• Investing in Phnom Penh’s Luxury Property Market

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    phnom-penh-city-centre

    Cambodia is one of the fastest growing countries in Asia and has attracted many foreign investors during the past years. Even if the market has been a bit shaky, overseas buyers, and especially Chinese, continue to flood the property market in vast numbers.

    Here, you’re not only able to buy residential property, but also commercial property that can bring in great returns long-term.

    Today, I’ve invited CS Tee from Huttons Asia in Singapore to explain more about how it works when buying luxury real estate in Cambodia. He has personally bought commercial property in The Peak and will explain about the property market, the buying process, property taxes, what the benefits and drawbacks are, and more.

    Let’s see what he has to say.

    Thanks for being here Tee. You’re from Singapore and promote Cambodia real estate to international buyers. Can you explain what makes Cambodia so interesting and why foreigners should consider investing in real estate here?

    Cambodia is still a relatively new market and therefore has the potential for an attractive return on investment compared to its neighbouring countries, like Thailand and Vietnam.

    Even if it may seem less secure as an investment destination, as the market still develops, the steady economic growth can offer great yields to foreign investors. Cambodia’s economic growth has been among the fastest and most consistent in Southeast Asia over the past 10 years, having a stable economic growth rate of 6.9 % – 7.6% on average.

    For example, prime property in central areas of Bangkok is 5 times more expensive than in Phnom Penh. Even a leasehold apartment in less-developed cities, like Hanoi, will cost you 3 times more than Phnom Penh.

    A foreigner friendly investment environment is behind the country’s consistent growth. This includes low labour costs, low barriers for foreign businesses, wide spread proficiency in the English language, attractive tax incentives, improvements of logistics networks, and an economy backed by the US dollar.

    phnom-penh-skyline

    When it comes to real estate, a foreigner is allowed to own a property with a freehold strata title deed in Cambodia, and the asset itself in US Dollar. Costs related to the buying process, such as taxes, are exactly the same as for locals.

    Thus, despite being less developed than its neighboring countries, Cambodia presents huge opportunities for foreign investors.

    Phnom Penh’s property market has been quite volatile over the years. Where are we in the cycle and is now the right time to buy?

    Phnom Penh´s property prices plunged by around 40% from 2009 – 2010 due to the global crisis. The housing market started to recover in 2011, buoyed by strong economic growth and the introduction of the new foreign ownership law passed in April 2010.

    From 2011 to 2018, the economy expanded rapidly, fuelled by strong tourism, garment manufacturing, and agriculture. However, the property market only started to attract the eyes from regional investors and developers after the 1st One Belt One Road Summit held in Beijing China back in 2017.

    This had given a very good insight about the potential of Phnom Penh being one of the untapped market. I do believe that the property market is still in the early stages of growth.

    You might be one step later than some investors, but you’re nine steps ahead of many others out there.

    In 2006, riverfront property was sold for around USD 1,800 per square meter on average in Shanghai. Prime real estate is sold with a significantly higher price tag in places like Thailand, Cambodia and Vietnam at the moment. What are the benefits of buying luxury real estate in central areas compared to property in the medium segment and in fringe areas?

    The value proposition of luxury developments in prime location is always the potential for capital appreciation. There’s no right or wrong to invest in luxury or medium segments.

    The target groups of buyers & tenants in both segments are very different. Most often, you’re dealing with the elites/ professionals as your tenants/ buyers in luxury segments of property.

    Having said that, a luxury “branded” residences around the world commanded an average uplift of over 30% compared with “non-branded” schemes, according to Knight Frank research.

    Looking around the existing developments available in Phnom Penh City Center, there are many upcoming new projects categorized as “high end/ luxury” condominiums, but I have not come across a world class brand of high end condominiums in Phnom Penh so far.

    Rental yields are exceptionally good in Cambodia and can sometimes stretch up to double digits for residential real estate. How are the occupation rates for luxury real estate and how does a typical tenant look like?

    Yes, the rental yield in Cambodia is promising over the years. However, there is no official source for the occupancy rate. The supply of luxury property is also limited at the moment. The typical tenant pools for luxury property is still from the expats working in Phnom Penh.

    Over the past few years, we’re seeing more and more initiatives and business collaborations between the Cambodian government together with other countries, like Singapore, Malaysia, China, Japanese, & Taiwan, just to name a few.

