REAL ESTATE SECTOR IN CAMBODIA

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1 REAL ESTATE SECTOR IN CAMBODIA PHNOM PENH SECURITIES PLC. N o. 32, Monivong Blvd, Phnom Penh, Cambodia Tel: Fax: Website: In this Paper: Executive Summary Page 01 Overview of Real Estate Sector Page 02 Real Estate in Detail Page 02 Outlook of Real Estate Sector Page 07 Leading Companies in the Sector Page 07 EXECUTIVE SUMMARY The global economic crisis strongly affected the real estate industry in Cambodia. Many projects were postponed including house buildings, residential villas, condominiums, commercial centers etc. Additionally, loans to real estate market and mortgage loans were decreased by 11% and 48% respectively from 2008 to However, the currently increasing foreign capital inflow into the Kingdom led to the rebound of the real estate industry. A number of tax incentives provided by the Royal Government of Cambodia for direct investment particularly for those set on the Special Economic Zones created a lot of logistics market in which warehouses have been built in both around the Capital of Phnom Penh and adjacent to the borders with Thailand and Vietnam. Housing and luxury residential market is getting better due to increasing of affluent Cambodians and expatriates. The mortgages increased by 30% from 2009 to Nowadays, office market is also increasing due to the establishment of some multi-story buildings such as Canadia Tower opened in 2009 and Phnom Penh Tower opened in Others are in the pipeline because of lack of funding. In this regard, some projects are being stalled such as Camko City, Gold Tower 42. Retail market at this time comprises of Sorya Shopping Center, Sovanna, City Mall and Paragon. 06 July P a g e

2 OVERVIEW OF REAL ESTATE SECTOR As a developing country, Cambodia recently has gone through wide-scale urbanization as a result of the development and the growth of promising sectors such as agriculture, garment, tourism, and construction. The main contribution to the growth of real estate sector is attributed by the rise of projects in Phnom Penh, the Capital of Cambodia, and several factors affecting and driving the infrastructure requirement are: - population increase for instance Phnom Penh home 1,501,725 people according to Phnom Penh Municipality s website; - Continued migration from rural to urban areas; - renewal of existing housing; - increase in the number of multinational and large national companies that increase demand for office premises etc. Still, the growth of Cambodian real estate over the last 10 years is due to an influx of foreign and repatriated money being invested in Phnom Penh. At the beginning of the global economic crisis, the real estate market was affected because the banks had restricted loans for real estate business and property prices fell. In addition, the loans granted to real estate activities and the mortgage also decreased dramatically. As of 2009, the Cambodian government introduces law requiring developers to make upfront deposit of 2% of the project s total values with the National Bank of Cambodia before the commencement of construction. The law is to prevent developers from committing fraudulence and protect investors interests. To promote the growth of real estate market, the new law allows foreigners to be able to buy property at least one floor above the land. REAL ESTATE IN DETAILS The real estate business in Cambodia can be classified into the following main classes: 1) Housing and Residential Market 2) Office Market 3) Retail Market 4) Industrial Market 06 July P a g e

