The property market faces unique challenges in following upward trends in the overall economy
Above: A vacant property near New Phnom Penh is emblazoned with “for sale” in Khmer.
Below: Open land with the same message written in English. According to experts in the real-estate industry, both offers are likely to garner little interest until the market picks up. Photo by: Neang sokchea
I n the first quarter of 2008 Cambodia’s crisis-defying property market still looked unstoppable. Although the collapse of United States investment bank Lehman Brothers the previous September had caused property prices to crash in most markets as financing and then demand evaporated, the Kingdom’s less developed and highly speculative real-estate sector remained unaffected. For a time, prices continued to soar.
Then at the start of the second quarter of 2008, suddenly realtors and other market analysts in Phnom Penh noticed the market’s exponential rise had ground to a halt. At first many blamed the slowdown in land deals – transactions which at their peak had seen plots change hands at a staggering pace – on the forthcoming Cambodian elections set for July 2008. Political uncertainty had prompted people to wait and see, real-estate agents said at the time, including Sung Bonna, head of the National Valuer’s Association.
Some analysts also said the country’s reliance on cash deals rather than mortgage-financing meant a credit crunch could not affect Cambodia. But as the rest of the economy slowly stalled, confidence and money began to disappear from property.
“The last property market boom was basically speculative-driven,” said Tan Hong Kiat, country head of international property agency Knight Frank. “The price slump was due to withdrawal of speculation.”
Since then the market has never really got going again, say agents, two and a half years later.
“What we can say is that prices have not yet found their new equilibrium – the perception of market values has certainly changed since its peak in early 2008,” said Daniel Parkes, Cambodia country manager of CBRE Richard Ellis, which like Knight Frank manages, advertises and values property in Cambodia. “Transactions crystallise property values and without visible transactions we cannot say for sure where pricing is today.”
With the likes of the International Monetary Fund predicting GDP growth of 4.8 percent this year and 6.8 percent in 2011, Cambodia is tipped to rebound strongly from last year’s recession. Key industries including garments, tourism and agriculture have all seen strong signs of improvement so far in 2010 as exports have soared along with foreign tourist arrivals.
But this upswing in the general economy has still not impacted on property prices, says Tan, even if overall activity is showing signs of life. “Usually the property market would be one or two cycles behind when the economy picks up, depending on … market sensitivity.”
He says that Cambodia’s market for retail space has held up well, but in other areas of the real-estate sector – particularly high-end apartments and office space – persistent “soft” demand means prices have even continued to slide.
According to data collected by Bonna Realty, office space rental prices dropped 25 percent in the second quarter compared with the same period last year.
Tan warns that with more supply coming on to the market in terms of office space and serviced apartments, activity could remain subdued. Investors across the board are increasingly wary of further spending on the sector, leading to cancelled projects and suspended construction such as Gold Tower 42, where last month South Korean owned Yon Woo Cambodia halted efforts to build Cambodia’s tallest tower without giving a public explanation for the decision.
It remains to be seen whether the office space and residential rental markets are showing signs of recovery. Bonna Realty is not due to publish third-quarter results for the sector until the end of this month, said General Manager Keuk Narin.
Landlords in the capital said this week that completing a residential sale remains a difficult task. Seng Hak, who is selling a US$100,000 house in Toul Kork on behalf of his boss, said the asking price on his five-bedroom home is “negotiable” even if it had only been on the market for just over a month.
“Not many people – a few only” had come to view the property.
Also in Toul Kork, Chun Sokun Thy said she would attempt to hold the price on her property, a sprawling 18-bedroom home with some 14 bathrooms, 10 air conditioners and five parking spaces. But then at a price of $599,000 she said she had a lot to lose: “I think, at the moment, it is [already] very cheap.”
After three months on the market, the property has attracted “just one or two people that have come” to take a look.
In the provinces real-estate agents warn a rebound in demand and prices is likely to take even longer.
“The slump basically affected the whole country, but Phnom Penh would stand a better chance to be the first to recover,” said Tan. “We think prices have softened but [are] not necessary lower, especially lands within a prime location.”
As a result the huge gap in prices between the capital and the provinces remains as wide as ever. This month Bonna Realty is advertising a 14-metre-by-20-metre plot in Borei Tonle Bassac for $1,280 per sq m adjacent to up-and-coming Koh Pich on the Phnom Penh waterfront. By comparison, a 314-hectare land sale beside National Highway 4 close to the provincial boundary between Kompong Speu and Koh Kong is on the market at just $1.50 per square-metre, or 850 times less than prime Phnom Penh real estate.
“Prices vary widely depending on the location, size of the plot, what permissions it has for development and the condition of the land or property,” said Parkes.
In terms of attitudes and understanding of the market things are changing in Cambodia, however, says Tan. Whereas speculators in the Kingdom previously believed a crash could never happen – which in turn fuelled demand and crazy prices – the events of the past two and a half years have brought sobriety and increased sophistication to the sector.
“[The] upside … is that the market is generally better informed and educated since the property market bust,” said Tan. Ultimately, that would be a good thing: “It will benefit the overall market in [the] long run as the slump could help to reflect the real value of properties.”