Landed Housing Market awaits the new middle class
Updated on: June 6, 2022, 5:04 p.m.
Published on: May 15, 2017, 5:33 a.m.

Landed Housing Market awaits the new middle class

Phnom Penh Housing Market report release by VTrust Appraisal last week has revealed significant growth in investments in the construction sector of the capital -- amounting to a total of $8.5 billion in 2016 from foreign direct investments alone.

However these factors in the landed housing market have stirred up questions as to the salability of these new and recently erected developments - particularly in the current demand outlook.

The climate in Phnom Penh remains conducive for investment, in comparison to what it had been in 2002 when the first borey projects launched. The report indicates that the Phnom Penh landed housing market has gone a long way since the first landed housing cluster emerged during that time in Sen Sok. Supplies in different districts soon followed, and in 2017 the marketplace is frantic.

But Miguel Chanco, lead analyst of Asean’s Economic Intelligence Unit, says that “there have been strong signs over the past few years that the housing market, especially in Phnom Penh, is in oversupply” because of all the developments that have been approved. This is particularly true for the condominium market of the country.

In terms of landed housing, the supply reached around 100,278 units by the end of 2016.

According to the Phnom Penh Housing Market report, around 28,097 more units will be adding to the supply by the end of 2017.

This, Chanco believes, will cause sales to move at a lower pace in the coming years.

Yet Chanco says the upcoming landed housing supply will still be filled in the next few years. And this is all thanks to the rising salaries of workers in the capital.

Chanco says, “Phnom Penh’s population may be small compared to other capital cities in Asean, but salaries are rising rapidly.”

Just last year, Cambodia was already declared as a lower-middle income country by the World Bank. According to them, “Robust economic growth averaging 7.6 percent per year in the past two decades has transformed Cambodia from one of the world’s poorest countries to a lower middle-income country today.”

The government also shows no sign of slowing down to achieve high income status by 2050.

Chanco, in a separate interview, has this to say about the government’s mission: “I don’t think Cambodia will reach upper-middle income status by 2030, especially given the intense competition of a lot of the countries in the region that are also looking for the kind of investment that would drive Cambodia up over the next 10 to 15 years.”

But this may be enough to get investors buying more properties in the future. Chanco mentions, “I wouldn’t underestimate the long-run potential of Cambodia’s overall middle-class.”

Other factors that equalise the potential oversupply includes the implementation of more flexible schemes, like a zero-down payment option. These terms are already being offered by various developers in order to extend the reach of the market towards the lower-middle income categories. This increasingly available finance should cause the demand to move upward in 2017.

"In term of real estate economics, housing markets during the last several years were weighed more by developers' side because of smaller market supply compared to high market demand, so prices increased markedly year-on-year, especially when the houses were erected, said Hoem Seiha, director of research at Vtrust Appraisal and the author of the report.

Seiha continued saying, "With the surplus today, however, the market absorption takes longer than it did before, pressing the brake to slow down new supplies as well as prices. This shows an early sign of housing market to reach its equilibrium where supply, demand, and prices go along together in the next couple of years."

The report states that prices will begin to stabilize throughout 2017 to 2018. First home buyers are now also offered a range of completed units alongside new developments, giving the market more depth and finance options.

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