Cambodia: Overview
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Foreign ownership mulled anew
Cambodia’s housing market is plummeting, and the government is considering a new law to allow foreigners to own buildings.
In 2005, the government amended an investment law to allow foreign ownership of buildings. However Cambodia’s property market was then experiencing one of the biggest booms in Asia. As a result, the law was never implemented and the idea floundered.
The boom saw prices surging by 25% to 40% annually from 2004 to 2007. Land price increases were at first confined to Phnom Penh, Siem Reap and Sihanoukville, but now the boom has spread right across Cambodia. Other hot spots are the border areas with Vietnam and Thailand and, to a lesser extent, Laos.
The capital’s most sought after locations fetched US$500 per square metre in 2000 - but were sold at around US$4,000 or more per square metre along Norodom Boulevard, and US$2,500 per square metre in the central residential neighbourhood of Boeung Keng Kang (BKK).
A downturn started in July 2007 after the government announced new investment guidelines for developers.
Then in mid-2008, the bubble burst. The global financial crisis had hit Cambodia’s biggest investor, South Korea, and Korean investors began pulling out foreign assets to increase liquidity.
Real estate sales plummeted 30% to 50% from a year earlier.
To prevent the market from sliding further, the government is considering moves to allow foreigners to fully own and purchase buildings.
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.
RENTAL YIELDS
Last Updated: May 18, 2009
Cambodia returns, falling
Returns on buying residential property in Cambodia have been falling. Gross rental yields on apartments in Phnom Penh now average 3.63%, similar to yields on villas, which are around 3.73%.
Prices appear to have risen to US$3,416 per sq. m in May 2009, from an average of US$3,136 per square metre (sq. m.) in May 2008. This is a little surprising, given the negative news coming from Cambodia, and the fact that there has been around a 5% depreciation in the Cambodian Riel against the US$.
Rents are unchanged at around US$9.35 per sq. m. per month, though rents on smaller apartments seem to have risen a little, as have rents on villas.
However, rents on smaller apartments have risen less than their price, leading to yields of only 3% on apartments in the 85 sq. m. category.
Given that Cambodia is a developing country, Phnom Penh’s buying prices are expensive, at an average of US$3,077 per sq m. Despite Cambodia’s high GDP growth rate, which is positive for its real estate market, we would be cautious on the outlook for residential property.
TAXES AND COSTS
Last Updated: Dec 10, 2008
Rental income is subject to withholding tax in Cambodia
Rental Income: Income from leasing property is subject to withholding tax at 14% for non-resident landlords and 10% for resident landlords.
Capital Gains: Capital gains are subject to profits tax at a flat rate of 20%.
Inheritance: There are no taxes on inheritance in Cambodia. By law, foreigners must apply for citizenship to be able to inherit property in Cambodia.
Residents: Residents are taxed on their worldwide income.
BUYING GUIDE
Last Updated: Jul 08, 2007
Transaction costs are moderate at 3.9% to 6.5%
The total round-trip transaction costs of buying property are between 3.9% and 6.5%. Much of this goes to the real estate agent, around 3%.
Foreigners will need to set up a landholding company or a lease structure, which can be more expensive than the buying cost because of legal fees.
LANDLORD AND TENANT
Last Updated: Dec 11, 2006
Cambodia's rental system is pro-landlord
Cambodia’s legal system is generally pro-landlord.
Rent: Rents can be freely negotiated and there is no specific tenant protection law.
Tenant Security: There are no limits to the duration of leases, though residential long-term leases usually last for one year. However, the rental agreement may be terminated prior to expiration if either the tenant or the landlord serves a notice one or two months before termination.
ECONOMIC GROWTH
Last Updated: Oct 23, 2008
Rapid growth under Hun Sen’s leadership
Cambodia has experienced enormous economic growth over the past few years. Phnom Penh is now an elegant, well-planned, prosperous city – whitewashed, bristling with economic activity, and new projects.
Nevertheless, Cambodia’s population of 15 million is one of the poorest in the world, with a GDP per capita of US$600 in 2007. Angkor Wat, built during the glory days of the Khmer Kingdom of Angkor (900AD – 1200AD), attracts hordes of tourists, and Siem Riep is a charming city.
Cambodia’s strong man, Prime Minister Hun Sen is one of the world’s longest serving prime ministers having been in power since 1985. He was re-elected in 2004 after a year of political deadlock. In 1997, he seized power from his co-prime minister, Prince Ranariddh. Political activists caution that his rule is increasingly becoming more authoritarian.
Some would call Hun Sen a visionary leader, though his rule attracts mixed reviews. There is extensive political and judicial corruption, but on the other hand the government is manifestly competent, which appears to be due to Hun Sen’s personal drive and energy.
Economic growth was 9.6% in 2007, after 10.8% in 2006 and 13.3% in 2005. Growth is concentrated in tourism and the textile sector, which is dependent on most favoured nation status agreements. Inflation is contained, with annual CPI growth of 5.75% at December 2007.
The economy is expected to slowdown slightly to 7.2% in 2008 while inflation climbs to 9%.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Looming housing slump in China
America & Caribbean
The great U.S. housing market crash
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): $2,668 For a 120 sq. m. property, usually an apartment. | Rental Yield: 4.33% For a 120 sq. m. property, usually an apartment. |
| Rent/month: $1,156 For a 120 sq. m. property. | Income Tax: 14.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
8.4%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 15.0% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Pro-Landlord Rating is based on a detailed study of each country’s law and practice. | |
MARCH 2009
- Boom to bust in Cambodia - Asia Times
FEBRUARY 2009
- Foreigners to be allowed to own property in Cambodia - Property Report Asia
SEPTEMBER 2008
AUGUST 2008
JULY 2008
- Phnom Penh real estate boom - Asia Property Report
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