Cambodia, the small Asian country most renowned for the ruins of the khmer empire at Angkok, has developed in leaps and bounds over the last decade. Previously popular with backpackers, the country is now home to a rich sprinkling of boutique hotels, beautifully renovated old colonial mansions and uber-modern designer adobes. It’s also getting its first resort-style projects and witnessing an increased interest in property from investors attracted by the potential yields of a frontier market.
After drying up suddenly, interest in property in Cambodia is slowly returning. The country is getting its first resort-style developments, which offer attractive yields for buyers willing to take a bit of a punt on an untested frontier market.
There was a flurry of speculation in 2007 and 2008, a lot of it backed by Korean and Chinese investors, but the financial crisis put paid to that – the bulk of the developers pulled out, due it part to problems on their balance sheets at home.
“After the crisis, 2009 was almost dead – there were almost no buyers and no demand,” Sung Bonna, the founder of the Cambodian real estate brokerage Bonna Realty, concedes. “In 2010, local demand and international demand started to come back. And the activity has more than doubled this year.”
The market for high-end real estate is dominated by local buyers, locally based expatriates and overseas Cambodians returning from places such as France, the west coast of the United States and Australia. They are pressing developers to improve construction and management standards.
“When these people return they tend to have a bit of money in their pocket.” Daniel Parkes, the CB Richard Ellis country manager for Cambodia, says. “And they are looking for the right sort of property.”
The slowdown has had its effect on prices, which trade in U.S. dollars High-end residential property in the capital has fallen from as much as US$3,000 per square meter at the height of the market to US$1,800 now.
Still, construction quality, landscaping, securing and ongoing management can be problems. Developers “always say it’s four-or-five start quality, but when they build it its only one- or two-star quality.
His company is preparing to launch the King Estate, a compound of 40 to 50 villas in the capital, Phnom Penh, that he hopes will being a new level of luxury high-end property into the city.
Locally based expatriates have also snapped up old shop-houses. That’s how Rory Hunter and his wife, Melita, got involved. Hunter’s job with an advertising agency took him to Phnom Penh, and the couple began doing up French colonial apartments, selling them to foreign investors and managing them.
“We were the first company to work out a model where you could securely sell apartments to foreign investors.” Hunter says. They formed a company, Brocon Co., that worked on 27 shop-house projects, “It was a great way to start a company and learn how to operate in Cambodia, and really establish a foundation.”
Now Brocon has moved on to bigger-things – beachfront villas. The luxury properties are at Song Saa, a resort that has been under construction for the last two years on twin coral-fringed islands, Koh Ouen and Koh Bong. With 350 workers now on site, the resort is due to welcome it’s first guests in December.
Song Saa has sold 10 of its 27 villas at US$6000,000 per villa. More than half the buyers live in Hong Kong, though the roster of nationalities – Norwegian, Swedish, French, Japanese, English, Australian and Cambodian.
The resort is represented by CB Richard Ellis, the first international brokerage to setup an office in Cambodia. As the office market develops, it has been focusing on leasing commercial space and also manages a serviced-apartment complex in the capital, Colonial Mansions.
Cambodia’s Colonial Mansions
Cambodia’s Colonial Mansions
“We like Cambodia because we see hospitality that can rival Thailand or can surpass it,” David Simister, CBRE’s chairman for Thailand, Cambodia and Vietnam, says. “It is like Thailand was before it became a very busy destination.
Cambodia has an advantage over its neighbours with a 99-year lease structure, instead of rolling 30-year leases in Thailand. Cambodia also doesn’t have any restrictions on overseas leasehold – although property isn’t free-hold, like in Malaysia.
Song Saa offers an 8% guaranteed return on its villas for 5 years. That’s high by resort property standards and critics of guaranteed schemes say the rents simply come out of higher initial selling prices in the first place.
But the company has also invested US$6.5 million to develop the resort. For serious buyers, the company – which has two other resort projects in infancy – opens its books for 30 days, after the payment of deposit, so lawyers can conduct due diligence.
“We knew that it would be perceived as high risk investment.” Hunter says. “No matter what you do in Cambodia, its going to have more risk than a place like Thailand where the market is more mature. And prices reflect that.