Cautious Lending From Banks Could Lead to Subdued Property Market

Real estate agents said yesterday that while transactions in the property market were picking up, prices could remain stagnant for years after dropping in some cases by nearly 50 percent from the record heights of 2008.

Experts say that a lack of credit for home loans from banks is restraining demand in the residential property market, especially in suburban areas of Phnom Penh and the provinces.

“There is more purchasing, but people should not get confused that prices in the market are going to increase,” said Sung Bonna, chairman of Bonna Realty Group.

Mr Bonna said that while a small rise in home loans had resulted in a 10 percent increase in transactions in inner-city areas in the first eight months of the year, prices had still not moved since the market bottomed out in the second quarter of this year.

“It will take between one and two years until prices bounce back to the levels of 2008,” he said, adding that the recently adopted foreign ownership law, which allows foreigners to own up to 70 percent of condominium buildings, had not yet brought about any substantial increase in demand for property.

The most recent data from the National Valuers Association of Cambodia show that residential property prices in Phnom Penh during the second quarter of this year were down 45 percent at an average $1,500 per square meter compared to the first quarter of 2008, when prices in the market peaked.

Commercial property prices in the second quarter were also down 47 percent at $2,600 per square meter compared to nearly $5,000 per square meter in the first quarter of 2008.

Most banks here lend between 60 percent and 70 percent of the property’s total value, but only on the condition that the borrower has a fixed land title that can be held by the bank as collateral. However, banks are still shying away from covering so much of the property’s value through credit.

In Channy, CEO of Acleda Bank, said that a continued risk of defaults on loans had kept the bank operating on the cautious side, rarely lending beyond 25 percent of the property’s total value.

“We cannot increase the housing loans beyond the current ceiling,” he said. “If we up the percentage, things could be difficult for us.”

“We are very conservative,” said Charles Vann, executive vice president of Canadia Bank. “If it’s a good location, we might consider a higher loan value.”

At Canadia, home loans will only cover more than 50 percent of the property’s value if it is located in a prime spot and comes with a hard land title. Borrowers in suburban areas currently only have access to loans covering about 40 percent of the property’s value.

(Additional reporting by Simon Marks)



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