Cambodia projects to benefit from improved infrastructure

By Bong Xin Ying

/ EdgeProp Singapore |

April 26, 2019 3:00 PM SGT

In recent years, Cambodia’s economy has been recording consistent growth of around 7% per annum, according to data from the World Bank. This is expected to continue based on recent estimates from the National Bank of Cambodia that placed 2019 growth at approximately 7%.

On the back of economic growth, the nation is seeing a trend of increased urbanisation due to higher adult literacy rate and an increase in minimum wage. The adult literacy rate in the country was at 82.5% in 2017, based on the Cambodia Socio-Economic Survey 2017 released in November 2018. Meanwhile, wages increased 7% in 2018, according to the World Bank.

Against this backdrop, CBRE Cambodia anticipates a diversification of property development in the country, with branded hotels, hospitals and education leading this charge. Across all realty sectors, supply is growing.

Focus on Phnom Penh

In the residential sector, the pipeline of new supply this year is estimated to be 31,112 units compared with 14,173 units in 2018. According to CBRE Cambodia, the increase is due to project delays. Despite the increase, CBRE Cambodia adds that prices have remained stable.

Developers have also been turning their attention to the affordable end of the market. Richard Leech, executive director of CBRE Cambodia, highlights that previously, the mid-range and high-end segments were in the spotlight due to foreign investment. As local buyers grow increasingly active in the market, demand for affordable projects has increased.

CBRE Cambodia anticipates a diversification of property developments in the country, with branded hotels, hospitals and education leading this charge

Despite this shift, Leech sees investment potential in Phnom Penh’s luxury real estate sector. Most luxury projects in Phnom Penh are relatively small in scale, typically containing fewer than 300 units, he states.

In most circumstances, he sees developers achieving more than 80% in pre-sales while others are able to sell out a project in its early phases if the project is positioned to appeal to both local and foreign buyers.

“Luxury real estate in Phnom Penh generally fares well, with developments such as Oxley Holdings’ The Peak selling well and at good prices,” says Leech.

While Cambodia is a small market compared with its neighbouring countries, he notes that prices are reasonable and the investment “yield can certainly be higher”.

Meanwhile, Cambodia’s retail sector is also expected to see increases in new supply bolstered by the entrance of international brands into the market. Last year, the country attracted 65 international brands compared with 29 in 2017. Brands that entered the market last year include sportswear brand Under Armour, food court chain Food Republic and hotpot restaurant chain Bijin Nabe.

The office sector supply, while limited, has also been increasing at a steadier pace than other sectors. Leech expects supply to increase due to demand and good performance, with rents increasing some 5% last year and occupancy at a 10-year high.

New developments are currently being fuelled by developers of strata-title office buildings and co-owned office properties that individual investors or occupiers can buy part of. He highlights that this is a new trend for Phnom Penh and, as such, there could be a period of market adjustment.

Foreign ownership

As Cambodia’s bustling capital, Phnom Penh is still a relatively young market, but the economy is developing at a “remarkable pace”, Leech observes.

“This dynamic creates opportunities to buy into the market at an early stage, before prices start to increase as seen in the likes of Bangkok and Ho Chi Minh City,” he adds.

At the same time, the regulatory framework that governs the Cambodian real estate sector has been gradually changing to keep pace with the country’s rapid development.

The introduction of the Law on Foreign Ownership in May 2010 permits foreign investors to own up to 70% of a co-owned building. This regulation opened the country’s real estate markets up to international investors and paved the way for the current construction boom.

Beyond this, the majority of regulatory updates have tweaked matters related to taxes, land titles and controls on developers. Moving forward, Leech expects to see more substantial updates to regulate construction, urban planning and property management.

Infrastructure improvements

In 2018, Phnom Penh has also embarked on several infrastructure projects to improve connectivity. The Choam Choa Flyover and Underpass broke ground in June 2018, and is the sixth at the Choam Choa roundabout in Phnom Penh. Comprising three flyover sections and an underpass, the project will take 30 months to complete and will ease traffic at the busy Choam Choa roundabout.

Elsewhere, construction of Phnom Penh’s third ring road began in January. The 53km road is a jointly financed project by China and the Cambodian government, and is slated to open in 2021.

Further infrastructure improvements can be expected as Cambodia has been a staunch supporter of China’s Belt and Road Initiative

Cambodia also started constructing the Phnom Penh-Sihanoukville Expressway, the country’s first expressway. The 190 km expressway will link Phnom Penh to Cambodia’s southern resort and seaport Sihanoukville when it is completed in around four years. Costing some US$2 billion ($2.7 billion), the expressway is part of China’s Belt and Road Initiative.

Further infrastructure improvements can be expected as Cambodia has been a staunch supporter of China’s Belt and Road Initiative. In January, China pledged some RMB4 billion ($810 million) in aid to Cambodia over a two-year period from 2019 to 2021.

Growth drivers

“Cambodia’s dollarised economy, lack of currency controls and investor-friendly regulatory environment all help to make Cambodia a market worth considering, especially when compared to the more crowded and pricey markets in Thailand and Vietnam,” CBRE’s Leech says.

At the centre of sustaining Cambodia’s economic growth is its construction sector. In 2018, the sector grew 18%, the fastest rate among all major sectors. CBRE’s Leech attributes this to the Cambodian government’s approval of more than 3,400 investments into the construction sector last year, totalling some US$6 billion.

Meanwhile, Cambodia’s garment, textile and footwear sector continues to provide a major source of employment. According to the International Labour Organisation report, in December last year, this sector generated employment for around one million workers in Cambodia. From the survey data of 3,839 households, this particular sector provides income that supports one in five households in the country.

Leech adds: “The city has significant potential for future development, particularly as the service sector grows further. However, investment into infrastructure and environmental quality needs to keep pace in order to ensure that Phnom Penh’s potential can be realised.”

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