3 Housing and Residential Market The increasing population and relative economic condition and the availability of resources caused a migration from rural area to the most industrial and the biggest city of Phnom Penh. From 2004 to 2007, we saw an average GDP growth of 10% in Cambodia. Many housing projects are established thanks to the increasing income level. Traditionally, the return of investment on real estate had been relative higher particularly in the periods of economic development.many real estate agencies are created in response to the business opportunity in this industry. Importantly, housing projects of Peng Huoth Borey and New World Borey are the prominent investors in housing investment. In the residential market we see the trend of increasing in demand for condominiums and villas. Some projects like Grand Phnom Penh City, a joint venture between Indonesian and Cambodian developer, this project planned to build 4,000 residential villa and apartments with the cost of US$500 million. Diamond Island City was unveiled by Overseas Cambodia Investment Corporation. This project planned to build hospital, restaurants, shopping centers and a park along with condominium and villas ranging from US$280,000 to US$1 million. Last but not least, Camko city is the largest investment project with worth of US$2 billion on 120 hectares satellite city. These three projects were strongly affected by the global economic crisis and caused the projects to be delayed and downsized. Nevertheless, according to data from the National Bank of Cambodia (NBC) the mortgaged loans slightly increased by 30% from 2009 to The total credit granted to mortgage increased from US$90.15 million in 2009 to US$ million in Still, the latter slowed down by 32% when compared with the mortgage loans granted of US$ million in Office Market Phnom Penh s office market is comprised of refurbished, colonial style villas, converted shop-houses, adapted rooms of local hotels, small low rise business centers and purposely built single tenant offices of local commercial enterprises. The office market is growing due to the increase of office premises on which some are under construction. There are as many as 12 office buildings in Phnom Penh that we enumerate in this report. Phnom Penh Tower is the First Grade-A Office Building for global business in Cambodia which is located in the heart of Phnom Penh, the centre of business. The 21-storey building was constructed by a global reliable company HYUNDAI AMCO, a member of HYUNDAI MOTOR GROUP. The total size of the building is 31, sqm (Office: 21, sqm, Commercial: 4, sqm) with the rental price estimated from US$20 to US$25 per sqm. 06 July P a g e

4 IOC (Intelligent Office Centre) located in the heart of the business area on Monivong Street. This six-storey-building comprising of 40 large and unique spaces for rent has very little parking facilities and it is not very convenient although it is easily accessible and closet to the central market and Sorya Shopping Center. Hong Kong Center located on Sothearos street close to the Royal Palace, restaurants, and convenient stores. The ground floor is dedicated to an airline and hospital representatives as well as Siemens representative offices. Other major tenants that occupy this 4-storeybuilding include Total Cambodge, and Thai Airway s cargo division. Parkway Square which is one of VTRUST Group is the first and major multi-purpose center in Phnom Penh. It has provided sort of one stop and shop destination with an attempt to introduce western inspired modern facilities to Phnom Penh. Major tenants at Parkway are comprised of Levi s Corporation, Burumgrad Hospital, Opus Cambodia, 5 Arc architects, Cosmos and more. The rental price is around US$ 11. VTRUST Group will soon provide the new office spaces adjacent to the new Ministry of Council Building. Cambodiana Hotel s converted hotel rooms are rented as serviced offices. The hotel located on the Tonle Sap riverbank right in between the two major business districts, BKK1 and Wat Phnom. The biggest tenant is Ericsson with over 600 sqm while the majority of tenants rent sqm unites. The old tenants enjoy the rents from US$11 to US$18 while the new comers are charged of US$20 per sqm. Intercontinental Hotel s office premises are called Regency Complex. It comprises of two buildings. The first 4-storey building is divided by Maersk International and Thai Airline. The second office premise is divided between minor airline companies and other representatives of international companies. Attwood Center is built by one of the biggest and well-known companies of Phnom Penh Attwood Import-Export Ltd. It is located near the airport and far from the commercial life. However, due to the increasing significance of Russian boulevard and the extension of a traditional commercial center, the location has a great potential. The rent price is between US$9 to US$12. Canadia Tower (OCIC Tower) is 32-storey building built on the area which was approximately 6,000 sqm and the total gross area was approximately 35,000 sqm with three levels of underground used for parking and is attributed to banking facilities, office for lease, and retail. Canadia Bank s Headquarter occupied a significant part of the tower. 06 July P a g e

5 Figure 01: Canadia Tower Research Paper Delano Business Center with the floor size is about 4,000 sqm in which the plan ranges from 100 to 360 sqm. It provides a full range of amenities and services to satisfy all the requirement of a modern professional. The rent is starting at US$15 per sqm. KT Tower Phnom Penh is a 9-storey building established in 2009 on the size of 3,240 sqm. Its ground floor used for parking. In average the rents are about US$10. Sun Wah International Finance Centre Project is involved in development of 15,000 sqm with 3-luxury residential blocks, a 45 story first class office building, a five start hotel, a private club house and a large shopping mall. It is recognized that Sun Wah is a well-known Korean Developer with an extensive experiences. However, because of the world economic turbulence, the project had been postponed. Vattanac Property projected a 38-storey building with the office premises of 14,000 sqm. It is built by one of the most prominent tycoons in Cambodia, Vattanac Bank s owner. The project is currently in the process of building its tower and CBRE appointed as sole leasing agents for Vattanac Capital Development. Figure 02: Vattana Tower 06 July P a g e

