Will the increase in China’s domestic property developer bankruptcies affect Cambodia construction sector?

• 2 August 2019
• Local News
• 1958 Views

The 50 percent rise of bankruptcy rate among the home developers due to the economic slowdown in China this year has caused a controversial question whether or not it would affect the Cambodian construction sector since a large portion of the investment within this sector is the investment from China.

Due to restrictions on borrowing in China, 274 homebuilders have filed for bankruptcies this year— a 50 per cent rise compared to last year— according to the report by the South China Morning Post. The same source also reported that China bond defaults tripled in 2018 and predicted that the defaults and bankruptcies will keep increasing.

According to the World Bank Economic Update Report released this early May, China’s slowdown can probably lead Cambodia sector to risk especially if the situation prolongs.

“Given Cambodia’s heavy reliance on capital inflows and tourists from China, a sharp slowdown in the Chinese economy could dampen growth prospects,” the report said, “the prolonged expansion of domestic credit growth, which has been largely behind the construction and real estate boom, has overextended the financial sector”.

While projecting that Cambodia’s economy would grow at around 7% in 2019, the World Bank cautioned against Cambodia’s growth prospects as a result of the overextended financial sector and a slowdown in China.

Surprisingly, Cambodia construction sector at in contrast remains strong. According to the data from the Ministry of Land Management Urban Planning and Construction (MLMUPC), the value of the investment in the Cambodian construction sector reached more than US$3 billion in the first six months of 2019. This number is equal to an increase of 24.5% in project and 57.57% in value compared to the same period of last year. In addition, CBRE Cambodia also reported that during H1 of 2019, the condominium sector also saw a significant increase, comprising of 5,853 units or equal to 27.7 percent rise q-o-q.

Moreover, at this stage property experts – Director of CBRE Cambodia Ms Ann Sothida is one among those—also still express optimism, claiming that in short-run China’s slowdown has yet to affect Cambodia.

“Asking whether or not that the current economic situation in China would affect Cambodia property sector or not, it all depends on the market. If we talk about the office market, it seems no problem, and if we talk about the retail market, there is no Chinese [investment], and those markets can still accept more growth,” Ms Sothida said.

• Analysis
• Economy and Finance