CBRE: EBA withdrawal may harm industrial estates, retail, and property loans

• 19 February 2020
• Local News
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The withdrawal of EBA trade privileges from Cambodia, which is expected to take place by August, may pose risks to the kingdom’s real estate sectors especially on industrial estates, in the retail sector, and for borrowing on residential real estate, according to the prediction of CBRE Cambodia.

Based on the viewpoint report released by CBRE Cambodia in February, the EBA withdrawal will possibly result in the relocation of factories to neighbouring countries or the reduction of new future investment in the kingdom due to the less competitive privileges. This can affect the real estate sector in the two scenarios.

For the less harmful scenario, less investment or relocation can slightly harm market rents or industrial land prices. The report says vacancies in industrial estates are likely to increase marginally as a result of these changes, especially as after a prolonged period of increasing demand, and increases in industrial supply have begun to gather speed.

However, CBRE expects the impact to be minimal, as at present industrial vacancy is estimated at less than 2%.

However, for the extreme scenario, EBA withdrawal may cause bankruptcies or mass unemployment. Added with other factors such as the corona outbreaks, trade war, and other geopolitical issues around the world that drag down the overall economic growth in Cambodia in 2020, the EBA withdrawal may create a potential contagion risk between the industrial and financial sectors of the economy.

This would negatively impact retail spending, service sector growth, and borrowing on residential real estate. However, given the relatively constrained response from the EU, this scenario appears very remote, says the report.

Similarly, local real estate analyst and CEO of Key Estate Mr Sorn Seap also expressed concern on the risks posed by the EBA withdrawal to the real estate sectors. However, he does not have any clear projection, as everything will depend on the economic situation.

“At this stage, I can’t give any projection on what will happen to the real estate sector. However, it is undeniable that if the EBA withdrawal affects the overall economy, real estate will indeed feel the effect as well,” said Mr Sorn Seap.

Regarding the EBA withdrawal situation in Cambodia, the European Commission announced their decision on 12 February to partially withdraw the kingdom’s access to the ‘Everything But Arms’ (EBA) preferential trade initiative, reported Reuters.

The changes will take place on 12 August, unless EU governments or the European Parliament block them. With this decision, certain garments and footwear, all travel goods and sugar will face the standard tariff of 12%.

If that happens, Cambodia will lose about 20% of the preferential rights of the EBA scheme, which is equal to approximately US$1.1 billion of Cambodia’s exports to the EU.

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