Property prices in Phnom Penh have dropped by at least 15 to 25 percent since July, as once-pervasive Korean investors back out of Cambodia, analysts and real estate agents said Tuesday.
Sung Bonna, director of Bonna Realty and president of the National Valuers Association of Cambodia, said home prices have dropped 15 percent in central Phnom Penh and 25 percent on the city’s outskirts since July.
The market was hit especially hard in October “due to the world financial crisis and fewer customers in the real estate market,” Sung Bonna said by telephone.
For now, realtors’ plans to sell properties and investors’ plans to develop properties are all being delayed, Sung Bonna said.
“About 40 percent of construction plans in the country are on hold,” he said, declining to name developers who have halted construction. “They are just holding their plans for a while to see the further situation,” he said. But if land prices continue to fall beyond February, Sung Bonna warned, then a number of real estate companies will face bankruptcy.
Already, he said, Bonna Realty’s profits for 2008 are down 50 percent compared to the first 10 months of 2007.
“We are very affected by the fall [in prices]. Now, we can sell only about 20 percent of what we could sell earlier this year,” he said.
Debasish Pattnaik, director of business development, project and investment at the Royal Group, said a 25 percent drop in real estate prices is a conservative estimate.
“It’s gone down 30 to 40 percent,” he said by telephone Tuesday. “I have myself seen some people selling at $600 to $800 [per square meter], and they were selling at $2,500 a few months back.”
As Korean investors back out of Cambodia to tend to financial instability at home during the ongoing global economic crisis, they’re leaving an unfilled gap in the market for buyers, Pattnaik said.
“The Koreans have left,” he said, adding that since no new buyers are filling their shoes, “the prices have to come down.”
Pattnaik said the bursting of the property market bubble is not necessarily bad news. In some areas of Phnom Penh, he said, prices ballooned over the past four years from $200 per square meter to $2,000 per square meter.
However, now that buyers are exiting the market and unrealistic prices are falling, some owners will be left holding the deeds to properties on which they speculated and hoped to flip for a higher price.
“They’ll be cash-strapped very soon. It’s dangerous, believe me,” Pattnaik said.
As further evidence in the drop in demand for realty, James Saunders, Cambodia director for commercial real estate giant CB Richard Ellis, said requests for property evaluations have slowed since June to a mere one request per month.
“I think it’s a generally difficult time for investors,” he said Tuesday. “People are sitting back and waiting to see what happens.”
While Saunders said he expected property market to level by early 2009, the Royal Group’s Pattnaik said he expected prices to continue dropping until mid-2009.
“Not until then will it stabilize,” Pattnaik said, adding that he foresees properties once $2,000 per square meter to drop to their “true value” of $800 per square meter.
Finance Minister Keat Chhon on Monday acknowledged the slump in Phnom Penh real estate prices and credited it to both the global financial crisis and the border dispute with Thailand.
To prevent realty companies from overextending themselves, Keat Chhon said the Finance Ministry is writing a new prakas, or government directive, that will require them to keep 2 percent of their capital in the National Bank.
Mey Vann, director of the Finance Ministry’s financial industry department, said the new prakas, which will also require realty companies to hold an insurance policy and complete at least 3 percent of a construction project before its sale, will first be released to the private sector for debate and feedback before it is adopted.
“The prakas is now in the consideration phase before its release to the private sector,” he said Tuesday by telephone.