of trust. According to one European resident who bought a property in Phnom Penh last year, the key to buying in Cambodia is “having very good friends”.

“My agreement was made with a handshake and a look in the eyes. The decision was now or never, either you do it or you spend a life time running behind prices. I am aware I might lose the land from one day to the next, I depend entirely on my Cambodian business partner but I have no doubt that he will keep his word”.

Perhaps more worrying for would-be investors in Cambodia is the country’s current level of inflation. The dramatic rises in land and property prices have been compounded by the soaring price of fuel and commodities. Since the beginning of the year fuel is up 30 percent, and rice 50 percent.

Already in January, inflation stood at 18 percent, but since then the government has stopped publishing CPI data. San Sithan, Director General of the National Institute of Statistics, was recently quoted as saying that publication of the CPI has been halted to avert the possibility of “disorder and turmoil”.

In Vietnam, whose real estate sector witnessed similarly dramatic rises to those seen in Cambodia, inflation is currently running at 27 percent, prompting strikes earlier this year by factory workers demanding higher wages. As Vietnamese monetary policy is tightened in an effort to combat inflation, bank loans for both developers and prospective buyers have dried up, forcing a number of real estate projects to be shelved and putting downward pressure on property prices. There are now fears there will be a slowdown across all sectors of the economy. For the moment the Cambodian real estate sector continues to expand, but the parallels with Vietnam are ominous and investors will be monitoring the situation carefully.

Investing in Cambodian real estate is not therefore without risk. High inflation and regulatory hurdles are certainly a cause for concern, but it is worth noting that property prices remain reasonable when compared to neighboring Vietnam. If the July 27 elections pass off without violence as expected, the country will have taken another step towards consolidating political stability, although granting another term to a leader who has been in power for 23 years is not the best sign of a healthy democracy. The path to recovery has been long for Cambodia, but the country is finally lying to rest the ghosts of its turbulent past. The challenge now is to ensure that growth is sustainable, by enabling its benefits to reach the population at large, and not just the privileged 10 percent of Cambodians who currently own 90 percent of the country’s assets.

"Only rich people will buy apartments at the skyscrapers, because the price is unaffordable for most people": Chan Sophal

Cambodian real estate market heated up by S Korean projects

By Long Heng, Xia Lin

PHNOM PENH, June 18 (Xinhua) -- South Korean investor GS Engineering and Construction held here Wednesday the ground-breaking ceremony for the construction of its 52-story skyscraper, the tallest one to be built in Cambodia and latest one to stir up the heated market and trigger off mixed comments.

Cambodian Deputy Prime Minister Sok An said at the ceremony that the construction shows the close relations between South Korea and Cambodia and the confidence of foreign investors for Cambodia in its political and economic stability.

"The project will provide hundreds of jobs and contribute to the economic development of our country," he said.

The skyscraper, a model role from the private sector in developing the country, will become the historic building and the tallest in Cambodia and become a center of tourism, culture and engineering. he added.

GS Engineering and Construction, the largest real estate developer in South Korea, will take 45 months to complete the billion-dollar International Finance Complex (IFC) project near the Tonle Bassac River around March 2012, according to a press release.

The 68,461 square meters project includes a 52-story office block, a 32-story residential block with 275 units, an international school and a shopping mall with 1,064 units, it said.

"The plan is to expand business domain not just to architecture and housing, but to a broader area of plant, civil engineering and development," it added.

GS Engineering and Construction president and CEO Kevin Kab Ryul Kim said that the recent interest of the Cambodian government in city development welcomes South Korean company's development projects with advanced technologies like us.

"IFC Phnom Penh projects will open the gates to more South Korean companies entering the Cambodian market," Kim said, adding that with this project, GS will lead the real estate and development market of Cambodia, newly rising in the Indochina peninsula.

The plan is to expand business domain not just architectures and housing, but to a broader areas of plant, civil engineering and development, he added.

Meanwhile, Mu Hion Woo, the developer's Chief of Business Division in Cambodia, told local media earlier last week that the project is not only a business but also a contribution to the development of Cambodia.

"If you want to see the potential of Cambodia, you can see it in this project," he added.

Currently, a second South Korean real estate developer is constructing a 42-story skyscraper of comprehensive functions, namely the Golden Tower, in downtown Phnom Penh and a third one developing a satellite city named Camko in the suburbs.

