Jum reap sour! And welcome to another weekly Real Estate News Report brought to you by RealEstate.com.kh. The leader in real estate news in the Kingdom and the best place to find your new home.
On this week’s show, we’re going to be speaking with Mr. In Sitha, Director of Business Development at VTrust Appraisal. Sitha has over 20 years experience in the real estate business in Cambodia and he now specializes in property development consultancy and real estate business development. He's also a renowned real estate teacher in real estate law and real estate practice.
WHY PROPERTY DEVELOPERS AND INVESTORS ARE INCREASINGLY LOOKING TO CAMBODIA
Realestate.com.kh: Mr. Sitha, I understand you have a lot of experience in advising property developers in Cambodia. What do you believe is driving the current high levels of property develop in the country now, in Phnom Penh in particular? Why do people want to invest in Cambodia?
In Sitha: Well, thank you for your excellent question. In Cambodia now, the business opportunity is good compared to the late 90s. You see when the country and the world had the economic crisis. After 2009, the market is better and better. More foreign investors are looking to this market. Most from China, Hong Kong, Malaysia, Japan, America and local developers. All these people are looking to invest in Cambodia. Come to the questions. What drives the property development in the country currently? I think the investors themselves firstly have to have unlimited/sufficient investment capital for the investments in Cambodia, meaning they can’t enter without foresight.
Number two, the investment projects licensing fees must be taken into consideration. Number three, investors must choose the right locations given their target market and budget, so location is also the most important to set up the development project. I think the central city is the best location at present, and also in the peninsula areas, or the other side of the river, if you're talking by areas.
Realestate.com.kh: Why's that?
In Sitha: Actually in Chroy Changvar the environment is good. The heart of the land between the Rivers is very beautiful, ideal to build a hotel or condo development.
Realestate.com.kh: The infrastructure's really improving that side of the river now?
Yeah. A developer could build high rise buildings without limitations in this location as there are still no restrictions in the Chroy Changvar area, which means we could build high as long as they maintain construction qualities.
Construction qualities that I just mentioned are also an important consideration for the investor. Quality construction ensures a project will have a long lifetime in the market. Number four, company brand name and reputation is also very important to this industry.
Any new developer in the Cambodian market must build its brand reputation also. So how to build our brand name?
My recommendation is to make a joint venture agreement with a good quality construction company and an experienced development company – preferably with experience in multiple international markets.
Number six, you need to understand what is the competitive price in the market for a project like you are looking at. This means understanding the market price. It should in line with demand in the locality as well as considering what is reasonable for the foreign investor coming to our market as well.
Number seven. You must consider the marketing tools you will use to expose your development project. I think RealEstate.com.kh is the one of the best digital marketing options for them to choose.
THE PROCESS TO START ANY DEVELOPMENT PROJECT IN CAMBODIA, FOR DEVELOPERS
Realestate.com.kh: For developers, when you meet the developer that's considering launching a project in Cambodia, can you briefly explain the process for starting a new development project in Cambodia? What do they need to do?
In Sitha: Thank you, this is a good question as well. Most developers have to understand a few things when they decide to enter the Cambodian market. To start a new development project in Cambodia, number one, the developer must get the business license from the Ministry of Commerce
Realestate.com.kh: Number one, business license. This takes how long?
In Sitha: I'd say a few weeks, usually from one week to two weeks. Now everything's online so the developer can go to the website of the Ministry of Commerce and apply to get the business license.
Realestate.com.kh: This process is much faster now?
In Sitha: Yes, it is faster now. This is a new system for the Cambodian government so everything's online now. Second, the developer needs to get permission from the General Department of Taxation. They have to apply to get VAT number and tax patent. You can also apply for tax patent online. The developers then apply to get the construction license from the Ministry of Land Management Urban Planning and Construction.
Realestate.com.kh: The construction license, that's general - or you take a different license for different type of projects?
In Sitha: Actually, it will be specific in regards to the size and type of the development. And we have specific periods.
Realestate.com.kh: And if they don't complete the comstruction in a certain time?
In Sitha: They can extend. At the same time the developers are applying to get the construction license, they need permission for their project from the Ministry of Economy and Finance as well. The same registration applies for a developer as applies to a real estate agency. In the real estate business, first we have to apply to get the business license from the Ministry of Commerce and then get the Tax Patent. Then we have to apply to get our license and certificate from the Ministry of Economy and Finance for the specific professional field as a developer, agent and property manager in some cases. The developer is no different, and needs to get licensed for any type of business it undertakes.
Realestate.com.kh: So the developer, they need to apply for a license to sell their property also? They need to apply for a real estate license?
