Taiwanese Investors Bank on Capital’s Property Boom

Taiwanese Investors Bank on Capital’s Property Boom

Taiwan is no longer the paradise for landlords it once was in the past. Gross rental yields are now unusually low, which is often a sign of an overvalued market.

It is common for high-net worth investors to own more than one property for their own use. Wealthy Taiwanese having excessive savings is one of the factors that have driven speculation in overseas property markets such as Cambodia.These investors are reliant on capital gains from the housing market. They believe that profit from investing real estate is especially attractive as a fast way to accumulate wealth.

Cambodia’s rapidly-growing construction and real estate market has attracted significant numbers of foreign investors thanks to investment opportunities coming with guaranteed returns of as much as 20 to 25 percent over the first three years. Attracting overseas investors has become a \'must-have\' for many developers who have increasingly targeted Taiwanese-based property buyers and investors.As a result, many of these buyers have taken the initiative to purchase homes even if it was based on renting them out to the local Cambodians and foreign expatiates.

I think the market is great. Cambodia is a developing country with strong demand and therefore it is a good opportunity for Taiwanese developers and investors to venture into this market.’ said Chan Mlop Sokha, from Sokha Law Office. The current foreign investment boom has triggered a substantial housing supply in Cambodia since 2013 and Taiwanese are taking advantage of this emerging market. Prior to the 2008 financial crisis, Cambodia’s condominium market was almost \'non-existent’.Concern has been expressed that the current boom in house prices reflects that speculators are driving the market. It is yet to be seen what measures the Cambodian government will take to address the impact of property speculation.

Condominium prices in Phnom Penh have almost tripled in the past eight years, from USD1,200 per sq.m to USD3,000 per sq.m thanks to the rapidly emerging Cambodian middle class and significant foreign investment inflows. Buyers were still confident enough to buy into condominium units even at USD100, 000 starting points in the belief that their investment would double or triple like it did in the past.

Some market analysts and overseas Taiwanese buyers tend to be nervous of any sign of a housing bubble and subsequent burst as occurred in the early 2000’s. Current prices are well above what the average consumers in Cambodia believe they can afford, and as a result some people have been hesitant to buy.

To achieve a healthy real estate market, I believe a number of factors need to be taken in account as indicators of whether the market is at a dangerous level. These include the home price-to-income ratio, the rental return, and the mortgage ratio. Thankfully, there are not too many empty units throughout current apartment and condominium complexes and vacancy rates are still low.

The current boom in Taiwanese real estate investors in Phnom Penh is based on the idea that demand for new condominiums will increase as middle-class Cambodians invest their hard-earned money into housing, and increase their liquidity by selling properties.

However, Chan Mlop Sokha believes that Cambodian people may favour the idea of moving into a house in a suburban area rather than living in a city apartment. ‘Cambodian culture favours living in a large home where all the members of their family can stay together,’ he explained. Suburban house owners often have relatively large, plant-filled gardens in front of their houses.It is also important to bear in mind that condominium units are harder to sell than houses, especially since there may not be much to distinguish your new condominium unit from others when condominium completion hits its ‘peak year’ in 2017-2018 and thousands of new units come onto the market.

On the other hand, investment is an important key to stimulating home purchases. It is important to note the connection between housing prices and the economy. Cambodia continues to enjoy robust growth, albeit at a slightly slower pace this year.

Some believe that the recent ASEAN Economic Community integration will spark increased investment inflow in Cambodia. With AEC integration now a reality, I believe it can somehow balance the supply currently on the market and result in more activity and demand in the housing market. Nonetheless, the challenge of how to fill current supply and potential oversupply are still important questions that Taiwanese investors should carefully think through.

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Construction & Property Magazine title=Issue # 031

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