Blaming the global financial crisis, a major South Korean developer will dramatically reduce the scale of its proposed $1 billion, seven-skyscraper complex along the Tonle Bassac river to just three buildings at half the price, the company said Tuesday.
Ground was broken in June for the International Finance Complex on Sothearos Boulevard in Phnom Penh but construction on the site will be delayed more than one year, said Woo Mu-hion, chief of the business division in Cambodia for the project’s developer and sole financier, Seoul-based GS Construction & Engineering. Construction was halted earlier this month, he said.
“The market has changed…. Due to such uncertainly, we think it is not clever to continue construction right now,” he said. “We want to change our design, but we will maintain 52 stories.”
The project will now only include two 51-story condominiums and a mixed-use 52-story building, which will be the tallest in Cambodia, he said.
Construction on the complex could restart in early 2010, but first the company needs to redesign the project and get government approval for the new plan, Woo said. Completing the project will take nearly four years, he said, but added that other buildings could be added in the future. Woo added that the redesigned project might involve financial assistance from a bank, rather than GS going it alone.
The delay will allow GS to wait and see how the market evolves, he said.
“Who knows the financial and market future? Most of the specialists think it will take one or two years [to recover],” he said.
Citing a market survey, Woo also said there is not a demand for the more than 100,000 square meters of office space that the IFC would have added to the 40,000 square meters that currently exist in Phnom Penh.
“It’s too big considering the market size of Phnom Penh,” he said. “We are modifying the existing design to have only 35,000 square meters of office space.”
Among Asian countries, the global financial crisis has hurt the South Korean economy in particular and has prompted the Korean government to offer assistance to businesses there, though GS has not accepted government help, he said.
Hang Chuon Naron, secretary-general of the Finance Ministry, said the global financial crisis and slowing growth in Cambodia is bound to affect real estate. But those effects are not necessarily bad, he said.
“I think it’s a correction needed for the market,” he said. “It will put less pressure on the banking sector.”
Sung Bonna, president of Bonna Realty, agreed that adjustments are necessary since the crisis began and because real estate prices in Phnom Penh have dropped 25 percent since July. He said other projects are going to find themselves in similar circumstances as IFC.
Reduction of projects such as IFC is not a surprise and is a sign of a larger issue, said Chan Sophal, president of the Cambodian Economic Association.
“It is a symptom of the problem of rapid expansion in the real estate sector. It is bound to retreat when the demand doesn’t meet expectations,” he said. “[IFC] was too ambitious.”
But, he said, skyscrapers are not necessary to Cambodia’s development and have been given too much attention by some as a symbol of progress.
There are other large-scale South Korean construction projects in Phnom Penh, and Lee Sang-kwang, the commercial attache at the South Korean Embassy, said he had not heard of any other South Korean projects reducing their size or delaying their projects.
“The companies, they don’t want to say anything about their projects until they make their official disclosure. So, it is quite difficult for me to say,” he said.
Jang Kyoung-tae, construction department manager for Hanil Construction & Engineering at the South Korean Gold Tower 42, said that the 42-story project is on schedule and crews have nearly finished drilling holes for the building’s foundation.
“As you can see we have two shifts working 24-hours a day,” he said motioning to the crane, trucks and workers toiling at the worksite at the intersection of Monivong and Sihanouk boulevards.
Despite rumors to the contrary the $2-billion satellite city Camko City is on schedule and hasn’t changed its plans, said Ser Kheng, assistant to DK Kim, vice president of World City, the project’s developer.
“There are rumors that we have stopped progressing, but we have not,” he said.