CBRE Cambodia’s senior associate director Simon Griffiths suggests taking a more optimistic and differentiated view on the Cambodian property market.
In recent months, many real estate industry commentators have painted a dark image of Cambodia’s property market. Some evoked oversupply and out-of-control credit growth as a threat to Cambodia’s property and even financial sector. The anticipated surge of condominium units of over 700 percent by 2020 served pessimists as a plausible and often cited argument for the inevitable and imminent bursting of the bubble.
While commentators voice concern, increasingly many real estate industry insiders criticise the evocation of ‘doom and gloom’. They say the media and the public often fail to see the whole picture and disregard the fact that real estate markets are cyclical by nature.
Simon Griffiths, senior associate director at CBRE Cambodia, is one of the industry insiders who thinks that recent reports have been too one-sided and negative. In an interview with Post Property this week, he gave his perspective on the current state of the real estate market and urged for more optimism.
Please describe Phnom Penh and Cambodia’s current property market.
It’s entering a new phase. Understanding that the property market is not just about the square metre area or the number of units under construction is key for an accurate understanding of the real estate market. What we are seeing, and for continued healthy growth, we need to see more diversification. Retail is in this process now with new and exciting projects in the pipeline; industrial property offerings are upping their game taking lessons from Thailand; social housing is on the way; coastal areas are being upgraded and developed into a range of luxury and package tourism resorts. These are but a few of the changes and developments underway that will upgrade the face of Phnom Penh as it transitions into a modern city.
Property markets are cyclical. At what point of the cycle are we in?
Most real estate commentators when answering this question jump straight to a single source of data – describing the number of condos in the market – and draw all-encompassing conclusions from that. This is not reflective of the entire situation. There is room for further growth in the sectors of retail, office space, industrial space, entertainment, tourism and residential sectors. What has changed from five years ago, when demand outstripped supply in almost all sectors, is that there is more built environment now, you cannot just launch a condo and expect to succeed, it is a more competitive market place and that is good for consumers. Developers who are going forward need to be ahead of the curve and produce developments that fill the gaps in the market, rather than reproduce what is already there. So back to the question where we are at in the cycle: there is still room for growth, [It’s] still on an upward trajectory but at a slower pace than that experienced over the last three years.
What does slower growth mean for the construction sector?
We have seen a surge in construction, especially in Phnom Penh, since the start of 2014 and growth in the sector is not likely to continue at the same pace. However, to counter this there are major infrastructure improvements that need to be made in Phnom Penh and to the national highways, large scale power plants and concrete factories under construction, coastal resorts planned and major real estate developments with construction pipelines extending past 2018. The ASEAN Economic Community will increasingly play a part in attracting inward investment fueling construction. However, for construction companies the sector will be an increasingly competitive space and the number of jobs the sector currently employs directly, or supports, will be challenging to maintain.
How do developers react to the cooling of the market?
Developers are still seeking out opportunities and the appetite to develop is still very much there. The more experienced developers are asking the three key questions: How can we differentiate? What to build to fill the gaps? Where is there demand? It is no longer a situation of ‘build it and they will come’. The market is maturing and those developers who are aware of it and who have a willingness to accept it and work within the changing real estate landscape are those who will continue to succeed and find new development opportunities.
As an investor seeking to snatch up units at good prices when is the time to start buying?
A good question and if I had a million dollars to spend and the answer to this question I would not be doing this interview but enjoying cocktails on a yacht in the Mediterranean. However, as I don’t, I will do my best to answer your question.
Over the last three years there has been a surge of buyers investing in condo’s from Cambodia and across Asia with Singapore, Japan, Korea and Taiwan being noticeable examples. What needs to be understood is every buyer has different personal and financial motivations for investing. Personal and financial motivations change as does the market.
Those with a short-term outlook such as those who purchased to ‘flip’ units at generous margins, if unable to realize those margins may relinquish their unit/s due to a need to access their capital investment quickly. This scenario can result in ‘good prices’ for the next buyer. These situations exist now but ‘investors seeking to snatch up units at good prices’ need cash to quickly transact and an agent with their finger on the pulse to know when these properties are on the market. For the most part, these are rare and it is likely prices will remain stubbornly high with investors adopting longer term outlooks.
Some developments will attain levels of prestige and become highly demanded and experience capital price increases, so developers offering discounts to sell now can also reflect ‘good prices’.
Generally speaking though, if I had to provide dates to go ‘bargain hunting’ across the market, I would say for off-plan properties start looking now! For the next couple of years developers will increasingly offer enticing deals to draw buyers back to the market for off-plan units and for the ‘sub-sale’ or ‘second hand’ market from the beginning of Q2, 2018 due to the supply coming on-line and the general election bringing about a degree of uncertainty. Hence risk, hence ‘good prices’.
But, as with most things in life, if you want to do well and make money, you have to work at it. Do your research, know prices across a range of desirable properties / developments, have a good read on market conditions and importantly keep your finger on the pulse searching out these opportunities yourself or through an agent as they will not stay on the market long.