Insider Analysis: Market Leaders Analyse 2017 Prospects

May 15, 2017, 6:52 a.m.

In this edition of Realestate.com.kh's Insider Analysis, market leaders share their reviews of 2016 and forecasts for 2017 in regards to Cambodia's real estate market.

Kuy Vat, Chairman & CEO of Century 21 Cambodia

Looking Back: As 2017 begins, what do you believe was the defining theme of the 2016 real estate market in Cambodia?

2016 has certainly raised some challenges for new development projects aimed at condominiums and apartments plans. The challenge mainly lies in the the supply and demand ratio: 2016 had a significant drop in demand compared to the previous years. However, it seems that Cambodian buyers are changing their mindsets rapidly moving away from their traditional idea of purchasing a house or land, and instead moving towards Condominium ownership. I am positive that this trend will result in an increase in demand in the near future.

Looking Forward: What is your prediction for the key strengths and weaknesses of the Cambodia real estate market over the course of 2017?

As mentioned before, I am positive that 2017 will bring up the demand for condominium properties and at the same time will see more investors come into play. Additionally, I believe that using professional marketing services will be crucial to promote the property listings to the medias and investors.

The main weakness of local real estate market  is its unregulated nature and the lack of professionalism. For this reason at  Century 21 Real Estate we provide real estate agencies with professional training in order to build and develop their skills.

In summary, we are quite excited about the Cambodian Real Estate Market in 2017 and beyond. Positive minds will see Positive Opportunities.

Dr. Sok Siphana, Managing Partner at SokSiphana & Associates

Looking Back: As 2017 begins, what do you believe was the defining theme of the 2016 real estate market in Cambodia?

2016 was the inaugural year for the Asean Economic Community (AEC). The effect of this is highly psychological - in the sense that Cambodia as a small country does not matter so much to regional investors. Yet, as the AEC breaks down the regional borders, Cambodia immediately becomes part of a regional supply chain between Vietnam and Thailand. This has an indirect influence on the real estate industry in that many investors in Cambodia property don't buy to live. They buy to speculate and to invest based solely on the growth prospects of the country - and the growth prospects of the country are hinged on regional integration.

One major influence on these growth prospects is the “One Belt, One Road” initiative of the Chinese Government, which directly accounts for the massive influx of Chinese investment in Cambodia. This includes major infrastructural projects such as energy infrastructure: at first glance this does not seem related to real estate, but without achieving development in energy efficiencies, international business flows into Cambodia will remain limited. If these things are limited, naturally investment in real estate by foreign buyers will also remain slow. The management of the factories inside Cambodia will naturally look to live in a condominium, for example.

The other major influence on Cambodia’s holistic growth prospects in 2016 are the Japanese. The Japanese are increasingly moving part of their supply chain to Cambodia. And along with these industrial interests, Japan is simultaneously bringing “Soft Infrastructure” into Cambodia to welcome the industrialists. Aeon Mall is a prime example of this soft infrastructure. Where does a Japanese family living in Cambodia go to shop and eat? Hospitals also represent a key element of soft infrastructure. Without these things, the internationals will not come.

Finally, I suggest the current cooling in Singaporean real estate market is also influencing Cambodia - in that a downturn in that market raises the benefits of Singaporean developers and buyers looking to Cambodia.

These two influences are having significant benefits for the real estate industry in 2016 - whether or not the relationship is obvious. So 2016 has been all about “Cambodia in the region” - no longer a small country by itself.

Looking Forward: What is your prediction for the key strengths and weaknesses of the Cambodia real estate market over the course of 2017?

In 2017, I see the continuation of the trends we saw in 2016. The Chinese will continue to invest in key infrastructure, such as Hydro power, roads, airports, huge satellite cities and other major real estate developments. This represents politically linked confidence building for the entire property market. That state driven growth initiative from China will sustain Cambodia economic development for quite a while.

