Photo by: TRACEY SHELTON

A model for the Camko City project, phase one of which is nearing completion. Developers say financing is in place for phase two.

SOUTH Korean companies behind some of Cambodia's most ambitious

development projects have temporarily suspended commencing any new

construction due to uncertainty in the global financial system and the

botched implementation of a housing development regulation, The Phnom Penh Post has learned.

A source close to one of the developers, who asked not to be

identified, named World City's Camko City, GS Engineering and

Construction's International Financial Complex (IFC) and BK Global's

Pharos Mekong Towers as the most prominent of the affected

developments.

Work already underway would continue but no new construction would be

started, the source said. While the first phase of World City's Camko

City development would not be affected, for instance, GS

Some still want to invest money here but some do not ... until the prakas is settled.

and BK Global

would not begin work.

A squeeze on credit from Korean banks, a massive downturn in domestic

housing sales and ongoing uncertainty over a controversial government

regulation on housing development deposits were blamed for the

temporary halt.

The source was unsure when the companies would begin construction

again. "It will depend on the market, economic stability in Korea and

government regulations."

Feeling the squeeze

The South Korean won has tumbled 27 percent this year, hitting

10-year lows against the dollar and driving up financing costs for

companies in Cambodia forced to convert the won into greenbacks.

Companies operating here were turning to domestic banks for short-term

financing, the source said.

ANZ Royal CEO Stephen Higgins confirmed by email that South Korean

developers had been in talks with domestic banks. "A couple have come

to us, but they are after very large amounts, which local banks here

can't provide, given that we can't lend more than 20 percent of capital

to any one customer," he said.

Higgins added that the bank was open to development projects but was

selective. "While we have a reputation for having the strongest credit

standards in Cambodia, we are probably even a bit tougher now, given

the economic environment."

Camko Bank director Yoon Choi said development loans were on fixed

terms, so it was unlikely that any developments already underway would

hit difficulties due to the financial crisis in South Korea. He

conceded that projects in their early stages could be at risk, but

those already over 50 percent complete should have no difficulty.

Stories that financing from South Korea was under threat were partly

true, he said, but were "also not completely fair in my opinion".

Camko City on target

Kheng Ser, assistant to World City vice president DK Kim, strongly

denied that the company had any concerns over financing or the housing

regulation. He said there would be no delay to construction of the

first phase of the Camko City project and phase two was on schedule to

commence construction next year. He refused to give further details on

financing arrangements.

The 119-hectare development in the Boeung Pong Peay Development Zone in

Russey Keo district, on the north side of Phnom Penh, was approved in

2005, and the first phase was slated for completion by November 2009.

Residential units are largely already completed, and 168 families were

due to move into their new townhouses and villas in December of this

year.

Camko Bank's Yoon, whose bank provides home loans for buyers in the

development, said there were no concerns over the development.

The developer had already sold more than 70 percent of the residential units in its phase one development, he said. "Many consumers have come for loans and construction is being done."

The Mekong Pharos Towers development, which will include five 25-storey residential towers on Phnom Penh's Chruoy Changvar peninsula, was due to open a showroom in December and begin construction this month. BK Global marketing manager Kheang Piv refused to discuss the issue but confirmed construction had not begun as scheduled.

A source close to South Korean developer Daesan Cambodia, which is building a 45-storey condominium tower adjacent to the IFC site and overlooking the Tonle Bassac river, said the company had also delayed plans to start construction. The source said the company, which is backed by Posco Engineering and Construction, a subsidiary of the Korean steel giant, had no concerns over financing but had halted construction until uncertainty over the new finance ministry regulation, or prakas, on housing development financing was resolved.

If not favourable, the company would be likely to sell its land and return to South Korea, said the source, who also spoke on condition of anonymity.

Putting the brakes on

Implementation of the rules - which had been due to take effect on September 30 and would have required all developers to obtain licences from an inter-ministerial task force, purchase construction site insurance and deposit at least two percent of total project costs in a ministry account at the central bank - was postponed until January following an outcry from South Korean developers.

They also changed the rules concerning developer access to buyer deposit accounts and opened up the books of developers to extensive auditing.

The ministry said it would listen to developer concerns before reissuing the prakas, but developers are taking a wait-and-see approach before committing additional capital.

Jeonghoon Yoo, legal counsel at Sewha Cambodia Law Group, which is drafting a petition to the government on behalf of South Korean developers concerned over the prakas, confirmed that GS Engineering and Construction, the developer behind the IFC project, and Daesan had delayed construction, but denied that the financial crisis was a factor in the decision.

He pointed out that GS, one of South Korea's largest developers, was likely to have made money from the financial crisis on its foreign currency positions. "They have factories offshore so they have made money from the falling won on foreign exchange deals.  They have enough money to invest here, but they think Cambodia is not a safe place."

He said a high-ranking official at the company had ordered fresh discussions on the project after hearing of the prakas. "He was very upset and said he could not invest money here. Some still want to invest money here, but some do not, and until the prakas is settled, they have no way to persuade the other guys."

Shinwoo Kim, also legal counsel at Sewha Group, confirmed that two other developers had been forced to abandon plans to invest US$200 million to $300 million in the country after investors got spooked over the new prakas. "The developers still wish to come and do business here, but the investors pulled out," he said.

The temporary halt to construction also comes after brokers reported housing sales have fallen up to 50 percent over the last year.

Still on target

The Phnom Penh Post reported assurances last week from the developer behind Gold Tower 42, Yon Woo Cambodia, that financing for that project was secure. The Phnom Penh Post also understands a new marketing budget has been released and that the company is gearing up for a promotional blitz to shift the remaining units.

Grand Phnom Penh International City marketing manager Nhem Sothea said that project's financing was secure through its alliance with the Cambodian Public Bank, a wholly-owned subsidiary of Malaysia's Public Bank Group.

The $500 million satellite city is being developed by Indonesia's Ciputra and Cambodia's YLP Group Co Ltd. The city was originally slated for completion by 2015, although the developer has given itself an additional four-year window for delivery, depending on market demand.