World Bank: China Slowdown, Cambodia Construction and Real Estate Prone to Risk

• 9 May 2019
• Local News
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Photo by General Department of Taxation

As Cambodia’s main source of investment inflow comes from China, a slowdown in its economy will likely to see Cambodia’s construction and real estate sectors prone to risk, according to a World Bank Economic Update Report released last week.

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.

“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”.

“It can affect only a minimal amount because investment from China is more than others,” said real estate expert and director of CBRE Cambodia Ms Ann Sothida.

“But even if it affects, it will not go down to zero, for example, it can drop from 23% to 15%,” she added.

Foreign direct investment (FDI) inflows peaked at 13.4% of gross domestic product (GDP) in 2018 with more than half of it originating from China and directed towards construction (infrastructure, commercial and residential real estate), tourism and, to a lesser extent, to manufacturing and agriculture. (Read more)

The report said that bank lending to the construction and real estate sectors continues to drive domestic credit expansion, contributing about 40% of credit growth.

“As construction and real estate typically are more prone to boom and bust cycles, rising domestic credit going to the construction sector increases the financial sector’s vulnerability,” the report noted.

“It 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.

“For condominiums, it can affect it a very little, but it depends on the project, and the impact is not too strong, but it will impact on rental price,” she said, while citing that “the borey sector will not be effected by it because it is mostly invested in by locals”.

According to Ms Sothida, Chinese investment mostly focuses on strata tile offices, about 40%, and residential units, around 60%.

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