CBRE Cambodia fearless forecast 2020: winners and losers

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Rosewood Hotel, Phnom Penh: CBRE Fearless Forecast 2020 cited another strong year for Cambodia’s real estate sector.

Rosewood Hotel, Phnom Penh: CBRE Fearless Forecast 2020 cited another strong year for Cambodia’s real estate sector. But Marc Townsend, Chairman of CBRE Cambodia, and the primary speaker at the event cautioned that while the Kingdom’s economy is expanding rapidly, adjustments have to be made to sustain the growth of its real estate sector.

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A strong entry into 2020

 

CBRE estimates a 7.1% GDP growth for Cambodia in 2019. This can be attributed to the continuing boom in the construction sector along with tourism and overall interest in Cambodia as an alternative investment destination compared to its neighbours.

According to CBRE’s report, a total of $9.3 billion worth of investments came into the Kingdom spread across 4,446 approved investment projects. For emphasis on the country’s relative growth, Marc Townsend said only three building licences were issued in Ho Chi Minh city compared with the 405 building licences that were given last year in the surrounding area of the Rosewood Hotel in Phnom Penh.

Aerial view of buildings around Bassac area in Chamkarmon district. Realestate.com.kh

As of  the fourth quarter of  2019, CBRE data shows the condominium sector had 27 new project launches and 11 completions, adding 16,500 units and 3,800 units respectively. The current condominium supply is divided among the high-end at 23 percent, mid-range at 53 percent and affordable at 24 percent. CBRE forecasts supplies of condominium units in 2020 to be divided into high-end at 24 percent, mid-range at 46 percent and Affordable at 30 percent. The shift towards affordable units is said to be because of healthy demand from Cambodian buyers.

Upcoming condominium projects, provided they finish on schedule, are expected to put some downward pressure on prices across all segments of the market.

The CBRE report also states that housing loans increased by 30 percent in 2019 from $2.9 billion to $3.4 billion. Consumer loans increased at the same time from $6.2 billion to $7.1 billion this year. CBRE attributes these increase in loans to appreciating property values, lifestyle changes of Cambodians and increasing competition within the banking sector.

Development funds have also diversified in Cambodia. Townsend shares the view that these companies barely had any presence in the country’s capital markets almost a decade ago but, in 2019, they have diversified into construction loans, formal and informal fund structures, bonds, initial public offerings, off-shore lending, crowd-funding and venture capitals.

Cambodia, overall, remains an attractive investment destination compared with its neighbors. For example, data from CBRE cites that land prices in Ho Chi Minh city, as of the fourt quarter of 2019, now cost up to $30,000 per square metre  (sq m) in the inner city compared with $6,000 per sq m in Daun Penh.

These are but a few of the overall data presented suggesting that the Cambodian economy is expected to continue to see economic growth in 2020. It is, however, not free of challenges, as we’ve seen this past year.

 

Sustaining economic growth

 

The two elephants in the room, according to the conference’s attendees during the Q&A session were the Everything but Arms (EBA) trade deal withdrawal and the threat of property oversupply that could negatively affect the market.

Of the surveyed attendees, most agreed that the EBA withdrawal will have “moderate” effects on the Cambodian economy. While it could have ripple effects in the real estate sector, nobody knows what would ultimately happen until it happens, according to the speakers.

As for the issue of oversupply, Townsend introduced the idea that if there is an oversupply, then why are prices continuing to rise? He cites Vietnam as an example when it took off as a real estate venture. According to him, when the government relaxed regulations on foreign ownership, the property market went ballistic.

Sihanoukville’s skyline adjacent to the city’s Independence Beach. Realestate.com.kh

The same could be expected of the Cambodian real estate sector as it develops. Many of the high-end condominiums are available for the local Cambodian elite, with most units likely being owned by foreigners through strata-titles. And as more mid-range and affordable units come into stock, more local middle-class buyers will likely purchase their own condominium units.

Infrastructure in Cambodia has grown significantly in the past decade but it may face slowdowns if project managers are slow to push their developments forward. The news of national roads and ring roads being constructed/rehabilitated is driving land prices up and might cause roadblocks to project developments because of price haggling and owner holdouts. Without swift resolutions, infrastructure developments (such as the aforementioned roads) will have difficulty meeting their target dates.

Townsend also cautions Cambodians about the shift in priorities of big multinational investment firms. BlackRock, an investment management company handling $7 trillion in assets, instructed its fund managers to prioritise investment ventures that consider their environmental impact. This shift in socio-environmental requirements is likely to be followed by other investment firms and thus must be considered by Cambodian stakeholders starting in 2020 to attract foreign investment in the future. Ensuring tourist safety also came up as a means of growing the Kingdom’s tourism sector. Townsend suggests  most tourists, especially the Chinese, value safety as a top concern when visiting a foreign country. A disciplined and well-equipped police force looking out for both the locals’ and foreign visitors’ wellbeing will only drive up tourism confidence in the Kingdom. This point is supported by a report from Khmer Times where the Shanghai Chief of Police asked the Cambodian National Police to ensure the security of Chinese businessmen and travellers in the Kingdom.

The conference also discussed recent construction-related accidents. Townsend was clear these tragedies are an industry problem that must be addressed by developers by applying basic safety standards, the use of quality materials and adherence to new government regulations. He lauded the passing of the much-awaited construction law and is hopeful Cambodia’s construction sector will avoid such tragedies again. As Cambodia enters a new decade of development, winners, and losers in the real estate sector will likely be determined by an investor/developer’s ability to take advantage of Cambodia’s strengths and overcome the challenges presented.

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