Investors that missed the boat in China over the last decade hope to catch the next wave of property investment in Cambodia

By Zhang Hongpei Source:Global Times Published: 2019/1/23 16:41:46

Buildings stand illuminated at night in Phnom Penh, Cambodia, on October 24, 2017. Photo: VCG

A view of a sales office of R&F Group in Phnom Penh. Photo: Courtesy of R&F Properties Cambodia

Outside the international airport of Phnom Penh, capital of Cambodia, right before the 2019 New Year holiday, Lin, a 28-year-old white-collar worker based in Beijing, was picked up by a local driver who could speak standard Putonghua.

"There were only five kilometers between the airport and the hotel, but the journey took over an hour because tuk-tuks are hustling around the city streets causing bad traffic jams," Lin told the Global Times in a recent interview.

Dirty, messy and with bad infrastructure in the Cambodian capital is the first impression experienced by Lin. "About 10 minutes' drive after leaving the airport, along a muddy road, with shabby wooden houses lining the street, it could be likened to a remote area in China," Lin recalled.

Despite the relative backwardness of Phnom Penh, Lin decided to buy an apartment developed by a Chinese real estate company in the city, and it took only half an hour for him to make the investment decision - an apartment priced at 670,000 yuan ($98477.2).

"The price is very cheap. I believe the sale is not bad since the salespersons I met seem to be very rich," said Lin.

Lin is just one of many Chinese investors flocking to the Phnom Penh property market in the past few years. They are eagerly seeking the once missed investment opportunities that had emerged in China's first-tier cities two decades ago.

Han Zijie, sales manager at R&F Properties Cambodia, told the Global Times on Tuesday that the number of Chinese investors has surged since August last year. "I've hosted up to 10 condo tours in a single day. And the buyers are mainly from major Chinese cities like Beijing, Shanghai as well as Guangzhou, [capital of South China's Guangdong Province]," said Han.

"A buyer even bought 20 apartaments at one time," Han added.

According to the law of Cambodia, foreigners are only allowed to buy residential homes above the first floor as only local residents have the rights to buy the land, touching the first floor, which is usually used for commercial purposes. 

He Shiying, a professional property agent who has been engaged in overseas property markets for more than 10 years and is now based in Phnom Penh, told the Global Times on Monday that after Cambodia's Prime Minister Samdech Techo Hun Sen won a landslide election victory last July, more and more Chinese investors have consulted with her or have visited the capital city for an inspection of the properties.

"Comparatively speaking, property investors from Chinese mainland are not as sophisticated as those from more developed countries such as Japan and Singapore, as they lack professional knowledge," He noted.

"But it should be acknowledged that Chinese real estate investors have learned a lot over the past decade," He added.

Meanwhile, in Cambodia, there is no high leverage for speculation - a very low down payment and bank loans with high interest rates - for foreign buyers, He explained. "Money is fully paid in several phases within a few years."

Chinese builders' bet

Cambodia's construction sector attracted a total investment of $5.22 billion in 2018, down 18.6 percent from 2017, according to a report released by the Ministry of Land Management, Urban Planning and Construction of Cambodia in December last year. The report said the ministry had granted licenses to 2,867 construction projects on a total area of 11.4 million square meters last year, Xinhua News Agency reported.

Out of the new construction projects, those from Chinese property firms account for up to 40 percent, said Han, while the rest are local players as well as those from Japan, South Korea and Singapore.

The Cambodia subsidiary of R&F Properties Co, a major Chinese property developer based in Guangzhou, is currently constructing the largest community - R&F City - in Phnom Penh including 20 residential and commercial buildings.

R&F Properties plans to complete construction by 2020, with an investment of more than $2 billion, media reports said.

During the second half of 2018, around 1,000 R&F City houses had already been sold and approximately 60 percent of the buyers are from the Chinese mainland, Han said, noting the remaining customers are mainly local Cambodians as well as investors from Asian countries such as Vietnam, India and South Korea.

Located just a few hundred meters away from the city center, R&F City houses are sold at around $2,000 per square meter on average. "The price is fair compared with the prices in the city center which may reach over $3,000," said Han.

