Hun Sen says new rules on housing development financing will go ahead despite global financial crisis and objections from Korean developers
Prime Minister Hun Sen (right) shakes hands with Deputy Prime Minister and Minister of Finance and Economy Keat Chhon (centre) at the Government-Private Sector Forum Friday as senior minister Sun Chanthol looks on.
Prime Minister Hun Sen has given his backing to controversial new rules on housing development financing that were postponed earlier this year amid an outcry from international developers, who claimed the regulations would make it impossible for them to do business in Cambodia.
Addressing on Friday the 14th plenary of the Government-Private Sector Forum, a biannual meeting between the premier and the private sector, nongovernmental organisations and the diplomatic service, he said the financial regulations would be reintroduced despite continuing objections from some in the international investment community.
The fact that many developers were already struggling in the fallout from the global financial crisis would not prevent the rules from being pushed through, he said.
"This is a measure to protect customers," Hun Sen said. "Businessmen think that the prakas will create more difficulties at what is already a difficult time. But if a businessman creates difficulty for 500 customers who deposit money for apartments by picking up the deposited sum and escaping, it will be more serious."
The new financial regulations on housing development, which was first circulated in a prakas by the Ministry of Economy and Finance in July, requires all developers to obtain licences from an Inter-Ministerial Task Force, purchase construction site insurance and deposit two percent of total project costs in a ministry account at the central bank. Licence fees, and the period of the licence, would be determined by the type and size of development.
For the small developers like us, the prakas is a big concern.
It also requires developers to create a housing development account at a commercial bank into which buyers can make down payments on units.
Developers would need approval from a ministry working group to access the account, and it would be entitled to intervene if the company failed to honour its contracts.
The rule was originally slated to take effect from September 30 but was postponed amid an outcry from developers, the majority from offshore, and South Korea in particular.
Shinwoo Kim, legal counsel at Sewha-Cambodia Law Group, which is coordinating the Korean response to the prakas, told Prime Location at the time that Korean developers agreed regulation was needed, but that the prakas would prevent them from attracting investors from their home country.
Developers were most concerned about the requirement to obtain permission from the finance ministry to access deposits, he said, and the lack of criteria for the granting of that permission.
The new regulations were part of a move by the National Assembly to tighten the Kingdom's oversight of real estate developers in the wake of a 2007 project involving the Chinese-owned Long Chhin (Cambodia) Investment Ltd.
The company had illegally filled in Kob Srov Lake on the outskirts of Phnom Penh for a luxury housing complex. But when the government demolished the estate, officials fled the country and buyers lost millions of dollars.
Serious developers only
Hun Sen said the prakas would ensure developers were serious about housing development and had sufficient capital before any projects could be started.
He said that there would be little effect on developers that used their own capital or those that relied on bank financing.
"There is a third type of real estate developer, who have neither used their capital nor used loans from the banks and only had sufficient capital to buy land," Hun Sen said. "They just create the foundations for construction, wait for customers to make deposits and take that money to construct it.
"There is no problem if everything is OK, but if problems happen after the deposits accumulate and the developers pick up the money and escape, who is responsible for this? People who are customers will blame us if they become victims of this, and this concern prompted the Finance Ministry to regulate the sector."
Ngy Tayi, undersecretary of state at the Ministry of Economy and Finance, told Prime Location Monday that the prakas will be reintroduced in January next year.
"Only Korean developers are opposed to the prakas, but 99 percent of Cambodian developers do not oppose it," he said. "If the developers fail to comply with the prakas, we will revoke their construction licences and freeze their accounts," he added.
"We know that those developers face problems due to the global credit crunch, but it is more important to ensure that Cambodian customers feel safe in buying houses," Ngy Tayi said.
Kong Vansophy, general manager of the US$1 million Dream Town development in Dangkor district's Choam Chao area, which comprises 50 apartments, said the prakas would cause difficulties if implemented.
"For the small developers like us, the prakas is a big concern," he said. "On the other hand, since the election in July, buying and selling activities in the real estate sector have fallen to zero, even though we have discounted the price of our houses."