International Financial Crisis Squeezes Cambodian Credit

Less than 12 months ago real estate developers, local and re­gional, sought a piece of Cam­bodia’s seemingly insatiable construction boom.

Royal Group promised to break ground for a $50 million-plus hotel and mall complex on Street 63, and the Korean firm GS Con­struction & Engineering broke ground on se­ven skyscrapers in the In­ter­national Finance Com­plex on the bank of the Tonle Bassac river in Cham­karmon district.

To feed demand, the K-Cement factory in Kampot province plan­ned to triple production to 3 million tons of cement a year.

But those and other projects have been delayed for the mo­ment as the international financial crisis, as well as government restrictions, have put clamps on credit, and uncertainty has un­dercut the footing of real estate projects.

“Twelve months ago people had very strong confidence in our market. Now people have totally lost confidence,” said Sung Bon­na, president of Bonna Realty. “I can predict that about 50 percent of [real estate developers] are postponing,” he said.

Most companies, however, won’t admit if they are delaying projects, he added.

Royal Group had tentatively planned to break ground on the mall-hotel project on Street 63 in September but that has been delayed for the time being until financing can be found, Royal Group CFO Mark Hanna said Thursday by telephone.

“Development in general and financing for projects has dried up and it’s going to take a bit of time before the credit market changes,” Hanna said, adding that the Royal Group still very much intends to carry through with the project.

Khaou Phallaboth, president of Khaou Chuly group, which owns K-Cement, said domestic cement sales have decreased 30 percent per month compared to months prior to September 2008.

With a lack of credit and de­mand plummeting, K-Cem­ent’s planned $150 million expansion is on the shelf, he said.

“In January of 2008 everything was so rosy. 2009 is going to be a very tough year.”

Ground broke in June on the IFC’s seven skyscraper complex but the entire development has now been postponed until 2010, and then only three buildings will be built.

Douglas Clayton, president of the private equity firm Leopard Capital, said he expected more project delays.

Early in 2008, buyers could buy an unfinished condominium with plans to resell it at a profit soon after, he said.

“The flipping game seems to have dried up and now we are down to the end user game,” he said.

Slowdowns in tourism and garment industries have also limited demand for real estate, he said.

“If you look at the global financial crisis, certainly it has not reached bottom, so we don’t know how bad it’s going to get,” he added.

Though rumors have circulated for months about the health of the mega-satellite Camko City, DK Kim, vice president of World City, the project’s developer, said Thur­sday that the project’s first phase will be completed in March and buyers will move into 184 units.

“We’ve heard a lot of rumors. They are only rumors,” he said, adding the second and third phases are on schedule.

At Gold Tower 42 construction site at the corner of Sihanouk and Monivong boulevards Thur­sday afternoon, about 20 construction workers toiled in the sun, a far cry from the 50 that did so in November.

Lee Sun-hum, director for the project’s developer Yon Woo com­pany, said construction has been delayed at Gold Tower for a few days while crews wait for large cranes to begin construction on the above-ground portion of the building. The delay has nothing to do with the financial crisis. The project will be complete in 2012, Lee Sun-hum said. “Our project is going as plan­ned,” he said, adding that while presales are down, the project has already been financed.


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