The continuing rise of condominium constructions

Changing lifestyles and convenience are the driving forces, say experts

Real estate industry insiders say sales of condominiums will rise over the next five years, particularly affordable ones.

Young professionals looking for a modern, urban lifestyle, and young families often with moderate budgets and a need to live in the city centre where they are close to work are the expected buyers. Others are investors who seek a suitable return on their capital.

As of the third quarter of the year 2019, 15,508 condominium units were available in the market. Among them, 22 percent are considered affordable, 54 percent are mid-range and 24 percent are high-end.

By the end of the year, total condominium supply is expected to reach 27,000 units from more than 80 projects in Phnom Penh alone.

It’s a similar situation in Sihanoukville, according to the latest report from CBRE, a commercial real estate services and investment firm.

Regional Operating Principal Keller Williams Cambodia and Chief Executive Officer of Khmer Real Estate Kim Heang says currently the sales of residential projects, self-contained communities known as boreys and the subdivisions are dominating the market in the capital city. However, in 2020, the market share on the sales of boreys will be only 60 percent, with 10 percent in the sub-divisions while the sales of condominiums will absorb 30 percent of the market.

However, he says, that by 2021, the market share for borey projects will fall to around 50 to 55 percent while the market share for condominiums will rise from 35 to 40 percent and sub-divisions will attract 5 percent. On top of that from 2022 onward, the market share for boreys will be 50 percent, sales of condominiums will take up 40 to 45 percent of the market and sales in the sub-divisions will be zero.

Kim says that sub-division developers should transform their business to residential projects or condominium building condominiums because they are in high demand.

“I can say that in the next five years, the sales and purchases activities in Cambodia’s property market will mostly be condominiums. Currently, property sales are dominated by residential projects or boreys. However, in the next five years, borey developers would not be able to build borey projects in the capital. They will build on the outskirts of the city, making them unattractive to many potential purchasers customers,” Kim says.

Kim adds that nowadays Cambodians prefer living in condominiums because the land they occupy is smaller than that of a house but they can be home to many more people. Also, as the city’s population grows, traffic will get worse so they will want to live in the city to avoid a long commute. Therefore, a condominium is their best choice. “Condo construction will be booming in Phnom Penh city,” Kim adds.

The country’s condominium supply is expected to grow 120 percent in 2019 with a 243 percent increase in high-end properties. the risk of oversaturation is real, some analysts say, particularly in the mid-range and high-end condominium segments. That is already causing downward price adjustments, according to a forecast by commercial real estate services and investment firm CBRE Cambodia.

CBRE’s Manager of Research and Consulting Kinkesa Kim, says the sales of the mid-range and high-end condominiums is slowing down currently. However, sales of affordable condominiums are rising.

“Now, we see a trend of local people interested in affordable condos. Some of them buy to live in and some of them buy as an investment for the future. However, the affordable condo is starting to boom in Cambodia, particularly for new and young couple,” says Kinkesa.

“From January to June this year, we saw the supply for the affordable condominium increasing. We saw more than 10 projects were launched as affordable condos. The affordable condo has around 200 units in one building. “For us, this market is suitable for Cambodians because it is related to the income of the people,” Kinkesa adds.

“For the affordable condo, the price ranges from $50,000 to $70,000 per unit. In some areas they range from $30,000 to $40,000 per unit. Therefore, it is suitable for a family who have an income of more than $500 to $800 per month. They can afford it with a loan from a bank, or developers can support the financing,” she notes.

Kinkesa adds that the price for the affordable condo is around $1,300 to $1,800 per square meter based on the projects and location. However, the mid-range condo price is around $2,500 per square meter and the high-end condo is more than $3,000 per square meter.

She adds that the mid-range and high-end condos are mostly aimed at foreign investors. Local people are buying mid-range and high-end condos as investments.

“Generally, the price of an affordable condo is dependent on the location. Some projects have a price for one unit of around $30,000 to $40,000. But it is small – around 50 square meters per unit. It is suitable for a couple with one child,” Kinkesa says.

She adds that for now there is more interest in buying a borey home rather thana condo. However, in five years or seven years, the trend will change. When we stay in a suburb and work in the city centre, we spend a long time stuck in traffic jams. Public transport has yet to respond to the supply. People want to move to live near the city, so the trend of living in a condominium will start increasing.

Major reasons to own a condo are related to finance – and condominiums typically offer higher rental yields (supported by continuous market demand for rental property) and are more affordable to buy.

“In a city where land prices are rising rapidly – CBRE estimates land prices increasing on average 18 percent across Phnom Penh in 2018 due to density, high-rise condominium developments are a more efficient use of land resource, allowing developers to deliver space at cheaper prices than landed properties that require much larger amount of land to deliver the same number of units.

Sear Rithy, Chairman of the WorldBridge Group, says that before 2008, condominiums were not commonly known among Cambodian people because they mostly preferred residential projects or boreys. However, the trend is changing.

Sear adds that a unit of a residential project in the capital can cost from $300,000 to $400,000. In some areas in the main boulevards cost millions of dollar per unit. Therefore, the possibility to buy a house in the city would be a problem for most. If they want to buy a house in a borey, it must be on the outskirts of the city and they have to spend two hours on the road because of traffic congestion.

In terms of convenience, location and amenities where all the needs are within reach with less time wasted in traffic, condominiums are often located in city centres. Data shows that in most of Phnom Penh’s districts, condominiums are offered at a cheaper price per square metre with higher rental returns than landed properties.

Another appeal would be a good location and good amenities, as well as more efficient use of scarce land resources. People can enjoy an urban lifestyles catering to their needs such as malls, supermarkets, restaurants and clinics that are within easy reach. These are more than just a place to live where you can have access to gyms, swimming pools and clubhouses, according CBRE’s Manager of Research and Consulting Kinkesa.

Kinkesa also mentions that the biggest driving force behind growing the numbers for locals buying condominiums would be Phnom Pehn’s problematic traffic where many hours are spent waiting in jams to reach their destination.

In comparison, those who live in city centre condominiums have the pleasure of avoiding traffic snarl ups and are able to enjoy more stress-free lives. “There are more affordable condominium options in more competitive markets and at a better price range. They are designed to appeal to a mass market of domestic buyers,” she adds.