Building a New Cambodia - Cambodia Real Estate, Sales ... · Angkor Wat and the nearby city of Siem...

April 2010

CBRE RESEARCH, ASIA

SPECIAL REPORT

Building a New Cambodia:Opportunities in the Phnom Penh

Real Estate Market

2

© 2010, CB Richard Ellis, Inc.

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Fig 1: Map of Cambodia

Phnom Penh

Batdambang

Siemreab Stung Treng

Kratie

KampongCham

Tonle Sap Lake

MekongRiver

Gulf of Thailand

KrongKoh

Kong

KampongSaom

Kampot

CAMBODIA

THAILANDLAOS

VIETNAM

INTRODUCTION

The past 30 years have seen Cambodia move forward

from the darkest period of its history to emerge as one of

the fastest growing emerging economies in Southeast Asia.

The capital Phnom Penh is now home to around two million

people and bustles with activity, while the re-emergence of

the tourism industry centered on the World Heritage site of

Angkor Wat and the nearby city of Siem Reap has brought

the country significant economic benefits. Between 2000 and

2007 this very young nation - more than half of Cambodia’s

population was born after the Khmer Rouge were ousted in

1979 – saw its economy expand at a rate of around 10%,

with a steady flow of investors enticed by the country’s many

investment opportunities and new found political stability

under long-serving Prime Minister Hun Sen.

Despite the rapid growth witnessed in recent years Cambodia

remains heavily reliant on foreign aid with around half of

the government’s annual budget provided by overseas

donor assistance. The country remains largely agrarian

with most rural Cambodians eking out a living as farmers

and fishermen. Infrastructure and education pose tough

challenges for the government while job creation in the

formal sector is a major priority as increasing numbers of

the country’s young population are set to enter the workforce

within the next 10 years. Graft is an issue for investors, with

global anticorruption watchdog Transparency International

ranking Cambodia 151 out of the 163 countries surveyed

in its 2008 Corruption Perceptions Index report. Cambodia

has also not been spared the impacts of the global economic

downturn: Starting in the second half of 2008 economic

growth tailed off markedly and FDI fell by 35.2% y-o-y to

around US$520 million in 2009 according to a February

2010 report issued by the National Bank of Cambodia.

Analysts predict that FDI will recover slowly during 2010

but will still lag behind levels recorded in 2007 and 2008.

Nevertheless, Cambodia possesses a number of attractive

opportunities for investors in sectors including agriculture,

textiles, natural resources, tourism, labour intensive industries

and export oriented industries. Its large pool of cheap

labour, dual currency of the Cambodian Riel and US dollar,

abundant water supply and fertile soil, stable government

and one of the most attractive coastlines and collection

of islands in Southeast Asia are just some of the factors

combining to make Cambodia an attractive investment

destination.

Activity in the Cambodian real estate sector has grown

significantly over the past 10 years with an influx of foreign

and repatriated money being invested in projects in Phnom

Penh. In the three or four years prior to the beginning of

the economic downturn in mid-2008 the local real estate

market was being heralded as Southeast Asia’s latest

property hotspot and was booming with the opening of new

hotels, restaurants and bars. Foreign and local developers

unveiled a series of modern and expansive residential

complexes on the outskirts of the capital targeting the city’s

growing population of affluent Cambodians and expatriates.

Small scale western-style shopping centres began to spring

up while the growth of the banking and telecoms sector,

mainly comprising new market entrants from overseas, led

to increased requirements for quality office space, adding

to long standing traditional demand from United Nations

agencies, NGOS and embassies.

The onset of the global financial crisis in mid-2008 saw

banks begin to restrict loans for real estate as economic

growth slowed and property prices fell. Developers were


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Central Phnom Penh looking north down Monivong Boulevard

hit by shrinking demand and the short supply of bank

finance available for potential buyers. The tightening of

credit in global capital markets and difficulties faced by

international financiers meant many projects were put on

hold or cancelled altogether, although the market avoided

total collapse as many projects were suspended before they

were even constructed and most buyers paid in cash and

did not require mortgages. In some respects the economic

downturn acted as a correction as it prevented a large

number of projects from all coming on stream at the same

time and over-saturating the market.

Signs of recovery have been evident in early 2010.

Construction activity, mostly centered around smaller

developments, began to pick up pace towards the end of

2009 whilst the November 2009 soft opening of Phnom

Penh’s first Grade A office skyscraper, the 30-storey Canadia

Tower, was an important milestone for the city’s fledgling

office market. Meanwhile, new legislation permitting

foreigners to own apartments and condominiums on the

upper floors of buildings appears to be nearing approval.

Foreigners are currently limited to 99-year leaseholds on

any property and the new law, if passed, would provide the

real estate market with a major boost.

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Fig 3: Cambodian GDP by industry (percentage, 2008)

Agriculture sector29%

Service sector40%

Industry sector30%

Source: CBRE Research

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F

160

140

120

100

80

60

40

20

0

-20

-40

Real

GDP

gra

wth

rate

(%)

Source: Cambodian Ministry of Economics and Finance & Economist Intelligence Unit

Fig 2: Real GDP growth rate (2000−2011)

External trade plays a vital role in the Cambodian economy.

