Price differences between old and new condominiums

Overseas buyers of condominiums in Phnom Penh are surprised by the fact that prices for newly- launched projects can be so much higher than buildings that were completed three to five years ago in almost exactly the same location. 

Here in Phnom Penh, it is not just location that drives price, there are other more important factors such as age, design and specification of the building and how the building has been managed and maintained.

Taking the example of De Castle Condominium located in Boeung Keng Kang 1 (BKK1) area. This was once considered the best quality condominium in Phnom Penh and achieves resale prices of over USD2,000 per square metre. Yet high-rise developments recently launched in the BKK1 area such as Platinum Bay are selling for over USD2,300 per square. On Diamond Island, the average prices for some condominium projects are priced between USD3,000 to USD3,500 per square metre. 

There are a number of reasons for the price gap between old and new buildings. One is the buyer preference for new property with so many condominium projects to choose from. Similar to the situation in Thailand, Cambodian buyers are reluctant to buy previously-occupied properties, and this is not changing. Until now, few local buyers are willing to purchase previously occupied condominium developments. In the market, only a minority of condominium units were resold by individuals after completion. In Cambodia, where the majority of buyers enter the deal during the construction period and purchasers buy off-plan, some buyers prefer to occupy the property after completion, or sell it prior to completion.

“If the price of the new condominium unit exceeds 50 percent of the old condominium unit price, I’ll buy the old condominium unit. But if the price of the condominium unit is only 20 to 30 percent higher than the old condominium unit, then I’d rather buy a new condominium unit,” said Chan Mlop Sokha from Sokha Law Firm. 

However, Chhayleang Ngoun from Ratanaka Realty has a different view when it comes to buying an old condominium. “I’d rather not buy an old condominium although it is cheaper. The reason is simple; there will be high maintenance costs incurred in the future which I don’t want to pay.” Over time, it could be due to wear and tear, components in the condominium may need repairs and replacements. Knowing when certain components were last repaired or replaced, will give the tenants ideas how long they’ll likely need maintenance and replacements again. Bear in mind that maintenance and repairs to the inside of the individual condominium unit are the direct responsibility of the unit owner.

In Phnom Penh, prime land prices continue to rise and set record highs with no signs of slowing down. Prime residential development sites are becoming scarcer, particularly in the areas of Boeung Keng Kang 1, Diamond Island and Wat Phnom. The increase in land price, rather than the increases in construction costs or developers’ profit margins have been one of the main reasons for increases in newly-launched condominium prices. 

On the other hand, there are other reasons why old buildings are less popular and achieve lower prices, particularly with shop houses. For example, design issues that deter buyers, inefficient layouts, columns in the middle of the rooms which creates insufficiency etc. Other negative factors which applies to both new building and old building, including the low ceiling heights in the units - some buildings have ceilings as low as 2.2 - 2.5 metres while most of the new luxury high-rise condominiums and shop houses  have ceiling heights of 3 metres or above. For these old buildings, it must be improved sufficiently in order to compete with newer buildings. But in some cases, it is the inability of co-owners to agree to spend money on suitable improvements.

Since the prices for new residential developments have continued to rise as land prices have risen, I believe there is little possibility that prices of new residential developments in prime areas will fall.  Buildings that are well located, well designed with good entrances, common areas, unit layouts, well managed and maintained with regular improvement programs will continue to attract buyers. Buildings that do not have the above features will have limited price increases and low demand.

Nonetheless, it is possible for a building that is over 20 years old to increase in price. The attractiveness and possibility of price rises for older buildings will depend on a number of factors such as design, maintenance and specification etc. Regardless of how the price level increases, each building has a price level where the potential purchaser will see their values. It is also better to check with the surrounding buildings, with the building manager on the latest transaction. 

In addition, Phnom Penh is a free market when it comes to development. The lack of planning rules and regulations has led to the current situation. The authorities should govern the type of property that can be built, the size of the property and land allocation. Cities like Hong Kong and Singapore are highly controlled property markets, where the government tries to manage property prices by controlling the supply though planning regulations and land allocation. As a result of this, building should be heavily restricted by planning regulations. 

In Phnom Penh, there are more new ‘high-rise’ residential properties under construction than the whole metropolitan area of Bangkok in 2016, a city with over 10 million inhabitants. After restricting new supply, prices will tend to push up for the existing stock and this will encourage more refurbishments or renovation of existing properties. In this way, price differences between old and new condominium will be minimised. 

In the end, the margin must be sufficiently wide to attract buyers and investors to buy into old buildings. Only when the price differences between old and new condominium developments are wide enough will buyers be encouraged to look at older buildings

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