The government has stalled a new prakas that would tighten rules on
property projects after encountering stiff oposition from Korean
The Korean-owned International Financial Centre building site in Phnom Penh.
THE Ministry of Economy and Finance has backtracked on controversial new housing development rules requiring additional licences and hefty deposits following an outcry from Korean developers behind some of the city's largest projects.
Mao Pov, deputy chief of the ministry's real estate division, said implementation of the rules, originally slated to take effect from September 30, has been postponed and that the real estate sector has until Monday to submit their concerns.
The ministry would invite developers and investors to a forum after that date to discuss changes, which Mao Pov said would make it easier for developers to invest in the country.
"The regulation is aimed to protect developers and buyers and we don't want to do anything besides this," he said. The ministry plans to reintroduce the regulations in January, he added.
"We hope that they will be satisfied with our new prakas because we will correct some regulations and rules to facilitate them in doing business here."
Ros Monin, managing partner at Sewha-Cambodia Law Group, whose clients include several South Korean developers, said at least two companies had already cancelled projects worth US$200 million to $300 million due to concerns over the prakas.
He declined to name the companies or the projects.
If we don't take action ... the
they will move out.
Sung Bonna, president of the newly formed Cambodian National Valuation Association, said that rumours Korean developers would pull out over the legal changes could depress the market.
"I cannot keep quiet, I have to take some action," he said. "If we don't take action, they will use this prakas and if the government implements the prakas, the developers say they will move out. So I have called all the developers together to get an idea of what we want and we will submit that to the ministry."
Developers met informally Tuesday to discuss a joint response.
The rules, which were first circulated by the finance ministry in June, 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.
It also changed the rules concerning developers' access to housing accounts, through which buyers deposit down payments on units before construction is completed.
Sung Bonna agreed with the need for tighter regulation of the sector but said it was this rule change that most concerned developers.
Under current rules, developers may dip into the housing accounts to meet construction costs, he said.
Under the new rules, they will first need permission from the National Bank of Cambodia, raising concerns they would not be able to access the funds.
The account would also need to be under the name of the Finance Ministry, which has alarmed developers.
Sung Bonna added that developers were concerned over wording in the prakas that gave ministry staff the right to audit the accounts of developers at any time they want.
He said officials at the ministry assured him the right to audit accounts only applied to the housing development accounts, but he wants the ministry to tighten up the wording of the prakas.
"In this afternoon's meeting we want things to be clear," he said Tuesday. "We don't want them to say like this but do like that."
Ly Sok, chairman of Whale Event Management, the company behind Cambodia's first real estate expo to be held in late November, said the sector needs regulation but this needs to be introduced following careful consultation with the private sector.
"The main concern is that if the ministry implements the prakas [as it stands], Korean companies will not invest in Cambodia. They will take their money and invest in other countries."
He added that Cambodia was not strong enough economically for such a prakas.
"It is not the right time for Cambodia. Cambodia needs to attract investors first. If real estate investment does not come, everything in the economy will collapse."
Cheng Kheng, managing director of Cambodia Properties Ltd, said the prakas came out without any consultation with the private sector.
"The new prakas comes, and they [South Korean investors] are so worried.
With the global crisis, the real estate market is down around the world. The government has added more difficulty [with the prakas] and now they are thinking deeply about where they will invest. This is not a good time for the new prakas."
ADDITIONAL REPORTING BY CHRISTOPHER SHAY