Exports have shown continuous growth since 1998, reaching

US$4.42 billion in 2008, although the economic downturn

has inevitably hit growth, particularly in the garment sector

which relies heavily on buyers in the United States and the

European Union. According to the Economist Intelligence

Unit the main destinations of Cambodian exports in 2008

were the United States (53.7%), Israel (26.7%), Germany

(7.6%), Canada (5.8%) and other countries (6.2%). The

country is heavily dependent on imports of a wide range of

products including cars, motorbikes, petroleum and related

ECONOMIC OVERVIEW

The Cambodian economy has witnessed phenomenal growth

over the past decade as the country emerged from the

1997−1998 Asian financial crisis and embraced free market

policies, joining the World Trade Organisation (WTO) in

2004. The period between 2004 and 2007 saw particularly

rapid economic development as the economy expanded by

more than 10% per annum driven by growth in the garment

and tourism sectors. However growth slowed in 2008 with the

onset of the global recession and unofficial figures suggest

the economy contracted slightly in 2009. The government

has forecast GDP growth of 2% for 2009 but in December

2009 the World Bank revised this figure downward to -2%.

Figure 2 uses Economist Intelligence Unit figures for 2009

and growth estimates going forward.

Whilst agriculture still accounts for the majority of employment

and comprises around 29.3% of GDP, Cambodia is gradually

transforming from a traditionally agrarian economy to a

modern one based on industry and services. Manufacturing

output is focused in the garment sector which dominates

Cambodian exports. The sector has been hit hard by the

economic downturn and some 93 garment factories closed in

2009 resulting in a loss of just under 40,000 jobs. A further

35,000 workers were forced to accept reduced working

hours and salaries. However, in the same period, 55 new

garment factories opened, indicating that the decline is

not absolute. The services sector, which includes tourism, is

now the largest and fastest growing sector of the economy,

although this too has been affected by the global economic

downturn with growth in tourism arrivals slowing significantly

in 2008−2009. Government figures recorded 2.161 million

foreign tourist arrivals in 2009, up 1.7% compared to 2008's

2.125 million arrivals but well down on the growth recorded

in previous years. Tourism revenue for 2009 fell around 2%

y-o-y to US$1.561 billion as the period saw a fall in the

number of higher-spending Western tourists and rise in the

number of visitors from Vietnam and Korea, who tend to

stay for shorter periods and spend less. However, Ministry

of Tourism figures showed that air arrivals rose by 4.75%

y-o-y in January, a sign that the industry may be recovering.

Coastal tourism is also expanding with the renovated airport

at Sihanoukville now capable of handling international

flights and tourists increasingly keen to sample Cambodia's

unspoiled coastline and abundant tropical islands. Going

forward, the oil and mining sectors may also emerge as

important economic pillars with oil deposits having been

located beneath Cambodian territorial waters in 2005 and

potential opportunities for mining gold, bauxite, gems and

iron in the Northern part of the country.


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Fig 4: Main destination of Cambodian exports (2008)

Fig 5: Main origin of Cambodian imports (2008)

Fig 6: Growth of bank loans in Cambodia (2003−2008)

Others6.2%

Others13.9%

Canada5.8%

Hong Kong11.2%

Gerrmany7.6%

Vietnam19.5%

Israel26.7%

China20.5%

US53.7%

Thailand34.9%

Source: Economist Intelligence Unit

Source: Economist Intelligence Unit

2003 2004 2005 2006 2007 2008

100

90

80

70

60

50

40

30

20

10

0

Grow

th of

loan

s (ye

ar-o

n-ye

ar in

creas

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)

Source: National Bank of Cambodia

Real estate financing and the banking sector

Real estate activity in Cambodia has mushroomed over the

past decade with property being one of only a few investment

objects available in the country until the stock market is fully

established. Real estate financing has therefore become an

increasingly important service. Many developers or investors

are funded largely with equity but as the economy grows

and financing becomes more readily available an increasing

number of investors are looking to leverage their investments

and banks are requested to finance projects that are on hand.

In recent years numerous large projects initiated by local,

Korean, Chinese and other foreign investors have been funded

by banks. Bank loans have increased substantially over the

past three years as a direct result of the large number of real

estate developments occurring in Phnom Penh.

With the local real estate market still going through a

downturn there is a risk of banks pushing the LTV ratio to its

boundaries, confident that land or bricks and mortar with a

title offer a suitable guarantee. As values have fallen since

mid-2008 there will undoubtedly be victims in the shape of

developers, purchasers and consequently their partnering

bank, although the outlook is not as bad as that witnessed

in the US or Europe as rapid wealth creation over the past

10 years meant that a lot of locals purchased land largely

with cash. It is only those who were left holding overpriced

land when the transactions stopped who have been adversely

affected. The ratio of non performing loans to total loans

was 9% in 2006, 3.4% in 2007, 3.7% in 2008 and 5.2% in

2009. Banks had an average solvency ratio of 27.5% and the

products, textiles and tobacco. Its main import sources are

China (including Hong Kong), Taiwan, Thailand, Vietnam

and Singapore. The government support an expansion of

silk production and vehicle manufacturing in Cambodia to

help redress the trade imbalance, as well as oil exploration

off the south coast.

Despite the rapid strides made over the past decade

Cambodia remains dependent on foreign aid with around

half of the government’s annual budget reliant on assistance

from foreign donors and multilaterals such as the World

Bank and International Monetary Fund (IMF). The country

remains among the poorest in the region and the long-term

development of the economy poses a major challenge.

Some 75% of the population is under 30 years of age and

50% of the population is under 15 years of age. Whether

the private sector can create enough jobs to handle the

large numbers of workers set to enter the workforce over

the next few years remains to be seen.

