Property Development in Cambodia: Exit Strategies And Keeping The Law in Mind

• Proeksa Meas
• 31 December 2015
• Local News
• 1327 Views

Anyone who has been coming to Cambodia over the past few years will notice that the skyline is rapidly changing. Numerous medium and high-rise developments are either online or under construction, and many more are in the planning phase. Gated communities (“Boreys” in Khmer) dot the landscape throughout Phnom Penh and beyond. Cambodia’s other major population centres are also seeing their share of the action.

The rise in property development is due to a number of factors: Local investors more than ever are investing in the sector and the law permitting foreign ownership of apartments is also a contributing element, with many of the developments, such as The Bridge, being marketed primarily overseas. What is also noticeable is the increase in the standard and quality of the projects, both in design and execution.

At SokSiphana&associates, a member of the Zicolaw group of ASEAN law firms, we represent a number of these developers, both local (such as Urbanland) and foreign (such as Lion Group/Parkson), as well a combination of both in the form of international and local joint ventures (such as Oxley Worldbridge). Consequently, we are cognisant of many of the issues faced by all types of developers and developments in the Cambodian property sector. A typical investor is faced with a myriad of issues to consider in designing and proceeding with a property development project.

The first starts with the end: an exit strategy for the project. If the developer intends to sell the project in its entirety (i.e., sell, as opposed to rent, all the units) then it is vitally important to factor into the project plans the management of the complex when the developer exits. Body Corporates are not yet a commonly understood concept in Cambodia. The ongoing contributions required of all unit owners need to be collected and managed professionally in order for the development not to fall into a state of dysfunction. Management and upkeep of the common areas (the role of Body Corporates) is the major issue upon the developer exiting. Buyers will want to know what will happen once the last unit is sold and the developer (who initially takes care of this aspect) leaves.

Other issues that we are commonly asked by clients to address include: whether the Developer has the right to launch the project before obtaining the Developer license and construction Permits; how to structure the payment schedule (based on the construction progress or monthly); whether there are rules on the period of time permitted for completion of the development, and on compensation for any delay in handover; whether the Developer needs to include VAT, or other taxes, in the selling price; who, if anyone, is obliged to pay the 4% transfer tax on transfer of ownership to the Buyer; how the car park component of the project is handled and whether the buyer can take ownership of car park spaces reserved for the Buyer’s apartment (i.e., whether the Cadastre issue separates Titles for car park spaces); whether the law permits a Buyer to sell their unit during the construction phase (commonly referred to as ‘flipping’); whether there are any regulations governing the height of building projects in Cambodia, etc.

These are just a sample of the issues that need to be properly understood before a property development can be adequately planned. Cambodia’s construction and property laws remain a work in progress. However, being cognisant of the existing legal framework remains a very important aspect of any development.