SOUTH Korean construction businesses in the property sector should focus on localisation and due diligence to succeed in Cambodia, according to Kim Yung Ho, the Cambodian representative of the Korea Global Construction Office at the International Contractors Association of Korea.
“The first thing is they [South Korean companies in Cambodia] have to do due diligence and they must study the locality,” Kim said in an interview with The Post.
The International Contractors Association of Korea, or ICAK, is an industry association established in 1976 that “represents the interests of Korean contractors in all matters relating to overseas construction and development activities”, according to the organisation’s brochure.
The ICAK opened their office in Cambodia in Phnom Penh in May 2010 and have been working on gathering market research, developing government relations and finding new opportunities for South Korean businesses.
South Korea is the second largest direct foreign investor in Cambodia, with a cumulative total of US$ 2.9 billion in investment as of November 2010, according to the South Korean embassy in Cambodia.
There are 50 South Korean companies operating in Cambodia, many of them in the construction industry. South Korean companies have been involved in some major property developments here, such as the US$2 billion Camko City development which is being funded by South Korea’s Shinhan Bank.
However, much of this investment and many of the high-end property projects that South Korean companies have been working on started before the financial crisis in 2008 and have since come to a halt due to a lack of funding, and so increasingly South Korean construction businesses are engaging in infrastructure projects, according to Kim.
“As we know in Cambodia in the year 2008 or 2007 there was a big boom in the real estate development investment project. After the financial crisis broke out ... the Cambodian market was directly hit by the wave of that crisis until now and still. So they had to readjust the scheduling and slow down,” he said.
Property prices for top commercial properties in Phnom Penh have fallen 15 to 20 percent, leading to a slowdown in investments and the pace of projects, according to a 2010 property market overview conducted by Cambodia Estate Agent, a local real estate and management firm.
This poses a serious challenge to South Korean businesses in Cambodia, which focus on luxury and high-end property developments as opposed to lower-cost, local housing, according to Kim.
“The Korean target market is the top 1 or 2 percent or high-income in Cambodia, but because of the economic recession that market lost some power to move forward, so I recommend them to take the very prudent steps in approaching the property development market,” Kim explained.
He attributes the resilience of local developers such as the Canadia Bank Development Group to their focus on low-cost housing.
“Local development groups, like the Canadia Bank, did not suffer any of the big financial [crisis] because they targeted low cost housing, like flats (three-storey houses, Cambodia style),” Kim said.