Future of Unfinished Construction in SHV: Perspective of Investors, Government & Locals
After the Cambodian government shut down online gaming in Sihanoukville, combined with the arrival of the COVID-19 pandemic in 2020, Sihanoukville’s economy plummeted while the overheated real estate market in the province finally cooled and dramatically so.
After Chinese investors left Cambodia, a total of 1,155 construction projects were left unfinished with the rental price of real estate in the province also dropping severely from over 5-digit numbers to thousands or even hundreds of dollars per month, according to the official figures.
What will be the future of those unfinished buildings? This is the path on which Chinese investors, the Cambodian government, and local landlords must walk together to find the way out.
Perspectives of Chinese Investors
Nikkei Asia interviewed several Chinese investors asking their perspectives and future plans on those frozen projects.
Most investors expressed their interest in returning, but both social and economic obstacles prevent them from doing so.
One of the most important factors preventing them from resuming their projects is the lack of support from the Cambodian government.
In early July, a group of Chinese project owners met and discussed with Sihanoukville provincial administration officials over the issue. They requested the government to help reduce some related taxes on their project and help establish the land price index to prevent speculation by locals.
One of the most demanding requests from the investors is the facilitation and involvement of the government in solving the land disputes and contract violations between them and local landlords.
Some Chinese investors have reported that the landlord has seized their buildings which stop them from returning and finishing up their projects.
Chinese developer Qiu told the Nikkei that he had invested US$3 million in a hotel in Sihanoukville in 2017. Construction was completed in 2020 but cannot be opened due to a dispute with the landlord, who wants to take complete control of the project.
“Business was so good,” recalled a developer named Gong, who arrived from Sichuan province in October 2019. “People didn’t think. The market pushed them into making decisions.”
What do local landlords think?
On the other hand, local landlords are claiming that the Chinese investors have violated the contract and not paying the rental fee as promised. After the closure of online gambling and the COVID-19 pandemic, the Chinese investors just left Cambodia and never returned to the project, locals said.
Some claimed that this is the reason why they have no choice but to hold the building/property as collateral and wait for the owner to come back and settle the rental fee. They have no intention of seizing the property permanently.
President of the Sihanoukville Chamber of Commerce Okhna Vann Sokheng said the root cause of the issue is that both sides [Chinese investors and local landlords] do not use the compromise method.
“Chinese investors use the COVID-19 pandemic as the rationale for not paying the rental fee, while the landlord uses the contract to force for a high rental fee just like the pre-COVID-19 period. Neither side agrees to go halfway,” said Oknha Vann Sokheng.
“Some would say if the Chinese investors do not have the capital to resume the project, they can sell those constructions to landlords or local investors at lower prices. Then, those frozen projects will be back to life,” he added.
However, Oknha Vann Sokheng said it is not that easy as most of the construction projects do not have construction permits, which lowers the incentive for new investors in buying them.
“So, to solve the issue, the government has to get involved. The most possible way is that the government help legalise those projects by giving them construction permits. Officials can inspect those buildings. If those buildings do not cause danger to the public, the ministry should issue them permits. Doing so will build more incentives to new investors in buying the frozen project,” said Okhna Vann Sokheng.
“Secondly, the government should help mediate the dispute between the two parties through the contract amendment. It can be paying a cheaper rental fee or extending the payment to a longer period for those Chinese investors,” he added.
However, it has been over two years and not much action has been taken despite the announcement of the government to revitalise Sihanoukville’s economy.
What is the long-term vision of the Cambodian government?
Australian National University researcher Dr Ivan Franceschini explained why unfinished construction projects and land disputes between landlords and investors in Sihanoukville seem not to be the focus of the Cambodian government.
Dr Ivan said in a country where corruption is endemic and land speculation by connected elites is rife, the Chinese investors’ proposals are unlikely to materialise.
According to his study, the Cambodian government actually want to solve this issue; however, the solution must take time as the parties involved are elite and powerful individuals in the government sector.
Nevertheless, the trouble will be eased one day, he believed, explaining that the government has already spent its budget of US$300 million in upgrading the infrastructure of the province; thus, the long-vision masterplan for this province has already been planned.
If the government does not have a clear vision for this project, they would not have spent this amount of budgeting on rebuilding infrastructure and decided to put an end to online gambling in 2019.
HE Vongsey Visoth, Permanent Secretary of the Ministry of Economy and Finance, said that the government has been working on the best way to solve the issue.
“Constructions of many high-rise buildings were suspended or abandoned without development after the COVID-19 outbreak. We will help push the development of those buildings through the attraction of investors or to resell them to new investors,” said HE Vongsey Visoth.
This plan is part of the Cambodian government’s goal of turning Sihanoukville into a multi-purpose special economic zone.
The multi-purpose SEZ is Cambodia’s mega project that aims to develop and transform Sihanoukville into a major economic zone in Southeast Asia and an advanced industrial zone that serves the regional and global production chains, through the usage of technology and smart equipment.
Soon enough, this province will also be connected with the capital by a US$2 billion expressway, which is currently under construction.
Given the government’s long-term vision and actions taken so far, most local real estate experts predict that Sihanoukville’s economy will recover in the near future, as they have defined this crisis as little more than a painful adjustment as the economy becomes more efficient and sustainable for future development. (Read more)
Nevertheless, Dr Ivan Franceschini also believed that the Chinese will not return anytime soon given aforementioned the social and economic obstacles. The old Chinese investors are less likely to return, so hope could ultimately rest on new ones.
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