Though a rebound in Cambodia’s economy is under way in many of its main industrial sectors, investment in construction remains stagnant after months of decline, the Ministry of Land Management said yesterday.
Analysts say that investors are moving away from ambitious mega-projects in the capital, launched on a wave of optimism prior to the global financial crisis, and instead are targeting smaller, more realistic real estate investments.
“There is no market for construction right now,” said Nonn Pheany, spokeswoman for the Ministry of Land Management. “Construction activity for major projects is at a limited level.”
Ms Pheany said that capital investment in construction projects decreased by 71 percent in the first six months of the year compared to the same period in 2009, though she did not specify the value of such investments.
However, the numbers of smaller projects that have been permitted by the Ministry of Land Management’s general department of construction in the first half of the year tell a different story.
The number of authorized constructions of apartment blocks, hotels and restaurants rose to 1,095 between January and June, up from 100 during the same period last year, Ms Pheany said, adding that most of those projects were located in Phnom Penh, Siem Reap province and Preah Sihanouk City.
For now, “the construction of large buildings remains stubborn, bringing down capital investment,” she said.
Despite a slower recovery in the sector, analysts say that a more measured approach to real estate investment will be better for the overall stability of the economy.
“When you look at Vietnam you had a very quick bounce back [in the economy] but that was at the expense of fiscal stability,” said Peter Brimble, senior country economist for the ADB in Cambodia. “In the end, for new investment to come in, it will take some time as there are existing projects to pick up again.”
Most of the cash flow previously generated in the sector came form mega-projects such as the South Korean Gold Tower 42, which started construction in 2008, and Phnom Penh Tower, which broke ground last year with financing from Hyundai Amco, another South Korean firm.
Loan disbursals to construction companies are also still of a limited nature, said In Channy, CEO of Acleda Bank.
“We haven’t seen [the construction sector] grow but other sectors like services and trade are growing,” he said.
Nonetheless, Vattanac Properties, part of Vattanac Bank, signed an agreement with the South Korean firm Posco Construction and Engineering in June to build a $150 million, 38-story skyscraper on Phnom Penh’s Monivong Boulevard.
Vattanac Capital tower is scheduled for completion in 2012, according to the company, and the project aims to exceed the height of its neighbor—the 28-story Canadia Tower, currently the tallest building in the country.
Posco also broke ground last year on its own three-tower complex topping 45 stories near the Bassac River and is scheduled for completion in 2013.
Gold Tower 42 at the corner of Monivong and Sihanouk Boulevard is scheduled for completion in late 2011.
Song-soo Kim, director for Hyundai Amco, which is currently building the 22-storey Phnom Penh Tower building on Monivong Boulevard, due for completion by February, said that new projects would largely depend on how existing investments that are currently in the pipeline fare.
“When we started the project we had confidence that Cambodia would have a lot of grade A office space demand,” he said. “Nowadays, because of the financial crisis from 2008…it seems there is less demand compared to what we expected.”
Mr Kim said Cambodia was still at least two years away from any major property projects being approved again in Cambodia. And even then, “it will never be the same situation we had in 2008,” he said.
Tan Hong Kiat, country manager for global realtor Knight Frank, said the outlook for the local property sector was bleak.
“It’s all bad news. Rentals are going down. You have an over supply. Demand is dwindling and those are not that encouraging.”
According to a report released this month by the National Valuers Association of Cambodia, residential property prices in Phnom Penh during the second quarter of this year were down 45 percent at an average $1,500 per square meter compared to the first quarter of 2008 when prices in the market peaked.
Commercial property prices in the second quarter were also down 47 percent at $2,600 per square meter compared to nearly $5,000 per square meter in the first quarter of 2008.
Prices for both residential and commercial property, however, remained stable between the first and second quarters of this year, a sign that the market has at last bottomed out.
“I suppose all the serious investors will wait and see how it goes,” Mr Tan said. “They are very cautious at the moment.
Sung Bonna, CEO and president of Bonna Realty Group, agreed.
“This is a testing period during which foreign investors are analyzing the countries and weighting up which one is potentially strong,” he said. “Though we are a choice for them, we are not the main market.”