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Agriculture sector11%

Other16%

Service sector44%

South Korea71%

Industry sector45%

China10%

France3%

Fig 8: FDI Share by Sector (2008)

Fig 9: Source of FDI in Cambodia (2008)

Source: Economic Institute of Cambodia

Source: CDC

Fig 7: Foreign direct investment inflows (2000−2008)

Source: World Bank, Council for the Development of Cambodia

2000 2001 2002 2003 2004 2005 2006 2007 2008

1,000

900

800

700

600

500

400

300

200

100

0

US$ m

illio

n

FDI saw rapid growth in the 1990s but declined around the

turn of the new millennium, bottoming out at US$74 million

in 2003. In 2004 FDI began to grow again and had reached

US$820 million by 2007, almost double the previous year’s

total of US$475 million. FDI reached $1.5 billion for the

first two quarters of 2008, nearly triple that recorded in the

same period of 2007.

Of the 60 largest foreign investors currently operating in

Cambodia, 22 are garment, textile and footwear firms,

seven are food, beverage and cigarette firms and six are

hotel firms.

South Koreans are the leading investors in Cambodia,

accounting for 71.4% of FDI, with Chinese comprising 10%

and French 3%. Since the second half of 2008 FDI has

declined dramatically and confidence and sentiment among

South Koreans in particular has been somewhat eroded.

2010 is expected to see China replace South Korea as the

leading source of FDI in Cambodia.

average liquidity of the whole banking system in December

2008 was 81.3%. In March 2010 Canadia Bank announced

it had cut its rate of non performing loans to below 5% in

2009 after hitting 11.1% in 2008.

As of the end of 2009 the Cambodian banking system

consisted of 26 commercial banks, six specialist banks, two

representatives of foreign branches and 18 microfinance

institutions. Looking ahead, more are set to enter the market

in order to create a base for future business. The laws on

investment in Cambodia are some of the most simple in the

world and banks want to have their position well and truly

staked out. Challenges remain however: In December 2009

the IMF published a report calling for greater supervision of

the banking sector and warned that loan losses and capital

deficiencies were potentially far higher than had been

reported, raising the risk of a bank failure. 2009 also saw

the Cambodian government introduce a new law requiring

developers to make upfront deposits of 2% of the project's total

value with the National Bank of Cambodia before the start

of construction. This law aims to restrict possible fraudulent

situations with developers and to protect investors’ interest.

Foreign direct investment

Over the past decade the Cambodian government has made

a sustained effort to create a market-friendly environment

and facilitate foreign investment. Cambodia ranks alongside

the likes of Hong Kong, Japan and Singapore as one of the

easiest countries in Asia in which to do business. Corporate

income tax is set at 9% and there are no laws preventing

the 100% foreign ownership of companies, although land

can only be fully owned by Cambodians.


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Impact of the global financial crisis

According to the National Bank of Cambodia, inflows of

foreign direct investment fell by 35.2% to US$520 million

in 2009. Approved investment projects also took a big hit

in 2009, falling 46 percent y-o-y and reaching just US$5.9

billion according to the Council for the Development of

Cambodia (CDC). CDC data also showed that approved

investments were down by 25% y-o-y in January 2010.

US$75 million in investments were approved that month,

down from US$100 million in January 2009 when the

tourism sector accounted for US$89 million in projects.

However, the CDC said it passed nine projects in January

2010 compared to just four a year earlier, with signs that

the agricultural sector was receiving more capital. In January

2009 no agriculture investment projects were approved but

three projects worth US$38.85 million were rubber stamped

in January 2010, representing more than half of the total

approvals.

Economists anticipate that Cambodia should emerge from

the economic downturn in 2010. In September 2009 the

International Monetary Fund (IMF) predicted GDP would

contract 2.75% over the course of 2009 but would climb

about 4% in 2010. The first three months of 2010 have seen

a rise in interest and enquiries from foreign investors and FDI

should recover slowly during 2010, although it will still lag

behind levels recorded in 2007 and 2008. The agriculture

and food processing sectors are expected to spearhead

growth in 2010 while tourism will also see more investment.

Large scale infrastructure projects including hydropower,

dams and transmission lines should also attract FDI.

The downturn has seen growth in exports slow along with

the decrease in FDI but inflation has been controlled and

exchange rates have remained comparatively steady to the

dollar. Cambodia has not been directly affected by the global

credit crisis as no foreign banks with links to collateralised

debt obligations or mortgage backed securities have a

significant presence in the country. Rather than launching

a stimulus package in a similar fashion to other countries

around the world the Cambodian government has focused

on attracting funding from foreign sources such as China and

Japan to help develop its core infrastructure in the hope that

this will increase GDP and attract further investment. Overall,

Cambodia has weathered the economic storm reasonably

well and must now confront the challenges of new markets

and exports in a world where global demand for goods has

markedly decreased.

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Source: DFDL Law Firm, Phnom Penh

Fig 10: Land Holding Company Structure

ForeignShareholder 49%

LandholdingCompany

CambodianShareholder 51%

Joint VentureAgreement

VariousAgreements

LeaseAgreement

OperatingCompany

THE PROPERTY LEGAL SYSTEM

Over the past 30 years the Cambodian land title system

has been slowly recovering from the legacy of the Khmer

Rouge’s attempts to create a totally agrarian society, which

saw the complete abolition of land title in addition to the

destruction of all records of previous land titles. After the

fall of the Khmer Rouge a law was passed enabling people

who had lived on the same piece of land for five years to

qualify for title. More recently, arbitration courts have been

established and the Ministry of Land Management, Urban

Planning and Construction has been assisting provincial

towns in updating their land registers. However, the land

system remains under development and land title issues and

disputes are not uncommon. In the long term the government

aims to resolve the various land issues through the adoption

and enforcement of new laws and the implementation of

a national system of land registration that will secure land

tenure, provide a basis for reducing land ownership conflicts

and facilitate land management, the monitoring of natural

resources and the protection of state property.

