Signs of recovery have emerged in Phnom Penh’s property market, following an 18-month slump in sales and prices going from boom in 2007 to bust earlier this year, real estate experts say.
The resurgence in the property market is being driven by cheap construction costs, the passage of a law allowing foreigners to buy condominiums, and expected recovery in the overall economy this coming year.
In October, construction began on the $300 million Star River project, a three-tower complex that will top 45 stories. Sales in the project, to be financed and built by the South Korean firm Posco Engineering and Construction, are scheduled to begin in April. The project has a scheduled completion date of 2013.
In November, construction began again in earnest on the $2 billion CamKo City in Russei Keo district, which had slowed down earlier this year. The same month, Japanese firm Arakawa Co broke ground on a $30 million luxury Bellevue apartment complex on the Chroy Changva peninsula in Phnom Penh.
“I’d say it’s a sign of the market bouncing back,” said Matt Rendall, a partner and real estate specialist at the law firm Sciaroni and Associates.
“When the crash happened in August of last year, everyone withdrew spending any more money until they could see what their relative financial situation was. They have realized it’s not as grave as they thought,” he said.
Low construction costs will aid developers this coming year, while the passage of the foreign ownership law, which will allow foreigners to own condominiums but not the land beneath them, will also create demand, Mr Rendall said, adding that sales transactions will recommence in strength by June 2010.
A number of private equity funds have contacted Sciaroni’s lately inquiring about investing in Cambodia in a number of areas including property investment, Mr Rendall said. If those enquiries come to fruition, it will mean significant demand for property.
Pan Hong Kiat, country director of international property consultancy firm Knight Frank, said recovery will be slow, and he did not expect a seller market to return until the end of 2010.
“People are more optimistic compared to three months ago. Next year there will be recovery. You can see that Posco’s Star River has commenced their construction. It is something that is creating confidence in the market,” he said. Still, it’s not clear how strong that demand will be, particularly for apartment projects, he warned.
“It’s a very niche market and when you talk to the developers they will tell you the target market is foreigners who are prepared to spend money to invest,” he said, adding that some of the confidence is based on assumptions of foreign buyers.
“These are signs based on the assumption that there will be a large amount of expats living in Phnom Penh,” he said.
Demand, however, is currently still low and prices for prime locations, which in many cases have plummeted by 50 percent since July 2008, have not yet hit rock bottom. Developers, however, are still working away.
While the economic crisis leveled plans for a proposed $300-million 953-unit five-hectare Pharos Mekong satellite city on the Chroy Changva peninsula by the Korean- BK Asia Pacific, it has been purchased by the Korean firm Booyoung which is planning a real estate project that could break ground next year, said Chandy Mann, administrative officer for Booyoung in Phnom Penh.
“This is the time to start to build because the labor market is cheap so next year is good for us,” he said.
The Royal Group, which put several projects on hold in 2008, has also announced its plans to break ground for a 36- to 38-story skyscraper next year opposite the newly finished Canadia Tower.
And in probably the ultimate sign of confidence through the 2008 slump, construction at the mega-project Gold Tower 42 continued at the corners of Sihanouk and Monivong boulevards.
“It is better than before,” said Duk-kon Kim, the Phnom Penh-based vice president of World City, which is building CamKo City.
“We just followed the market situation, based on the market situation and with the market flow,” he said, assuring that by mid-2010 work will have finished on 441 condominiums housed in two 11-story buildings and four 16-story buildings.
Still, some developers say they are being cautious about the market.
In February, an official at Grand Phnom Penh International City said low demand slowed plans at the satellite city, while sales manager Teng Rithy said on Tuesday that construction crews could increase in the coming year in anticipation of economic recovery.
The project located on 260 hectares in Russei Keo district has completed just 200 units-in what is touted as being one day a 4,000-unit complex-and plans to complete another 100 or more in 2010, he said.
“The economy could be good in Cambodia next year. We cannot be sure…. We hope it will be good next year,” he said.
While construction continues at OCIC’s Diamond Island City on Phnom Penh’s Koh Pich, the firm is waiting to see how sales go in its four condominiums at its Bassac Gardens development before going ahead with building similar apartment blocks at Koh Pich, OCIC’s structural engineer Meng Chamroeun said.
“We just try to make it steady, we don’t rush,” Mr Chamroeun said. “We have to do some investigation. If people have money they might prefer to live in a house that is attached to the ground,” he said.
Sung Bonna, president of Bonna Realty estate agent, said many developers are gaining confidence as several small and medium construction projects are underway.
“Most of the developers or builders expect overseas investors…they are hoping for overseas investors,” he said. “If we can get more investors, it is good. But if there is not so many overseas investor or overseas demand, they may face a risk.”