By Lam Jian Wyn
The Edge Malaysia
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.
Supply constraints
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.
Addressing weaknesses
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.
Infrastructure works
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
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