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Logo of Phnom Penh Post newspaper Phnom Penh Post - Freehold still a dream for foreigners

Freehold still a dream for foreigners

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9-foreigner-Use.jpg

PARTNERS IN PROPERTY

One example of a successful Khmer-foreign partnership is the ever-growing “Frog” empire, which now has four establishments to its name – the Frog and Parrot, Badda Bing and Bunny Bar in Phnom Penh, and the newly opened River Frog just outside the capital near Choeung Ek. There are three main partners in the business – Sat Buna, who is Khmer, and Britons Stephen Tearle and Max Urch. “Although me, Steve and Buna are partners, [the business and related property] is all in Buna’s name,” says Urch. “There is a little bit of trust involved in the arrangement but I am happy to go with it,” he said. Urch said he and Tearle had fallen in love with Cambodia and decided to establish a business here with Buna as a means of “putting some roots down” and “feeling more involved with the country.”

TRACEY SHELTON

Stephen Tearle (left) and Sat Buna (right) are all smiles at the launch of the River Frog bar near the Choeung Ek killing fields outside Phnom Penh city, December 18, 2007.

With land prices at an all-time high, the question of whether foreigners will be able to own property in the Kingdom is more sensitive than ever.

The Cambodian constitution prohibits foreigners owning land and Prime Minister Hun Sen recently stated that non-Khmer nationals will never be allowed to own land outright. Such a move could, Hun Sen argued, pave the way for Thai and Vietnamese nationals to buy up land along the borders and thereby threaten Cambodia’s territorial integrity.

It appears unlikely that the government will ever change the land law or constitution to allow foreigners to own land – indeed, they are inline with the rest of Asia in prohibiting such sales – but the government could allow certain categories of “immovable property” to be foreign owned.

“Buildings are different from land,” said Matthew Rendall, a partner at the law firm Sciaroni & Associates. “It would be a positive thing if they would move towards selling airspace. It is win-win for Cambodia: maintain ownership of land, sell off the airspace.”

If that seems a step to far, the government could work on making its current system of leaseholds more appealing.

Cambodia, unlike, for example, Bali which limits leaseholds to 40 years, allows generous 99-year leases. According to Rendall, all over the world, if you have more than a 40 year lease, you are considered to, in effect, own the property. But the Kingdom urgently needs a proper lease registry system to more effectively safeguard investments.

“We are not asking for property ownership rights, just regulation of the lease system,” Rendall said.

“The reason the rest of Asia can offer these leases is because they have established, functioning lease registration systems. Here, you need a framework in place. Otherwise, it is a personal contract between you and the lessor.”

Relying on a lease in a country where the rule of law is not yet fully developed and the court system is notoriously corrupt is a deterrent for foreign investment in the real estate sector.

“People want an instrument issued by the government,” Rendall said. “Even though the sub decree has been passed, the implementation is lagging. In order to attract foreign ownership, you need a strong system and a reliable guarantee mechanism for the regulation of leases.”

Currently, rather than using the lease system to acquire property, many foreigners have chosen to work with Khmer partners to invest in real estate.

This path entails a certain degree of trust. According to one European resident of Siem Reap, who last year bought 16 hectares of land in the province, the key to buying land in Cambodia is “having good friends.”

“My agreement was made with a handshake and a look in the eyes – very old fashioned, which for me counts for more,” he said. “The decision was now or never, either you do it or you spend a life time running behind prices.”

But although he expressed maximum confidence in his Khmer business partner, whom he has known for nearly three years, he was “aware I might lose [the land] from one day to the next. How does anybody know in this country what paper is right? You can get any paper for $10.”

One Phnom Penh resident, who has recently sold his London home and shipped all his possessions to Cambodia has also used a Khmer business partner to buy property here.

Again, he said, the agreement was done “with a handshake and a look in the eye,” adding that “in theory I don’t own anything – it is all owned by my Cambodian partner.”

Having worked with his Khmer partner for four years, he says he is confident that his investment is safe.

“I depend entirely on trust between me and my Khmer partner but I have no doubt at all that he will keep his word,” he said.

“If my judgment of character is wrong, I will lose out. It would be financially uncomfortable, but the biggest loss for me

would be my trust in other human beings.”

This resident is constructing a high-end apartment block that will include a penthouse to serve as his home, space for a business he co-owns with his Khmer partner, and a few floors to rent out.

“My partner has done all the legal work as he has experience of titles and deeds,” he said. “He has checked things out very thoroughly. I can’t read Khmer [but] I am less worried about my investments here than I am about Britain.”

Another foreign resident of Phnom Penh, who has recently purchased property by establishing a Cambodian company, said he had “hardly thought” about the possibility of losing it.

“At the end of day, it is about the trust in your business partner, and that’s true anywhere in world.

“If trust goes, you have lost your investment, and it doesn’t matter where you are,” he said.

In this case, there is a legal agreement – in both English and Khmer.

“We set up a Cambodian company which is 51 percent owned by my Khmer partner, and then my wife and I have 49 percent,” he said. “We have a trust agreement – he owns 51 percent of the company but recognizes we own 80 percent of the land.”

According to Rendall, this is a “common way” to buy property. It has the advantage of taking away some of the risks of simply putting property in the name of a Khmer partner, he said.

All of the individuals interviewed by the Post for this article were considering applying for citizenship, which would allow them to own land outright, but all said this was a personal, not a strategic, decision.

“I want to live here for the rest of my life,” said the Phnom Penh resident who moved from London.

“The company started growing last year and it was clear we couldn’t stay operating in rented accommodation. [The decision to buy] was not done for speculation but for the company. Additionally, it is nice to be in on the boom – we got in a year ago and [land prices have] rocketed since.”

The other Phnom Penh resident also said he and his wife decided to buy also for personal reasons and that the “investment incentive was always secondary.”

According to Rendall, it is possible to naturalize as a Cambodian – and thus be able to legally own land – if you can demonstrate your “commitment to Cambodia.” 

Foreigners taking Cambodian citizenship is not common, but “to have Westerners making that commitment is a positive sign,” Rendall said.

If a Cambodian passport is not high on your list of priorities, however, you will just have to hang on until the lease registration system is functioning well, or until the government decides to open up the ownership of property – not land – to foreigners.

“The rest of Asia does this almost without exception. To agree to attract investment, to attract an international workforce, you have to allow people to own apartments,” said Rendall.

Thailand, Singapore and Malaysia have cashed in on the high-end market for condos and all allow, with various restrictions, foreigners to own property.

“This would be a massive spur to investment,” Rendall said.

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