Phnom Penh’s High-end Condominium Market STRUGGLES

• 30 March 2017
• Property Focus
• 1865 Views

High-end condominiums are rapidly rising in the premium areas of Phnom Penh, among which the most popular are Boeung Keng Kang 1 and Diamond Island.

This trend has however resulted in a split property market and while Phnom Penh’s low-end condominium market remains bullish, the high-end market is struggling amid the risk of oversupply.

For property developers, it is right to say that by shifting the focus towards higher-end condominium projects, they can compete with continually with rising land prices. However, developers should also be aware of limited demand in the luxury condominium segment due to its much smaller base of potential buyers. If developers continue to launch new high-end condominium projects at the same rate as in recent years, demand will undoubtedly struggle to keep pace because prospective buyers of luxury condominium projects are spoiled for choice.

Chhuon Sun Heng from Phnom Penh City Center, the developer behind various projects in the Boeung Kak area believes that buying condominium units in Phnom Penh is still relatively cheap compared to other cities in the region. At the same time he also suggests that, “the current demand of condominium units in the market cannot absorb all the supply”.

On the outskirts of Phnom Penh, prices are quickly rising and newly launched properties are now selling for up to USD2,000 per square metre. For example, one real estate developers is advertising their four-bedroom penthouse condominium unit with a rooftop pool in Chroy Changva for over USD500,000. Another developer is bringing four-bedroom, four-bathroom apartments with floor-to-ceiling windows and Phnom Penh skyline view in Chroy Changva onto the market for over USD350, 000. “Investors should pick a location close to the main road. Sales will be successful if a residential project is located on a main road.” Chan Mlop Sokha from Sokha Law Firm said.

For investors from Hong Kong, Malaysia, Singapore and Taiwan, Phnom Penh is appealing as it is geographically close and is a cheaper alternative than other Southeast Asian cities. With an average of about 5 to 7 percent, rental yields offered by new condominium developments in Phnom Penh are high. On the other hand, Vietnam and Thailand are only a short distance away.

Expats and investors may dream about living in townhouses in Cambodia but regulations restrict these foreigners to buying condominiums (as they are not allowed to own land, except under 30-year leases, sometimes with the option of renewal but this is not common in Phnom Penh).

Furthermore, in any condominium buildings, only 70 percent of the total spaces can be allocated to foreign buyers according to the law. At present, the majority of foreigners, largely from Hong Kong, Malaysia, Singapore and Taiwan, are cash buyers. Money used to purchase these properties mostly comes from overseas as foreign currency and there are also foreigners borrowing locally. At present, Mainland Chinese buyers remain largely absent as they prefer to invest in more developed or western cities.

Cambodian citizens make up less than half of the purchasers of condominium units. Traditionally, wealthy locals preferred detached houses, shop houses and villas with no one living on top of them. Today, young professionals may have to forgo such luxuries for convenience. For lower and middle-income Cambodians, they can now purchase a condominium unit in a suburban area at a very affordable price. While suburban shop houses and villas offer greater living space to accommodate a larger family, with upcoming infrastructure projects in the pipeline and under construction, suburban condominium units may offer superior potential for capital gains, and greater geographical convenience.

In conclusion, future luxury condominium launches run the risk of getting lost in the currently overcrowded market without a unique design or selling point.

Reasons foreigners buying properties in Cambodia

– Foreigners in Cambodia cannot own land

– Phnom Penh’s temperature range from average lows of 21C in December to average highs of 35C in April, with a monsoon season from June to October

– Expats with work permits in Cambodia have increased to over 50,000

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