6 Anyway other major projects like Gold Tower 42 and International Finance Complex, Camko City which also provide the office spaces for leasing are currently in the pipeline due to the global financial crisis. The Gold Tower 42 was stated to allocate seven floors for office space. Camko City, a US$2 billion Project has recently encountered financial problem. Anyway, lack of funding on the project and currently because of scandal of Busan Saving Banks upon the corruption investigation, which was reported in Joong Ang Daily, this grand project was then in the question. Retail Market The retail part of the real estate has gained a great significance in recent years thanks to the increasing of large shopping centers consists of Sorya Shopping Center, Sovanna, Paragon, and City Mall. The occupancy in the Sorya is 100% while the other also enjoys near 100% occupancy. Additionally, more and more mini-marts have been increasing in response to the change of consuming behaviors toward modern and super maket. Retail rents in 2010 at Sorya market, Paragon, and BS department store were around US$10-US$80, US$20-US$60, and US$13 respectively. Figure 03: Sorya Shopping Center Industrial Market It is one of the most rapidly growing markets particularly located near the border of Thailand and Vietnam, and also in Phnom Penh. Indeed, Phnom Penh SEZ having a total value of investment of US$68 million was the most advanced SEZ project which provided the industrial building for rents. Besides, it is well-recognized that Cambodia government grants a number of incentives through the investments in SEZ, for instance the tax incentives such as profit tax exemption, tax exemption on import VAT, import tax exemption for construction material and production equipment, no restrictions on international currency transfer and remittance, and 100% foreign ownership for any business. 06 July P a g e

7 The current tenants of Phnom Penh SEZ are international companies such as Minebea (Cambodia) Co.,Ltd. Yamaha Motor (Cambodia) Co.,Ltd. Ajinomoto (Cambodia) Co., Ltd etc. OUTLOOK OF REAL ESTATE SECTOR There are many factors contributed into the development of real estate sector in Cambodia including population growth, urbanization. Additionally, the recent changes to the property legal system which allows foreigners to own condominiums and apartments on the upper floors of buildings would boost the market. The law indeed created to give the investors from oversea more confidence in the security of ownership in Cambodia. Currently, the main house builders are such as Peng Huoth, New World Borey. Additionally, mortgage loans had recently increased according to data from the NBC. Housing demand led to increase and develop more retail market. In response to increasing number of agencies, local and international companies and organization, many multi-story buildings are on the stream for instance Gold tower 42, Vattanac, Camko City will increase more office premises in the next 3 years. Many tax incentives provision to the private investment to attract more investment especially in the SEZs. Currently there are 22 SEZs around Cambodia. Therefore more industrial market especially warehouses will be increased. LEADING COMPANIES IN REAL ESTATE SECTOR It is by far the leading companies in the industry are the main house builders such as Peng Huoth, New World; the multi-story tower builders such as Vattanac, Canadia, Hyuandai Amco (Phnom Penh Tower). New City developers such as Grand Phnom Penh, and Camco City, Diamond Island City which are on the stream will provide a number of villas and condominiums after completing the project, and the SEZs developer like Phnom Penh SEZ and others SEZs (See PPS s Cambodia Construction Report) 06 July P a g e

8 Contact PHNOM PENH SECURITIES PLC. N o. 32, Monivong Blvd, Phnom Penh, Cambodia Tel: Fax: Website: Disclaimer This information contained herein, including any expression of opinion, is based upon sources carefully considered and believed to be reliable, but their accuracy and completeness are not guaranteed. Even though the opinions are fair and reasonable in the circumstances prevailing at the time, the use of this document shall be solely risk of the users. PPS accepts no liability for any damage caused by using this paper. 06 July P a g e