Plot Land Buyers Guide: What you need to know BEFORE you invest

Feb. 16, 2017, 11:50 a.m.

plot land

As land prices skyrocket across Cambodia, many local investors are looking to strategically invest in pieces of land, large and small.

Typically, developers/investors/friends will club together and buy a big piece of land (the bigger the land size, the cheaper the price per square meter). They will then subdivide – possibly providing some infrastructure and a master plan – and sell in smaller parcels to end buyers achieving a higher rate per square meter. Starting from net prices as low as a few thousand dollars for end buyers, these plots are often sold with attractive payment schemes, and grand promises of guaranteed future infrastructural development.

By choosing the right piece of land within one of these projects, in the right location, end buyers can also earn a relatively quick appreciation on that land asset. And some buyers are buying now with the intention of later building a home or business on this land once the area develops into a more viable suburban zone.

However, not all of these plot land developments are a safe investment.

It is extremely important for end buyers to seriously consider the location of any plot land that they intend to buy, the land title and certification being offered for that transaction and the trustworthiness of the project owner or manager. They also need to consider what role their real estate agent is playing in the transaction.

If these things are not diligently considered, the buyer may not have a valuable asset as they might have predicted; or, in the worst case scenario, they may not have an asset at all…

With this in mind, Realestate.com.kh, in cooperation with VTrust Appraisal’s highly experienced research team, have put together the ultimate plot land buyers guide.

The intention of this article is to make sure that customers who buy plot land fully understand how to protect themselves against problems in the future, and choose a plot land project with the right legal framework, location and project planning.

Broadly, any buyer needs to consider three important issues:

  1. Surrounding town planning;
  2. Infrastructure and amenities; and
  3. Legal issues regarding to the plot land itself.
1. Surrounding Town Planning:

Success of a plot land project relies heavily on the city master plan, especially local planning mapped out in or nearby the subject area’s periphery.

If the government lays out a master development plan covering some parts of the areas in which a new satellite city will be developed, including major roads, drainage and other amenities, this means that those plots of land nearby this planned development will be in high demand and surge in price soon.

So how do I choose the right location to buy plot land?

A buyer needs to comprehensively study the location where the plot project is situated.

They must conduct due diligence regarding the surrounding environment, including a 500 meter to 1,000 meter radius scan on existing and future establishments, infrastructure, facilities and amenities that can help raise the standard of living of the residents at that location.

Further, they should conduct a scan on the Government’s master plan for plans regarding the nearby and surrounding areas, as well as potential private development schemes that could add values to the plot land, or detract value from the property.

WHEN will it be a good location? Consider your desired time frame…

A location may take some time to become valuable. What if it takes up to 20 years, or even 30 years, for the location to be eyed by the Government or large scale developers?

Perhaps for many years residents will live with poor access roads, no drainage systems, undersupply of running water or electricity, or long commutes to public schools where they send their children; and by the time the infrastructure comes through for them, the perceived value for the buyer may be gone.

Another potential issue about the plot location is its geographical features, for example, is it prone to flooding or other natural mishaps? Find out early before you buy.

2. Infrastructure and Amenities:

Regarding infrastructure, a buyer should be aware of two critical issues:

  1. Existing infrastructure; and
  2. Future plans that affect the infrastructure there or nearby.

What existing infrastructure is there?

For existing infrastructure, a buyer should look at accessibility such as roads linked from the city center to the location, running water supply, drainage systems, and other necessary amenities nearby, such as schools, community markets, public services, and so forth - or at least within a manageable distance.

That said, since already available infrastructure offers a lot of convenience at the present time, it creates more value in that land immediately. This makes it worth purchasing the plots of land for resale or other purposes, but it may also means you are too late to catch a great deal - because everyone else may have noticed the value too.

Future infrastructure:

However, not many plot land projects have infrastructure readily in place. And this is why the price is so attractive. Most of the plot land projects are located in the city fringes or peripheral parts of the capital, where infrastructure has not yet reached.

If that is the case, a buyer should look into the future of the location: whether or not there will be any town planning, including infrastructure, in reach of your desired land plot.

The simple question is to ask whether there is likely to be viable development growth of the location within 5 to 10 years?

Unfortunately, speculation like this can sometimes be hard to guarantee 100%. If the development does not come, this will lead to land price stagnancy or lack of secondary market, affecting the assumed returns.

What if the buyer buys land and then the Government changes their mind and does not supply infrastructure in this area?

It’s bad news for the buyer! However, if private developers see potential in the areas nearby the plot project and volunteer to supply some basic infrastructure, then the plot project will still have a good chance for appreciation.

