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CAMBODIA: INVESTMENT MAGNET

The upcoming integration with ASEAN and a new construction code make this small country a big real-estate investment opportunity.

October 2015

When the 29-storeyed Canadia Tower was completed in 2010, it was the first high rise in Cambodia. Today, just five years on, the skyline of Phnom Penh is witnessing a total transformation with more than 30 high rises in varying stages of construction and the capital’s city centre emerging as an investment magnet for international buyers across the region. In 2014 alone 1,960 permits for approximately USD 2.5 billion worth of construction projects were approved by Cambodia’s Ministry of Land Management, Urban Planning and Construction (MLMUPC), while 915 permits worth approximately USD 808 million in investments have been released since the beginning of 2015. The sharp surge of premium real estate projects – and property prices – in Phnom Penh is symbolic of Cambodia’s increasing relevance on the international stage, and the country’s preparedness to keep the momentum going.

Axis of growth

Strategically located between Bangkok and Saigon, Phnom Penh is at the centre of the East-West corridor between the two major regional trading hubs of Thailand and Vietnam. Cambodia’s economy has grown rapidly during the past decade and has recorded an impressive average GDP growth of 7% year-on-year since 2010. The abundance of low-cost labour, rapid urbanisation and high margins are factors boosting the economy – and the real estate industry – by attracting more overseas companies to set up operations in Cambodia. As integration into the ASEAN Economic Community (AEC) nears fruition by the end of this year, the free flow of trade and skilled labour is expected to attract a larger volume of FDI and bolster employment further over the medium to long term. Despite the ongoing political friction between the Cambodian People’s Party and the Cambodian National Rescue Party, an agreement between the two parties to cooperate has resulted in a more stable political environment which, in turn, has led to renewed investor confidence in the market, and should have a positive impact on the real estate sector. “We are already seeing significant FDI in infrastructure and the industrial sector, and we expect this trend to continue with majority of the FDI coming from China and Japan,” says Ross Wheble, Country Manager, Knight Frank Cambodia, adding that Cambodia is entering a new era of development and the government’s initiative to bring in a new construction code, in addition to the already relaxed foreign investment rules, will give a huge boost to the country’s real estate sector.

Raising the bar

With the twin objective of improving the quality of construction to international standards as well as to increase investor confidence, the Cambodian government has approached the Royal Institution of Chartered Surveyors (RICS) to assist with the creation of a new construction code.
Currently, the real estate sector in Cambodia is loosely regulated, with no adopted master plan for Phnom Penh, no construction code and limited safety regulations. One of the key requirements of multinational companies entering Cambodia is to be located within buildings that comply with international construction standards, which very few existing buildings do.

“The recent and ongoing boom in housing development in Cambodia, including both traditional and condominium residences, calls for the government to consider passing a construction law aimed at increasing building standards,” says Patrick Smith, Managing Partner at Phnom Penh-based consultancy Sciaroni & Associates. The existing foreigner-friendly ownership laws and the significant improvements in political and economic situations in the country, coupled with the new construction laws would make Cambodian real estate more attractive for foreign buyers not only from other Asian countries, but also from Europe and USA, Smith adds.

Though the new code is expected to come into effect later this year, some of the international developers are already implementing high standards of design and construction, in keeping with the needs of the foreign buyers. For instance, the Singapore-based YUEN Development, whose project at Chroy Changvar, Cambodia’s City Of The Future, is already a hit with international buyers, with foreigners accounting for more than half the bookings. “With the new laws, Cambodia’s real estate industry is becoming a level playing field for local and international developers,” says Darren Yap, Director & Chief Executive Officer, YUEN Development, adding that he expects a boom in the Cambodian market at least for the next couple of years as land prices rise and prospective capital gains continue to be attractive. At USD 2,000 per square metre, the rates of prime residential property in Phnom Penh is still almost half of the rate prevailing in neighbouring Thai capital Bangkok, leaving much scope for appreciation.

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