Future of Cambodia Real Estate Sector in 2022 & Beyond
The real estate sector in Cambodia was hit hard in 2020 at the start of the COVID-19 pandemic. In 2021, opposite to the positive expectations, the market was hit even harder given lockdowns and the widespread new variants. However, after the country’s reopening in November, many real estate analysts have increased their hopes for 2022.
CBRE Cambodia Managing Director James Hodge said that the opening will indeed help jump-start the real estate market in Cambodia, but the impact is limited during the first stage.
“Without reciprocal relaxation of quarantine requirements by other countries the impact is likely to remain relatively limited in terms of foreign investor arrivals. This is because many of the key investor markets, including Singapore, Hong Kong and China still impose strict quarantine requirements on arrivals returning from Cambodia, which will continue to put off travellers from these countries,” said Mr James.
Similarly, President of the Cambodian Valuers and Estate Agents Association (CVEA) Chrek Soknim also said that the removal of quarantine is the first step toward the recovery of both the economy and the real estate market.
“With this policy, investors will start to consider returning as they do not have to waste their time doing the 14-day quarantine. This will gradually boost the real estate sector. But, I think the peak will be after the Chinese new year, especially for the Chinese investors,” said Mr Soknim.
President of KW Cambodia Dr Kim Heang, different from other analysts, did not expect the market will recover to the 2019 level yet.
Dr Kim Heang added that 2022 and beyond whether or not the market will recover depends on three key factors with uncertainty remaining.
“There is no uncertainty at all for the future. The country reopening is a good sign. However, if foreign investors, which is the first key factor, do not return, the market will remain stagnant as it is now, given the small scale of the domestic market,” said Dr Kim Heang.
“I don’t expect much from 2022. I don’t expect new investors to come. Just make the existing ones who left during the pandemic returning is already the best we can do,” he added.
Besides foreign investors, two other sources of capital that will help jump-start the real market are the wealthy overseas Khmer and local tycoons.
“In a hard time like this, I wish wealthy Khmer living abroad would consider injecting capital in Cambodia. If they do so, the market will see a big improvement next year as there will be domestic cash flow,” said Dr Heang.
“Meanwhile, rich locals should also continue to invest further to keep the market going. Thanks to the local development, real estate sub-sectors such as land and boreys have been doing fine even during the pandemic,” he added.
Dr Kim Heang also summarised the future projection of each sub-sector as follows:
1. Condo
In both 2020 and 2021, this sector saw the most severe impact. The market almost stopped moving as it is largely dependent on foreign investors. Some projects whose developers are foreigners have been suspended. Some others, even with local developers, also paused due to lack of cash flow caused by no sales.
“The hope for this sector is to wait for the foreign investors to return. However, those who wish to switch to the local market should reconfigure their location, size, and price. For Khmer people, the condo has to be in the city centre, with decent room size and an affordable price,” said Dr Kim Heang.
2. Borey
The borey market will remain strong in 2022 and at least for the next 5-10 years, citing low to mid-range types will be in high demand. Boreys that are in strong demand will be those priced from US$50,000 to US$100,000.
“A large proportion of the Cambodian population are those with low and middle incomes. Thus, the price range of residential projects with unit prices below US$100,000 is the most feasible for them. Given the easier access to bank loans, the demand for this type of borey will continue to rise,” said Dr Kim Heang.
3. Divided Land Plot or “Dey Lo”
The trend of buying Dey Lo will remain for at least until 2030, especially among young people with low income who cannot afford to buy a house. This is the only way for them to invest.
However, Dr Heang has warned that some of them are prone to collapsing in the next two or three years if the developers do not upgrade or change their development methods.
“Developers must change the way they develop those plots. Some Dey Lo developments now do not have proper infrastructure, no roads, no drainage system, and no utilities, among others. Some plots are too small and located too far from the city or urban areas. If the developers keep doing so, no one will buy the plot in the next two to three years,” said Dr Heang.
“On the other hand, if developers build proper infrastructures with clear planning and decent sized plots of land, this business will go on for long,” he added.
4. Warehouse & Factory Leasing
The business of building factories or warehouses for rent has been gaining in popularity in recent years. However, in 2022 and beyond, this type of business can be profitable or not depending on location and land size factors.
Dr Kim Heang said those who own only 1 to 2 hectares of land in the potential area, better not invest in a warehouse or factory leasing businesses. The business is profitable only when one owns more than 10 hectares of land at least.
“You will not make much profit from renting itself. Most people make a profit from this business by selling the remaining nearby land. For example, you own 10 to 20 hectares of land, and you build factories or warehouses on 1 to 2 hectares. You rent those out,” said Dr Kim Heang.
“Years later, the remaining land of that you own will increase in price due to the business activities. Then, you will make a profit by selling the remaining land,” he added.
5. Vacation Home
During the past few years, the trend of building vacation homes for sale has gained popularity, in particular at tourist attractions. However, Dr Kim Heang has warned that oversupply of this type of property can cause financial risks among developers given the overall economic condition, limited average incomes of households, and low demand.
“Most Cambodians cannot afford to buy a vacation home because they cannot even afford to buy their primary house. The young to middle-age generation, who are the largest population, will keep their money to buy a primary house and a car,” said Dr Heang.
“The clients for this segment do exist, but it is very small, mostly for rich people aged over 50 years old. Thus, vacation homes really need more time to grow, at least another 5 to 10 years,” he added.
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