Over recent years, Cambodia’s capital has come into its own as both a tourist destination and a regional business centre, while sophisticated new restaurants and bars have changed the face of the city’s entertainment sceneImproved connectivity to major Asian destinations such as Singapore, Hong Kong and China from the city’s international airport has also made the city an increasingly viable hub. And these improvements have had a knock on effect in the city’s real estate sector, which is currently among the healthiest of the region’s “frontier” markets.
“Cambodia has recovered at a quicker rate than most of its neighbours from the impact of the Global Financial Crisis,” said Simon Griffiths, senior country manager at CBRE Cambodia. “There was a bubble for a period before 2009 with poor regulatory control on where financing for new property developments was coming from contributing to a collapse in the market.
“Regulatory reform, the small size of the market and changes in laws relating to foreign ownership have also nurtured confidence and the property market is currently going through a phase of relative prosperity.”
While Phnom Penh remains largely low-rise, a number of modern edifices such as the Vattanac Capital Tower – the city’s tallest building – now loom above the city’s French colonial buildings and Chinese shophouses.
And although the market currently remains relatively small in comparison with regional counterparts such as Bangkok and Ho Chi Minh City, a number of ambitious developments look set to further transform the Phnom Penh cityscape.
Hong Kong developer Hongkong Land is due to complete its Landmark building, a mixed use retail/office development, in 2016. Meanwhile, Koh Pich, a spit of land in the Tonle Sap River also known as Diamond Island, is slated for an ultra ambitious transformation. Plans are in place for more than 1,000 condominiums, hundreds of villas, international schools and other extravagances such as a replica of the Arc de Triomphe in Paris and one of the world’s tallest buildings.
Other major projects underway include The Bridge, a mixed-use development by Singaporean firm Oxley Holdings and Cambodia World Bridge Land. The ambitious venture will feature a four-story supermarket, 700 apartment units and small offices and 900 “home offices”, which Oxley describes as units that can be used for residential living and which also have office working space and facilities.
One of the most significant boons for investment in Phnom Penh’s property market was the introduction of foreign ownership laws. Since May 2010, foreigners are allowed to own apartments and condominium units, although they are not permitted to own land. Such restrictions can, however, be easily bypassed by the establishment of a partnership with a Cambodian or by registering a business in the country.
Also attractive for investors is the relatively low price of property and strong rental yields. Prime real estate in Phnom Penh averages around USD3,200 per square metre, about seven times cheaper than equivalent property in Hong Kong.
Average rental yields of about 5.3 percent are available for centrally located residences, and although these pale in comparison with those found in Jakarta and Manila, are still very competitive for an emerging market.
Such favourable conditions have attracted investors, predominantly from other Asian countries, such as China, Hong Kong, Singapore, Korea and Japan, the majority of which are buying off plan with a view to selling as prices appreciate. Others are renting to wealthy expatriates working in growth industries such as oil and gas and finance.
Yet, while the market appears as healthy as it has ever been, doubts remain towards its sustainability. Despite the prosperity of Cambodia’s upper classes, the country remains one of the world’s poorest, meaning that only a minuscule fraction of the population can afford to invest in the flashy new housing and office stock being built around the city.
Nevertheless, analysts are confident that manageable size of the market means that saturation point is still some way off.
“As ASEAN integration in 2015 comes closer, Cambodia is expecting a freer flow of capital goods and people among members states,” stated Leng Vandy, a senior associate at the Cambodian subsidiary of Japan-based financial services company SBI Royal Securities in a recent report. “Demand for condominiums by locals and foreigners is likely to continue to grow. The residential property market in Cambodia is still in its infancy and the market’s lack of maturity offers unique opportunities for investors.”