Impacts of Government Bonds on Economy & Real Estate Market

• 26 October 2021
• Local News
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The Cambodian government has recently announced a plan to issue bonds worth over US$300 million next year. Though the government did not disclose the detail on how the bond funding will be used, priority sectors such as infrastructure development will be one of those included in the spending list. (Read more)

This plan has raised a lot of doubts to the public whether or not it would create a financial burden to the government? More importantly, will investors dare to want to buy the government bond given the low popularity in Cambodia’s security market. Last but not least, how would be the impact on the real estate market?

HE Hong Sokhour, Director General of the Cambodia Securities Exchange, stated on October 25 that the goal of the government to issue government bonds is to develop and strengthen the capital sector of Cambodia.

“It is necessary because when our economy grows to a certain level, the source of capital that we have received in the past in the forms of bilateral or multilateral funding will be gradually reduced. Thus, there will be a need to raise more capital for our public investment projects,” he said.

He added during the first-year trial period, investors as institutions such as banks, insurance companies, pension funds, or social security will be the potential ones, while general investors will gradually follow.

“As a new product, not all investors in our market knowledge. However, the most important investors are institutions, companies, financial institutions, insurance companies, pension funds firms, among others,” he said.

As for the real estate sector, Managing Director of CBRE Cambodia James Hodge said the bond issuance would not have a direct impact on the market but would have an indirect one.

“Bonds are a mechanism for the government to earn revenue which is usually targeted at spending on investments to promote economic growth. Bonds also offer an alternative investment option for citizens,” said Mr. James.

“A bond issue doesn’t necessarily have any direct impact on the real estate market. But it might have indirect impacts, one would be positive in that government investment into infrastructure or efficient service delivery can be beneficial. Alternatively, it opens up more avenues for investment, which may distract people from investing in real estate,” he added/ s

Similarly, President of Cambodian Valuers and Estate Agents Association (CVEA) Chrek Soknim and CEO of Century 21 Cambodia Grace Rachy Fong both agreed on the positive impact of government bonds on the economy and real estate market.

“If the state has a larger cash-flow in the economy, especially for infrastructure development, it will have a positive impact on real estate. With better infrastructure, real estate prices in those areas will also go up,” said they.

The two experts also opposed the idea that investment in bonds will eat up the investment value in real estate, citing that the two are two different types.

“Bond is a long-term investment which in general investor already set aside a specific amount of money for that, generally small amount. Investors won’t use the cash from investing in real estate to buy bonds,” they explain.

 

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