Bank Deposit Rates Vs Property Investment Yields

• 28 February 2018
• Local News
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Interest rates on bank deposit savings accounts here in Cambodia are very high in general and investors buy properties seeking annual yields as well as capital appreciation. The average gross yield of office and condominium investments in Phnom Penh are approximately 4 percent to 8 percent, which is slightly higher than the bank deposit rates – 12 months fixed deposits at banks offer an average interest rate of 5 percent.

Fixed deposits provide a consistent yield. However, Nguon Cheayleng, CEO of the Pointer believes it is better to invest in real estate. “I would invest in property as the returns could be two ways – rental yield and capital gain,” she said. For real estate investments, picking the right properties and understanding tenant requirements allows investors to earn a consistent yield.

Again, location is the number one factor for the rental market, particularly for expatriate tenants which are the key market for both apartment and condominium units in Phnom Penh. These expatriate tenants are very selective when it comes to location. Developments which offer easy access and are in close proximity to amenities such as restaurants, schools and shopping centres are much more in demand.

In Phnom Penh, prices substantially differ by location, but rental yields do not vary significantly. “Rental yields do not vary significantly because there are different classes of properties available in the market catering to different types of tenants,” explained Chan Mlop Sokha from Sokha Law Firm.

Picking the right unit size is also important. In the past, one bedroom units achieved the highest yield, but competition in this segment may cause downward pressure on yields. Average yield and occupancy level are comparatively lower for larger units. For any buying decision, investors must make sure they assess the market demand before purchasing. Picking the right property allows an investor to maintain a consistent yield. In Phnom Penh, selective properties can ensure a yield in excess of 5 percent, or even 10 percent, as well as medium to long-term capital appreciation.

Newer buildings tend to provide better yields than old buildings. But older buildings located in very prime locations that are no longer available, and or have been well maintained and renovated (but older buildings tend to be costlier to maintain and likely to incur additional costs for upgrades) are still achieving similar yields to new buildings. In general, older buildings can also maintain good yields, because prices of older buildings are lower when they were launched. Owners of these older buildings can therefore accept lower rents, and still achieve similar yields to new buildings.

Furthermore, there are other operating costs involved in buying or letting the properties and after taking all these costs into consideration, the average yield achieved maybe lower than the bank deposit rates, particularly with the oversupply of condominium and office units.

However, the scenario is different for investors making purchases in land or landed properties such as villas and shophouses. For example, land prices have increased by an average of between 10-30 percent within Phnom Penh, and between 10-20 percent in the suburban areas of Phnom Penh, depending on the surrounding infrastructure. Therefore, only if an investor selects the right type of properties to invest in can he or she assure a decent yield to be generated.

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