Even with signs of price stabilization in the property market, some in the real estate industry say that, unlike with safer purchases of land, they see risks for years to come in purchasing condominiums as an oversupply struggles to find buyers.
More than two years after Cambodia’s real estate boom went bust, there have been recent signs of fluctuation in the condo market. In the past few months, work has stopped at two South Korean major projects offering condominiums—Posco’s $300 million Star River project and Gold Tower 42.
In the case of Star River, an official said in September that the real estate market caused the delay, which will last an undetermined amount of time.
Even if those projects do not resume anytime soon, there is no shortage of vacant homes constructed during the real estate boom, and thousands of more condos are nearing completion or slated for construction.
“There is concern about the demand and the supply because our demand is still limited and the supply is increasing,” said Sung Bonna, director of Bonna Realty Group. He said many buyers would face depreciating investments over the next 10 years as they buy condos that drop in value.
Land prices decreased as much as 60 percent in the past two years in Phnom Penh, but in many cases condos have not shown a decrease in the stated sale price, he said.
“I think it’s not fair for investors, for the buyers,” he said. “It’s not the proper value compared to the land market.”
He estimated that only 30 percent of condo developments would appreciate based on location and project quality.
Tan Hong Kiat, country head of the property consultancy firm Knight Frank, said that in more populated cities, such as Hong Kong and Singapore, which have more developed markets, condos did appreciate, but that in Cambodia the market was more uncertain.
“In terms of capital appreciation, to buy landed property would be a safer bet,” he said. And, he said, with what could be an oversupply of condos, simple economics will determine value.
“If there is an oversupply, the prices will not go up any further,” he said.
Pung Lang, sales manager for Rose Condominiums on Sothearos Boulevard in Phnom Penh, said much of the value of the Rose development relied on its location near the center of the city. The development’s 360 units range in price from $120,000 to $300,000, and the prices have not lowered since the beginning of the economic crisis.
“When the economic crisis came, it was already a low price,” she said.
So far, only 20 condos have not been purchased.
Condominium developers consulted for this article, such as World City, which is developing thousands of condos at its project Camko City in Russei Keo district, as well as the prominent De Castle condominiums project in Chamkar Mon district, declined to comment.
Stephen Higgins, CEO of ANZ Royal Bank, said buildings depreciated in value gradually over time, unlike land. But he said he did not expect banks to be averse to issuing loans for condos.
“The key thing is the quality of the borrower. If I had a choice of lending for a house in a good location and lending for a condo in a good location, I’d choose the house,” he said. “They will be more risky than a house on land.”
This does not necessarily mean that condos projects in general will suffer, he said.
“I don’t think good quality condos are in oversupply and I think as you have got an emerging middle class. I think they will find condos attractive. To me, that’s where the future market will come from,” he said.
Matthew Rendall, a partner at the legal consultancy Sciaroni & Associates, said even if condo developers did not lower their prices publicly, they, like any other business, had to respond to the market to survive.
“Surely despite what they say publicly, they must be willing to negotiate [the price]; that’s just business practice,” he said.