Wednesday, November 12, 2008

Read This

There were two articles in the Phnom Penh Post today bolstering my previous assertions about the real estate market in Cambodia.

And another one on who is suffering the most from the downturn in construction.

In case you don't read the Post you should because they are still the best when it comes to English-language papers in Cambodia.


Anonymous said...

Cambodia is like a child in terms of economic and financial experience, let alone that of real estate valuation and management.
Listening to Bonna and the other real estate agents denying the undeniable , in the face of hard evidence that the market is starting to unravel never mind the term used, is quite understandable.
They do not want to add oil to fire and they want to keep customers buying as their livelihood is threatened .Especially when property valuation in Cambodia is like swimming in dark murky water.
Their reaction is exactly that of all real estate agents in Europe, denying a drop in prices until the bubble burst in their face with massive losses, bankruptcy and layoffs.

In spite of being isolated from financial global instruments, Cambodia is dependent on the outside world. Global credit crunch and recession in Europe, us and asia means:

Investors like Korea, Taiwan and China will find it very difficult to raise capital for future and present projects. Most of the Korean and other projects are on hold.
Recession in Us and Europe means less export of garments. Which means less incentive for foreign investors to invest in that sector ( factories will be shut down and no new ones built)
Recession means donors have less money to spend, so expect less dollars next year
China is staring to feel the effect of the global crisis, their financial stimulus is for their market

Which leaves the rich cambodianns with less graft and more rising costs. Meaning those who invested their capital in land need to sell to keep or expand business. Khmer expatriates stop investing in property as they are faced with stock market losses and the decrease of their own real estate in their adopted countries. Foreign investors will find it near impossible to raise capital for real estate projects. Not to mention the huge job losses in the construction and garment industry.
The poor have only the shirt on their back, but those few who could pay the wildly inflated prices
Cannot survive a recession till 2010. Prices have dropped 20 to 25% in the last 6 months is a prelude to much deeper cuts like Vietnam, china and india.
Those who bought into the market in 2008 are bound to lose their shirts.
Anyway that’s my take on the situation, might no be original but based on what I’ve read.

Khmer France

KJE said...

Basically correct, except I don't agree with the situation for the Cambodian tycoons. There are five real big ones with fortunes reaching a billion dollars, and then there are an (unknown) number of 'smaller' millionaires. They all have diversified businesses and were rich before the real estate boom. Some of them will be affected but most won't, trust me on that. But as you correctly point out, it will be the 'little guy' who will suffer from the downturn.

The ones who bought into real estate in 2008 won't lose their shirt if they can hold on to it long enough for prices to reach normal levels. Cambodian buyers for the most part did not use loans to finance their deals. That's the big difference. So far there are no fire sales going on. You need to go there to really assess the situation. Bonna is mostly right. Of course, he paints are rosier picture in order not to upset the apple cart.

If Cambodia manages to achieve a growth rate of 6% next year, it would still be phenomenal. Western economists say that economic growth will pick up again in 2010. Hopefully, Cambodia can manage until then without too great of an impact.