    Many companies from these countries had expanded their business into Phnom Penh, mainly in Banking, Food & Beverage, Tourism, and manufacturing industries. The number of expats living in Phnom Penh is increasing rapidly, as you can observe it on the streets.

    phnom-penh-property

    You’ve promoted an interesting new project called The Peak. Here, foreigners can buy both residential and commercial units (you bought a commercial unit yourself). Why should this project be of interest to foreigners?

    The Peak is an integrated development with two of the World’s renown brands, i.e a Shangri-La 5 Stars Hotel and a CapitaLand Mall. The Peak consists of 1014 apartment units in 2 residential towers, 250 units of Grade A Offices (fully sold) and 5 levels of retails podium which will be managed by CapitaLand Mall.

    The residential component offers 2 years Rental Guaranteed @ nett 6% per year, while the retails will enjoy nett 55% over 10 years Rental Guaranteed period. There is no outgoing costs (e.g. property tax, rental income tax, maintenance fee etc.) throughout the rental guaranteed periods. It’s simply a hassle free property investment!

    Many of our readers look for residential units. Still, many investors from places like Singapore and China buy both residential and commercial units in prime projects. How does it work in terms of ownership regulations and how is the buying process in projects like The Peak or The Bridge?

    The Bridge had been fully sold, and The Peak is currently selling fast. The Peak residential and retail units come with different sales packages and terms & conditions to fit for long term and short term investment objectives.

    The buying process is a breeze. A buyer shall pay the booking fee of U$1,200/ S$1,700 per unit, and sign the Sales & Purchase Agreement (SPA) within 3 weeks. For SPA signing, the buyer does not need to travel to Phnom Penh, they can simply sign in Notary Public service in their home country.

    There are a few payment schemes which buyer can choose to best fit their cash flow. Depending on the payment scheme selected, the buyer shall make the subsequent payment according to the payment schedule.

    As for title deeds application & transfer, the developer will work with a lawyer and assist buyers throughout the progress. Under the Foreign Ownership Property Law, foreigners can own apartments and condominium units under Freehold title deeds, but not land, including the ground floor units of apartments and condominiums.

    Foreigners and locals alike pay significantly lower (or no) buyer’s stamp duties for commercial real estate in places like Singapore and Hong Kong. Can you mention some of the benefits and drawbacks when buying commercial property in Cambodia?

    Yes, there is no special taxes/ levy to foreigners in the property transaction. Both foreigner and local are required to pay the same stamp duty rate of 4% based on property appraised value for purposes of Title Deeds Transfer.

    Phnom Penh is among the top 10 destinations in the world where the international retail brands are seeking the entrants into the market.

    Pertaining to The Peak retails, due to the rental guaranteed periods of 10 years, it suits the investors who looking for long term investment strategy with peace of mind, having a stable passive income.

    The rental returned is fixed at 55% over the next 10 years, be it raining or shining. The downside is that, if you’re looking for short term flipping of the property to earn quick profits, you might not see a substantial gain due to the 10 years fixed returns based on the original purchase by the first owner.

    It’s important to have an exit strategy, to secure capital appreciations and being able to manage cross-border transactions. How does this work when foreigners invest in Cambodia?

    To transfer out the money from Cambodia, you can simply make a telegraphic transfer via a branch/ online banking. Banks have their own policies and daily transfer limits, which is generally less than U$10,000 daily.

    If you need to transfer more than that, you will be required to show proof of the source of the income, i.e the Sales and Purchase Agreement, if it is the proceed from selling a property.

    Thanks Tee. Finally, is there anything you’d like to share before we finish?

    Phnom Penh’s property market is attractive, but challenges lie ahead. The supply is on the rise across all sectors and there’s no slowdown in this trend as long as the economy continues to pursue its current growth path.

    There are many fairly new developers and agents out there selling properties in Phnom Penh, so please do your homework due diligently before committing to a purchase. Beware of the scams, cheap doesn’t always mean good. On top of location, the reputation of the developer is equally important to have a peace of mind when investing overseas, and a hassle-free property management.

    The Peak has its risk too. However, with the Singapore SGX mainboard listed developer + ShangriLa Group + CapitaLand mall, I do believe the risks has been pretty much minimized.

    Happy investing to all the property investors out there.

    If you’re interested in investing in The Peak in Phnom Penh, you can reach CS Tee with the following contact information:

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