In Sitha: Yes they do. Number five in the process is that the developers have to prepare the master plan for the development project, and submit this to the Ministry of Land Management Urban Planning and Construction and wait for the approval. After the approval, the Ministry of Land Management provide construction permission. Developers then can start the development project at the site that they propose.
Realestate.com.kh: Roughly how long does it take to receive these permissions to begin? How fast could they do that?
In Sitha: It takes a few months. It depends on how busy the government is. Some Months they are busy, like for the official meetings or something, so it takes a longer. Broadly, it's between one month and three months start to finish.
Realestate.com.kh: When they submit the project plan to the government, how specific, how detailed does the plan need to be at this stage?
In Sitha: They should include the floor plans as part of the master plan, in order for a professional architect from the land management ministry to check. Which means that before construction starts, developers have to prepare the master plan, the complete of construction prediction, and submit all information to the Ministry of Land Management. The Ministry of Land Management will then check and verify whether it shall proceed.
Realestate.com.kh: You must have a registered construction company in this plan?
In Sitha: Yeah, yeah. It shall be under one company who can also be registered for construction, or in partnership with a separate registered construction company. Number six, in the process for a developer to start in Cambodia, the marketing and selling strategy is also important. How to do the marketing and how to sell your type of development in Cambodia. Many developer don’t pay enough attention to this. It's all about the marketing. I say developers need to do the market research and see whether the project could be a healthy seller in this market.
And don’t wait until after the construction to do this! Can customers buy or not? And research the right price or something like that. The developer needs to understand the market price, and likely changes, which means the price that could be affordable to the customer compared to the neighboring development projects. My company, VTrust Appraisal, are specialists in research and market study. We are an independent organization that can bring a lot of useful knowledge to those considering development projects.
WHAT ARE BEST AREAS TO BUY DEVELOPMENT LAND IN PHNOM PENH?
Realestate.com.kh: What districts are the best to buy in in Phnom Penh for developers? Say if you got a new developer client seeking consultation, which areas would you recommend buying land in now for a new development project?
In Sitha: I think right now Chamkarmon District is one of the four districts of Phnom Penh that I would consider as the good place to invest at the moment and into the future. I think that's where to buy development land in Phnom Penh.
Realestate.com.kh: Land's expensive right?
In Sitha: Yeah, the land is little bit expensive but it's still good to invest. As you see, Chamkarmon District is the place with the most expats, restaurants and the prime hotel area of approximately 1,073.72 hectares. In this district, I consider two communes, BKK1 and Tonle Bassac, to be best to invest in.
Realestate.com.kh: Which ones?
In Sitha: Number one is Boeung Keng Kang 1 and number two is Tonle Bassac. You see, they are in the central area, so the southeast of Independent monument, and this district has a lot of wealthy residents, NGO, corporates, etc. And the landscape is very nice, very beautiful and wide, leafy streets.
Realestate.com.kh: Will developers who choose to build in BKK1 increase their chance of higher rental returns?
In Sitha: That's correct.
Realestate.com.kh: Because of all the expats and lots of money in this area?
In Sitha: In Boeung Keng Kang 1 and Tonle Bassac, there are many rich people. One unit of a serviced apartment with two bedrooms can be priced from 800 US to over 1800. Yet, ultimately, it is based on the quality and the design of the construction.
Realestate.com.kh: Much, much higher than the rest of the country?
In Sitha: Yeah, it makes it a good investment opportunity if for a one bedroom unit you can get almost 1000 to 1500 in rental returns. These areas offer easy access to all sorts of entertainment and food venues, and also the government institutions, hospitals, international schools and universities. This is a centralized area. Market price increases yearly so this is a very good place to invest in these two sangkats/communes.
WHY PHNOM PENH BOREYS ARE SO POPULAR
Realestate.com.kh: We're seeing a real rise in new borey developments across Cambodia recently. Can you explain why property developers are particularly interested in the Phnom Penh Boreys market? Why build a Borey?
In Sitha: Okay. This is a good question. In this industry right now are seeing two main types of major developments: Borey development and condo development.
Realestate.com.kh: Sorry, I guess for the viewers, can you explain what a Borey is? - Because I know this word is used a lot in Cambodia, but for people outside Cambodia, maybe they don't know what a Borey is.
In Sitha: Essentially, a borey is a gated community of flat houses, twin villa houses and single villa houses, including public areas, gardens and full security services. Those who want to buy a borey home are looking for privacy, a safe place for their family to grow, areas where communities can develop, and a place where all modern amenities are assured. They are they prefered first home of newlywed Cambodian couples looking to start a new family.
