After nearly two years of rock-bottom real estate prices, Cambodia showed its first real signs of recovery from the global financial crisis as sales climbed and foreign property investors returned to the Kingdom in 2011.
The sector was also buoyed by the launch of major developments such as Phnom Penh Tower and Mekong Garden, as well as by improved economic conditions overseas. Sales, however, are still far below prices seen three years before.
Property investments continuously dropped from US$3.19 billion in 2008, to $1.99 billion in 2009, and eventually plummeted to $840 million in 2010, according to the Ministry of Land Management, Urban Planning and Construction.
Land values in Phnom Penh were about 50 per cent down on their peak values in mid-2008.
“The market is some way off hitting the peaks experienced in 2008 - we expect this recovery to continue step by step,” Sung Bonna, President and CEO of Bonna Realty Group said, referring to the price speculation witnessed prior to the economic downturn.
There was an increase in transactions in the market, due to the return of some foreign investors, who have started to develop purchased properties immediately, unlike in previous years, he added.
Average daily transactions hit 30 units in Phnom Penh, a yearly increase of about 10 per cent, while the estimated price of residential and commercial property remained unchanged from 2010, hitting US$2,000 and $4,000 respectively, according to Bonna, who is also president of National Valuers Association.
Although property prices remained flat and the sector continues to recover at a slow pace, the Kingdom’s bourgeoning economy did encourage additional foreign companies to enter the market, last year, according to CBRE Indochina Chairman David Simister.
“The reassuring news in the region, particularly Cambodia, is that there is real growth. This doesn’t mean there is excess demand for office space, or values and rents are spiralling, but what we have seen is new entrants coming into the market.”
Major property developer Hongkong Land and Japanese retail firm Aeon Mall Co entered the real estate market last year, while Tesco and Prudential Manulife are now present in the office market, said Simister.
The market and the economy is poised to professionalise and offer quite a range of opportunities to market entrants, he said, adding that he expects the entrance of companies, such as Hongkong Land to be a road sign for other firms in the region.
Progress was also seen in the construction sector, with approvals soaring 158 per cent year-on-year through November. A number of major developments, such as the US$50 million De Castle Royal Condominium resumed construction, in addition to some smaller housing projects, mainly in Phnom Penh.
“The current market offers great opportunities for housing developers to profit [given the stable land prices]. Everybody can see that the sector is -improving,” said Cambodian Real Estate CEO Cheng Kheng, adding that the company saw an estimated 15 per cent growth in business transactions and increasing investment in the construction sector.
He added that the return of international developers, especially from China, Japan, Malaysia, Russia and the US, showed positive signs for the sector,” he said.
However, Cheng Keng called on new developers and existing members of the sector to show more transparency in light of the problems surrounding projects such as Gold Tower 42 and Camko City.
“If, in the future, companies cheat clients for excessive profit, it will damage the country’s image and potential investor confidence. If there is a safe investment climate, we can attract further clients.”
The recently drafted Housing Development Law, slated for implementation in the third quarter of 2012, is expected to instil further openness in the sector, he added.
Some analysts believe that while the increase in construction projects last year show positive signs of recovery, developers needs to be wary of oversupplying the market.
“There’s a danger that in one to two years there will be an excessive supply of high-end housing and office space, with many developers only focusing on this end of the market,” said Douglas Clayton, CEO of private equity firm Leopard Capital.
He added that while foreign investment was slowly returning to Cambodia, the recovery will be gradual, paving the way for more domestic investors to enter the market.