Another Chinese developer - Shanghai-headquartered SRE Group - is also expanding its footprint in the Southeast Asian country by launching its project named Romduol City, a high-end commercial and residential project in Sen Sok district. The project's groundbreaking ceremony was attended by the governor of Phnom Penh, at the end of last December.

So far, 15 percent of the project has been subscribed and signed, according to a note SRE Group sent to the Global Times on Tuesday. 

And Lin's newly purchased apartment just contributed to the above number.

SRE Group said it bets on Phnom Penh's real estate market in a long term and will seek appropriate opportunities to introduce more projects to boost and upgrade the city's construction sector.

Compared with other overseas developers in the Phnom Penh market, Chinese enterprises have advantages in terms of policy support, from the Belt and Road initiative (BRI), said SRE Group.

BRI is playing a crucial role in connecting China and Cambodia. Chinese Premier Li Keqiang said Tuesday, when meeting Cambodian Prime Minister Hun Sen, that China would as always firmly support Cambodia following its development path, in line with its national conditions, and seek better synergy between the BRI and Cambodia's development strategy, according to Xinhua on Tuesday.

Hun Sen is paying a four-day visit to China starting from Sunday.

Huge growth potential

Chinese capital investment and a rising number of tourists are a massive source of revenue for Cambodia. Construction is one of the four pillars supporting the Cambodian economy. Other three are the garment industry, tourism and agriculture.

Yan Yuejin, research director at E-house China R&D Institute, told the Global Times on Tuesday that the rising investment enthusiasm for the property market in Southeast Asian countries over the past few years is due to more Chinese outbound trips in those countries.

"Natural scenery and cultural sites are attracting Chinese investors to invest in cities in Southeast Asia, the model of which is similar to investing in Sanya or Haikou, South China's Hainan Province or Beihai, South China's Guangxi Zhuang Autonomous Region in the 1990s," said Yan.

In 2018, Cambodia had the third largest increase of international tourists in ASEAN, behind Vietnam and Indonesia, Cambodia's newspaper Khmer Times reported on Tuesday, citing data released by the Ministry of Tourism.

Chinese tourists continue to top the list of visitors to Cambodia by nationality. Around 1.9 million Chinese tourists visited Cambodia in 2018, up 70 percent year-on-year, said Cambodian Tourism Minister Thong Khon, according to the report.

"A continuous high GDP growth rate of Cambodia, high returns of Phnom Penh's house rental as well as high annual growth rate of its home prices are the reasons for investors to invest their money here," Han said.

Cambodia has experienced roughly 7 percent annual GDP growth over the past decade, since the global financial crisis in 2008. 

Housing prices in Phnom Penh have registered an annual growth of 10 percent or more for the past three years, and the average rental yields can reach 8 to 12 percent, ranking the top five in the world, said He.

"The rentals are very high due to limited supply. Currently there are only 10,000 apartments available for rental," He explained.

A 30-square-meter apartment in the fashionable BBK1 district can be rented at $700-800 per month, whereas an apartment with two bedrooms can reach $1,500, according to He.

Behind the rising house sales and rental market is the booming demand of local people.

Permanent residents in Phnom Penh number about three million, with nearly half not having access to home ownership. "In 2020, most developers will deliver their houses, providing around 50,000 units for the market, but even that cannot satisfy the local demand," said He.

He is very optimistic about the huge growth potential of the Cambodian property market, which is largely supported by the surging number of its young people, international visitors as well as increasing birthrate.

"When I came to Phnom Penh for the first time in 2016, I felt that the city was very young; even younger than people in Shenzhen [in South China's Guangdong Province]. People on the streets were around the age of 25 or 26, and they are constantly flowing to the capital city for better job opportunities," said He.

Another advantage for the Cambodian property market is the common usage and liquidity of US dollar, which is beneficial for asset hedging, according to He. "Currency in the investment destination is also very important when making decisions."

Despite lucrative investment opportunities ahead in the newly emerging markets in Southeast Asia, Yan warned that Chinese investors should be cautious of potential tightening of property regulations after capital inflows ramped up local housing prices at too fast a pace.
Newspaper headline: Chinese capital, investors drawn to Cambodian skyline


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