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‘In a free market economy, the weak developers will die’

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Kim Heang, president of Cambodian Valuers and Estate Agents Association, speaking at a real estate conference. Photo supplied

‘In a free market economy, the weak developers will die’

Experts in the sector have long had differing opinions on the Kingdom’s real estate industry. However, optimists stand their ground on their unnerving positivity that this sector will continue to strengthen in the future, due to the in-pouring of foreign investors regardless of the first property wave that has since passed.

Kim Heang, president of the Cambodian Valuers and Estate Agents Association (CVEA), candidly presented Post Property with the possible opportunities and challenges that the industry could face in the future.

In the first trimester of 2017, what was the real estate sector like?
In the first trimester, there was an overall improvement with apartment units for rent in the city centre. In Cambodia’s climate as a free market economy, you’ll be wiped out if you’re not strong enough. About 10 years ago, it would be possible for investors to survive in the market with a building of five to eight storeys tall. Now, investors need to invest in apartment buildings with at least 10 to 20 storeys, in order for people to live there. Hence, in a free market economy, the weak will be made redundant – people will move away from old apartment buildings to newer, better models.

The same can be said about condos, in which those completed have already been put in the market one by one.

This sector will compete with the apartment sector, since both sectors are characteristically similar to each other. Therefore, only those with a strong hold in the market can keep their places, but those who are clueless followers will face a lot of challenges along the way.

What can be said about the borey market climate?
I don’t see any existing problems in boreys. However, borey developers are shifting their target again. Previously, borey developers usually focused on people within the high and middle income bracket, but right now, the market for that is overflowing with excessive supply. Home-living units ranging in prices from $20,000-$30,000 are selling like hot cakes, and it’s very unlikely that this market will be oversupplied. This is due to the 80,000 industrial laborers, the 20,000 people in service, and another 10,000 government workers – a total of one million people who are in desperate need of suitable housing, but are unable to afford a house that costs above $30,000. Therefore, the optimum price for borey units should be from $20,000-$30,000.

This year, there has been a significant amount of construction. However, the returns have been disappointing. As for last year, the returns were a bigger success due to the high pricing in houses.

What is the evolution of land value? Did demand increase?
If we’re talking about land in the city centre one can say that it is very hard to acquire since the only land left to buy belongs to the wealthy, which means that it’s very unlikely that this land will decrease in price any time soon. This is different from five years ago when most land was still owned by the original owners.

Last year, I thought that land value would drop due to the upcoming election, which is why it is strange that land value is being hiked up this year as the election looms ahead. This is due to the large amount of incoming foreign companies, especially those from China.

Currently, it doesn’t look like the land value will budge, because everyone thinks that the value will decrease during election, and since everyone thinks the same thoughts, everyone rushes out to buy lands. Therefore, the value will remain high.

Do you think that there will be many new projects this year?
We’re seeing a lot of low-cost housing projects blooming in every direction of the outskirts of the city. There is already a great number of construction in the city centre, so it’s unlikely that there will be many new projects in the city this year.

The sales rate for condos and housing in general supposedly dropped a lot. How accurate is this?
This depends on each individual’s sales tactics. From what I’ve seen, in 2013 and 2014, developers get returns double or triple the amount. However, in 2017, developers would still profit no matter how much the sales increase or decrease. It’s only a matter of whether that profit is big or small. Five years ago, selling a condo got you twice or thrice the amount of money you put into construction, two years ago it was double the amount. Now, you’ll drive a profit of at least 50 per cent. Thus, developers will still profit, the only problem is that the profit is smaller, due to relentless competition, and the increasing quality of construction.

At this stage, many people as well as investors are worried. What and what should they not be concerned about?
They should worry if their land and house registered with banks, since they are capable of suffocating you for your money. On the other hand, people who are not in debt with the bank shouldn’t worry about anything. In this period, there will be a group of people waiting to buy your properties if they are priced at a reasonably low value.

Should you construct new buildings in this climate?
During this period, if you have enough money and are not dependent on anyone for your construction budget, you definitely should do it because five years ago, constructors used to rely on buyers’ money to build something – that was then. Right now the trends have shifted, and it could yield catastrophic results if you rely on buyers’ money to finish the construction.

On the other hand, if you use your own money to finance every single stage of construction, this project will be successful due to the current low labour fees, and cheaper equipment. Therefore, the costs of the construction will be low, and profiting is almost always guaranteed, even if the amount may be small.

This interview has been edited for length and clarity.

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