Systems of foreign ownership

The government presently restricts the full ownership of land

to Cambodian citizens. Land is either owned privately or by

the State but not all land is registered. Investors seeking to

purchase land must check that full title exists. There are two

types of title: ‘Soft Title’ refers to a title where properties are

registered at the local municipal level but which does not

allow for security to be given over the land, while ‘Hard Title’

refers to a title issued at the national government level which

can be used as security.

Foreigners can own land in Cambodia under a Lease

Structure, which can be either short or long term, and a

Landholding Company Structure. Short term leases are

common where occupiers intend to occupy premises for up

to, say, 10 years, but long term leases are more appropriate

for ownership. A long-term lease can be secured for a

minimum of 15 years and can last as long as 99 years

or more, as long as it does not constitute an indefinite

term. The Lease Structure system allows foreigners to lease

property if the property is properly registered with a Land

Title Certificate. The long term lease must also be registered

with the Land Office in order to protect the Lessee’s rights

over the property. This is important in order to safeguard the

Lessees rights if the property is sold to a new owner.

A Landholding Company Structure is another form of

ownership available to foreigners. This involves the creation

of a joint venture agreement between a Cambodian

Shareholder, a foreign Shareholder and a Landholding

Company. A Landholding Company formed under a joint

venture is considered to be a Cambodian legal entity when

51% of its shares are owned by Cambodian citizens and 49%

of its shares owned by a foreigner. The contract states that

despite the Cambodian Shareholder owning more shares

in the company, the foreign shareholder retains control over

the land. Generally the foreign party then has control over

land on a 99-year leasehold. The risks involved in this type

of structure involve the selection of trustworthy parties. Tax

liabilities on lease arrangements and interest on loans must

also be considered. The nominee structure of securing land

for foreigners is not advisable as it is not recognised under

law and could be rolled back in the future.

Regulations on FDI Projects in the Real Estate Sector

New building projects in Cambodia must comply with the

Law on Land Management, Urbanisation and Construction

and the Sub-decree on Construction. Before constructing


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Fig 11: Taxes relevant to business in Cambodia

Category Amount

Profit tax 20%

Minimum (Profit) tax 1% of turnover

Withholding tax 4%–15% of payment based on the purpose of that payment.

Salary tax 5%–20% of salary, 20% of fringe benefits

VAT 10%

Import and Export Duties Variable

Specific tax on certain goods and services

Variable

Unused land tax 2% paid by the registered owner (based on the market value of the land per square metre)

Transaction (Stamp Duty) 4%

or remodeling a building the owner of the land or property

must obtain a construction permit signed by either the

government delegate to the city or by the provincial governor.

For Qualified Investment Projects (QIP), The Council for the

Development of Cambodia (CDC) is the body responsible

for issuing the construction permit. Commercial buildings

with a built up area of more than 3,000 sm including

hotels or buildings located within view of historic temples

require approval from a designated representative of

the Government of Cambodia, currently the President

of the National Committee for Urbanization Affairs and

Construction. To apply for this permit a series of documents

must be submitted in Khmer which are then reviewed by the

Phnom Penh Urbanisation and Construction Office or the

municipal or provincial/district construction office in the area

where construction is planned. When planning an industrial

building the developer must include a basic environmental

impact assessment in their submission.

Construction plans must be signed by the land owner and

also by a licenced Cambodian architect. The construction

office reviewing the documents has 45 days in which to

issue a decision after all supporting documents have been

submitted. Construction must begin within one year after the

permit is issued although one extension is allowed. Before the

building is opened to the public it must obtain a certificate

attesting that the construction was properly accomplished

according to the approved plan.

The Phnom Penh municipality has yet to finalise its land

use and construction masterplan and because of this it is

not difficult to navigate around certain restrictions on land

use and construction. However the Municipality of Phnom

Penh has issued a series of guidelines on construction

height, limit lines and land coverage. Projects that follow

these guidelines usually have no difficulty in obtaining the

necessary permits. The recommended height limits pertain

to areas around monuments, temples and The Royal Palace.

It is also worth noting that the country has yet to develop

legally binding codes related to building construction and

safety. Likewise, because the Khmer Rouge totally destroyed

the infrastructure of Cambodian government and the civil

service, authorities that supervise construction work have yet

to be established. It is therefore the responsibility of building

owners to set their own building safety standards, in what

is tantamount to a system of industrial self-governance in a

situation that will obviously have to be rectified in the long

run. Construction and fire safety standards for Canadia

Tower were benchmarked against US codes to be sure they

were internationally compliant.

Tax legislation

When a foreign investor purchases land through a Cambodian

company, the company is subject to a 20% tax on profit (on net

profit if there is any, for example gross rental income minus

all expenses, interest and depreciations) or a 1% tax on gross

revenue (rental income, for example), depending on which is

higher. VAT of 10% applies if the company rents out property.

After paying the 20% or 1%, a 14% dividend withholding tax

applies for net profits that are remitted overseas. Certain types

of developments including hotels, conference centres and

department stores classified as QIPs are eligible to receive a

holiday for corporate profit tax. The exemption period either

begins from the year the QIP becomes profitable or three years

from the commencement of business. The duration of these

holiday periods is from three to six years. A QIP is required to

obtain a certificate of compliance from the CDC to guarantee

its investment incentives including tax holidays.

The best way for investors to divest is to sell the company as

there is no capital gains tax in Cambodia in most situations.

