Asia’s New Tiger

The property market in Cambodia is looking up. Experts are predicting that the time is ripe for investing in it. 
Hong Kong and Singapore are too expensive, while the current market situations in Laos and Myanmar leave much to be desired; compared to its regional neighbours, Cambodia is the frontier market that is starting to look much more enticing and is enjoying increased visibility on the radars of many foreign investors. Since the Asian Development Bank (ADB) released figures that predict a 7.5% economic growth for the country this year, investors have been flocking to Cambodia in search of opportunities. In line with this increase in interest, the ADB has recommended that the rising Southeast Asian country focus its resources on building infrastructure, developing its workforce and implementing incentives that will encourage foreign investments. 
Cambodia already has a lot going for it. As an immature market, it enjoys a low inflation rate, low debt to GDP ratio, and does not suffer from real estate driven bubbles. The last factor, in particular, makes the country a rarity in the region it is in. Citizens from the wealthier countries in the region, such as Hong Kong, China and Singapore, are always looking beyond their local shores for investment properties – and this over-enthusiasm of the property investors has created bubbles in several emerging markets. Take the Philippines, for example, where a mid-range condominium unit with mediocre fittings can easily go for about USD 200,000, a very high price considering the cost of living in the country. Cambodia’s young market has not reached a similar point yet, and decent 600 sq ft apartments in good areas in Phnom Penh can be had for as little as USD 30,000 to 50,000. 
Also a positive for Cambodia is the fact that its authorities are generally cooperative when granting developers permits and licenses, and foreigners are allowed full ownership of their businesses, contributing to a climate that is very receptive towards foreign investors. Indeed, the country’s open-door policy towards foreign direct investment is a big factor in growing demand for its residential properties. Coupled with low rental rates and labour costs, it’s no wonder the country is appealing to companies that are looking for a hinterland to set up shop overseas. With the movement of these companies into Cambodia comes demand for residential properties from relocated employees. Further contributing to this welcoming climate is the stable exchange rate, because the currency is pegged to the US dollar. Although it had previously been plagued by war and civil unrest, the country has recently settled into peace under prime minister Hun Sen – a real edge today, given the political woes its close competitor, Thailand has been suffering recently. 
Singaporean investors form one of Cambodia’s biggest markets and it is not unusual for developers of condominiums in Cambodia to run property launches in the Lion City in an attempt to woo Singaporean buyers. La Vie Residences in Phnom Penh’s Chroy Changvar area, for example, saw units snapped up by Singaporean investors during its first phase sale in March 2015. Axis Residences, another condominium development in the Cambodian capital, is also seeing good interest from Singaporean buyers. The country’s laws make investing in its residential properties easy for foreigners. 70% of any strata development may be allocated to non-local buyers, as long as they are not on the ground floor – a rule that is hardly a deterrent because most apartments are not built on the ground floor anyway. Foreigners are also allowed to own 49% of any private property, as long as the other 51% of the shares are held by Cambodian citizens. Outside of Singapore, Cambodian properties also appear to appeal to Japanese, Hong Kong and Chinese buyers. 
Indeed, Phnom Penh’s property market has grown by leaps and bounds in the past six years. From just 178 condominium units in 2009, the number soared to 2095 in 2014 and is estimated to rise to 9000 units spread out over the four years between 2015 and 2018. Overall, the supply of condominium units in Phnom Penh is estimated to increase by 533.75% by the end of 2018. There is definitely room for this exponential growth, evident when one observes the trend in neighbouring countries that have gone through the same boom previously – within the same period between 2009 and 2014, mid-town and downtown Bangkok saw an addition of 190,000 units, Ho Chi Minh City recorded over 57,000 units, and Hanoi more than 77,000 units. Condominium units currently see about 5 to 7% rental returns and capital growth of 5 to 7.5% per annum. It is not unusual for investors in centrally-located developments to see 30% capital gains from early off-plan purchases and this remains the main appeal for overseas property buyers and the driver of growth for the market. 
Cambodia’s market is not without its woes, of course. With the current boom, real estate has emerged to become one of the four main pillars supporting the country’s growth, accounting for more than 10% of the GDP. However, rules and monitoring devices have yet to catch up, and the country may experience limited dealing mechanisms in times of trouble. A recent IMF report has recommended better data collection on sales and prices followed by limits on loan-to-value ratios once there is sufficient data. Insiders from the National Bank of Cambodia have indicated that although lending to construction real estate is growing rapidly, it is still relatively small when compared with the total loan portfolio. The bank is only concerned with developments that have been financed from within Cambodia, as those are the ones that will affect the economy if they fail. To collect data on the percentage of such projects, the bank is currently working with the National Institute of Statistics to conduct a survey on FDI. 
Overall, things are definitely looking up for Cambodia’s real estate market. With an expanding middle class, rising incomes, and growing GDP, properties are likely to see great demand, not only from foreign investors but also from the domestic market. The recent implementation of the ASEAN Economic Community is also likely to drive interest and demand even further.