Once among the highest in the region despite poor urban infrastructure, rental property
rates in Phnom Penh have dropped 30 per cent during the past two years, and the trend
The change has been most discernible in the upper end of the market represented by
sprawling villas marketed mainly to diplomatic staff as well as NGO and UN employees.
Villas that as recently as 1997-1998 fetched between $4,000 and $5,000 a month are
now being rented for $2500 in central Boeng Keng Kang district.
City real estate agents attribute the situation to a construction boom in the past
two years increasing the availability of accommodation and helping to depress rental
values due to an improved supply-demand dynamic.
"In 1997, the owner of a newly built six-bedroom house declined the Brunei Embassy's
offer of $4,500 per month saying he couldn't accept a penny less than $5,000,"
said Kheng Cheng of Cambodia Properties Limited of the change in rental value. "After
keeping the house unoccupied for several years, he had to lease it to the same embassy
for half his original quote."
According to Cheng, a similar house on Street 352 which was rented by a Japanese
diplomat for $5,000 a month in 1997 is now being rented for $2,500 following a recent
lease re-negotiation. Older structures in the same district now fetch between $1,000
and 1,500, a far cry from the once- standard demand of $4000 - $5000 a month to foreigners.
Real estate agents blame the long over-inflated nature of Phnom Penh rental property
rates on the lingering influence of the presence of thousands of Untac peacekeeping
personnel in the city between 1992-1994.
Ly Sambo of Lee's Estate Agency and Hak Bun Tha of the Nigel Hakimex estate agency
echo Cheng's assertions that the average cumulative drop since 1999-2000 has been
around 30 per cent across all categories of accommodation, half of it registered
during the first five months of 2001.
The years 1997 and 1999 are quoted by the consultants as benchmark years in which
rents peaked and then began dropping.
"On an average, most 6 to 7 bedroom brand new or well maintained villas in the
city center are available for a maximum of $2,500, while the cheaper [older houses]
are available within a range of $4 to $6 per square meter," Bun Tha said, adding
that sprawling French colonial villas were not included in the category as they continued
to fetch up to $5,000 per month.
In the middle and lower rung of the market represented by two to three bedroom dwellings,
the trend is similar, with single floor two-bedroom apartments available for between
$200 - $300 a month in the Wat Phnom, Boeng Keng Kang and Olympic Stadium areas,
something that the agents say was not possible until 1999. Travel a few kilometers
away from the city center and the rents - which typically include basic furniture,
air conditioners and security fixtures - are much lower.
Sambo prefers to call the falling rental prices trend more as a "correction"
in the market, saying the rents in Phnom Penh have been highly inflated for far too
"Considering the size of the real estate market that's still driven solely by
the expatriate population, there was no justification for the rents remaining at
such high levels for so long, especially after the availability improved," he
said, adding that as recently as 2000 renters willingly paid inflated quoted amounts
due to safety considerations and a near total absence of quality accommodation in
Real estate professionals describe the current "boom" in construction activity
in Phnom Penh as a "copy-cat" syndrome in which the friends, relatives
and neighbors of the owners of houses that were fetching inflated rents converted
their more humble dwellings into expat villa structures in order to share in the
spoils of exorbitant rents. Those efforts, Sambo says, might have backfired.
"People embarked on ambitious construction projects without ascertaining the
demand and supply situation [because] after sinking their savings and borrowings,
they are suddenly realizing that even the construction costs could take them 10 years
to recover,"Sambo said.
Hak Bun Tha of Nigel Hakimex is equally pessimistic about the prospects of a return
to the high rents of the past that recent construction investments were premised
"A 20X30 meter residential plot in the city center can cost up to $150,000,
depending on the location. Add another at least $100,000 for good construction and
recovery [of the investment] could be very slow," he said.
Taking advantage of the situation, several speculators with cash to spare for long
term investments are moving in to acquire these properties in distress sales, for
as much as 30% less than their market value.
Real estate agents report that foreigners with long term commitments in Cambodia
are also moving in to make property purchases to capitalize on the price drops in
the hope of recovering their investments and possibly making a profit. Though foreigners
are not permitted to own property in Cambodia, the law allows them to own 49% provided
Cambodians hold the majority share.