Withholding tax of 14% is payable on nearly all income paid

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overseas (rental, interest, dividend, service fees). Purchasing or

selling an actual title of ownership triggers a 4% Registration

Tax on a government-assessed value. An annual 2% tax is

levied on the assessed value of unused land and the registered

owner is responsible for payment. The government may

introduce a new tax on property in 2010 which would require

owners of property worth over US$24,000 to pay 0.1% of the

value of the property in the form of an annual payment at the

end of September every year.

Recent changes to the property legal system

In December 2009 the Cambodian National Assembly

approved a national land expropriation law enabling

authorities to expropriate land and other immovable

properties for development and infrastructure purposes

deemed to be in the public interest. The law pledges affected

landowners will be reimbursed according to the market rate

for their land and will not cover agreements or MOUs of

investment protection between the Cambodian government

and signatory country partners. Whilst the government

regards the law as an important measure enabling it to fast-

track infrastructure and other projects vital to the country’s

interest, critics say the definition of the public interest is

insufficiently clear and gives too much power to authorities. In

the short term the new law will likely add to growing popular

discontent over land expropriation issues.

Also at the end of 2009 a draft law that would allow

foreigners to purchase real estate in Cambodia appeared to

be nearing approval by the National Assembly. Foreigners

are currently limited to 99-year leaseholds on any property

but the new law, which is scheduled to go before the

National Assembly for voting in 2010, would allow them to

own condominiums and apartments on the upper floors of

buildings. Ground-level residences including ownership of

the land that the properties stand on would continue to be

reserved for Cambodians only. Whilst some observers are

concerned that the draft law includes too many stipulations

that may cause unnecessary complications, the general view

is that proposed law would provide a boost to the market and

give investors from overseas more confidence in the security

of ownership in Cambodia. Of particular significance is the

proposal to improve the transparency and functioning of

companies established to manage condominium projects,

an advance that would give foreign investors assurance that

due care is taken in the maintenance, repair and financial

management of any sinking fund.


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Fig 12: Map of Central Phnom Penh

Mao Tse Toung

Mao Tse Toung

Norodom

WatPhnom

Sihanouk

Kampuchea KromConfederation de la Russie

Charlie

s De G

aulle

Monire

th

Soth

earo

s

BoengKakLake

Tonle Sap River

Mekong R

iver

Bass

ac R

iver

Monivong

Central Market

(Psah Thmay)

Phnom Penh has emerged in recent years as the centre of

Cambodian business and economic development. A virtual

ghost town 30 years ago, the city is now a young and

thriving urban centre and home to some two million people,

with hundreds of Cambodians from rural regions arriving

daily in search of work. The trappings of new money are

increasingly visible with imported luxury vehicles a common

sight alongside the motorbikes and tuktuks on the city’s roads

and overseas name brand F&B chains and consumer goods

manufacturers such as KFC and Apple gradually entering

the retail market. Most of the capital’s inhabitants live in two

or three storey apartment blocks but the city’s low skyline

is changing with high rise office towers slowly springing

up in the city centre and a number of luxury condominium

projects now rising on the urban fringes. A massive project

to fill in the city’s picturesque Boeng Kak Lake using sand

from the Mekong is ongoing – a new high-end business and

residential complex will be built on the site.

Many of the residential and office projects recently

completed or nearing completion were originally conceived

in 2006−2007 at the height of the local real estate boom.

Since then many have been scaled back or delayed. Korean-

financed projects are among those to have suffered the most

during the mid-2008 to 2009 downturn. The office market

was sluggish throughout 2009 with a host of new office

buildings in Phnom Penh reporting vacancy of around 50%

amid the contracting economy. However older buildings

reported lower vacancy and certain Grade C buildings

reported near full occupancy, perhaps due to a combination

of the long history of limited office supply in Phnom Penh

and ineffective marketing on the part of the owners of the

new buildings, who have so far failed to persuade tenants

to upgrade.

Office sector

Offices and business premises including converted villas in

Phnom Penh are generally all of Grade C standard and are

located in an area comprising Wat Phnom, Mao Tse Toung,

Norodom and Monivong Boulevards. The available stock is

comprised of a number of business centres, office complexes,

mid town retail and mixed use office premises and serviced

THE PHNOM PENH REAL ESTATE MARKET

offices operating out of converted hotel rooms. Most of

these buildings have been developed by local developers

and most are owner occupied. The 17-year-old Phnom

Penh Centre, with a total NLA of 30,000 sm over 6 storeys

typifies current Phnom Penh office supply in its condition,

layout and provision of amenities. Hong Kong Centre, IOC

and Korea Business Centre are newer buildings but follow

a similar template. Regency Office Complex is well placed

next to the Intercontinental Hotel and is an average building

by modern standards but popular among occupiers. The

property is currently undergoing refurbishment and is in

the midst of being upgraded. The Attwood Centre, which

opened in 2007, is closer to Phnom Penh international

airport than the city centre, with a mix of retail on the ground

floor and offices above. Parkway Square is a retail/office

building which struggles to serve either purpose well, and

is hence typical of the confusion which persists between the

two sectors in the local market, especially with respect to

properties along the main boulevards of Norodom, Sihanouk

and Monivong.

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Fig 13: Historic and future office supply in Phnom Penh (2004−2013)


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

250

200

150

100

50

0

Supp

ly (th

ousa

nd sm

)

Existing SupplyNew Supply

Canadia Tower Vattanac Tower

Office stock for leasing in Phnom Penh surpassed 100,000

square metres for the first time in 2009 with around 20,000

square metres of new office space coming on stream.

Looking ahead, the supply and quality of office space in

Phnom Penh is set to improve significantly in 2010−2013

with the completion of several new buildings. Canadia

Tower, which has been developed by Canadia Bank and

soft-launched in November 2009, is a 30-storey 22,000

sm NLA office building and Cambodia’s first skyscraper.