These South Korean projects will transform the skyline of the capital, as it is now dominated by buildings only four- or five-story high.

And, the GS project seems to compete with the Gold Tower and the Camko City in the ever booming real estate market of Phnom Penh.

The three mega projects are widely considered as new achievements of the Cambodian government led by Prime Minister Hun Sen. People are waiting and want to see them turned into reality.

Chan Sophal, president of the Cambodian Economic Association, expressed concern over the new buildings' inconsistency with the previous style of the city.

"We all welcomed the construction of the highest skyscrapers in Phnom Penh and other places in Cambodia. We also requested for the government to conserve the houses built in the French colonial era," he told Xinhua.

If conservation and development work well with each other in style and construction, Phnom Penh will be a city both modern and classic, more beautiful and with more cultural hints, he said.

In addition, he asserted that these projects has mirrored the confidence of foreign business people in the political and economic stability of the country and will therefore bring in more foreign investors and benefit the local people.

However, Chan Sophal is also worried that skyscrapers can't really meet the market demands.

The skyscrapers have drawn much public attention, because the Cambodians never saw these things before, but in regard of their essential choice, they prefer to live at the ground floor of a house with a garden and some trees.

"Only rich people will buy apartments at the skyscrapers, because the price is unaffordable for most people," he said.

Some wealthy people subscribe to houses at the top floor of these skyscrapers, but they won't live there.

"They buy them for investment. When sold again, there will be profits," he added.

Nov Rathana, general manager of the Gold Tower project, said that his project will finish in May 2011, adding that market competition is a good impetus for developers.

Sung Bonna, director of the Sung Bonna Real Estate Agency, said that house and land are hot topics for the Cambodians now.

"People like to talk about land, house and their prices. Most of them buy land and houses for investment, and expect fat rewards when they sell them out," he said.

According to industry statistics, land and house prices have spiraled in Phnom Penh and neighboring provinces as result of 10 years' stable development of the country. Top villa in downtown Phnom Penh now sells over one million U.S. dollars, 10 times the previous price.

The mega development projects of skyscrapers have just fueled the vogue and drive land and house prices even higher, said Sung Bonna.

"Phnom Penh still has huge land, waiting for us to develop," he added.

Cambodia's thriving real estate market enriches the elite and sidelines the poor

S. Korea Yonwoo's Gold Towers

Sunday, March 9, 2008
The Associated Press

"We're moving toward possibly about 10 percent of the population owning 90 percent of the land in Cambodia" - Naly Pilorge, director of the nonprofit human rights group Licadho

PHNOM PENH, Cambodia: An old hospital was razed to make way for Phnom Penh's tallest building — a 42-story twin condominium tower. A garbage-strewn slum became prime real estate after police evicted its dwellers to a parched rice field outside the capital.

Cambodia is experiencing a construction boom fueled by foreign investment, particularly by South Koreans, and buying and selling among the country's few nouveaux riche — while leaving the poor majority behind.

Shopping malls and tall apartment buildings are sprouting up, transforming the capital's landscape that once bore the charm of colonial French-styled villas but resembled a ghost town at the fall of the genocidal Khmer Rouge regime nearly 30 years ago.

Political stability and robust economic growth of nearly 10 percent have lured investors to the real estate market that has seen prices surge over the last few years — though they are still lower than in neighboring Vietnam or Thailand.

"Cambodia was sleeping for many years and now it's waking up," said Claire Brown, managing director of Britain-based Claire Brown Realty who began buying and selling property in Phnom Penh two years ago.

"Everybody wants to get a piece of the action," she said by phone. "The time to get in is now because soon it's going to be too late."

Prime city land prices have tripled over the last two years to US$3,000 (€2,000) per square meter. Those kinds of returns have drawn rich and middle-class Cambodians, as well as those living abroad.

"In buying and selling land, they could get profit 100 or 200 percent a year, if they make the right bet on the right location," said Dith Channa, the sale manager of CPL Cambodia Properties Ltd., a Phnom Penh-based real estate agency.

But the soaring real estate market is also widening the gap between the rich and the poor.

"Phnom Penh city is getting modern every day — of course for the wealthy," said Chhorn Et, a former slum dweller now living with hundreds of others in a village in the middle of rice field about 20 kilometers (12 miles) from the capital.

"The government swept us away because they regarded us as very unpleasant for their eyes," said the 34-year-old woman who scavenges for discarded cans and bottles to sell for a living.

