Asian Property Review talks to Tom O’Sullivan, Director of Realestate.com.kh on what it entails to invest in Cambodian property.
APR: Why should investors consider Cambodia?
TO: The main selling point for investing in Cambodia is that it is virgin investment territory. This places it at a position where there is a lot of potential for growth. It’s also a dollarized economy – which makes transactions from most foreign investors much easier and stable in the longer term. On top of that, the country has had strong, sustained growth with year-on-year GDP – a 5% average for the past 5 years. It also has freehold ownership laws that are investor-friendly. It has both political stability and a strategic location. It is located between two strong economies, namely Vietnam and Thailand. Cambodia is also firmly part of China’s “One Belt, One Road” policy in Southeast Asia – and one of China’s closest political allies in the region.
APR: What are the biggest risks in investing in residential or commercial property in Cambodia?
TO: Just like in any emerging market, Cambodia is still relatively new and is still on the way to stabilizing its economy through the development of policies. And while the country has progressed in this aspect by adjusting laws for things like taxation and opening the economy up to accommodate foreign direct investment, it still has more to do. However, patient investors who understand the nature of emerging markets can still feel confident investing into Cambodian property – especially when buying from developers listed in other countries – such as Singapore, Malaysia, China, etc. There are many international developers here offering a level of care for the translation/execution of an international standard.
APR: With a relatively small population, who are the target market for high-end condominiums and commercial developments?
TO: Considering that Cambodia has a relatively small population, its working class is increasing quickly. The country has just been declared by the World Bank as a lower-middle income economy. The good news is that it plans to move towards being a high income country by the year 2050. So, you can expect more high-end condominiums to cater to this sort of population in the future.
APR: Are there any special economic zones in Cambodia which give concessions to foreign companies setting up there? What are some of the concessions?
TO: According to the Council for the Development of Cambodia (CDC), there are 14 special economic zones in Cambodia. These are the Dragon King SEZ, H.K.T. SEZ, Kampot SEZ, Manhattan (Svay Reing) SEZ, Neang Kok Koh Kong SEZ, Phnom Penh SEZ, Poi Pet O’Neang SEZ, Sanco Poi SEZ, Sihanoukville SEZ, Sihanoukville SEZ 1, Sihanoukville Port SEZ, Shandong Sunshell Svay Rieng SEZ, Suvannaphum SEZ, and the Tai Seng Bavet SEZ. But there’s also the Phnom Penh Special Economic Zone.
Concessions can be granted in these SEZs but they have to be approved by the government first. Also, the CDC will provide special tax status for the investor’s company such as exemptions and reductions.
There are three types of land concessions available in Cambodia. These are the Economic Concession; Use, Development or Exploitation Concession; and the Social Concession. By law, land concessions cannot have an area in excess of 10,000 hectares. They are also limited to 50 years. But the government has the right to revoke this decision if there is little to no compliance.
APR: What is the outlook for the Cambodian market for the rest of 2017 amid geo-political and economic uncertainties?
TO: According to experts, 2017 will see the continuation of where the trends left off in 2016; Cambodia will continue to work with its neighbouring countries, especially China, to further improve infrastructure and real estate developments. If there are any changes, they’re not expected to be drastic.
APR: What are the current rules on foreign ownership? Will there be more relaxation of those rules in the near future?
TO: Foreigners aren’t allowed to own grounded properties in Cambodia. This means they can purchase units in condominiums via a strata title, enforced by the foreign ownership law of 2010. However, these have limitations. Foreigners can only own up to 70% of the property, provided that none of those units are on the ground floor. They cannot also purchase properties that are within 30km of the border.
But there are also other legal options that foreigners can avail themselves such as buying as a business entity, as a spouse, or as a citizenship applicant to purchase land in the country. APR: What are the property tax rules that a foreigner should know about e.g. Stamp duty, RPGT, etc.? TO: Depending on what options foreigners take to purchase property in Cambodia, they may need to pay annual property tax, value added tax, capital gains tax, transfer tax, and – if applicable – rental tax. APR: How promising is Sihanoukville as a tourism and special economic zone? Do you think it will become the next Phuket? TO: Sihanoukville can be compared to Phuket in many ways, but it has its own set of circumstances that makes it a great tourist spot, independent of the comparison. Around 1.5 million tourists visited Sihanoukville last year alone. And with the Sihanoukville airport expected to become Cambodia’s largest airport, more airlines will fly directly to Sihanoukville. This means more tourists. APR: In terms of infrastructure, what is the stage now in general e.g. highways, telecommunications, etc.? TO: Cambodia, as a whole, has had several infrastructure upgrades such as new bridges being built in Chroy Changva, airport expansion in Sihanoukville, the rehabilitation of the Royal Railways to service routes from Phnom Penh to Sihanoukville, and port expansions. Infrastructure is generally improving in the country. APR: In terms of demographics, what’s the percentage of working and productive population and emerging households? What is the average per capita income? TO: Atimes.com mentions that “70% of the country’s population is under the age of 34. This means that Cambodia, unlike most Western or developed countries, has a large supply of young talent and labour available to work and innovate, helping the country develop.” But in terms of people actually participating in the labour force, the World Bank puts it at 80.95% of the population. Also, again, Cambodia has recently been upgraded to a lower-middle income country status by the World Bank. This means that the average range of income for the country per person is USD1,026 to USD4,035 per annum. Cambodia’s gross national income for 2015 was at USD1,070. APR: Can foreigners borrow loan from Cambodian banks or foreign banks in Cambodia to finance their property purchase in Cambodia? Is the loan denominated in US dol lar or Cambodian currency? If yes, what is the normal LTV percentage? TO: Banks only approve loans from foreigners if the property used as collateral has a strata title. Without it, getting loans for property investments is almost impossible because only citizens of Cambodia can buy soft and hard titles. Loan amounts can go up to 50% of the property’s value while the tenure can be up to 25 years. The standard rate of interest is at 8% or 9%. Cambodia is also known to use US dollars in its transactions which is pretty much preferred over the local currency. Either way, both currencies are accepted in the country [for property purchase]. APR: How developed or transparent is the legal system in Cambodia in the event of any land or property disputes, e.g. Do they have a Homebuyers Tribunal or Housing Act that regulates home owners’ rights? TO: The legal aspect is always the trickiest part of each property transaction in Cambodia. If you don’t protect yourself through contracts or agreements, you’ll definitely be at a loss. But disputes can be resolved in Cambodia in three ways. It can be through litigation, arbitration, or mediation. So far, litigation seems to be the preferred method of dispute resolution when there are contractual obligations involved. Meanwhile, mediation is a more cultural approach to resolving disputes. This entails going to village elders for consultation.