Investment in construction surges against all odds

Source: Phnom Penh Post

Source: Phnom Penh Post

The biggest disincentive for investing in land and new construction in Phnom Penh ought to be, in my view, how much of it is taking place. I have written several times in this space about the swelling bubble that I believe I am witnessing.

The bubble notwithstanding, other reasons would seem to militate against considering a building project in Cambodia, and I’ll get to those factors in a minute.

It is my belief that the dimensions of the growing bubble are clear: Construction and real estate investments achieved 13.75 per cent more growth in the third quarter over the same time last year. The government puts the combined worth at $1.752 billion, an increase in value of $1.54 billion over the previous year.

That recently persistent growth somehow has occurred despite a dubious distinction that this nation now holds.  As the Phnom Penh Post reported last week, Cambodia occupies the 181st position among 189 countries for the time it takes to receive a construction permit — 652 days to obtain 20 approvals. That period of nearly two years compares with neighboring Thailand, which consumes 105 days and three fewer hurdles.

151029_property_peNor does any other Asian country have anything like Cambodia’s dismal record. China is closest, and the World Bank Group puts its time period at 244 days. Unsurprisingly, a government official in the Post article disputes the accuracy of Cambodia’s rank.

A second reason that investors ought to be discouraged is that relatively few locals can buy into their projects, says Chairman Yum Sui Sang of Union Commercial Bank.  He continues:

“Both investors and buyers in the local property market are mainly from overseas.  Local people have a weak consuming power in terms of buying property, and many of them can only afford apartments priced at the range of several tens of thousands.”

There is, the bank official notes, a vast disparity among the tiny proportion of wealthy Cambodians, the small number of middle-class Cambodians and the huge segment of the poor.

“The market cannot be developed simply with the rich and the poor only,” he observes, “while the poor cannot afford the housing. . . “

A reason income levels are so important is the nation’s mortgage law system, he contends. Unlike the way the law works in Yum’s native Hong Kong, seizing the property of a borrower who defaults on a mortgage loan consists of a tortuous process here in Cambodia.

Still, in the last 15 years, 239 foreign investment projects worth about $3.292 billion have been licensed, according to the government.  Those projects cover a total area of 9.6 million square meters, the equivalent of nearly 98 million square feet.

That foreigners keep investing — first among them, Koreans, followed by Chinese, Japanese, British and Malaysian investors — frankly boggles my mind.

It seems to me that a rational investor would take into account what I believe is the inevitability of the dreaded bubble (and likely its presence today), the small size of the potential market of renters or purchasers and one other concern: Politics.

Those billions of dollars represent one helluva a lot of investment in nation with a future that may well suffer from continued political turbulence of dimensions unknowable.  Just last month, the brutal beating of two legislators as they left work represents an escalation of combative rhetoric and continued abuse of the rule of law, causing me to be increasingly pessimistic about the country’s stability.

Where I live amid a cacophony of new developments under construction in the prime residential area of Boeung Keng Kang I, I don’t see many apartments with lights on at night in numerous condominiums and rental properties that have been completed in the last several months.  The lack of a master development plan for sprawling Phnom Penh as buildings sprout willy-nilly boggles my mind.

Even though very nice new luxury two-bedrooms are available for purchase for around a quarter of million dollars, I rent.  Always will.

E-mail: malcolmcarter@gmail.com

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