A renaissance in Cambodia creates a real estate scramble

Building sites like these ones are sprung up throughout Phnom Penh.

PHNOM PENH: After decades of war and upheaval, including the Khmer Rouge "killing fields," Cambodia is enjoying an unprecedented boom, its economy expanding at around 10 percent annually for the last five years.
But the breakneck growth, fueled mainly by garment manufacturing, tourism and real estate development, is turning its once-sleepy capital into a building site and pushing many ordinary Khmers from their homes.
"I will move only when they pay me enough to find another place to live," said Ngay Tun, a fisherwoman living on Boeung Kak, a 120-hectare, or 300-acre, lake that is about to be drained and filled in to make way for a housing project in central Phnom Penh.
"I worry about it every day, that they are going to come suddenly in the night to kick us out," she said, paddling a small wooden boat through floating banks of morning glory.
While the outlook for the garment industry and tourism appears solid - especially while the U.S. dollar, Cambodia's de facto currency, continues to fall - the same cannot be said for real estate, where prices are spiraling to dizzying heights.

Figures from Bonna Realty, a leading real estate business, suggest the price of prime Phnom Penh land doubled last year to $3,000 per square meter - compared with less than $500 in 2000.
Land in the Bangkok downtown district of Silom, for example, is $5,000 per square meter, while Ho Chi Minh City, the hub of a red-hot economy in Vietnam, prices can be as high as $15,000.
"There is a debate about whether there's already a bubble," said Stéphane Guimbert, an economist with the World Bank.
"On the one hand, clearly the market was very depressed until a couple of years ago because there was little security and stability. But on the other hand, it's surprising that prices are increasing so fast," he said.
In one of the first signs of overheating, annual price inflation has spiked to more than 9 percent in the last year, almost double its level in the preceding five years, and anecdotal evidence points to big upward pressure on wages.
At the top of the market, prices are being driven by huge foreign-funded ventures like "Gold Tower 42," a $300 million South Korean apartment block that, at 42 stories, will be three times higher than Phnom Penh's current tallest building.
Even though it will not be ready until 2012, Cambodia's super-rich are already buying some of the 360 units at $2,150 a square meter.
But such prestige projects are the tip of the iceberg, and foreign investment accounts for only a small fraction of the boom, analysts say.
The domestic financial services industry is growing fast - private-sector lending by Cambodia's 20 or so banks grew 60 percent last year - but remains too small to be financing projects valued in the hundreds of millions of dollars.
Instead, analysts say, much of the funding is Cambodian cash stuffed into mattresses, locked up in gold, or squirreled away in anonymous offshore bank accounts for years.
"There are a lot of people in this town who are fantastically wealthy," said Trent Eddy, director of Emerging Markets Consulting in Phnom Penh. "The banks are not doing mortgage lending for the sort of stuff that's driving up prices."
The most popular theory on the streets of Phnom Penh is that a global banking cleanup after the terrorist attacks of Sept. 11, 2001, flushed out billions of Cambodian-linked dollars in bank accounts in Singapore, which encouraged their repatriation.
With few other investment options, and a steadily improving regulatory and legal framework, along with political stability under Prime Minister Hun Sen, real estate is the obvious choice for many.
Even though the economy remains one of Asia's smallest, with gross domestic product of around $6.5 billion, the prospects are such that international investors have been looking into setting up domestic real estate funds, mainly in the hotel sector.
CB Richard Ellis, the U.S. property services company, is opening a Phnom Penh office in the next few months.
The prospect of revenue from off-shore oil and gas by 2010 reaffirms the view of outsiders that the economy is only heading in one direction, and that rapid urbanization and demand for better housing from Cambodia's 13 million people must follow.
The clearest example is another South Korean venture, a $2 billion "new town" called Camko City taking shape on the northern outskirts of Phnom Penh.
"They are targeting primarily the Cambodians. There's very little accommodation in Phnom Penh, but demand is growing," said Lee Sangkwang, commercial attaché at the South Korean Embassy. "It's kind of pioneering."