The flourishing property market is also happening in the shadow of problems of land rights disputes that, in recent years, have often pitted the poor against wealthy developers with links to the Cambodian political establishment.

"We're moving toward possibly about 10 percent of the population owning 90 percent of the land in Cambodia," said Naly Pilorge, director of the nonprofit human rights group Licadho.

That could fan social and political unrest, she and others have warned.

The biggest projects are being funded by South Korean investors and companies, which have been the leading investors in Cambodia following the resumption of diplomatic ties between the two countries in 1997. Investment and tourists from South Korea have surged following a 2006 visit to Cambodia by former President Roh Moo-hyun.

World City Co. Ltd., a South Korean company, is investing US$2 billion (€1.3 billion) to build a "satellite" urban complex called Camko City on a 120-hectare (300-acre) area on the northwest side of Phnom Penh. The project, the single biggest foreign direct investment in Cambodia to date, will include residential, commercial and public facilities — villas, condos, trade and financial centers, office buildings, shopping centers, hotels, schools and hospitals.

Meanwhile, at a busy corner leading up to the city's landmark Independence Monument, an old government hospital has been torn down to make way for a 42-story condominium and shopping complex worth about US$250 million (€162 million). That's going to dramatically change Phnom Penh's skyline, where the tallest building now is a 15-story hotel.

It is going to be the first luxury residential building and tallest structure in Cambodia, said Kim Tae-Yeon, chairman of Yon Woo Inc., a South Korean developer.

Kim said the towers will have about 500 units of apartments, office space and retail shops with price tags ranging from US$112,000 (€72,647) to US$1.8 million (€1.17 million) a unit. Construction will start next month and take 3 1/2 years to complete, but Kim said nearly half of the units have already been bought.

In recent years, Siem Reap, a northwestern town near the famed Angkor Wat ruins, also has seen a frenzy of hotel and guesthouse construction for the growing numbers of tourists.

Thrilled with the boom, Prime Minister Hun Sen has said it has been made possible by the political stability he has brought. In a recent speech he warned that if he is not re-elected in July elections, property prices could nosedive.

"It was a threat, a dirty trick to gain votes," said Son Chhay, an opposition party lawmaker.

Son Chhay and some human rights workers, including Pilorge of the human rights group Licadho, believe that the boom is partly fueled by people laundering money from illegal logging, drug trafficking and tax evasion by plowing the cash into the real estate market.

"This is not going to be healthy for the Cambodian economy," Son Chhay says.

There are also concerns that the rapid price gains are creating a bubble that will eventually pop.

Eric Sidgwick, senior economist at the Asian Development Bank office in Phnom Penh, said the real estate market has been "driven by a combination of genuine demand for business-related and residential construction," as well as a growing population, increased urbanization and speculation.

Still, there were "reasons to be concerned about the recent increase in real estate prices and the dangers of further inflating a speculation-led bubble," he said in an e-mail. He declined to comment about any possible link between money laundering and the property market boom.

Meanwhile, poor residents like Chhorn Et, the former slum dweller who was moved outside the capital, are left to cope with a stark reality in their new village, which has no running water or sewage system.

Although each family has been given a small piece of land, they complain of the lack of means to support their livelihoods. They have to travel daily to the capital to do odd jobs as motorbike taxi drivers, construction workers or scavenge for bottles and cans to sell to buy food.

Many of them are too poor to afford a latrine and have to use a nearby rice field as a toilet, said 37-year-old Mom Somaly, a mother of five children.

Pointing to a distant land-for-sale sign, she said "soon they may not even have a field to use as toilet any longer."
____________
On the Net:

Claire Brown Realty: http://www.clairebrownrealty.com/
CPL Cambodia Properties Limited: http://www.cplagent.com/
Yon Woo Incorporated: http://www.yonwooinc.com/eng/

Skyscraper to change city skyline

By Vong Sokheng
Phnom Penh Post, Issue 17 / 02, January 24 - February 7, 2008

Another South Korean company announced plans to build a city skyscraper, this one to begin construction next week at the heavily trafficked corner of Sihanouk and Monivong Blvds.

The South Korean Yon Woo Co., Ltd developer said it is investing $240 million in a glitzy high tech 42-story building Gold Tower, which will have apartments and office and commercial space.

The building is expected to be completed by 2011.

The company received its approvals from the government in May 2007.