Some plot land developments are supported by the Government and some are not? How do we know which are? And what difference does this make?

Only by due diligence can a buyer know clearly about this issue, by verifying development approval from the relevant authorities, title deed checks, or licensed plat/plan of subdivision for the plots of land.

Note well, that positive media coverage regarding the plot land project does not mean it is necessarily a safe investment.

3. Legal issues regarding to the plot land itself:

A serious consideration of the plan/plat of subdivision (of the plot project), which should be fully approved by the correct government authorities, is crucial before buying any plot land.

An approved plat/plan of subdivision means all the separated piece titles (or parcels of land) within the plot project are safe to buy with titles that will be respected at the national level of authority.

A ‘letter of land transfer’ (a type of soft land title) registered at the district level if often used in plot land transactions - but beware that this is not a particularly strong statement of ownership for the end buyer and can create various potential problems moving forward.

What sort of land title am I seeking?

One common legal title for a plot of land is a ‘separated piece title’ which is derived from a master plat (plan) of land subdivision. To enable each of the ‘separated piece titles’, first the developer has to hold a title deed for the whole land.

Thirdly, the developer has to get the plat/plan of subdivision approved by the urban planning authorities, especially at the national Ministry level, namely the Ministry of Land, Urban Planning and Construction.

When this approval is given, it is legally feasible for a buyer to register a separated piece title at the ministry level for their piece of land within the project. Note though, officially transferring this separated piece title will incur a transfer fee of 4% of the total value of the plot of land.

Lastly, if the Government has already developed a master plan in regards to the location where the plot project is situated, then all the separated piece titles there can be registered as LMAP titles, the latest and strongest land title registration system in Cambodia.

In most landed housing development projects in Phnom Penh, each separated piece title is offered as LMAP. Having an LMAP title means that the borders of your property have been perfectly recorded, and are free from any dispute over usages rights or ownership. Learn more about Cambodian land titles.

What documents should the buyer ask to see before they commit?

First, a buyer should verify the title deed, either of land consolidation and/or of the land subdivision that comes under the master plat of plots.

Second, he should check if there is an approval from the related ministries (MLMUPC) for the plot project as a whole.

What are the potential issues regarding land titles for the Plot Land Buyer?

If due diligence by the buyer is not conducted carefully, there are potential issues associated with plot land purchase. It has to do with legal issues such as types of titles, as mentioned above.

The problems of soft titles in plot land transactions:

A basic letter of land transfer title (a type of soft title registered at the district level), which is still under the master plat of consolidation, might be safe in some cases.

However, if the land title is only soft, you open yourself up to losing that land in the future if the project owner loses the entire piece of land (as collateral) to the bank if they fail to pay their mortgage.

The other situation is when the project owner chooses not to honour the soft title in the future, and reclaims the land, or sells on the land to another buyer without revealing the soft title rights of the plot land buyers.

Another possibility is that the project seller in fact never had any ownership of the land in the first place and the letter of land transfer title was totally fraudulent.

You must do your due diligence and ensure that none of these outcomes are possible. Ideally, don’t buy unless you can buy with a hard title deed!

So how can I turn my basic letter of land transfer title into a binding hard title?

To do this, a buyer should first refer to the title deed for the master plat of subdivision to check there are no issues in regards to bank collateral commitments with that land.

Then the buyer must register their title with the authorities (Ministry of Land Management, Urban Planning and Construction) based on the master plat and their agreement with the seller.

By doing so, the buyer can then convert their basic soft title into a hard title respected at the national level. This means the land cannot be taken back from them in almost any circumstance.

If not registering at that level, the land holding title is still soft.

What is the correct role of the real estate agent in the plot land transaction?

Note well, that a professional real estate company should not be the owner of the land for sale, as it represents a conflict of interest as they are concurrently acting for the end buyers.

While, real estate agents would be able to act for potential investors in terms of identifying a site and then selling the smaller lots, they should not have any equity interest in it.

Meanwhile, a quality real estate agent acting for the end plot land buyer, should be able to consult and assist in the process of due diligence demonstrated above.

Check out some more great resources on Realestate.com.kh in our Location Profiles and Investor Guides: Learn more about Cambodia, Phnom Penh, Siem ReapSihanoukville. Learn more about Investing in Cambodia, Foreign Ownership in Cambodia & the Cambodian Expat Experience!

This piece was a co-production of Realestate.com.kh and V Trust Appraisal.  

Borey new-dev-ads-580-x-90