Cambodia´s condominium market boom continues, fuelled by strong economic growth and continued interest from foreign investors.
During the year to Q3 2016, prime condominium prices in Phnom Penh, the country´s capital, rose by 7.44% from a year earlier, to an average of US$3,190 per square meter (sq. m), according to CBRE Research. Quarter-on-quarter, prime condo prices increased slightly by 0.31% in Q3 2016.
In Q3 2016:
Sihanoukville, Cambodia´s premier island and beach resort, continues to see an increase in demand from foreign investors, with more direct flights into the province, and a government plan to improve transport links. In Q3 2016, the average price of luxury resort villa was about US$3,500 per sq. m. Over the same period, the average price of high-end resort condo unit in Sihanoukville was US$2,000 per sq. m.
Demand remains strong. At the Axis Residences in Phnom Penh, over 60% of the 566 residential units were already pre-booked prior to its public launching in March 2015. Singapore-listed HLH Group´s seafront development, D´Seaview, launched in January 2016, saw over 80% of its 300 units in Phase 1 subscribed by Cambodian and foreign homebuyers.
Phnom Penh property prices plunged by around 40% from 2009 to 2010 due to the global crisis. The housing market started to recover in 2011, buoyed by strong economic growth and the introduction of the new foreign ownership law. From 2011 to 2015, the economy expanded by an average of 7.2% per year, fuelled by strong tourism, garments manufacturing, and agriculture. Cambodia is expected to sustain this strong economic growth in the coming years, with projected GDP growth of 7% this year, and another 7.1% in 2017, according to the Asian Development Bank (ADB).
Cambodia is in the midst of a construction boom. More foreign companies are coming in, reflecting property market growth, and increased investor confidence.
In the first nine months of 2016, approved real estate construction projects were up by almost 76% from the same period last year, to US$7.56 billion, according to CBRE Research.
The construction boom is led by the condo market, with 7,976 units newly launched in Phnom Penh in the first nine months of 2016, up 26% from the previous year. The number of condo units in Phnom Penh has increased rapidly, from just 178 in 2009 to 2,095 units in 2014.
If the number of condominium projects currently under construction and the newly launched projects are combined, there were 74 condominium projects in the capital as of Q3 2016, totaling 30,130 units.
As of Q3 2016:
The construction boom is also evident in Sihanoukville. Some notable residential developments in the province include the Alila Villas Koh Russey (with 227 luxury villas and scheduled for completion in 2017); D´Seaview (735 condo units and scheduled for completion in 2018); Sunshine Bay (900 condo units and scheduled for completion in 2018); Blue Bay (1,400 condo units and scheduled for completion in 2019); and Royal Bay View (1,344 condo units and scheduled for completion in 2019).
Under the Foreign Ownership Property Law passed in April 2010 foreigners can own apartments and condominium units, but not land, and therefore not the first floor of buildings. Also, foreign investors are allowed to own up to 70% of a condominium project.
In 2005, the Cambodian government amended its investment law to allow foreign ownership of buildings. However, the law was not then implemented and the idea floundered.
Land ownership is against the Constitution and is still out of the question. Land can however be held by foreigners on long (renewable) leases and through majority locally-owned companies incorporated in Cambodia. These structures are argued by lawyers in Cambodia to be safer than legal schemes in any other South East Asian country in which foreign land ownership is formally prohibited.
In 2015, international tourist arrivals increased 6.1% y-o-y to 4.78 million, according to the Ministry of Tourism. Then during the first three quarters of 2016, international tourist arrivals rose again by 4.8% to 3.5 million people from the same period last year.
Vietnam accounts for about 20% of the total tourist arrivals in Cambodia during the first three quarters of 2016, followed by China (16.5%), Korea (7.5%), Thailand (7.3%), Lao PDR (6.6%), United States (4.9%), United Kingdom (3.3%), Malaysia (3.1%), Australia (3%), and France (3%).
From 1994 to 2014, the number of tourist arrivals in Cambodia increased by an average of 20% every year, from just 176,617 people in 1994 to more than 4.5 million in 2014.
Cambodia´s housing market enjoyed unprecedented price rises from 2004 to 2007, with property prices rising by about 25% to 40% annually.
Land price increases were at first confined to Phnom Penh, Siem Reap and Sihanoukville, but the boom spread right across Cambodia. Other hot spots were the border areas with Vietnam and Thailand and, to a lesser extent, Laos.
