City Property Values Falling Through the Floor

Property value in Phnom Penh has dropped as much as 30 to 40 percent since July and continues to fall, according to a local real estate agent, but some experts say the decreases will serve to correct the leap in property prices that from 2005 to 2008 hit more than 1,000 percent in some areas.

Areas on the Phnom Penh’s out-er rim have seen the largest drops of 40 percent or more, while central Phnom Penh is seeing a steady de-cline amounting to around 30 percent since July 2008, said Sung Bonna, president of Bonna Realty.

“It has decreased and decreased and there’s not a bottom. We want to know when it’s going to reach the bottom,” he said.

At the height of the property boom in July 2008, the most expensive land on the riverfront rose to about $5,000 per square meter, a more than 900 percent increase from $550 per square meter in 2005, according to statistics from Bonna Realty.

Now those high prices have de-clined by about 30 percent to about $3,500 per square meter, according to the most recent figures. On Russian Boulevard, prices have dropped by 50 percent since July to $1,500 per square meter, closer to their 2005 price of about $550.

Property prices began to decline when the National Bank of Cam-bodia restricted bank loans by raising the reserve rate from 8 percent to 16 percent in mid-2008. That restriction was reduced to 12 percent in February, but that came months after inflation and the global financial crisis began slowing Cambodia’s economy.

Some business experts say the property price decline will encourage investment and end the land speculation that left empty plots undeveloped during the property boom as they passed quickly from one buyer to another.

“The faster the land prices fall the shorter the downturn will be, because it will get to the point where things are irresistible to in-vest in,” said Douglas Clayton, CEO of the private equity firm Leopard Capital.

“It’s very healthy for the economy, and it’s bad for a small speculators that bought the property at the top [price],” he said.

Jake Montross, finance mana-ger for local conglomerate Royal Group, said that the drop in property prices will correct the market.

“Real development has been priced out because [of] high prices in the property market,” he said. “In order for development to happen again there has to be a massive real estate correction.”

But formulating an accurate figure for the decrease in property prices is difficult because the current number of real estate transactions is so low, said Matt Rendall, an investment adviser at Sciaroni and Associates law firm.

“A lot of people are unwilling to sell anything for less than what they bought it for,” he said.

Some shop-houses on the outskirts of Phnom Penh have prices of $170,000 but could be someday sold at $50,000, he said.

“The assumption is that in a year from now transactions will have to happen and these people will have to sell this property,” he said, adding that then the drop in property prices will be clearer.



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