Cambodia Considers Allowing Foreign Ownership of Property
Friday, December 05, 2008
Global Property Guide
Cambodia real estate values are in freefall, and officials may soon allow foreigners to purchase buildings, though foreign ownership of land is still out of the question. For more information, read the following article from Global Property Guide:
Cambodia’s housing market is plummeting, and the government is considering a new law to allow foreigners to own buildings.
In 2005, the government amended an investment law to allow foreign ownership of buildings. However Cambodia’s property market was then experiencing one of the biggest booms in Asia. As a result, the law was never implemented and the idea floundered.
The boom saw prices surge 25 percent to 40 percent annually from 2004 to 2007. Land price increases were at first confined to Phnom Penh, Siem Reap and Sihanoukville, but the boom spread right across Cambodia. Other hot spots have been the border areas with Vietnam and Thailand and, to a lesser extent, Laos.
The capital’s most sought after locations fetched US$500 per square metre in 2000, but were sold at around US$4,000 or more per square metre along Norodom Boulevard, and US$2,500 per square metre in the central residential neighbourhood of Boeung Keng Kang (BKK).
A downturn started in July 2007 after the government announced new investment guidelines for developers.
Then in mid-2008, the bubble burst. The global financial crisis had hit Cambodia’s biggest investor, South Korea, and Korean investors began pulling out foreign assets to increase liquidity.
Real estate sales plummeted 30 percent to 50 percent from a year earlier.
To prevent the market from sliding further, the government is considering moves to allow foreigners to fully own buildings. Land ownership is still out of the question.
The housing boom
Cambodia has just witnessed one of the biggest real estate booms in Asia.
The reasons are obvious, as soon as you visit Cambodia. Phnom Penh is an attractive colonial city, with broad avenues, charming housing, a hip and young atmosphere, and a riverfront view. Siem Riep, which houses Angkor Wat, is even more charming, and has a cooler, more agreeable climate. There are agreeable beachfronts at Sihanoukville.
Cambodia is in a strategic position in the centre of IndoChina. Prices are laughably inexpensive (from a foreign perspective) and economic growth is exploding. The combination is hard to argue with.
Rentals are far higher than in days when Phnom Penh was a sleepy outpost where the only foreigners worked for aid organizations. In BKK I, according to a report in the Bangkok Post dated March 2008, a spacious, four-bedroom apartment with gym, swimming pool, parking and 24-hour security is on the market for US$3,000 a month. Nearby, the owners of a two-story, four-bedroom villa are looking for US$5,000 per month.
Phnom Penh has, as a result, experienced a construction boom. The government is aggressively pro-development, and squatters and other eyesores are simply cleared away, by a government which is in league with wealthy developers.
Part of the charm may be about to be lost as Phnom Penh succumbs to development. A 42-story US$250 million twin condominium, twice as high as Phnom Penh’s current tallest building, is being built in the most conspicuous position possible—at a busy corner leading to the city's Independence Monument. Residential units in the ‘Gold Tower 42’ project, which will not be completed till 2011, range from US$459,000 to US$1,500,000, according to developer Yon Woo Cambodia Co. Around 70 percent of the buyers are Cambodian. Around 40 percent of the sales have gone to speculative investors.
World City Co. Ltd., a South Korean company, is investing US$2 billion to build a satellite city called Camko City on a 120-hectare (300-acre) in northwest Phnom Penh. The single biggest foreign direct investment in to date, Camko City will include residential units, villas, condominiums, commercial and public facilities, trade and financial centres, office buildings, shopping centres, hotels, schools and hospitals. The project will include about 500 apartments with price tags ranging from US$112,000 to US$1.8 million a unit. Construction will take 3 1/2 years to complete. Nearly half of the units have already been sold.
Land values in Siem Reap have risen 25 percent to 30 percent every year for the last four years at least. The average price of land per square metre is now around the US$500 to US$600 mark. But premium land in downtown tourism districts is around US$1,600 per square metre.
Mortgage finance is now available in Cambodia. Acleda Bank entered the home lending market in January 2007; by March 1 2008 Acleda’s home loan portfolio was worth about $40 million. To get around foreclosure risk, given the corrupt legal system, Acleda keeps the title to the property until the loan is repaid.
ANZ also offers 15-year installment loans, allowing customers to borrow up to 60 percent of the home purchase price at variable interest rates, lending against registered titles.
Foreign individuals cannot buy real estate in Cambodia directly. But land can be held by foreigners on long (renewable) leases and through majority locally-owned companies incorporated in Cambodia. This company structure is the safest for a foreigner wishing to buy land. It is not totally bullet-proof, but in practice it works.
Foreigners typically take two Cambodian nationals as partners in the land-holding company, with the 51 percent share allocated so that the foreigner is the biggest single partner. Other safeguards include
1. Creating different classes of shares, giving the foreigner more rights;
2. Minority control documents;
3. A mortgage on the land, stipulating that the land cannot be transferred without the consent of the foreigner.
Leases up to 99 years are another common acceptable structure—the magnificent Raffles Hotel le Royal in Phnom Penh, for instance, is held on a simple lease.
Nominee structures should be avoided.