Residential land prices in Phnom Penh soared to KHR6.25 million (US$1,600) per sq. m. in 2007, from KHR2.34 million (US$600) per sq. m. in 2006.
Cambodia also experienced a construction boom, particularly in Phnom Penh, fuelled by foreign investment. The government is aggressively pro-development, and squatters and other eyesores are simply cleared away, by a government which is in league with wealthy developers.
The value of construction projects skyrocketed to more than US$3.2 billion in 2007, from US$500 million in 2003, according to a United Nations Development Programme (UNDP) study. Average project costs increased to US$1.65 million in 2007, from just US$157,000 in 2003.
A downturn started in July 2007 after the government announced new investment guidelines for developers.
Then in mid-2008, the bubble burst. The global economic and financial crisis had adversely affected South Korea, one of the country´s biggest investors. As a result, South Korean investors either pulled their investments or delayed their projects.
Investments in real estate developments dropped from US$3.19 billion in 2008, to US$1.99 billion in 2009, and finally to just US$840 million in 2010, according to the Ministry of Land Management, Urban Planning and Construction. By end-2010, land values in Phnom Penh, the capital, were about 40% to 50% down on their peak values in mid-2008.
The market started to recover in 2011, buoyed by strong economic growth and by the new foreign ownership law. In Phnom Penh, the average condo sales price more than doubled from 2012 to 2015, from US$1,460 to US$3,024 per sq. m..
Apartment rents in Phnom Penh have been stable in recent months, ranging from US$500 per month for a one-bedroom Grade B apartment, to US$8,000 per month for a luxury penthouse unit, according to CBRE Research.
However over the past 6 years central Phnom Penh rents have risen strongly:
In Q2 2016, the gross rental yields for prime residential units in Phnom Penh averaged around 8.5%, according to CBRE Research. Overall, gross rental yields in the capital currently range from 7% to 10%.
The overall occupancy rate in Phnom Penh was 86.8% in Q2 2016, 1.2% up on the previous quarter, according to CBRE Research. Chamkarmon district has 59.4% of existing supply, with apartments typically located in BKK1, Tonle Bassac, and Toul Tom Pong.
Small-scale luxury apartments, usually between four and six-storey buildings, are also widespread in Keng Kang 1 and Toul Kork. Some of the capital´s most popular apartment developments are the Pasteur Villa, City Palace Apartments and Grand Residence.
Mortgages and housing loans were introduced to the real estate sector only in 2008. The size of the mortgage market increased from 1% of GDP in 2010 to about 3.6% of GDP in 2014.
Total outstanding mortgages (owner-occupied housing only) soared more than 54% to KHR2.46 trillion (US$606 million) from a year earlier, according to the National Bank of Cambodia (NBC), the country´s central bank.
In 2015, the average prime lending rate in commercial banks was 11.7%, from 12.31% in 2014, 10.1% in 2013 and 9.92% in 2012. In Q3 2016, the average interest rate on loans denominated in US dollars was 11.5%, unchanged from the previous two quarters.
Cambodia has experienced enormous economic growth over the past few years. From 2000 to 2003, the Cambodian economy grew by an average of 8%, and then by an average of 11.1% from 2004 to 2007. Growth is concentrated in tourism and the textile sector, which is dependent on most favoured nation status agreements.
After a slight pause during the global crisis, trom 2011 to 2015, the economy expanded by an average of 7.2% per year, fuelled by strong tourism, garments manufacturing, and agriculture.
Garment exports account for about 73% of Cambodia´s commodity exports. They rose by 10.8% in the first half of 2016 from the same period last year.
Cambodia is expected to sustain its strong economic growth in coming years, with projected GDP growth of 7% this year and another 7.1% in 2017, according to the Asian Development Bank (ADB), amidst continued growth in tourism and garments exports.
In September 2016, the inflation rate was 3%, according to the Ministry of Economy and Finance (MEF). From just 1.2% in 2015, inflation is expected to edge up to 3.7% next year, based on projections released by MEF.
Recently, Cambodia´s economic status was officially raised by the World Bank from low-income to lower middle-income economy. Lower-middle-income countries are those with a GNI per capita between US$1,026 and US$4,035. In 2015, Cambodia´s GNI per capita was US$1,070.
“Two decades of economic growth have helped make Cambodia a global leader in reducing poverty,” said the World Bank. The country´s poverty rate dropped from 53% in 2004, to 10% in 2013, and is expected to fall further for both urban and rural households throughout 2015-16.
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