Tuesday, October 20, 2009

The Real Estate Market in October

On the surface nothing much has changed since my last report, possibly with the exception of townhouses (flat houses). Prices for those have dropped quite a bit. One can get an Eo flat for less than $25,000 in some areas. Naturally, the closer you get to the city the higher the prices. But the glut is obviously being felt all around now.

By and large, developments have basically stopped. Sung Bonna recently said in an interview that many developers are on the brink of bankruptcy. He said they claim to have built many units, but sometimes all you can see is three or four units in progress. On being asked for the names he politely declined claiming confidentiality. Of course, if he would name one of those guys in dire straits he’d possibly be playing with his life.

The exception are two big developments, Grand Phnom Penh, where work is steadily continuing, albeit at a slower pace as I noted before, and the Golden Tower, which really looks busy, besides being a major traffic hassle. The Canadia Tower is almost complete, though the grand opening has been postponed several times, now scheduled towards the end of the year. But it will open. Camko City is quiet as hell. When I drove through one glaring fault in its concept again became very apparent. The high-rises surround the townhouses in their middle. These are now complete, even boasting a few tenants. The landscaping looks nice, and it really would be a modern suburban development, if it were not for the skeleton high-rises casting their shadows over the townhouses. Come to think of it, it reminds me of a modern ghetto, in which people sort of live on top of each other. I am sure it all looked really nice on the drawing board, but wouldn’t it have been better to design it in such a way as to give the townhouse owners more ‘breathing’ space?

My reviews always focus on residential properties, for the simple reason that I am just not in the market for commercial land. However, Sung Bonna of Bonna Real Estate stated that commercial land dropped to an average about $2,700 from $2,800 per sqm last month. This neglected to mention the big issue of location. In order to explain his statement a little better I am showing a graph from his own latest brochure, which indeed gives a pretty good overview of what’s going on at the present time.

Looking for residential properties, as I am somehow always involved in due to family requirements, one can find out, though, that owners still haven’t learned much; learned much in the sense of the basic economic law – slack demand, decreasing prices. Everybody in real estate knows that buyers are far and few between. Sellers nonetheless maintain their oftentimes ridiculous price demands. I talked to a real estate professional about this, and he said that people keep their prices up because they know they will have to come down considerably if they really want to sell. So the often mentioned price drop of 40% or so won’t be advertised but will be achieved in face-to-face negotiations. I am still not convinced. I never encountered any great latitude on the sellers’ part. Unless it’s a fire sale, don’t hold your breath for getting real estate on the cheap – just yet. I do believe, but I am no clairvoyant, that the last air of the real estate bubble has not been squeezed out yet. Eventually, people who bought land left and right will sell it at less profit, e. g. if they bought for $32 to $50 per m2 and are now asking around $150 to $200 just because they think the area is worth that much and with no buyer in sight will see that the proverbial bird in the hand is worth more than two in the bush.

There are two modern developments, which will be completed in a month or two. They are almost identical; the floorplans are, though not the entire site. One is located in Stung Meanchey and the other one in Phnom Penh near the Wat Somroang Andeat. While the PP Thmey development is practically sold out (three units are still available), the one in Meanchey is having problems. The reason for this is that most of the units in PP Thmey were sold before the crisis, while the ones in Meanchey started selling after the crisis had hit. Row houses as pictured below are listed for between $125,000 and $155,000 for sizes varying from 6 x 12 m to 7 x 12 m. The original buyers are now putting some units in PP Thmey on the market for as low as $98,000 for the smaller unit. For people who don’t mind having no yard or garage, although there is room for one or two cars in front, and who like the uniform look of the whole site, these are actually pretty nice properties. I considered it at one time as a PP residence but decided against it because of the close proximity of the units. Your neighbors can directly look into your bedrooms. The balconies are adjoining and you can practically hold a barbecue with your neighbor, and you are both still in your own houses.

I came across one interesting development, which is now offering lots in non-standard sizes, e. g. 16 x 22 m at $100/m2. It is located along Thri Heng Road in Phnom Penh Thmey,which is in my opinion the up and coming area. The developer offers terms, e. g. $11,000 down with the balance over 5 years without interest. Alternatively, you can opt for monthly payments of $1,000 until the entire purchase price has been paid off. Compounded interest is around $4,500 on an amount of $35,000. This is not bad at all. According to the developer half of his lots have been sold; and each individual lot comes with its own ‘hard’ title. Of course, you can’t build on the lot until at least 50% of the price has been paid off, at which time the developer will transfer the title. In the U. S. this is called owner financing. Lo and behold, the developers are Khmer-Americans who have returned to Cambodia. If more people used these marketing strategies the real estate sector would become more competitive and could probably come back to life from its present dormant state. This kind of deal has its downside too, as most deals have. Until you have paid off your 50%, you don’t know what might happen to the developer and whether he might have used it as collateral for a loan. What if he defaults?

