Reason foreigners cannot own ground floor: Naïveté

IMG_4689

Visitors evinced keen interest in new developments at the Cambodia Real Estate Show.

Foreigners in Cambodia are barred from owning the ground floor of any building in the Kingdom of Wonder.

I finally found out the origins of the prohibition early this month when I attended one of 16 presentations at the Cambodia Real Estate Show, a well organized two-day event that attracted numerous potential developers along with buyers of luxury apartments and buildings.  (Hey, you can take the broker out of real estate, but you can’t take real estate. . .)

It was not until 1989 and then in 2001 that government decrees defined the possession and subsequently, in 2001, full ownership rights of residential property.

Like most other countries in the region, Cambodia does not want foreigners to own a piece of the nation, no matter how small, as codified in Article 8 of the Land Law.

According to presenter Matthew Rendall — a lawyer who holds a Cambodian passport and is managing partner at SokSiphana & Associates in Phnom Penh — the stricture resulted from the Interior Ministry’s confusion.

“They couldn’t understand the concept of owning a building apart from the land,” he related in reference to a large number of hearings that were conducted on the matter.  In other words, in the ministry’s view, someone who owns the ground floor also must own the land beneath it; that is not necessarily case.

IMG_4699

Audience listened raptly to Matthew Rendell’s presentation.

Another restriction for condominiums is that foreign investors or resident expats may own no more than 70 per cent of a building’s area.  (It is 49 per cent in Thailand, Rendall said.)

Nor is it possible for them to own underground parking spaces as it in New York, for example. It turns out that no mechanism has been established for that.

Why not put parking above ground?  Doing so would reduce common areas that could have more productive uses and, more important, would cut into the number of condos that could be sold for much higher prices than a vehicle space would command.

Regarding that 70 per cent ceiling, it is not necessary for the National Assembly to vote on a change.  The measure was designed so that the government could by decree modify the percentage if it felt the market was overheated or if demand was too low.

One way that a foreign developer can get around the ground-floor restriction is by becoming a citizen or having a partner acquire Cambodian citizenship.  Cost of citizenship: $250,000.  “That’s what developers do,” Rendall remarked.

A citizen purchases the land and creates a land holding company.  The company then leases the land to the developer, contractually relinquishing the right to give permission for anything that the developer chooses to do.  It is a two-tier structure that applies only to new developments, not shophouses along the riverfront, for instance, where “owners” receive only possessory titles, Rendall told perhaps 75 individuals in his audience.

He made clear that using a nominee to buy the land may not end well if it is a Cambodian otherwise disconnected from the company or even if an employee.  What if the employee is fired?  What if the Cambodian is ultimately dishonest or dies?

“It is fraught with risk, depending on who you choose,” Rendall said, adding that there is no trust law in Cambodia and that “you are very dependent” on the person who is nominated to hold title.

Another issue for foreigners that the lawyer pointed out is ownership within 30 kilometers (18.6 miles) of the nation’s borders (with Thailand, Vietnam and Laos).  Foreigners are banned from owning inside the limit.

Regarding gated communities, boreys in Khmer, their number is growing.  They contain an abundance of what are called villas, essentially townhouses that usually are attached.  Owners do not own the land beneath their homes.

Discussions about altering the system have been conducted “for quite some time,” the lawyer noted.  He said that separating the communities’ common areas such as parks and streets from land under the houses would create two sorts of ownership.  Doing so “might be a way of allowing foreigners to get into the landed property market,” Rendall said.

IMG_4705

Just one of several expansive areas of NagaWorld, where the event was held.

The well-attended event was organized by Realestate.com.kh, which characterizes itself as the leading property portal website in the country.  The site says it is a website business specializing in online marketing, not itself selling property, by “listing thousands of properties for sale and rent all over Cambodia.”  The closest analog in the United States appears to be something like an unregulated multiple listing service.

The show took place at NagaWorld, a huge hotel, restaurant and casino complex in Phnom Penh. In a market that has been experiencing an unfettered building boom and already is saturated, it occurs to me that the location chosen to market all those empty new developments could not have been more fitting.

Talk about a gamble.

Email: malcolmncarter@gmail.com

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s