Property Acquistition Awareness in Cambodia

• 4 October 2016
• Property Focus
• 4293 Views

Before buying real estate in Cambodia, the buyer needs to be aware of basic background details related to the property.

It is quite important to have a professional conduct due diligence to determine the form of property title, nature/use of land, location specifics; as well as associated risks. A proper search should reveal the legal status of owner, whether there are current or former encumbrances, status as a development area, economic area, height restrictions and zoning restrictions so that the buyer is knowledgeable and the prospective purchase is in compliance with local land laws.

The legal framework for real estate in Cambodia differs from other developed countries. Before the implementation of Cambodian land law, most land was not registered. An unregistered title is called “soft title”; while a registered property is evidenced by a “hard title”.

The “soft title” is a simple letter issued by local authorities, namely Sangkat or commune and Khan or district office. Whereas a “hard title” is a document registered with relevant authorities including the relevant cadastral office and evidences the owner of record. A soft title is less secure than hard title. The soft title does not clearly delineate the boundaries of the relevant property which can lead to boundary issues with neighbors. Very often, a duplicate soft title can also exist with different owners. Soft title has limited use in terms of serving to collateralise a bank loan or obtaining a construction permit.

Regardless of the risks, soft title is still worth considering as long as proper investigation through an extensive due diligence process is undertaken. Due diligence provides more security for the buyer in analyzing the inherent risks associated with the relevant property. Often the soft title is convertible into a hard title, providing a higher level of confidence to the buyer in considering the purchase.But only thorough due diligence will lead to such risks (and potential solutions) being identified.

In contrast, the registered title or “hard title” also has different forms: certificate of immovable possession (sporadic title), certificate of immovable ownership (systematic title) and old form of certificate of immovable ownership (chicken feather title).

A hard title is more secure in terms of its legal status as well as its use in securing financing and for the purpose of obtaining a construction permit. There are fewer boundary issues, less chance for disputes, ability to negotiate a lower bank loan interest rate, facilitates obtaining a construction permit, and the ability to register a long term lease certificate. In summary, a hard title offers secure possession or ownership rights.

Transfer Tax: Over the years and before the new Prakas on Stamp Duty in early 2016, purchasing land under soft tile would not incur transfer tax. However, following the implementation of this Prakas, it makes no difference in terms of transfer tax payment for purchasing of property either in hard title or soft title form.

Due Diligence is a formal investigation conducted by expert professionals of the land and builds on all information gained during investigation to clarify and address any pending issues or potential concerns.The due diligence process is a very crucial phase for the buyer to learn about associated risks such as legal issues, boundary disputes, height restrictions or zoning restrictions, government development plans and other related issues that might be applicable to the land in question.

It is strongly advised that the buyer seek knowledgeable legal counsel and conduct thorough due diligence in order to protect their interests or legal rights.

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