Sunday, March 8, 2009

The Real Estate Market at the Beginning of 2009

The newspapers have extensively reported about the current state of the Cambodian economy, and the real estate market in particular, so there is not much left for me to report outside a few personal experiences in this sector. I would like to highlight these with five examples, with which I have been familiar as recently as February.

In general, of course, it is evident that the market is soft and buyers are far and few between. No need to look for sellers – they are out and about in abundance, but as is so typical for Cambodia, a lot of them still haven’t got it. They are asking outlandish prices that are beyond the pale. However, they are still not shy to proclaim real bargains either.

Browsing the web pages of the two most reputable real estate agents one can find there is no scarcity of high-end luxury homes for sale in Tuol Kork or Boeng Keng Kang. You could think you are in West Palm Beach in Florida, Florence, Italy, or in Nice, France, and not in Cambodia. Homes for $3.0 million to $5.0 million are no rarity. Again, are there any buyers? I doubt it very much as people will probably just hold on to their money until the situation has changed – cash has become a somewhat rare commodity these days – and no one knows when that will happen. Estimates for a 2010 recovery may seem overly optimistic.

Nonetheless, there is some activity going on, maybe not so much with the professional real estate agents but with the many smaller developers or speculators that are not in dire straits, e. g. the ones that don’t have to service bank loans, or don’t have to complete a started ambitious project and don’t know how and where to raise the necessary funds. By all accounts, banks have severely limited their heretofore already comparatively small stake in real estate financing. Those independent operators have one advantage – there are no middlemen involved, they can pass on the 3% commissions to the buyers.

One thing is clear – and this is where the chickens come home to roost – the developers that invested heavily in the so-called Cambodian flats are looking at a very dim near future – at least in my view. Back in October 2007 I counted approximately 250,000 units, either begun or in the pipeline, based on the land being cleared at that time and on a physical count. This number was reduced dramatically by project stoppages, lack of financing, and a dried-out market demand. The ones that were completed for the most part sit empty. Just drive to the airport and you will find rows and rows of flat houses waiting for buyers and occupants. But don’t just look along Russian Boulevard, look inside, e. g. those little side streets. There are literally tons of empty flats – when I have the time I will go and count them and report it here.

But what about those mega-projects? Again, started projects, like Camko City, the Bassac Villas, and the Canadia High-Rise are going ahead, though at a slower pace it seems. Planned projects like the Golden Tower, the World City seem to be on hold – at least I couldn’t see any noticeable activity in both locations; but then I am on the coast and infrequently go to Phnom Penh. All those big tourism projects - Koh Puos, Koh Rong, Ream, Otres Beach – no activity, although the bridge construction to Koh Puos is still going on. As to the island itself, we’ll see in 2010 or 2011 whether all these plans are very realistic. The last three years press releases about super-projects were released in a steady stream. Now sobering reality has set in, I guess.

In summary, all this was to be expected if you just looked at the supply-and-demand situation. It is well known that South Korean investors didn’t do much of a country study before they came in with their bags full of money, which they now transferred back to Korea in order to take advantage of the slumping Won.

Everybody is waiting for the turn-around. Going by official statistics is no help at all. Growth prediction is haphazard at best, as the recent forecasts by major institutions more than aptly demonstrate – they range from a contraction of 1% to a growth of 6%. Analysts never got it right anyway. I have been following the dollar ups and downs for 30 years now and not once had one analyst gotten it right even over the medium term, likewise with oil prices recently. So read your own tea leaves. My money is on the last quarter of 2009 and the beginning of 2010 for improvements to start showing up. How Cambodia is going to fare is anybody’s guess. If you read some snide remarks by expat foreigners and overseas Khmer one would think they are glad Cambodia is finally being hit by the recession too. I believe there is a lot of jealousy involved here. Some just can’t believe that people made so much money on their land deals; and not only the powerful.

Here is my look at a few examples:

Cambodian Flats (Ptea Leweng)

These typically go for about $110,000 to $130,000 for the three-story version (as pictured). The two-story type is offered at about $50,000 to $70,000, and a one –story apartment in either type goes for $25,000 to $45,000. One floor is normally 4 x 16 m. The ground floor is more expensive as this space can be used for a store, shop, etc.

Western-style townhouses

Korean companies usually build these. One typical example is one called Vogo Village near the airport. Selling prices range from $89,000 for the smaller house (6 x 16 m) to $115,000 for the larger house (7 x 16 m). The property comes with 24/7 security.
The distinct feature is that these houses have two real floors, as opposed to the Cambodian Flat, which has this mezzanine half-floor – which usually is bedroom with a low ceiling. This is a nice and clean small community, set back about 500 m from road number 4 to Sihanoukville.

Bassac Villas

These are top of the line townhouses and villas. The villas all feature a very small lot but this is prime land right on the river, although most of them won’t have a view of it, as they are set back too far. Additionally, the condo buildings going up right now will obstruct the view. The villas go for about $300,000 and offer about 300 m2 of living space. The townhouses as pictured sell for about $200,000 to $300,000.

