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Letter to the editor: ‘Real estate is a cyclical market‘

Letter to the editor: ‘Real estate is a cyclical market‘

Marc Townsend, managing director of CBRE Vietnam and Cambodia, is optimistic Phnom Penh’s supply and demand fundamentals will eventually re-balance, as he tells Post Property:

It is true that there are now growing concerns that there is an oversupply in the residential market here in Cambodia. The market has grown quickly, albeit from a very low base, with 14,000 units being launched off-plan within the past one-and-a-half years.

In this regard, it is important to remember that real estate is a cyclical market affected by the dynamics of demand and supply as well as political and economic factors. One of the bellwethers to look out for is the percentage of FDI allocated into real estate.

At present this is around 20 per cent. In context, in Vietnam in 2008 it was around 50 per cent. In this sense the rate is not too high.

However, there are some challenges; local demand is still quite low with most investment currently coming from overseas and this leads to a small secondary market for residential units.

The price range is between $1,500 and $3,500 per square metre and a lot of the units are geared towards the top end of the market, whereas local demand is greatest for smaller, affordable units. These factors have inevitably led to a period of saturation, however the market does have ways to correct itself. Projects may slow down or postpone construction, developers may change use to hotel or serviced apartment, for example.

As in any market, if prices start to come down then, naturally, more buyers will enter the market. As seen in Vietnam, the next wave of growth will come as local demand, particularly from the owner/occupier segment growth.

Politics is an area always in focus in Cambodia. However, politics is keenly analysed by investors in all countries. There has historically been a “wait-and-see” approach by investors in the lead up to Cambodia elections, nevertheless, demand does not disappear during political events; people and organisations still need buildings for homes and commerce.

A real opportunity not only for real estate, but also Cambodia in general, is in infrastructure investment. If the government can invest in the road network and bridges, this can really increase efficiency, reduce traffic congestion and travel times, while also opening up new areas for development.

With now close to 20 per cent of the population living within greater Phnom Penh, the capital will significantly benefit from this kind of investment.

Yours sincerely,
Marc Townsend

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