In 2007, the price of real estate in Phnom Penh increased more than any year in the past decade. Investment from South Korean developers prompted prices in the capital to double and in some cases triple, though some experts question whether such prices can be maintained.
Residential land prices in the city rose last year on average from $700 to $1,600 per square meter, and commercial land increased from $1,200 to $2,500 per square meter, according to data compiled by Bonna Realty Group. In 2000, commercial land averaged $400 per square meter.
From late September 2007 to late December 2007, according to Sung Bonna, the value of land in the city center along both Norodom Boulevard and Monivong Boulevard rose from between $1,500 and $2,300 to between $2,000 and $3,000 per square meter. At the beginning of the year the same land cost $1,000 to $2,000.
“What 2007 did is it proved that people have enough faith and trust now to invest in Cambodia,” said Matthew Rendall, an attorney with Sciaroni & Associates specializing in real estate transactions. “It showed the world that Cambodia is a safe place to invest. It opened the door.”
Large local realtors, such as Sung Bonna, and small realtors, such as Oeung Phalar of UPL Group Co, Ltd, are both benefiting from high prices. Oeung Phalar sold two residential properties in the past two months in the Boeng Keng Kang I district for $3,000 per square meter.
Elsewhere in Southeast Asia, real estate prices are surging yet higher.
Ho Chi Minh City saw land prices rise, on average, 60 percent over the past two years, according Naim Khan-Turk, an associate director in Ho Chi Min City for CB Richard Ellis Co, a publicly traded multinational real estate corporation.
Moreover, prime Ho Chi Minh City land that sold for $10,000 to $15,000 per square meter two years ago now costs $30,000 to $35,000 per square meter-which makes property price in Phnom Penh look like a bargain, Khan-Turk said.
“Foreign investors are saying it’s still a deal compared to the surrounding region,” Rendall said, noting that beachfront property in Cambodia, even as it surged from $50 per square meter to $200 per square meter over the past year, is still a relative bargain.
In Vietnam, Khan-Turk said, rising prices correlate with improving infrastructure, such as hospitals, transportation and schools. Phnom Penh’s infrastructure, however, still lags behind the region’s other major cities, Rendall said, adding that the current boom in prices has led to speculative purchases.
“Usually a rise like this ends not by leveling out but with a slight dip,” he said. “There’s going to be the person who buys last, and the people who borrowed to buy will not be able to pay back the loan.”
If land prices were to dip, which could happen if foreign investors grow cold to Cambodia for some reason, that would mostly hurt those who bet life savings on speculative purchases, said Chan Sophal, president of the Cambodia Economics Association.
Land prices dipped during the yearlong political stalemate that followed the 2003 general election but have risen steadily since 2005. And while some experts doubt a continued boom, none foresee the July 2008 national election undermining growth.
Sung Bonna said that due to a restructured Constitution that makes it easier for one single political party to form a government, increased tourism and the confident backing of foreign investors, land prices are not set to decline any time soon.
“This time, people are not so scared,” Sung Bonna said of the country’s often fractious political culture. “This time, everything is going well,” he said.
Further evidence of increasing stability is Standard & Poor’s first-ever risk assessment of Cambodian banks, released Jan 8, which said, “Cambodia’s economic prospects are good due to political stability and liberal economic and trade policies.”
“Nobody is nervous about the elections,” agreed Oeung Phalar of UPL Group.
For now, land continues to sell quickly, Sung Bonna said, driven by foreign investment from South Korean developers.
“The main players at the moment seem to be the Korean companies, and they don’t seem to be fazed by the growth in land prices,” said Naim Khan-Turk of CB Richard Ellis. “To them it is significantly cheaper than in Seoul or even [Ho Chi Minh City].”
According to Khan-Turk, development in Hanoi and Ho Chi Minh City is spreading to secondary and tertiary cities, which bodes well for Cambodia’s provinces if Phnom Penh can sustain and capitalize on its own growth. But Khan-Turk added that inflation, poor infrastructure, bureaucracy, a slowdown in the US economy, rising oil prices, and rising gold prices all play against Indochina’s market boom.
The question remains, however, whether the property market is artificially inflated, and who would bear the brunt of a downturn.
“If there is new money coming in it could go on longer,” CEA President Chan Sophal said. “If it stops, then I think the prices will come down.”