Phnom Penh Thmey Developments

This site developer offers lots at $140/m2, with an option to have the house built at $35,000 for the ground floor. The whole site comprises 94 lots, of which about half are sold already, and a few houses are under construction. It's located off Hanoi Road. Business has picked up these last few weeks.

Stung Hao Development

A Khmer developer has three ha parceled into 600 m2 lots. It is located at the junction of the road from Sihanoukville to Stung Hao and Stung Hao to Veal Ren. A corner lot sells for $12,000 and a middle lot sells for $10,000. A new port is being built across the main road to Sihanoukville. The developer is probably banking on this project. This looks like a good investment for people who only have a little money and can wait 2 or 3 years for this region to grow. (Not much to see in the picture.)


Anonymous said...


I am one of those expats who bought a townhouse in happiness city, land in kien svay and land at sihanoukville but that was way back in 2005. I could have sold for a very handsome profit but thats for my own retirement. I am happy the bubble burst only because it did not benefit the main population and brings prices to more affordable levels.

Since you seem to know the country pretty well and a a westerner you probably woild be more accurate and honest in your replies to my question. I would like to build a n inn or auberge on my land in SHKville. It sits just across the lake from sokkha hotel.

From what I hear, there are lots of corruption involved
- building permit
- monthly payments to officials

rtc etc

Whats your take on this. Is it viable to set up a business in cambodia without being bankrupted by corruption or just live in retirement peacefully.

Once again thanks for your insight and advice.

Franco Khmer.

KJE said...

Hi Franco Khmer,
I originally wanted to build a 20-room hotel in Sihanoukville myself but wanted it right on the beach. But in 2007 the prices were already at $100/m2. I needed 1 ha, which would have cost me a cool $1.0 million. To recoup this kind of money you need to run the property at a profit for at least 5 - 6 years. I didn't have that kind of money for the project. Look what's happening now. Tourist arrivals are down, and SHV has never been a prime destination to begin with.
Your inn or auberge would be like a guesthouse. There are plenty of those around already. And most of them just get by. If the owners make $1000 a month they can be happy. Look, they usually have 5 -10 room, at $10 to $20 a night. They have rent of about $500 a month, power, maids, etc.
Then there are the beachfront hotels on Ocheuteal Beach. For most of the time they have plenty rooms available. The Sokha Beach runs at 40% occupancy and at a loss. Only during holidays everything is packed and people actually camp on the beach. The rainy season is like dead. So would I build an auberge? Most definitely not. In one of my previous lives I was in the hospitality/tourist business. I see good chances only for a 3-star beachfront or second row resort hotel with about 25 - 50 bungalows catering to Western tourists by signing up with big tour operators in Europe.

Building permits are about $1500 for a single family home, so for a hotel you can expect about $3000 to $5000, depending on how well you can negotiate.
There are no monthly payments but it always pays to be on good terms with the officials.
Of course, a business is viable. I run my rubber plantation in Kompong Cham without any interference. I am also cultivating a new plantation in Rattanakiri, but up there it's easy for me, as a third partner works in government.
My best friend (Khmer) and partner is in business with 2 French people who run 3 boutique hotels in Phnom Penh. Each has between 12 and 28 rooms. They are a phenomenal business and they have no problems with any official at all.
Additionally, that same friend also develops a plot of land. Again, no interference from anybody. Of course, it is always good to help with the development of the community by donating towards the buiding of roads, etc., especially at the time of elections. I guess you get my drift?
As a Khmer you won't have a problem, just don't be like most of the overseas Khmer who return and think they know everything better than the native Khmer. They will teach you a quick lesson on who is boss. Hun Sen did that with Ranariddh and Sam Rainsy. In the private sector it is exactly the same.
If you have more personal questions please use the email feature on this site so any communication would be out of the public domain.

Anonymous said...

Thanks KJE: As always a spot on answer.

I will email you at your profile mail contact.


Anonymous said...


You 're such a very good commentator. Since you 've been in the country for a while, could you tell me what are the possibilities of a good investment down there now ? what is a start up capital ? Thanks for reply. Dave

KJE said...

Don't hold me responsible for what I write here. Everything is based on my subjective observations and my own experiences. What may be good for me may not be good for you. Having said that I can only advise not to go to Cambodia in the hope of making a fortune overnight just because it's a developing market. More people failed than actually made it. Don't think you can do it on a shoestring. I would consider an absolute minimum of $250K to be the base for any business undertaking. One needs to be prepared to run at a loss of a year or so. If you are European or North American don't come by yourself. You need a trustworthy Khmer partner. You need to know the culture, the mentality, how things are done business-wise.
And don't open another expat or girlie bar. There are too many bottom-feeding Western foreigners in the country already. Everything else depends on your background and knowledge.

Anonymous said...


Thanks for the info. Your articles are very useful and interesting to read. Dave