The bank intends to occupy at least six floors of office space

as well as utilising the ground and first floors for retail

banking services. Canadia Tower is the first high quality

office building to come on stream in Phnom Penh and raises

the bar significantly on existing developments with respect

to the quality and scale of premises it will make available.

Elsewhere, the Cambodia Public Bank building is due to be

completed in 2010 whilst Vattanac Bank, a 35-storey 14,000

sm NLA office block is scheduled to come on stream in 2011.

Cambodia Public Bank is not advertising any of its space on

the market suggesting that it may use the building for self-

use, while Vattanac Bank is rumoured to be occupying one of

its towers and offering the other to the market. Unlike other

developments which stalled in the wake of the economic

downturn, these banks were able to move forward with their

projects without difficulty as they were building for self-use

and also funding the construction themselves.

Other major projects in the pipeline include Gold Tower 42

which will be a mixed use tower consisting of residential

condominiums, retail and office space. Seven floors totaling

3,629 sm have been allocated as office space and the

building is scheduled to be completed in 2011. Elsewhere,

Phnom Penh Tower has recently broken ground and work on

the basement parking is underway. The project will provide

28,000 sm of space and will likely complete in 2012. The

largest office project in the pipeline is the International

Finance Centre although this project has recently been

downsized in the wake of the global financial crisis and

liquidity problems suffered by its South Korean developer.

The Camko City and Grand Phnom Penh satellite city

developments will also provide office space to the market

but these projects have been affected by the economic

downturn and the office components have been delayed or

downsized. Assuming that all of those projects which have

commenced construction do not falter, some 76,021 sm of

new office space will come on stream in Phnom Penh in the

next three to five years.

Rents for office space in Phnom Penh have doubled over


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Gold Tower 42 Camko City

Fig 14: Occupancy rate in Phnom Penh office premises

Fig 15: Average historical rents for Grade C office premises



2004 2005 2006 2007 2008 2009

100%

80%

60%

40%

20%

0%

2004 2005 2006 2007 2008 2009

14

12

10

8

6

4

2

0

US$ p

sm p

er m

onth

the past five years although it must be acknowledged that

the base at which they started was very low. The main

reason for the increase in rental values is due to the rising

cost base, primarily driven by the price of land which has

increased several times over in a matter of years. It is also

worth mentioning that most owners of office buildings are

wealthy Cambodians who are under little pressure to lower

their rents when properties are empty. The complete absence

of quality Grade A office premises has been the main factor

in preventing a dramatic rise in the average rental value with

most tenants in older Grade C buildings and rents unable

to break through a US$11−12 psm ceiling. Occupancy

rates have remained relatively high and constant but have

decreased slightly from 2008 to 2009 because of increased

supply and the global economic downturn. Once Canadia

Tower comes on stream it will act as barometer for Phnom

Penh rental values, demand and take-up. The quality of the

building will surpass that of any office development currently

in the market and the impact on existing Grade C supply

is likely to be detrimental as tenants look to upgrade their

space.

Looking at future supply, a realistic outlook is to assume that

only projects now started and underway will be completed,

meaning that new supply over the next five years should

total 76,021 sm. New supply of 25,000 sm per year over

the next three years will be absorbed by demand but only

as long as the quality and pricing is at a level which can

coax occupiers from their existing premises. As Grade A

office space is completed it is expected to absorb demand

but in turn this may increase the level of vacancy in Grade

C space as occupiers upgrade their space and move to the

newer and more prestigious Grade A buildings. Demand will

continue to grow from existing occupiers looking to upgrade

and also from new overseas entrants. A two tier market will

likely emerge between Grade A and Grade C office space

resulting in vacancy rates being lower for Grade A space

and higher for Grade C space. This gap in occupancy level

will most likely persist until the old stock with high vacancy

rates is demolished and replaced with new stock. New Grade

A office stock is being marketed at US$25 psm although no

transactions have yet been achieved at this level. There is

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Grand Phnom Penh International City

unlikely to be a liquid sales market for en bloc transactions

involving entire buildings because the majority of developers

of office buildings in Phnom Penh are local and their tendency

is to build and hold.

Luxury residential sector

Villas and small scale apartment and residential projects

are widespread across Phnom Penh particularly in the

district bordered by Sihanouk, Sotheros, Mao Tse Tung

and Monivong known as Boeng Keng Kang 1 and Toul

Kork, which is home to the United Nations and various

NGOs. Most of these projects such as Pasteur Villa, City

Palace Apartments and Grand Residence are small scale

developments of between four and six storeys and were

developed by local developers who retain the units to let. The

typical project comprises 15 to 20 units with one bedroom,

two bedroom and three bedroom apartments comprising

75%, 20% and 5% of the development respectively. Monthly

ents usually start at around US$450 or around US$10 psm

for one bedroom units and reach a maximum of US$1,500

for three bedroom units.

The supply of western style residential condominiums in

Phnom Penh could potentially increase significantly in the

next five years but this largely depends on whether all of

the projects which are presently under planning or are

at the early construction stage actually come to fruition.

