Loose Regulations Blamed for Recent Residential Construction Suspensions

• 1 April 2023
• Local News
• 2051 Views

The recent suspension of several Borey residential projects in Phnom Penh due to financial and contract issues has raised concerns about the loose regulations governing the real estate market in Cambodia. As a result, buyers have gathered on the public street, protesting for justice.

While some have expressed fears that the suspensions may spread and affect the entire local market, experts believe the issue is still small-scale and will ultimately filter out unstable developers, leaving only trustworthy ones.

According to Sorn Seap, President of the Research firm Key Real Estate, the issue was caused by the adverse spillover effects of the COVID-19 crisis, the current global economic crisis, and the war.

“Borey and real estate markets in Cambodia have yet to recover with a few transactions happening. Some Boreys expect cash from the sale to pay for the land and build houses. As the sale is in bad condition, they have to postpone construction or quit the project in the worst case,” said Mr Seap.

Explaining the nature of the issue beyond the association’s jurisdiction, he added, “However, what happens at the moment is still very small-scale. The suspension of several Boreys will not affect the whole market, and the issue is free-market and will eventually be resolved through negotiation or legal procedure.”

Similarly, Managing Director of PropNex Cambodia Ann Sothida sees the crisis as eliminating unqualified developers who are also not financially stable from the market while teaching buyers to be more cautious before investing.

“Some developers enter the market without adequate skills, experience, and finances. Thus, to attract customers, they drop their prices low. Then, when there is no buyer due to economic issues, their cash flow is in trouble and could lead to construction suspension temporarily or permanently,” she said.

While suspending several Boreys will not affect the whole market, low- to middle-income people will likely suffer as the legal procedure or negotiation takes time. Therefore, stricter regulations should be enforced on developers, mainly regarding financial status, to protect investors and ensure the real estate market’s stability.

“However, suspending several boreys would not affect the whole market, and other developers can still sell their projects well. Rather, this incident is a mechanism filtering unstable and underregulated developers out of the market while keeping only the good ones,” added Sothida.

Analysed in-depth, the issue arises from the loose regulations enforced on developers. Requirements to become a developer shall be stricter, mainly regarding financial status. The authoritarian rule will help ensure that investors will have sufficient finances before being able to start selling projects.

The strict regulation shall also be applied to all real estate businesses, especially those targeting low-to-mid-income customers such as Dey Lo (plotted land business), as they are vulnerable to loss due to untrustworthy developers. (Read more)

The government has been actively working on new regulations and improving law implementation to prevent such incidents in the future. However, buyers are still advised to exercise caution and carefully check the developer’s background, licenses, and financial status before investing.

• Analysis