Phnom Penh market flooded by smaller condo units

Phnom Penh market flooded by smaller condo units

Traditionally, Cambodians prefer property at ground level. However, the increased security and lower maintenance costs of condominiums is causing their attitudes to shift.

The real estate market in Phnom Penh is going through a very big shift with significant focus on condominiums and serviced apartments, with fewer office buildings and hotels, and a limited number of retail centres being built.

Phnom Penh has seen a massive increase in the construction of condominium units but developers are struggling to find buyers. Poor condominium presales have led many developers to freeze or cancel new launches this year as the market slows. In particular, developers are now building too many one-bedroom units rather than the larger units. This huge influx of small dwellings can be a cause for concern. As a result, rents for one-bedroom condominiums in Phnom Penh may fall because of the current trend of oversupply.

As the economy expands, we expect that there could be growth in numbers of expatriate residents. In my opinion, developers should build condominiums within the maximum rental range that most middle-class Cambodians and expats can afford. Anything above that would prompt those with the financial means, to buy a home instead of rent.

Low-priced condominium units, that cost USD50, 000 or less, have seen supply jump in the last few months.  The majority of these are targeted at low-income buyers with a few speculators also purchasing units in this market segment. For buyers, the key deciding factors include the attractive financial packages with low down payments. Thus most of the projects have ended up offering the same products, with the majority being one-bedroom units as small as 24 to 40 square metres.

“One bedroom condominium units are good for the property market because they are affordable for small families to purchase and for their own stay. Normally, one bedroom units attract more interest from buyers because they are easy to rent out,” said Veasna Sea, Sales Lead at Phnom Penh City Center.

Chan Mlop Sokha from Sokha Law Office believes that middle-income families can afford condominiums around USD70, 000 per unit, “because they can get a loan from the bank of around 50 to 70 percent of the unit price.”

At the higher-end of the condominium market, buyers are still looking for a reasonably large space, and two-bedroom units are the most popular, with growing demand for three-bedroom units. In many cases, buyers are prepared to pay higher prices for products that meet their requirements in terms of quality and design.

Cambodians are buying for a mixture of reasons; for a residence, to rent out or for speculation. So if investors are looking to buy to generate rental income, I suggest that they should look into the low-rise residential property markets (single houses and townhouses); not only do the locals prefer to live in these rental properties but a large number of expatriates are also renting them. Given its lower volatility than the condominium sector, the low-rise residential market should continue to have steady growth, although the market growth in the low-rise segment is not as rapid or high as condominiums. In fact low-rise buyers represent the real demand from locals. As an investor, it is essential to pay the right price for a property.

In the end, condominium buyers looking for rental yields need to understand the supply and demand for each unit type in their preferred location. Buyers thus need to do their homework and should seek to buy in a location where there is a lack of supply. Given its present condition, I expected the market might require five or more years for all of the one-bedroom units to be absorbed, assuming that there is no significant new supply in the upcoming years.

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