Regulations meant to provide more government control over builders as capital construction boom leaves investors vulnerable to fraud
Workers pull a cart at the CamKo City construction site on the outskirts of Phnom Penh.
of total cost
This is the amount developers will be required to deposit with the National Bank of Cambodia before being allowed to begin construction on projects under new regulations aimed at curbing fraud.
Real estate developers in Cambodia must now obtain licences from the Ministry of Economy and Finance or face legal action for unauthorised projects, according to a ministry announcement dated August 19.
"Legal and physical entities who develop real estate such as the construction of houses, flats, and the parceling of land plots for sale or rent must apply for a real estate development licence from the Ministry of Economy and Finance," said the announcement, signed by Minister of Finance Keat Chhon.
Developers who fail to get a licence by September 30 will be subject to closure and legal action, the announcement added.
The price of the licence will depend on the scale of the project, officials said.
Mao Pao, deputy chief of the ministry's real estate division, told the Post Wednesday that developers had before only needed a letter of permission from the Ministry of Land Management, Urban Planning and Construction, as well as investment licences from the Council for the Development of Cambodia.
Developers also face changes in the financing of projects.
"Real estate developers will be required to deposit two percent of the projects' total value at the National Bank of Cambodia," Mao Pao said.
"We will require a developer to open a housing development account at any commercial bank to enable buyers to make payments through the bank," he added.
THE GOVERNMENT SHOULD CHECK ITS INTERNAL IRREGULARITIES FIRST.
He said that developers would not be able to withdraw money from development accounts without approval by the bank and relevant ministries and that the government could intervene if companies failed to honor their contracts.
Mao Pao said the new regulations were part of a move by the National Assembly to tighten the Kingdom's oversight of real estate developers in the wake of a 2007 project involving the Chinese-owned Long Chhin (Cambodia) Investment Ltd.
The company had filled in Kob Srov Lake on the outskirts of Phnom Penh for a luxury housing complex.
The government charged the company with illegally developing the lake and demolished the estate, while company officials fled the country and buyers lost millions of dollars.
Mao Pao said licensing fees would be determined based on the scale of the development.
He added that there are an estimated 100 developers currently working in Cambodia.
Some developers strongly oppose the new regulations.
Small operators upset
Kong Vansophy, general manager of Dream Town in Dangkor district's Choam Chao area, told the Post the new regulations would put pressure on small contractors.
"It is likely [the regulations] could make small companies with no reserve capital go bankrupt," said Kong Vansophy, whose Dream Town project comprises 50 flats and an investment of US$1 million.
"This announcement is unacceptable," said a representative of Grand Phnom Penh International City, who asked not to be named.
"It is unreasonable and violates the freedom of developers and customers."
He said companies should not be penalised over the Long Chhin case, because the government had also approved that project.
"The government should check its internal irregularities first before problems come up and not make others suffer," the representative told the Post.
Phnom Penh has undergone an unprecedented construction boom over the last several years, including the start of at least five satellite cities - residential and commercial mega-projects that are set to transform the capital from a sleepy backwater.
However, progress has been slow, developers admit, saying the rising cost of construction materials has hindered work on large-scale projects. Despite this, demand remains high, they say.