Property Investment as an Income – Producing Asset

• 28 July 2017
• Property Focus
• 4559 Views

Low interest rates on saving accounts encourage investors to buy properties as an income-producing asset. In Cambodia, more and more people are buying properties to lease out. But to get the best returns, it requires detailed knowledge of the real estate market and what drives rental markets. Most Cambodian (or Asian buyers in particular) prefers to own a property rather than rent a property. For the rental market, the target customer group is expatriates. As a result, in order to achieve the best returns in income and capital growth, the property must meet expat tenant requirements.

In Phnom Penh, expats want to live in only a very limited number of areas – Boeung Keng Kang 1 to Boeung Kang 3, Toul Kork, Diamond Island, Chroy Changva and the riverside area of Sisowath Quay. Beside the above areas, there are also other submarkets around Phnom Penh. The potential is limited to find expat tenants outside of these areas.

“Cambodia is progressing in all fields and I believe the price of the properties will remain stable as compare to the prices in 2016,” Chan Mlop Sokha from Sokha Law Firm said. Investors should have a basic understanding of how expats want in design, furnishings, size and what they can afford.

Unlike other major commercial hubs such as Hong Kong, Singapore and Tokyo, Phnom Penh does not have many tenants with very big budgets. Some expats are constrained by their overall budget in terms of the unit where they stay. Rental per square metre is not in their priority consideration and they prefer to have their units furnished as they do not bring their own furniture. Furthermore, they are willing to pay more for the overall quality – well-decorated units that are modern and practical with good bathrooms and kitchens, rather than size. On average, expats can pay USD500 – USD1,300 per month for a one-bedroom, USD800 – USD2,000 for a two-bedroom and USD1,200 – USD3,000 for a three-bedroom apartment. There are very few people with budgets of more than USD3,000.

Currently most of the new condominiums launched on the market are one-bedroom units, reflecting expat market demand. Over 50 percent of the leasing transactions of condominium units are for the one-bedroom unit sizes and this is where the best potential for rental growth. However, with the excess future supply of one bedroom unit, the idea of buying one-bedroom unit may turn to be no longer attractive for investors.

In terms of growth yields, existing buildings offer the best rental yields. Newer buildings may offer a higher yield but the current market is experiencing a risk of oversupply. For any condominium investors after purchasing the unit, they must also take into account operating expenses such as common area management fees, interior repair charges, maintenance fees, rental agent fees and other taxes involved.

“The time is always right to invest in a property. You just have to know what kind of property to invest in and which area is good,” according to Chhayleang Ngoun from Ratanaka Realty.

In summary, the expat population in Phnom Penh will continue to grow, but new supplies in the most popular expat locations are limited. The prospects for residential investment are good. However, investors must understand the requirements of the tenants, such as where the tenants want to be, what they want and how much they can pay, in order to choose the best investment in property.

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