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Amid unrelenting land value growth, rent market still robust – for now

Content image - Phnom Penh Post
A snapshot of Phnom Penh. Hong Menea

Amid unrelenting land value growth, rent market still robust – for now

As 2016 draws to a close, land price increases show zero signs of abating. Whether gradually or abruptly, land values across the country have soared accordingly, with the real estate and construction sectors’ meteoric rates of investments.

However, one positive aspect amid the upsurge of prices is Phnom Penh’s residential rental market, which property insiders say has remained relatively stable.

Last month, CBRE Thailand had identified Phnom Penh as the championing ASEAN market with the most appealing property prospects owing to strong demand and a limited, but growing, supply compared to the rest of the region.

With an eight percent growth yield per annum, property for rent in Phnom Penh has the tightest grip among all other real estate-related sectors, CBRE Thailand’s managing director Aliwassa Pathnadabutr told the Bangkok Post recently.

While Pathnadabutr said the apartment sector in the Kingdom’s capital had an occupancy rate of between 80 to 90 percent – with rent rate per square metre set at between $20 and $28 – James Padden, manager of office services at CBRE Cambodia, confirmed with Post Property that the current overall occupancy rate for serviced apartments stands at almost 87 percent.

“This is a 1.2 percent increase quarter-on-quarter and is very healthy,” Padden said.

He added that Phnom Penh’s grade A apartments currently rent from approximately $19 to $22 per square metre, whereas grade B apartments range from around $15 to $18 per square metre.

On a quarter-by-quarter basis, rental for grade B apartments have increased by 2.2 percent. Grade A apartment rents maintained general stability.

These figures point to a market that has come out relatively unscathed from the increase in land values across the sector.

Compared to a grade A serviced apartments in Bangkok, which would typically rent for an approximate $30 per square metre, Padden emphasised that “rents are still cheaper than other Southeast Asian cities when we look at Phnom Penh from a regional perspective”.

Nevertheless, the rent market isn’t anticipated to remain robust for too much longer.

“Where the market may come under pressure is when some of the significant condominium projects complete in the next two years, and these condo units then will add competition to existing serviced apartment stock, as buy-to-let investors seek to rent their units,” cautioned Padden, adding, “this could put downward pressure on rents.”

While echoing Padden’s analysis that the rent market has remained unchanged regardless of soaring land prices, Sovannaroth Khan, head of valuation at Independent Property Services, also brought into the equation the matter of oversupply and its impingement on the rent market.

“The demand for rental service is still mostly from expats and short-term foreigners and tourists. Soon after, [in the next two years], there will be some influences from the oversupply of condos that will drive the number of rents down due to the drop of condo prices,” Khan said.

He added that this may likely lead to foreigners being urged to buy rather than rent a unit.

“The rent market will then be negatively impacted.”

Rental rates for now line up at reasonable prices; decent apartments in Boeung Keng Kang 3 can start from as low as $300 per unit per month but can fetch up to $700. Its counterparts in up-and-coming Toul Tom Poung (Russian Market) range from around $200 to $600 per month.

Once all the major condo projects underway now take turns to reach completion over the next two years, CBRE’s Padden said, “At that stage, there will likely be a divergence with properties that are built to a high standard, are well-managed and in good locations being able to hold or even increase rents and occupancy levels.”

What this could mean for all other apartments: “Poorly maintained, lower-grade buildings will suffer low occupancy and have to reduce rents to attract tenants,” he concluded.

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