Although land prices in and around Phnom Penh have been surging, it has yet to negatively affect the levels of foreign investment as investors still see a cheap market compared to neighboring countries. Yet, some local experts worry that the rising prices could be detrimental if the trend accelerates too rapidly.
According to Chrek Sokny, CEO of Century21 Vtrust, land prices for 2015 have increased by 10 to 15 per cent within Phnom Penh since last year and between 10 to 20 per cent in suburban areas depending on local infrastructure.
While Sokny sees these increases as sustainable in the short-term, relative to the overall economic growth, which has been hovering at around 7 per cent, he said that if increases outpace the economy, there is reason to worry.
“The rise in land prices currently does not affect the flow of investment,” he said, but “in the next four to five years, if this trend continues, it could hurt people who intend to invest in Cambodia.”
Sorn Seab, spokesman for the Cambodian Valuers and Estate Agents Association, held a similar view.
While he noted that foreign investors, particularly from other ASEAN countries, as well as China, Taiwan and Japan, appeared undeterred at the moment, “if prices continue to rise faster than the economic growth of Cambodia, it will badly disturb the investment flows in the coming years because of limited investment potential in other industries.”
“Therefore, investors would go to other countries because their economies are more developed,” he said.
While he said that the compounding effect of rising land prices is a concern, he believes the market is more capable to stabilize itself then it was in the past. He also noted that prices are unlikely to sky-rocket further because investors both inside and outside the country are operating more carefully.
“The increased price of real estate and land today is on the right track and won’t have a problem in the short-term,” he said.
“It is a real market now, not an inflated one because an inflated market would see prices get stuck when there is a problem, and a real one wouldn’t,” he explained, adding that land prices are currently running parralel with economic growth.
According to a recent study by World Trust Estate in twelve districts of Phnom Penh, land prices during the first quarter of 2015 had increased between 10 and 30 per cent depending on the commercial activity of the area.
Particular increases were noted in the Chamkarmom district where prices increased by as much as $2,500 per square metre and up to $3,000 per square metre in Tuol Kork.
Soeng Bonna, CEO of Bonna Realty Group, is hesitant about the rising prices because it is still difficult to get a return on a property investment in Phnom Penh, he said.
He said continually increasing land prices without having a more robust developed economy to back it up, puts the market at a disadvantage.
“Land price in the neighboring countries are higher than ours, but they have bigger population density, a larger economy and more investment. If we continue to think our land price is cheap and keep demanding a higher price, both domestic and foreign investors will lose their ability to invest,” said Bonna.