During the market boom in the years immediately prior to

the economic downturn a number of large satellite cities on

the urban fringes, mainly comprised of residential villas and

towers but also containing some retail and office elements,

were unveiled by developers looking to cater to affluent

Cambodians and expatriates keen to escape the hustle and

bustle of the city centre. Perhaps the most high profile of

these is Grand Phnom Penh International City, which was

unveiled in 2006 as a joint venture between an Indonesian

and Cambodian developer. The project originally consisted

of 4,000 residential villas and apartments at a projected

cost of US$500 million. Inevitably however the project was

hit by the economic downturn from mid-2008 onwards as

banks began to restrict their level of funding for real estate

and demand plunged as economic growth slowed. Diamond

Island City, which was unveiled by Overseas Cambodia

Investment Corporation (OCIC) at the height of the real

estate boom in 2006, was another project affected. The

scheme originally included condominiums and villas ranging

in price from US$280,000 to US$1 million together with a

hospital, restaurants, shopping centres and a park but was

downsized in the wake of the economic crisis. Camko City,

a US$2 billion, 120-hectare satellite project on the Northern

outskirts of the city that originally boasted plans for 6,000

residential units has also been delayed and downsized.

These projects were hit particularly hard by the downturn as

they are in comparatively remote areas. However they were

fortunate in some respects as most buyers paid in cash and

the downturn hit before construction had even began.

Foreigners are presently limited to 99-year leaseholds on

any property but a new law currently under debate in the

National Assembly would allow foreigners to own apartments

and condominiums on the upper floors of buildings.

Although ground-floor units would continue to be reserved

for Cambodians the proposed law will improve market

confidence and increase Phnom Penh’s attractiveness as an

investment location for residential property. In neighbouring


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Sorya Shopping Centre

The Raffles Hotel Le Royal

Thailand overseas nationals can only secure 30-year leases

on free standing or development land whilst in Singapore

they are only allowed to own units above the sixth floor.

Hospitality sector

As of the beginning of 2010 Phnom Penh had 149 hotels

of which 146 were in operation and three were closed for

renovations. The hotel sector in Phnom Penh has remained

largely unchanged over the past five years with just two five-

star hotels – The Raffles Hotel Le Royal and the Intercontinental

– in operation. Four-star hotels such as the Amanjaya,

Cambodiana, Imperial Garden, Phnom Penh Hotel and

Sunway Hotel and smaller hotels providing boutique-style

accommodation are more popular although this may

be down to the lack of quality five-star accommodation

available. Room rates have increased substantially over the

last few years with five-star accommodation commanding a

daily room rate ranging from $US182−US$1,200. The daily

room rate for four-star accommodation is around US$50

−US$1020 and three-star accommodation rates vary from

US$12−$US250. Boutique hotel rates generally range from

US$38−US$250.

Boutique hotels report the highest average occupancy rate

among all types of hotel facilities available in the city at 94%,

reflecting the demand for quality boutique accommodation

in Phnom Penh. Three- and four-star hotels report average

occupancy of approximately 70%. Estimates for 2009 suggest

occupancy rates have fallen as growth in the number of

tourists and business travellers and their length of stay has

dropped amid the economic downturn. Looking ahead, there

are a number of large and high quality hotel developments

planned for Phnom Penh over the next five years which will

have a big impact on the market. Some of these projects have

begun construction but most remain in the planning stage.

There is also a small serviced apartment market in Phnom

Penh catering mainly to overseas nationals visiting the

city for extended working periods. As of the beginning

of 2010 the total stock of international standard serviced

units (both apartments and villas) in Phnom Penh stood at

a little over 350 units. Generally the rates for international

standard serviced units are double or triple those of small

apartments for lease. Four major new serviced apartment

projects supplying an additional 378 units to the market are

expected to come on stream by the end of 2012. This will

significantly increase the amount of supply and quality of

serviced apartments in Phnom Penh, and, combined with

the new office developments which are expected to come

on stream at this time, should provide a comfortable base

for MNC’s to establish a presence in the city.

Retail sector

Recent years have seen the emergence of small scale western

style shopping centres in Phnom Penh. Typical of these is the

Sorya Shopping Centre, situated next to the Central Market,

a major tourist attraction. The Sorya consists of 27,000 sm

of GFA spread over six floors and numbers a western style

supermarket, pizza restaurant and smaller shops selling

jewellery, clothes and electronic goods among its tenants.

Occupancy in the Sorya is 100%. Other comparable

developments elsewhere in the city such as Lucky Malls 1

& 2 and Paragon also enjoy near 100% occupancy whilst

smaller outlets tend to struggle to attract tenants despite

offering cheaper rents.

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Another noteworthy trend witnessed in Phnom Penh in recent

years is the emergence of minimarts linked principally to

petrol stations. Caltex stations are often adjoined to a Star

Mart whilst Total stations feature a Bonjour outlet and can

be found in major locations across the city. The groceries

and snacks available in these malls reflect changing eating

and consumption habits in the capital, a trend which has

also led to the rapid expansion of the fast food industry with

brands such as Lucky Burger, KFC, Pizza Company all having

entered Phnom Penh in recent years.

Retail rents in Phnom Penh vary to the different terms that

each tenant negotiates. The Sorya charges rental rates

ranging between US$10−US$80 psm whilst Paragon

commands US$20−US$60 psm. BS Department Store’s

rents range average around US$13 psm.

Industrial sector

Industrial occupiers are difficult to identify due to the lack

of signage on buildings but are mainly grouped around

Phnom Penh International Airport or dotted around the city

centre and north along the edge of the Mekong. Land for

construction can be purchased at approximately US$50 psm

while industrial buildings can be rented at approximately

US$4 psm. Take up is generally slow but recent months have

seen a rise in enquiries for new manufacturing facilities. The

biggest challenge facing the industrial sector in Phnom Penh

is obtaining a secure and affordable electricity supply. Power

cuts and shortages across the capital are not uncommon,

meaning that operators must consider the extra cost of back-

up diesel generators to ensure production is not affected.

