What New Condominium Developers Should Know
As condominium developments mushroom across Cambodia, many existing and new property developers are finding their fortune in this small-but burgeoning and prosperous market.
Despite its potential, investing in this style of multi-storey building with various owners is very risky for inexperienced and novice developers, experts warn.
Industry experts spoke at a condominium development seminar hosted in Phnom Penh in early September 2015 attended by potential condominium developers and real estate professionals. They emphasised the need to identify the right condominium business model, have adequate financial resources, a sound legal business partnership, good construction quality, and cost control as the major issues to be taken into consideration before embarking on a project.
There are various forms of condominiums that new developers need to know clearly before preparing business models to capture market share, said Mr. Kevin Goos, CEO of Century 21 Cambodia, a subsidiary of U.S. based global real estate agency Century 21, which organised the seminar.
Condominiums mostly yet unseen in Cambodia are: serviced apartment condominiums operated like a serviced apartment; town-house condominiums, resembling the multi-storey flats in Cambodia; mall condominiums, built and operated in a mall style; and office condominiums where the building’s office units are owned by separate enterprises.
While the unit owners of a hotel condominium lease back the units to a hotel operator to run as a hotel, the resort or time-share condominiums usually developed at the resort communities allow people to own the same condo units with different periods of the year allocated for their respective vacations.
“Many smart investors are bringing those styles of condominium businesses to the Cambodian market now,” he said.
Mr. Goos recommends new developers to keep their eye on medium-rise condominium investments such as office condominiums, explaining that investors will find those condominiums financially convenient, easy for construction quality control, and easy to request bank loans for, while ensuring strong market demand.
Predicting the market in the next three years, Goos anticipates most of the high-end condominiums will face problems as they can’t find enough buyers and tenants to rent their expensive units. “There will be a shift to the more affordable condominiums to meet the need for local middle-class buyers that want to live in their downtown condo during the week and relax at their villa on the outskirts at the weekend.”
Having their own budget to finance the condominium construction without depending on clients’ deposits was the point Mr. Charles Vann, acting vice-chairman of the Association of Banks of Cambodia (ABC) alerted new developers to.
“…You can’t just have [a plot of land] then draw a condominium master plan, then do marketing and sell it and rely on buyers’ deposits to complete the building,” he stressed, mentioning the stalled Gold Tower 42 and previously-stalled De Castle Royal as the example. “It is quite risky if you follow this model especially when the economy fluctuates.”
Over-promising and over-marketing to customers are also what this financial and building guru warned new developers of as they will lose customers’ trust when they [developers] can’t fulfill their promise. “…Their over-promising will upset buyers not only on their existing project but also their future one(s) as customers lost trust in you.”
On legal issues, Dr. Sok Siphana, managing partner of SokSiphana&associates, one of Cambodia’s leading law firms, points out the common legal issues about condominium businesses in Cambodia are mostly about seeking the right partner(s), shareholders’ disputes and drafting a dispute-free Joint Venture (JV) agreement between the local company that usually owns the land and the international firm that usually finances and develop the projects.
Many local land-holding firms are careless in maintaining their company’s legal documents such as having proper shareholders and board resolutions, and ensuring other compliance with the Cambodian laws and regulations, which results in complicated legal problems when they form a partnership deal with foreign investors to develop a condominium.
“The international partner doesn’t care if the shareholders listed in your company’s board resolutions are all your relatives, but they only care that those people must agree with the terms of the JV agreement and be willing to honor them in the future when the project start.” he said. “These are the sources of disputes that can lead to shareholders’ disputes that can stall the project construction, although they have enough funding.”
To prevent future conflicts, some professional developers, after signing the JV agreement, even enter into a more complex shareholders agreement that outlines in detail the responsibilities, the rights and the obligations of the respective parties in the partnership business, he added.
Dr. Sok who has led the drafting of the Kingdom’s long-awaited construction law also reminded developers that this 360-article law will significantly impact all developers once it enters into force next year.
Besides ensuring construction quality, cost control and that the condominium’s design fits reality are what both Mr. Vann who is also the acting chairman of Cambodia Constructors Association (CCA) and Dr. Sok reminded new developers to focus on.
While Mr. Vann advises new developers to ensure they have qualified people or a professional agency to do effective project costing and construction quality including every detail inside the building, Dr. Sok even recommends developers to select architects that have experience living in the condo to design it and do motion studies to see if the design can comfortable be inhabited or not.
In addition, there are many more things that successful condominium developers need to know including project design and pre-development, marketing and sales, condo pre-registration and occupancy, condo registration, title deed, management etc.
As the market continues to expand in Cambodia, it is clear that those developers who follow both the law and international standards in all aspects of the design, construction and sales process and recognise the future needs of the market, are those who will be most successful.
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