Despite the law from 2010 that states that foreigners are only able to buy or rent properties above the ground floor and only up to 70 percent of properties, many foreign nationals and investors have still been able to purchase landed properties through soft titles across various districts of Cambodia for many years passed.
However, as a result of the Ministry of Land Management, Urban Planning and Construction’s (MLMUPC) recent decision to enforce long-standing soft title ownership regulations, all khans (districts) of Phnom Penh will stop allowing the processing of titles under a foreigner’s name.
What is a Soft Title?
A Soft Title is a Cambodian land title that is recognized at the local government level. Soft titles are provided by the local Sangkat or District office and are not registered at a national level – but are still considered a possessory status. A Hard Title, by comparison, is recognized at a National level.
The majority of property transactions still occur with soft titles in Cambodia because it is an easy way to avoid ownership transfer taxes and fees. A Hard Title, by comparison, costs around 4% of the property value to create or transfer ownership.
Under the constitution, however, these soft titles are not legally available for non-Cambodian nationals.
No more Soft Titles for Foreigners:
Up until now the Ministry of Land Management, Urban Planning and Construction have turned a blind eye to the many Khans and Sangkats below their authority issuing soft titles to foreigners.
In a recent announcement, however, this precedent has been totally stopped in Phnom Penh.
Ownership of Land in Cambodia via Nominee:
Nevertheless, there is still a way for foreigners to own landed property in Cambodia through nominees.
What is a Nominee Structure?
Simply put, this structure lets the foreign investor sign a trust agreement in partnership with the land holder. The land is then put into mortgage, and then leased to the foreign investors. This is an inexpensive way to “own” a property and the land beneath it, or at least have total control over that property.
It’s quite simple to implement this nominee structure: You only need four “securitization documents” which is the mortgage agreement, loan agreement, lease agreement, and security agreement.
Having these four documents will guarantee that you have control over the property, and security against the nominee trying to liquidize your asset without your consent.
Grant Fitzgerald of IPS Cambodia notes the structure of the nominee is economical, fast, and effective for foreign buyers.
Risks of Buying via a Nominee
Even with proper legal protection, a nominee purchase actually disregards the constitutional prohibition on direct ownership of property by foreigners.
Nevertheless, it is possible and it does work in practice. But always seek advice from a registered Lawyer and an experienced real estate agency.
How the Nominee Structure will Affect Buying and Selling:
There are two possible scenarios, given that there is now strict enforcement from the MLMUPC. The correct course of action will depend on how enforcement is managed in practice in the coming months.
- Transfer to Nominee on Sale:
One scenario would allow foreign investors who currently own landed property to keep it in their name for the time being, but will be forced to transfer to a nominee before they can sell or transfer the title. This essentially means delaying the inevitable. But if the MLMUPC do not enforce strictly, it may be possible for the time being.
“The new enforcement will not likely directly affect foreigners currently owning soft titles until it comes time to sell,” suggests Desmond Yap of Yong Yap Properties. “If Daun Penh follows the precedence of 7 Makara which did allow foreigners to purchase flats in previous years, foreigners who have properties under their name can still live in it and rent it and are under no pressure to sell. Just when they do eventually sell, it has to be in the name of a Khmer national.”
- Transfer to Nominee Immediately:
The second scenario is where current foreign owners of these types of soft-titled properties will be forced to sell them, or transfer the title to a nominee immediately. If the MLMUPC decide to enforce the regulation so strictly, the foreign owner will be able to transfer the property to nominees, with the proper protections in place.
In these cases, getting a lawyer would be the best option. Yap notes that “the worst case scenario is that they will force you to sell the property – though if this happens, you can just transfer the property into a nominee’s name with the protection of a trusted lawyer.”
How will this Influence the Market?
As a result of this, sales in soft titled properties are expected to slow down in expat hotspots around Phnom Penh as necessary adjustments are made by agencies to accommodate the stricter enforcement of the law. In the long run, however, the enforcement offers predictability in the law across the entire city.
Still have questions? Contact Realestate.com.kh now!