Analysts, investors and real estate agents have warned that a major crash in the Cambodian property market is imminent as buyers flee in response to a global economic downturn and domestic instability brought on by the border dispute with Thailand.
According to several experts interviewed Thursday, property investors who had speculated on rising property prices in the past 18 months in particular would be hardest hit by the expected slump, but larger scale investors who bought land prior to the recent boom and the economy at large would weather the downturn without any major financial losses.
Debasish Pattnaik, director of business development, project and investment at the Royal Group, said Thursday that the market was in serious difficulties at present and predicted a slump in prices of up to 40 or 50 percent in some areas before it settles.
“People are holding out for high prices, but there are no buyers anymore,” he said. “The prices have to fall. The bubble has burst.”
Pattnaik blamed a number of recent policies by the National Bank to combat inflation, such as doubling bank reserve requirements that led to reduced credit for real-estate investors, as part of the reason for the current troubles.
According to Pattnaik, larger-scale investors and financial institutions in Cambodia were unlikely to take too bad a hit from any upcoming crash.
“Financial institutions in Cambodia are still based on cash-flow rather than land investment, while larger-scale investors in land generally got land at prices prior to the recent boom so will still make a profit,” he said.
President of the Cambodian Economic Association Chan Sophal agreed that a decline in land and property prices was likely.
“The decrease in land prices here is due to the Global market [downturn] and the National bank policy,” he said Thursday.
However, according to Chan Sophal, the decline in prices should not be as sharp as those seen in neighboring Vietnam because prices in Cambodia were not at such a high level.
He added that the current price of land and property was inflated when compared with interest rates and potential rent revenues and speculated that in a changing marketplace, the government should encourage investment in agriculture.
“As real estate price drops [globally], agricultural product prices increase,” he said. “The [drop in prices] should be good for the real investor, who wants to change land into a product,” he said.
Bonna Realty President Sung Bonna described a “complicated” property market Thursday, adding that since June, prices had decreased by 5 to 10 percent in some areas.
According to Sung Bunna, there has been a marked trend in recent months toward seeking higher prices for land, despite the actual transaction prices either dropping or staying the same.
“In June, the same customer that would have asked for $110 per square meter for land worth $100 is now looking for $150,” he said. “The demand is low, and there are too many sellers,” he added.
Among the factors blamed for the slump by Sung Bunna was that the new government had not yet formed, a slowdown in the global property market, the border problem with Thailand, as well as recent banking policies.
However, in the long-term the prognosis for the property market was not necessarily so bleak, he said. “The buyers are still out there but they are waiting at the moment.”
Commerce Ministry Undersecretary of State Mao Thora downplayed the difficulties faced by the real estate market.
“The land price is not changing now because we have just finished the election,” he said. “If there is cheap land price in some areas, I would buy it,” he added.
However, Mao Thora agreed that prices here would likely be affected by international trends.
“The land price abroad…is in decline, which will affect our price,” he said.
According to Mao Thora, those most affected would be people who used big bank loans to finance land deals in recent times.
“If they borrowed money from banks at high interest, they will sell at a low price but if they bought themselves, they will wait,” he said.
However, Asia Real Property Co Managing Director Souch Saroeun insisted that the market was still good around Phnom Penh in particular.
“If you compare prime city center property here to Bangkok or Hanoi, the price is still very low,” he said.
According to Souch Saroeun, people were still asking for up to $5,000 per square when selling properties in prime areas in Phnom Penh and demand was still meeting expectations.
“There is no problem with the market,” he maintained.