Developers warn of property sector disaster as prakas standoff continues

Photo by:

TRACEY SHELTON

The Camko City complex in Phnom Penh. Many developers oppose new rules that tighten licensing requirements for new projects.

OFFICIALS are standing firm on new rules that force building developers to adhere to stricter codes of conduct, despite heavy resistance from the industry.

Ngy Tayi, undersecretary of state for the Ministry of Finance, told the Post that the prakas, or edict, will come into effect after the conclusion of an interministerial working group if the private sector can be persuaded to accept it.

"It will not take a long time. It could be three months, four months or five months until we achieve it," Ngy Tayi said.

Issued in July 2008, the prakas requires developers to deposit two percent of their project budget in the central bank. The funds are intended to reimburse buyers if a project goes bust.

Developers are also required to obtain licences from the interministerial working group and pay fees based on the type and size of the development.

The most controversial requirement is that developers create a locked "housing account" at a commercial bank for buyers' down payments.

"We are still studying and working on this task with housing developers to find a unanimous solution that accommodates the needs of the government and developers," said Ngy Tayi.

If this kind of

prakas becomes

active, it will spell

disaster.

"The prakas has not been suspended, but it has not been implemented - if we use the word ‘suspension', it will appear that we have had a setback," he said. "But we are making sure the industry will be able to implement the prakas easily."

Industry outcry

Lee Suck, general manager of South Korean developer D&C De Castle, which has been developing the De Castle Royal in Boeung Keng Kang commune, Chamkarmon district, said Wednesday that he opposes the edict.

"If this kind of prakas becomes active, it will spell disaster for Cambodia's real estate market," he said.

"There are better ways for the government to protect customers - the government should not control the money exchanged between developers and customers."

Property developers would need industry approval to access the down-payment accounts.

"In European countries, they allow developers to withdraw deposits from the accounts for projects," Suck said.

"The government should be more flexible, this prakas is very strict. If the government tries to control all the money, even the money from customers, it will be impossible for us to operate," he said. "We will all oppose the prakas until the end," he added, a sign that a resolution to the disagreement remains distant.  

Sung Bonna, president and CEO of Bonna Realty Group, agreed that new rules are necessary, but said they should be more flexible and applied gradually.

"If the government restricts all at once, there will be tension between developers and the government.... If the ministry issues a difficult ruling during the crisis, companies could go out of business," said Sung Bonna, who is also president of the National Valuers Association of Cambodia.

He described the central bank deposit requirement as a "headache for developers".

"If the ministry can delay the prakas, it is a good thing, but if it is impossible to delay, the ministry should issue a rule that is easy for developers to accept," he said.

Chan Sophal, president of the Cambodia Economic Association, said that the government should quickly implement the prakas, despite the property slowdown.

"There are too many developers - some are starting projects without capital. They just have land and collect deposits from customers to build," he said. "The prakas is a good thing because it will reduce the number of bad developers. The most important thing is to ensure that buyers are secure."

The new regulations are part of a government move to tighten oversight of the real estate sector in the wake of a 2007 project involving Chinese-owned Long Chhin (Cambodia) Investment.

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, the owners fled the country and buyers lost millions of dollars.

The new rules were originally slated to take effect from September 30 but were postponed amid an outcry from developers, mostly from South Korea.