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Bubble trouble downplayed

Cranes operate at residential construction sites in Phnom Penh yesterday afternoon.
Cranes operate at residential construction sites in Phnom Penh yesterday afternoon. Pha Lina

Bubble trouble downplayed

Government officials and industry insiders downplayed concerns about the sustainability of the construction and real estate sector yesterday, although they agreed that closer monitoring of the industry was needed to understand risks to the economy.

At a meeting in Phnom Penh yesterday, officials from several ministries, including the Ministry of Economy and Finance (MEF) and the Ministry of Land Management, Urban Planning and Construction (MLMUPC), met with representatives from the National Bank of Cambodia and private developers, to discuss rising concerns of a property bubble in the real estate market.

“So far, the construction and real estate sectors have not been seen as [having] any risk, but we do not know where the risk could happen because we do not have enough information,” said Mey Vann, director of the Department of Industry and Finance at the MEF.

“Currently, we do not have enough information for a detailed analysis,” he added.

Vann said that given the lessons of the global financial crisis, the industry needed to be more closely monitored.

“We have [the] experience from the 2008 global economic crisis, which impacted Asia and Cambodia, so we must not neglect risk analysis and we must not let it happen again,” he said.

Sear Rithy, chairman of real estate firm Oxley Diamond (Cambodia) who attended the meeting, said that there was no sector-wide risk but that individual developers would have to be careful about their investments.

“It depends on the developer and what kind of condominium model they want to adopt,” Rithy said.

He added that concerns of an oversupply and exorbitant prices in the market were overblown, given that Phnom Penh, where most of the construction activity is centred, receives around 10,000 new families every year and they would need to be housed.

“[For] local demand, they feel that they can’t afford to buy individual houses,” Rithy said. “So now they want to change their lifestyle and move to condominiums.”

According to Rithy, while there was attention on high-end projects, there are other more affordable housing projects that people could look into in locations like Tuol Kork.

Concerns that property speculation was artificially driving up prices was brushed off yesterday by Huy Nara, director general of the General Department of Construction at the Land Management Ministry, who said the problem was waning.

“The speculation issue seems to be down to normal situation right now, unlike before,” he said. “This issue could happen anywhere, not only in Cambodia.”

Nara added that dealing with risks in the real estate sector requires careful management across the whole economy, including ensuring infrastructure was in place to service property developers and homeowners in the future.

However, Stephen Higgins, managing partner at investment firm Mekong Strategic Partners, was more cautious about the health of the industry.

Higgins said that while there were “good, bankable” projects in the market, there are “quite a few marginal ones around at the moment”.

He added that there were already a lot of apartments sitting empty in the market, and that it would take a “fairly courageous” investor to consider investing in the slew of mega-projects recently announced.

“I think you’d be hard pressed to say that the fundamentals support current valuations in Phnom Penh,” Higgins said.

“I don’t think the MEF and MLMUPC would have had the meeting [yesterday] if they didn’t have at least some concern about a bubble.”

MEF’s Vann said that yesterday’s meeting was the start of many between government and the private sector that would help to build a “data-control system” to allow for greater analysis of the real estate sector.

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