The decrease in Chinese demand in the Sihanoukville real estate market

• 14 November 2019
• Property Focus
• 4775 Views

By Eric Wong Chon Lap

China plays the biggest role in Sihanoukville’s economy and property market, where Chinese nationals comprise the largest number of expatriates with work permits in Sihanoukville. Within the tourism industry, the most visible increase has been in Chinese tourist arrivals and the number is expected to still rise further.

The country is Cambodia’s largest source of foreign direct investment. It is still believed that after the recent crackdown on online gambling operations by the Cambodian government, China’s importance as both a source of demand and investment for Sihanoukville’s property market will continue to grow. However, there will be volatility in the number of arrivals based on the performance of the Chinese economy, especially after Cambodia’s decision to stop issuing online gaming licenses and to not further renew any current licenses when they expire. A price correction has been on the way, with prices on certain properties turning out to be a bubble due to the gambling announcement.

Prior to the crackdown, Chinese buyers of condominiums jumped dramatically, with some developers reporting that over 90% of their condominium sales have been to foreigners – mostly Chinese purchasers.

There has been concern about the sustainability of this level of demand as it is possible that some purchasers may not achieve the expected financial returns in terms of rental yield or capital gain. After the recent crackdown on the online gambling businesses, the entire property market is on the verge of a price correction. However, the impact will be short term because the economy of Sihanoukville will be able to recover due to its diverse potential in both industrial and tourism developments, while other cities such as Kep and Siem Reap will mostly depend on their tourism potential, as many believe the city will soon surpass Siem Reap as the second largest city in Cambodia.

On the other hand, Sihanoukville’s potential is yet to be fully realised. This provides opportunities for local developers to re-enter the market. The US$1.9 billion expressway connecting Phnom Penh and Sihanokville, which is being invested in by the Chinese-owned company Cambodian PPSHV Expressway Co., Ltd. officially began the construction in March this year and will take 48 months to be completed. As a result, travel time between the cities can be reduced to as little as two hours from around five hours now. With land value growth in Sihanoukville to be stagnant in the near future, this could encourage more local developers to build residential properties in Sihanoukville and sell them to local purchasers, or purchasers from Phnom Penh as their holiday homes. In the upcoming years, Sihanoukville will definitely benefit from the added infrastructure and to become a bustling resort town again, with more local visitors arriving each year.

In general, this is the right time to shift the focus to local demands in Sihanoukville. With Prime Minister Hun Sen’s willingness to embrace Chinese investment, this has ensured Cambodia is at the core of Belt and Road Initiative plans in Southeast Asia and this will also encourage more logistic and industrial developments in Sihanoukville, thus more expatriates to live and work in the city itself. Other developments including the expansion of ports and the existing Special Economic Zone (SEZ), which is now the biggest in the country, will also encourage more economic activities in the city, and eventually demand for residential properties in Sihanoukville will increase in the long run.

• Business and Market
• Economy and Finance