The continuation of the Japanese policy in Cambodia is what Prime Minister Shinzō Abe announced at the recent ASEAN Summit related to “quality infrastructure” - and this specifically relates to Cambodia becoming an economic corridor of the mekong region, including regional cross border economic zones. An economic corridor, plus special economic zones is very attractive to industrialists from Japan.

Another player that is moving quickly in this regard is the Thais. Thais have strong interests in joint border zone development with Cambodia, and they will continue to push these policies with the Cambodian Government.

The beginnings of these forces we have seen in 2016 will only continue in 2017. Better logistics a big part of supporting this continues growth. But also retail growth will need to continue to occur to service a transregional economy. As retail growth is not only for a growing middle class of Khmer, but for the internationals moving in that demand retail quality and diversity in any market they enter.

Open borders and open integration is ideal for Cambodia's long term social and economic growth - and the real estate industry. In the context of today, Cambodia is not an island. We must think regionally - because the market is now following a blue ocean strategy.

Those that think their well lies only in Cambodia, will see that well run dry one day soon. We need to tap into regional flows and international investment.”

Eric Wong, Administrator SkyscraperCity Cambodia, Laos & Myanmar

Looking Back: As 2017 begins, what do you believe was the defining theme of the 2016 real estate market in Cambodia?

What I am seeing right across Phnom Penh at the moment is a market that is very positive and has been positive for sometime. One reason for the growth in prices in recent years has been an influx of overseas property investment. Prices continue to post steady year-over-year gains. After several years of steady and steep price growth, I see indications that price growth is slowing and the market is normalizing. If price pushes beyond the current levels, it will heighten the risk of a sharp correction.

Looking Forward: What is your prediction for the key strengths and weaknesses of the Cambodia real estate market over the course of 2017?

There is significant amount of uncertainty over the outlook for prices. Given the number of newly completed residential developments reach the market, the market is expected to be oversupplied after years of record constructions. The market is already on the move indeed - rents are on their way backwards and declines may continue. The worse scenario is where the market may likely to experience a severe "correction" in prices, unless foreign investors continue to believe Phnom Penh is a safe-haven to park their money.

Simon Griffiths, Former Senior Associate Director at CBRE Cambodia

Looking Back: As 2017 begins, what do you believe was the defining theme of the 2016 real estate market in Cambodia?

Real estate in Cambodia throughout 2016 has gained a lot of interest with sensational stories about, Cambodia developing the tallest building in south-east Asia and $25 billion FDI in Kampot, but the reality is somewhat less sensational.  It has been a year of steady upward growth across sectors.  The office market has condensed in the middle around $15 - $18 / sq.m up from $13 the year before with Grade A now achieving rents circa $30 /sq.m and Exchange Square setting a new pre-leasing record for the office market demonstrating a healthy demand.  Retail demand has grown with more consumers and retailers entering the retailing arena.  Residential rents have overall grown modestly and retained high occupancies and the industrial sector is performing strongly on occupancy growth. It would be amiss not to mention as a theme that pre-sales for condos have slowed during 2016 from where they were in 2014 and 2015.

Looking Forward: What is your prediction for the key strengths and weaknesses of the Cambodia real estate market over the course of 2017?

For 2017 the market will not change as dramatically as many people may think when looking at the skyline and the new developments going on.  The office sector will continue to strengthen with rents in the middle and top-end growing.  Patterns and attitudes to retail experiences will continue to change with new modern malls coming on-line and the new generation choosing these as their preferred retail destinations, but in terms of this impacting retail rents, it is not likely to until this trend takes root.  The industrial sector will be a strong performer and demand for quality locations will have an upward pressure on rents for those preferential locations and SEZ’s.  The residential sector will be broadly stable although what has historically been a landlords market, will start to re-balance towards a tenants market.  I would also predict 2017 will be a big year for the coast, particularly Sihanoukville with the potential for big development announcements as well as a new legal  framework governing the province opening it up to new investment but for now it is wait and see.

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