The news comes on top of the announcement by Korea's GS Engineering and Construction Company, that it will start construction in June on a 53-story building near the Russian Embassy in the Tonle Bassac riverfront area. It is supposed to be finished in 2012.

"We see that the skyscraper market is getting interest from Cambodian people because the price of the land is very expensive now," said Sry Thamarong, personal advisor to Prime Minister Hun Sen.

He said the prime minister is encouraging more skyscrapers.

"The 53-story is the tallest, but in the future there will be taller ones." The Yon Woo Co. Ltd. held a ceremony to launch construction January 24.

The architectural drawings for Gold Tower were done in Korea.
Yon Woo is the developer and was in charge of searching for the right site. It has hired a separate contractor.

Company officials said the contractor will employ about 300 Cambodian workers and Korean engineers during the construction period.

Yon Woo official Kim Tea Yon said the company is committed to contributing to the success of the Cambodian economy as well as to its stakeholders, who expect profits.

Collaborators in the project are DaeHan Real Estate Trust, a fund management firm, and Hanil Engineering & Construction Co Ltd, which initiated the construction of the first phase of the large Camko City planned development on the outskirts of Phnom Penh, the officials said. Korean investment is involved there also.

In a statement, the company said: "The Yon Woo Co.,Ltd will become the project for the image of the international capital by making a new skyline in the city of Phnom Penh ."

Investment from Korea in the past year has been picking up fast, according to Sangkwang Lee, Commercial Attache of the Embassy of Republic of Korea in Phnom Penh.

He told the Post that Korean total investment in Cambodia since 1992 totaled $897 million, but in just nine months of 2007, it had already reached $502 million.

He said that Korea's total foreign investment worldwide last year was $15.3 billion.

The investment went to: China $4.9 billion; US $2 billion; Vietnam $1.1 billion; Hong Kong $752 million. Cambodia was its fifth largest investment target. He said Korean businessmen are beginning to see Cambodia as an alternative to the higher prices in Vietnam.

"They have many possibilities in Vietnam, but they have been looking for another destination for investment," Lee said.

Im Chhun Lim, Minister of Land Management, Urban Planing and Construction, said in his speech at the launch that the government received more than 1,500 requests for construction projects worth $1.5 billion in the first nine months of 2007.

Real estate price increased significantly in 2007

Thursday, January 17, 2008
Everyday.com.kh
Translated from Khmer by Heng Soy

In 2007, the price of lands and housing has increased significantly, doubling the value when compared to the previous year, a real estate agent told the Rasmei Kampuchea. Cheng Kheng, director of real estate company, said that, based on observations in 2007, the price of real estate increased significantly, almost doubling in value or more, when compared to the year before. However, he said that this real estate price will remain still with the approaching 2008 election, but that after the election, it could rise again if the political situation does not change much. Cheng Kheng said that the price of lands in Phnom Penh costs, at most, about $3,500 per square meter for large home properties measuring 1,000-sq.-meter and up. For commercial properties located along the Moat Tonle street, or the Monivong street, the price of lands could fetch between $5,000 to $8,000 per sq. meter. Row houses in the city costing about $100,000 are hard to find, and even in the suburbs, these row houses would fetch between $80,000 to $100,000 also.

Lawmakers consider letting foreigners buy real estate

By Cat Barton
Phnom Penh Post, Issue 17 / 01, January 11 - 23, 2008

Foreign investors may not need to wait for the stock market in 2009 if they want a piece of Cambodia's economy.

The government is on the verge of changing the property ownership laws so that foreigners will be able to buy real estate in the country and own it outright.

Although current law prohibits foreigners from actually holding title to land in Cambodia, the National Assembly is considering an amendment to the law that could be approved soon, said Nuth Narang, Secretary of State at the Ministry of Land Management, Urban Planning and Construction.

"Local developers have a massive interest in seeing the law change. Cambodia is open for business now. There is huge demand, foreigners would buy property," said Matthew Rendall, a lawyer with the investment advisors Sciaroni and Associates.

Although it was not clear what restrictions Cambodia might put on foreign property investment, Rendall said there is no downside to changing the law. Cambodia has "nothing to lose," he said.

Developers contacted by the Post said a change in the law would change the marketing environment for developers in Cambodia.

Marketing director Nhem Sothea at Grand Phnom Penh International City said changing the law would make it "much easier to sell property here."