On the other end are owners with different marketing ‘strategies’ that offer a piece of land, size 11 x 20m, with a house on it for $55,000 ($250/m2) in an area about 15 km from the Monivong bridge and approximately 3 km from national road no. 1. The house is in a decrepit state and would need to be torn down. Here is a picture of the village.

These people must live in another world.

A word about Phnom Penh Thmey – it is the up and coming area in my view because it is located only about 15 to 20 minutes from downtown Phnom Penh during rush hour and you can do the distance in 10 minutes in normal traffic. Plenty of land is available, although you need to be careful about the sewage system, which is not in place everywhere. Sewers are put in by the local Sangkat, and they are not really eager to do this for a single property. So if you buy out there make sure you can get connected to an existing sewer line. Water is another big issue, but from what I have seen it is pretty much present everywhere, as is power. People looking to live in or near Phnom Penh should not forget to go and take a look there.

And a final word about the Dey Krahom development: nothing is being done on the site. The ‘boding’ complex is still an eyesore and should really be erased. The problem there is obviously that some people do have papers documenting their continued possession of the apartments since 1989. They are still asking outrageous prices. Of course, the land there is still worth about $4,000/m2, but who has the money these days to risk a major development with an uncertain economic outcome. This is the one aspect all the ‘human rights’ crowd failed to see when they asked for the Dey Krahom dwellers to be compensated at market prices. A good businessman will not look at something without at least medium-term planning. The land is just sitting there and has not been appreciating the last 2 years. That’s bad business in my book. Human rights are all fine and dandy, if you’ll excuse my flippancy here, but you cannot neglect the economic aspects. I don’t want to go into the legal or humanitarian aspects here. We all did that a while ago already.

The bottom line for real estate is that it is still dead and doesn’t look like it’s going to recover any time soon – probably not until the end of 2010.

Here is a picture of a realtor’s office in Phnom Penh Thmey. Believe it or not they are pros. It’s two ladies, mother and daughter, and they know their area and who is selling what like the back of their hands.


wattanak said...
This comment has been removed by a blog administrator.
KJE said...

Sorry, Wattanak, I had to remove your comment because of the insults. If you send me your email address I will be happy to reply.

Anonymous said...

I have heard from people i know who have bought land at around 50% less than the asking price because the owners need money. also they themselves had to sell land at 50% less to pay back bank loans.
So I guess when true market forces prevail , we can safely say that if you want liquid cash you have to bring down prices.
You can always wait for a prey, but that could take 5 more years minimum.
Would have liked to see the camko villas in the midst of the jungle highrises.
Thanks for the update

Anonymous said...

You are a flipping flippant guy.

KJE said...

If it's 50% below asking price they must have in real dire straits. That's unusual by all standards. Sometimes the problem is the hard title. If you have a hard title you are expected to develop the land. If not you will assessed a penalty by the Land Management office. This was implemented in 2007. Regardless of how you may have held the land, a minimum of a 3-year penalty will be levied. So this is not a good prospect for erstwhile speculators who are now sitting on land.

Your comment is ludicrous at best if not outright silly so I won't bother with removing it, which I normally would have done as you didn't contribute anything in terms of discussion or debate. If you don't have anything to say don't write a comment. Thank you.

Anonymous said...

How is the flooding problem in phnom penh? I hear that phnom penh tmei is flooded for months on end.
What's the update on sihanoukville? are the real estate projects moving or are they stalled?
I read on the internet that the rate of crime has shot up significantly in pp and shv.is this true or exagerated?
any other tidbits from cambodia would be helpful.ie everyday life of the average cambodian.

Thanks you are my favorite foreign correspondant.


Anonymous said...

forgot to include the qustion whether prices in shv and other provinces have fallen as much as in pp.

KJE said...

For the flooding problem see my new post "Addendum"

As for crime, I can only say I haven't been affected personally, nor do I know anybody that has. I believe the crime rate is much lower than, for instance, in the U. S. There is a lot of petty crime, small-time robberies, etc. Of course, you read about rape, killings, robberies at gun-point, etc. But if I compare these with the news stories in my county in the U. S., which only has a population of about 650,000 and where there are shootings on an almost daily basis, I don't think Cambodia is bad or that there is a spike in crimes. Read Koh Santhepeap or the police blotter of the PP Post to get a picture what's going on. Don't forget, newspapers sell better if they have gruesome stories to report.