On June 18, 2008, South Korea’s GS Engineering & Construction broke ground on what was slated to be Cambodia’s largest building, the International Finance Complex, a 52-story, 68,500-square-meter complex on Phnom Penh’s Sothearos Boulevard.
As GS Engineering & Construction got to work, other South Korean mega-projects like the 42-story Gold Tower 42 being built by Hanil Engineering and the $2 billion CamKo City satellite city in Russei Keo district were also moving ahead.
The following year in October, Posco E&C, another South Korean construction firm, broke ground on three riverside towers worth $300 million in Phnom Penh’s Chamkar Mon district. Then, in 2010, Lees Aviation & Airport Co and NSRIA Co, both South Korean firms, were given the green light for a $1 billion dollar airport in Siem Reap.
“The Koreans are back!” exclaimed one reader who commented on the Cambodia Property Forum website, a popular property blog here, after reading about Posco’s groundbreaking in 2009. “You are right!!! But will they help to improve the real estate investment climate in Cambodia?” asked another.
Today all of South Korea’s property investments–together worth more than $4.5 billion–have either been suspended or have been forced to downscale after Cambodia’s property boom came to an end during the global financial crisis. Property prices here are now 50 percent lower than what they were at the end of 2008.
Moreover, an investor in both the CamKo City and airport project is reportedly the target of a corruption case in South Korea.
Analysts say all the projects will struggle to find new investors.
“I think this would affect investors perception of South Korean property developers in Cambodia because of the reputation of those developers who are having difficulties,” said Sunny Soo, country director for the property consultancy firm Knight Frank. “Not all Korean companies have bad reputations and I don’t think investors will stop doing business with them but at the very least the projects currently on hold will have difficulties getting investors.”
In January, GS Engineering & Construction scrapped its plans to develop the country’s tallest building, and dozens of luxury villas and commercial buildings, deciding instead to build a single gated housing community.
The $240 million Gold Tower 42 on Monivong Blvd stalled in September 2010, with officials here saying that Hanil Construction was undergoing restructuring.
Tae-yun Kim, assistant manager for Daehan Real Estate Trust Inc, the project’s financier, said this week that he was uncertain when the project would resume.
“I don’t know specifically but I think it might be soon,” he said.
Ahn Ik-sunt, general director at Posco, responsible for the three-tower project dubbed Star River, said through a receptionist that his project, which stalled late last year, also had not yet restarted. He declined to comment further.
Experts say that the reasons for these failing projects can be attributed to a handful of issues such as a loss of funds due to the financial crisis or the developers’ lack of due diligence.
“Because of the timing prior to the crisis in 2007 and 2008, South Korea was the major property investor in Cambodia, they were the leader,” said Sung Bonna, chairman of Bonna Realty Group. “They may have come without properly studying the demand for these buildings in Cambodia.”
He added because of the lack of proper market data available in Cambodia, investors are now wary of getting involved with South Korea’s property projects in Cambodia.
According to Mr Soo, growth in the property sector prior to the financial crisis resulted in developers in the Cambodian market being overconfident.
“It’s the same thing that happened in Dubai,” he said. “You try to anticipate the market but then the unforeseen problems of 2009 come. Actually, it’s hard to say it was the wrong strategy at the time.”
The $2 billion planned community, CamKo City, and the new Siem Reap airport, on the other hand, have separate problems.
Last month, an investigation into South Korea’s Busan Savings Bank Group over alleged illegal loans revealed that a subsidiary of the bank is a shareholder in CamKo Bank and World City Co Ltd, which is developing the $2 billion CamKo City project. Construction was suspended just months before prosecutors revealed their allegations.
According to the World City website, Busan is said to have a $109 million stake in CamKo City.
“Never say never but it may be possible it never gets built,” said Mr Soo.
The $1 billion airport in Siem Reap announced by developer NSRIA Co in December, also has ties to Busan through one of its two major investors, CamKo Airport Co.
However officials at the airports other major investor, Lees Aviation & Airport Co, said on Tuesday that regardless of the investigation, the project would break ground as planned.
“The loan from Busan Savings Bank is a bridge loan, which is to be refinanced according to our financial plan,” said Seoyoung Park, communications and marketing manager at Lees Aviation, refusing to state how much the loan is worth.
“The new airport project has the least uncertainties because the land for the new airport has been fully acquired, all the engineering work has been completed, the project has been awarded Qualified Investment Project status from Council for Development of Cambodia, and the government has launched the official organization to implement the new airport,” she said. “These facts strongly attract investors.”
Tekreth Samrach, secretary of state at the Council of Ministers, who is leading the government committee in charge of construction of the airport, said that he would not interfere with the construction of the airport, regardless of allegations that misappropriated funds may be involved.
“The Busan bank problem is a Busan bank problem,” he said. “To investigate a company, we have to be shown that there is a problem. So far, we do not have the report that shows that they are involved.”
Despite these problems, an official at the South Korean embassy, who spoke on the condition of anonymity, said yesterday that his country had asked Cambodia to cooperate with the ongoing investigation into Busan.
“When you look at the Korean investment in general, you can see a bright side,” he said, referring to the 22-story Phnom Penh Tower on Monivong Boulevard, which was built by Hyundai Emco and opened its doors in April. “We need to wait and see the final result for some Korean projects being partly halted considering the Cambodian economy is picking up.”
For now, it looks like the spotlight on South Korean mega-projects is dimming.
“These days, you’ll find more Koreans trying to sell off their assets than trying to come in. This is a fact,” said Mr Soo. “However, the property market in Cambodia is still good and other regional countries have investors looking to come in, including a handful of local projects. This is the future.”