Future of Divided Land Plot Business in Cambodia: Is the Buyer the Victim?
A 32-year-old factory worker and also a divided land plot buyer who prefers to be called Da told Construction & Property News that she decided to buy a 5x20m plot of land along NR5 near Oudong because the price was low plus there was an affordable instalment program. She hopes one day she might make a profit from selling the land or build a house there.
“Actually, I am quite worried that in the future the area that I bought might look like a slum as anyone can build anything with no proper management and regulation like those big boreys. However, there is nothing we can do, with less money, I get what I pay for,” said Ms Da.
“Nevertheless, the future is the future. Let’s cross the bridge when we get there. What worries me more now is the loss of income. I have owed the landowner instalments for 2 months already. For now, they are fine with that, but if this prolonged, I don’t know whether they will seize the land or not,” she added.
The business of splitting big plots of land into smaller pieces for sale, known as the divided land plot business (Dei Lo in Khmer), has become a big hit and earned millions and millions of dollars for business operators and landowners. The business model has become popular because by dividing land into small pieces, the price is relatively low and more affordable for lower-middle-income people.
However, this million-dollar overheated business also brings problems.
Some local real estate experts are concerned that due to the small size (mostly 5x20m); the lack of infrastructure such as roads, water, electricity; and especially the lack of post-sale management, those land plots may become very disorganised.
Besides, even though the price is low, the chances of the price increasing for this type of land plot are very slim as the price has already been marked up by sales agent and developers.
The COVID-19 pandemic has worsened the issue as some of the buyers who are lower middle class such as factory workers, motor-taxi drivers, or tuk-tuk drivers have lost their income. Thus, some of them cannot continue paying the instalments.
Chairman of the Board of Directors of CVEA and CEO of Realtor 168 Co., Ltd Mr Lim Socheat is concerned that buyers of these land plots could become the victims of this overheated business if the government and the private sector do not cooperate and come up with new control measures.
“The size of 5x20m plot is relatively small, not suitable for build anything significant. With the fact that some plots are quite far from the city, the lack of infrastructure, post-sale management, and the limited standard of living for buyers, means the constructions on those land plots could be very disorganised and chaotic,” said Mr Socheat.
“In addition, if you buy for a profit, there is little chance that an investor is willing to buy these very small plots plus the fact that sale agents have already marked up the price before selling,” he added.
Is the buyer the victim?
Another buyer nicknamed Cheni, who bought a small land plot in the southern suburbs of Phnom Penh said,” Of course, I am worried about the future and that we might have to live in a disorganised place. But at least we have a plot of land to live on. So, let’s solve the problem when it happens.”
“Buyers like us are victims or not, I do not know. What I know is that the current situation is difficult. Making money is very hard now, but I still have to do my best to pay the instalments,” she added.
Chrek Soknim, President of Cambodian Valuers and Estate Agents Association (CVEA). also expressed concern over this issue. But asking whether or not the buyer is the victim, he said depends on each individual plot along with other factors.
“We have to acknowledge the fact that most plots are sold at low prices, so the quality of the infrastructure and management is also low. In other words, you get what you paid for. It is not entirely the fault of the business operator. Given quite a low price, they might not have enough capital to provide a post-sale management service as those big boreys do. If they increase the price for better service, they might lose their clients,” said Mr Soknim.
“The root cause of this issue is the relatively low income of the people. Thus, it requires a long-term solution. In short, the issue of disorganised land plots will end only when the people’s standard of living/income improves.
In the short-term, the government and the private sector should jointly strengthen post-sale management services
Another buyer of a land plot in the Phnom Prasit area, in the northeast part of Phnom Penh who preferred to be called Nana, 26, told Construction & Property Magazine that she wants the government and the private sector to help ease the instalment payments, which are quite an urgent issue for her.
“For the long term, if possible, I want the landowner to help us with infrastructure, at least water and electricity. Meanwhile, the government should also enforce a new law to make the landowner responsible for what they sold, not just disappear after all the land is sold,” she said.
The Chairman of the Board of CVEA Mr Socheat, echoed Mr Soknim that the divided land plot issue is a long-term one, but the government and private sector can also take action to at least mitigate the current problems.
“So far, we have seen that the government has started to issue some regulations. However, we want to see more especially the regulation on post-sale management and restrictions on the types of construction on those land plots to prevent them from becoming chaotic,” said Mr Socheat.
In the meantime, Mr Socheat suggested that the land plot sellers might also consider transforming the business model from just selling the land to selling affordable houses with proper infrastructure and management service with a price not exceeding US$10,000.
Similarly, CVEA President Sokmim suggested another short-term solution which is the zoning method.
“As we predict that those land plots might become disorganised in the future and it’s hard to control them, zoning is the best the government can do now. This means the government should issue a zoning regulation allowing this type of business to be done with only a specific area on the outskirts of the city. This will keep the city looking organised,” said Mr Soknum
Besides, Mr Soknim also proposed another idea of expanding the size of the plot to be larger than 5x20m.
“The private sector should also consider changing the size of the land plot from 5x20m to 10x20m or 20x30m. This way, the land will have more potential, and the buyers can resell for profit as it can be sold to investors for commercial purposes, said Mr Soknum.
“It might be quite expensive and hard to find buyers, but it is a more sustainable business,” he added.
In conclusion, the land plot business is a reality that developing nations like Cambodia must accept given the high proportion of lower-middle-income citizens. However, both the government and the private sector should work together, starting from issuing regulations on post-sale management and construction control, the conversion of plots into affordable housing, or even splitting the lots into larger sizes to increase the chances of making a profit for buyers.
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