Cambodia Considers Allowing Foreign Ownership of Property

Cambodia Considers Allowing Foreign Ownership of Property
Friday, December 05, 2008
Global Property Guide Cambodia real estate values are in freefall, and officials may soonallow foreigners to purchase buildings, though foreign ownership ofland is still out of the question. For more information, read thefollowing article from Global Property Guide:Cambodia’s housing market is plummeting, and the government isconsidering a new law to allow foreigners to own buildings.In 2005, the government amended an investment law to allow foreignownership of buildings. However Cambodia’s property market was thenexperiencing one of the biggest booms in Asia. As a result, the lawwas never implemented and the idea floundered.The boom saw prices surge 25 percent to 40 percent annually from 2004to 2007. Land price increases were at first confined to Phnom Penh,Siem Reap and Sihanoukville, but the boom spread right acrossCambodia. Other hot spots have been the border areas with Vietnam andThailand and, to a lesser extent, Laos.The capital’s most sought after locations fetched US$500 per squaremetre in 2000, but were sold at around US$4,000 or more per squaremetre along Norodom Boulevard, and US$2,500 per square metre in thecentral residential neighbourhood of Boeung Keng Kang (BKK).A downturn started in July 2007 after the government announced newinvestment guidelines for developers.Then in mid-2008, the bubble burst. The global financial crisis hadhit Cambodia’s biggest investor, South Korea, and Korean investorsbegan pulling out foreign assets to increase liquidity.Real estate sales plummeted 30 percent to 50 percent from a year earlier.To prevent the market from sliding further, the government isconsidering moves to allow foreigners to fully own buildings. Landownership is still out of the question.The housing boomCambodia has just witnessed one of the biggest real estate booms in Asia.The reasons are obvious, as soon as you visit Cambodia. Phnom Penh isan attractive colonial city, with broad avenues, charming housing, ahip and young atmosphere, and a riverfront view. Siem Riep, whichhouses Angkor Wat, is even more charming, and has a cooler, moreagreeable climate. There are agreeable beachfronts at Sihanoukville.Cambodia is in a strategic position in the centre of IndoChina. Pricesare laughably inexpensive (from a foreign perspective) and economicgrowth is exploding. The combination is hard to argue with.Rentals are far higher than in days when Phnom Penh was a sleepyoutpost where the only foreigners worked for aid organizations. In BKKI, according to a report in the Bangkok Post dated March 2008, aspacious, four-bedroom apartment with gym, swimming pool, parking and24-hour security is on the market for US$3,000 a month. Nearby, theowners of a two-story, four-bedroom villa are looking for US$5,000 permonth.Phnom Penh has, as a result, experienced a construction boom. Thegovernment is aggressively pro-development, and squatters and othereyesores are simply cleared away, by a government which is in leaguewith wealthy developers.Part of the charm may be about to be lost as Phnom Penh succumbs todevelopment. A 42-story US$250 million twin condominium, twice as highas Phnom Penh’s current tallest building, is being built in the mostconspicuous position possibleâ€"at a busy corner leading to the city'sIndependence Monument. Residential units in the ‘Gold Tower 42’project, which will not be completed till 2011, range from US$459,000to US$1,500,000, according to developer Yon Woo Cambodia Co. Around 70percent of the buyers are Cambodian. Around 40 percent of the saleshave gone to speculative investors.World City Co. Ltd., a South Korean company, is investing US$2 billionto build a satellite city called Camko City on a 120-hectare(300-acre) in northwest Phnom Penh. The single biggest foreign directinvestment in to date, Camko City will include residential units,villas, condominiums, commercial and public facilities, trade andfinancial centres, office buildings, shopping centres, hotels, schoolsand hospitals. The project will include about 500 apartments withprice tags ranging from US$112,000 to US$1.8 million a unit.Construction will take 3 1/2 years to complete. Nearly half of theunits have already been sold.Land values in Siem Reap have risen 25 percent to 30 percent everyyear for the last four years at least. The average price of land persquare metre is now around the US$500 to US$600 mark. But premium landin downtown tourism districts is around US$1,600 per square metre.Housing mortgagesMortgage finance is now available in Cambodia. Acleda Bank entered thehome lending market in January 2007; by March 1 2008 Acleda’s homeloan portfolio was worth about $40 million. To get around foreclosurerisk, given the corrupt legal system, Acleda keeps the title to theproperty until the loan is repaid.ANZ also offers 15-year installment loans, allowing customers toborrow up to 60 percent of the home purchase price at variableinterest rates, lending against registered titles.Foreign-ownership schemesForeign individuals cannot buy real estate in Cambodia directly. Butland can be held by foreigners on long (renewable) leases and throughmajority locally-owned companies incorporated in Cambodia. Thiscompany structure is the safest for a foreigner wishing to buy land.It is not totally bullet-proof, but in practice it works.Foreigners typically take two Cambodian nationals as partners in theland-holding company, with the 51 percent share allocated so that theforeigner is the biggest single partner. Other safeguards includeCreating different classes of shares, giving the foreigner more rights; Minority control documents; A mortgage on the land, stipulating that the land cannot betransferred without the consent of the foreigner. Leases up to 99 years are another common acceptable structureâ€"themagnificent Raffles Hotel le Royal in Phnom Penh, for instance, isheld on a simple lease.Nominee structures should be avoided.