Most of the local developers choose to invest in Boreys. The reason is that developers themselves gain a lot of profit from investment in borey projects over relatively short investment periods. The customers themselves also buy into a good environment for family living. It is popular with Cambodian people who prefer landed buildings, or flat houses. In the Borey, it’s generally all some kind of a flat house, link house or villa home. It can be one story or two story maximum. They also generally have a common area and playground for children.
Realestate.com.kh: Like a neighborhood. Like a fenced neighborhood.
In Sitha: Yeah, that's right.
Realestate.com.kh: They have infrastructure, have water, have electricity.
In Sitha: All included. Generally, for a home in the Borey, the market price increase yearly from 10-15%. This is a good investment to the buyer themselves. They can buy this year, and next year they can sell. If the market is good, it could be more than 15% appreciation. Compare the interest rate with the bank, it's much better than investing the bank.
Realestate.com.kh: Because the Borey buyer, they own the land right? They have freehold ownership of the land.
In Sitha: Yes they own the plot of land that their home is situated on, hard title generally - but best to check!
Realestate.com.kh: Now lots of local people move away from the city center to the Borey’s on the outskirts of town right?
In Sitha: Yes, that's what you see. The Borey developments are long line investment development projects. Which means that the developer spends much more time on the investment, starting from the early master plans and filling the totally undeveloped land.
Realestate.com.kh: Maybe fill the land.
In Sitha: Yeah, up to the completion of the development projects. The marketing time also takes longer to promote and ultimately sell it. Borey means one community. And each household shall pay the management fee. Management fees are reserved for the security, reserved for the public life, reserved for the street cleaning, pool and playground for children- garbage collection as well. Boreys offer great security to families.
Realestate.com.kh: More of a community lifestyle too?
In Sitha: Yeah, yeah. Check out the latest and greatest borey properties, on realestate.com.kh today!
COMMON MISTAKES MADE BY PROPERTY DEVELOPERS IN THE CAMBODIAN MARKET, AND HOW TO AVOID THEM
Realestate.com.kh: What are some of the most common mistakes that you see developers making when they first come to Cambodia?
In Sitha: Well, the most common mistake that the property developer makes when entering the Cambodian market is moving too fast. Before starting any project a feasibility study is crucial. And they need to get recommendations from professional real estate agents.
Realestate.com.kh: They're moving too fast?
In Sitha: Before starting the investment, yes. That's why they could not identify the right location for the right project. Developing and selling are not separate. You need to consider your market before you even break ground. Which means that my recommendation, I would like them to use a professional real estate agent to teach the international developer about the local real estate market conditions. At VTrust Appraisal - we can do that. We are experienced and skilled in the real estate industry since 2004. We are the first to get developer and agent license from the Cambodian Security and Exchange Commission of Cambodia. Feasibility study is the most common service that developers request us to do before entering into this market.
Realestate.com.kh: So many developers are coming in and doing everything too fast. They think the local market is the same as the Singapore market or Malaysia market and they're very surprised.
In Sitha: Yeah, that’s true. First of all they need to do the market research. What is the best area for starting the project? The project is built based on the available investment capital. We would like to get the best return on that investment capital.
Realestate.com.kh: The right property, the right price and the right market.
In Sitha: That's right.
HOW TO DEVELOP YOUR REAL ESTATE AGENCY CAPACITY AND PROFESSIONALISM IN CAMBODIA
Realestate.com.kh: As a business development director at Vtrust Appraisal, obviously you do a lot of work helping real estate agencies increase their capacity. If you could give maybe the top four tips that you would give for real estate agency development? How to build a successful real estate business in Cambodia?
In Sitha: Well, I think the four major factors that should be applied in order to make a successful real estate agency in Cambodia are Location, Human Resources/Training, Investment Capital and Marketing. Location is one of the key factors for a successful real estate agency business. Companies that are physically situated in the right locations for client’s easy access generally have the best success.
Number two, human beings. Human Resources are crucial for any real estate agency. And this means the right people for the right jobs. Professional training for the agent shall be important and necessary too, and training should not stop during their career.
Number three, Investment Capital. Any new real estate agency must be ready before starting at all for more than short term operational expenses. They need sufficient investment capital for at least three years. We have 2000 in real estate market in Cambodia and it is good. But in fact it's not enough. They have to pay a lot of operational expense. The staff salary, utilities, licensing, certificates, marketing etc etc. Be prepared before you try to start a business, because it won’t start generating money for some time.
Number four is Marketing - you need to make your agencies known and respected. The best type of marketing these days is online.