"There is a large Korean market -they want to come here and retire and we could access that market better with a change to the law."

Backed by Indonesia's Cinputra, through a local partner RCAF Gen. Ke Kim Yan, the International City is developing 260 hectares 20 minutes northwest of the city center into a gated community.

Nick Chandler, sales and marketing director for Brocon, which buys colonial buildings in Cambodia and rehabilitates the apartments for sale to foreign investors, said a change in the law would create huge demand.

"There is a real buzz regarding Cambodia," he said. "They have had three years of double digit growth-9 percent this year. A lot of people see that and those people see property as the best and most stable way to get into this market."

Narang said the ministry is discussing whether changing the law "will be beneficial to the economy." "We need to assess how best to go about this," said Narang. He added that the ministry is seen as favoring the amendment because in August it passed a sub decree allowing foreigners to use property they own via a leasehold as collateral with the banks.

Some of Cambodia's neighbors already permit some type of foreign property ownership. Thailand, Singapore and Malaysia all allow foreign investment in "immovable property" with various restrictions. Immovable property includes not only land but buildings and leases.

In Thailand, the rules are that at least 51 percent of high end apartment block developments must be Thai-owned. In Singapore, foreign nationals can own property above the seventh floor.
"It would be a natural progression for Cambodia to introduce something similar," said Rendall. "It will bring a massive injection of investment into the economy. There will be a huge reaction."

Other options could be prohibiting foreign ownership of ground floor units, but allowing sale of above ground apartments. Or the government might change the title deeds so that anything defined as a "building" but not as "land" could be bought. A change in the law would clearly benefit developers such as the South Korean developers of the Camko City project, which includes many high end apartments.

Camko City officials could not be reached for comment. According to the company's marketing information, the first planned development includes 18 houses and 100 townhouses, but many more large blocks of apartments.

At the moment, property developers get around the land buying restriction by selling leaseholds to foreign investors, said Chandler at Brocon,

He said foreign buyers obtain a 99-year lease with an option to renew. The leases all include a clause saying if the land law changes, the leaseholds will be converted to "free hold." Owners would have to pay certain taxes and transfer fees to convert. He said Brocon has sold more than 20 properties under the lease agreement.

"A change of law allowing foreigners to buy would mean all leases revert to freehold and that would give us an even easier product to sell," said Chandler.

Brocon's target market is sophisticated foreign investors who already have property portfolios in the region. "The current legal framework is not an impediment to us. We are not selling to mum and dad investors."

"Capital growth on land over the last two years has been ridiculous-something that sold for $500 two years ago is now $2,000 plus," said Chandler.

Cambodia urged to allow foreign ownership of property

PHNOM PENH (AFP) - - Cambodia's private sector Tuesday urged the government to allow foreign ownership of certain properties like apartments or factories, saying a liberalised real estate market would spur economic growth.

Under the current rules, foreign property investments must be made in the name of a Cambodian national, and many are unwilling to risk losing their assets to unscrupulous local partners.

While Cambodia's investment law was amended in 2005 to allow foreign ownership of permanent fixtures, the legislation has yet to be implemented and the initiative has floundered.

"There are several reasons for urgent action," said Bretton Sciaroni, an American lawyer who serves as the chairman of the International Business Club and was speaking Tuesday at a meeting between the private sector and government.

The measure would further develop Cambodia's real estate market, taking advantage of a current boom and making the country competitive with its neighbours, which allow foreigners to own apartments or condominiums.

Vast new building projects have bloomed in the past few years, including a number of sprawling satellite cities worth billions of dollars that when constructed will radically alter the face of the capital.

"This is already a sector of the economy that is dynamic, but foreign ownership of apartments, condominiums and other such structures on the land will help spur further economic growth," Sciaroni said.

"Such a regulatory development will provide a dramatic indication that Cambodia has an investor-friendly environment," he added.

After decades of turmoil, Cambodia has emerged as a rising economy in the region -- posting an average of 11 percent growth over the past three years on the back of strong tourism and garment sectors.

But officials warn that the country, which still relies on international aid for half of its annual budget, must diversify by seeking more varied foreign investments.

"There are other sectors we are trying to encourage, but we have to find out what are the sectors where we can be competitive," Commerce Minister Cham Prasidh told AFP in an interview last week.

"If we try to produce the same thing as Thailand or Malaysia, it will be very difficult," he added.