Maximising Returns on Rental Investment
Many housing buyers in Phnom Penh prefer to buy properties and rent them out to others, with the hopes of delivering long-term capital growth and investment returns. Just as with all investments, there are some risks and not everyone who invests in property has good experiences.
Rental investment is popular in Phnom Penh because of the increasing demands for such accommodation from foreign expatriates working in Cambodia. For the expats, the most immediate solution is renting a property unless they want to become an owner.
Maximising rental income is not just about buying a property and collecting rent; the key is to understanding the rental market – either the expatriates or locals who are renting; their preferred locations; and their preferences in terms of unit type, size, design and specifications. Based on the above factors, investors can experience a number of variables which, in the end, will increase or decrease their returns on investments.
The ‘buy-to-let’ investors purchasing units in prime areas of Phnom Penh are predominantly targeting the expatriate rental market. The majority of the tenants are expatriates in the current rental market who are living and working in Cambodia for an extended period of time. These people choose to rent, but not to buy. As of early 2016, there were over 50,000 expatriates living in Cambodia, the majority of whom were living in Phnom Penh and this is the main driver of the rental demand.
“Approximately 80 to 90 percent of the condominium units are rented out to foreigners,” said Chan Mlop Sokha from Sokha Law Office. However, Sokhun Chev from KATA Appraisal Co., Ltd. believes that the market is reaching the point of oversupply. “I think there is an oversupply of condominiums in Phnom Penh and most buyers are afraid to buy at this point of time. Based on my knowledge, there are not so many foreigners looking for condominiums and the market is stuck.” Sokhun Chev said.
One must understand the expatriate tenant requirements in order to ensure a maximised return on investments. A key investment decision for landlords is which unit type to invest in. Whilst 1-bedroom units account for the majority of the supply and highest rental demand in Phnom Penh, 2-bedroom units show the higher rental amongst expatriate tenants accounting for the leasing transactions. In terms of unit size, the average sizing according to the budget ranges from 40 to 60 square metres for one-bedroom units, and 80 to 120 square metres for two-bedroom units. Any larger units are limited both in demand and supply.
Location and budget are some of the top considerations. The majority of expatriates in Phnom Penh prefer to live in a limited number of locations, specifically in Boeung Keng Kang 1 to Boeung Keng Kang 3, Toul Kork, Chroy Changva and parts of the riverside area. Properties in these areas usually perform better than others. The further away you move from these areas, the lower the rental income may be.
Regardless of the location, the key criteria for a good residential location is that it offers easy access to retail options, dining and key amenities such as international schools. Boeung Keng Kang 1 in Phnom Penh is the most attractive area amongst expatriates and records the highest rental demand and total transactions. Other important considerations for a tenant include the fit-out, furnishing, unit design and the building’s facilities.
Most expatriates at the senior management level have a fixed corporate budget to select properties based on the total monthly rent. They will seek sizeable quality units and the best available within their budgets. Whilst there is a wide range of budget within each property unit types, landlords should ask rents that match the majority of the market’s budget for each particular unit type.
Setting higher asking rents only limits the number of potential tenants who can afford the rent given their fixed budgets. Smaller units typically achieve a higher rent on a per square metre basis. As an investor, don’t be tempted by the potential of higher capital growth through high-priced properties because these properties may not be ideal if you want to achieve good rental returns, and the units can remain vacant during the slower property markets.
On the other hand, most tenants like to move from one rental property to another. It is important to know why they would rather spend the money, time and effort to move. As a landlord, make sure the turnaround time is minimised. Always consider the type of tenant because it can affect the vacancy itself. Vacancies can eat up your profit very quickly. In most situations, if a rental increase may result in the property being vacant for months, it could be better to keep the rent as it is.
The property should also be maintained in a good condition, and redecorated when required in order to ensure competitiveness with newer units. A property with characteristics that sets it apart from the rest allows investor to maximise their rental incomes. For example, a property comes with furnishings and other amenities and is well finished etc. Try to address any problems quickly when a tenant complains about a repair or maintenance issue. Landlords who do not refurbish their units when they are dated will face with competition from newer units and find the units harder to rent out and achieve lower rents – a modern property is always a better deal.
Spending money on redecoration means the value of the property and your income will also increase together. Even simple improvements can often greatly increase the chances of securing a tenant quickly. As a landlord, you should find quality tenants that take care of the property and pay consistently; do not just choose any tenant that comes along regardless of their background.
Landlords will always want to maximise their investment returns. Figuring out the rent to charge can be very tricky sometimes, therefore you should look closely at market conditions, do your own research first, consult with the local real estate agents and keep an eye on advertisements in the newspapers and magazines when setting the monthly rental rate. At the end of every tenancy, always have a fresh evaluation to see if the property can gain a higher return on the investment, regularly review the rents and ensure they are at market levels, and always know how the rent compares to the market.
In summary, the key to a successful investment is to maximise yield as well as ensuring the rent out of the unit and occupancy. Investors should select a popular expatriate location, pick the most efficient unit layout and size that allows them to set an asking rent that matches the typical expatriate budget in order to be financially rewarding.
Your property investments can bring higher returns only when you have the knowledgeable advice, assistance and preparation in every steps of your investment.
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