Looking ahead, a number of new Special Economic

Zones (SEZs) are scheduled to come on stream and will

be administered by the Council for the Development

of Cambodia (CDC). The Phnom Penh SEZ is the most

advanced with nine international occupiers attaining

Qualified Investment Project status and occupying Phase

1. Occupiers of SEZs are entitled to certain tax breaks and

incentives and the SEZ operator ensures that tenants are

provided with a constant electricity supply as well as water

supply and water treatment. An official from the Customs

& Excise Department official is resident on site to simplify

import and export processing.


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CONCLUSION

Whilst Cambodia has not escaped the impact of the global

financial crisis it has weathered the downturn comparatively

well compared to many other Asian emerging economies

and is set to emerge from recession in 2010. Signs of

recovery have been evident in the local real estate market

in the early months of 2010 and the market received a

major boost in confidence when the long-awaited law to

allow foreign ownership of real estate moved forward to

the National Assembly in December 2009. March 2010

saw the unveiling of a major new project by South Korean

developer Hi-Sun Group, which announced that it would

invest US$300 million in a commercial and residential

development in Russey Keo district, with construction set to

begin before the end of the year. The same month saw a

number of developers and banks begin to offer property

credit again. Buyers previously had to pay for properties in

full but many lenders are offering discounts and allowing

customers to pay in instalments.

The next one to two years should see demand for Grade

A office space in Phnom Penh grow steadily as existing

occupiers look to upgrade their premises from Grade C

buildings and new players enter the market from overseas.

Inbound retailers should continue to enjoy brisk retail sales as

per-capita income improves but higher quality retail facilities

and the effective management and planning of those centres

will be required to ensure their long term success.

The Phnom Penh real estate market is not without its

challenges however and is developing from a relatively low

base. In many ways it is similar to the market in Bangkok

some 20−25 years ago, with strong underlying demand,

very few high grade offices, residential projects and retail

centres but plenty of potential for significant growth. Whilst

the recovery will be a slow one, phenomena like the boom

years of 2004−2007 may not be seen again for some time.

Nevertheless, the market is expected to resume its growth

momentum in 2010 as foreign investment recovers, backed

up by a very supportive and investor-friendly government.

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FOR MORE INFORMATION PLEASE CONTACT:

Daniel Parkes

Country Manager, CambodiaT: (855) 12 822 509E: [email protected]

David Simister

Chairman, CBRE IndochinaT: (66) 2 654 1111F: (66) 2 685 3300-1E: [email protected]

Marc Townsend

Managing Director, CBRE VietnamT: (84) 8 3824 6125F: (84) 8 3823 8418E: [email protected]


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©2010 CB Richard Ellis, Inc. We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make no guarantee, warranty or representation about it. It is submitted subject to the possibility of errors, omissions, change of price, rental or other conditions, prior sale, lease or financing, or withdrawal without notice. We include projections, opinions, assumptions or estimates for example only, and they may not represent current or future performance of the property. You and your tax and legal advisors should conduct your own investigation of the property and transaction.

Hong Kong34/F Central Plaza18 Harbour Road, WanchaiHong KongT: (852) 2820 2800F: (852) 2810 0830

Suite 2109-12, 21/F, Sun Life TowerThe Gateway, 15 Canton RoadTsimshatsui, Kowloon, Hong KongT: (852) 2820 8100F: (852) 2521 9517

MACAUThe Executive Centre, Level 20AIA Tower, 251A-301Avenida Comercial De MacauT: (853) 2857 5722F: (853) 2857 5720

Beijing11/F, Tower 2, Prosper Centre 5 Guanghua Road, Chaoyang District Beijing 100020People’s Republic of ChinaT: (86) 10 8588 0888F: (86) 10 8588 0899

SHAngHAiSuite 3201, 3203-320632/F, K. Wah Centre1010 Huai Hai Middle Road Shanghai 200031 People’s Republic of ChinaT: (86) 21 2401 1200F: (86) 21 5403 7519

Suite 1004, 10/F, Azia Centre1233 Lu Jia Zui Ring RoadShanghai 200120 People’s Republic of ChinaT: (86) 21 2401 1200F: (86) 21 5047 1171

gUAngzHoUSuite 804, R&F Center 10 Hua Xia Road, Pearl River New CityTianhe District, Guangzhou 510623 People’s Republic of ChinaT: (86) 20 2883 9200F: (86) 20 2883 9248

SHenzHenSuite 1601, Tower 2, Kerry Plaza 1 Zhongxinsi Road, Futian DistrictShenzhen 518048People’s Republic of ChinaT: (86) 755 8271 8999F: (86) 755 2399 5370

HAngzHoUSuite 703, South TowerAnno Domini Plaza, 8 Qiu Shi RoadHangzhou 310013People’s Republic of ChinaT: (86) 571 2880 6818F: (86) 571 2880 8018

CHengDUSuite 704A-706, Office Tower at Shangri-La Centre Chengdu, Block B9 Bin Jiang East Road, Chengdu 610021People’s Republic of ChinaT: (86) 28 8447 0022F: (86) 28 8447 3311

TiAnjinSuite 903, Tower A, The Exchange189 Nan Jing Road, Heping DistrictTianjin 300051People’s Republic of ChinaT: (86) 22 8319 2178F: (86) 22 8319 2180

DAliAnSuite 2104, 21/FTian An International Tower88 Zhong Shan Road, Zhongshan District Dalian 116001People’s Republic of ChinaT: (86) 411 3980 5855F: (86) 411 3980 5866

QingDAoSuite 501-502, Office Tower Shangri-La Centre9 Xiang Gang Middle RoadQingdao 266071People’s Republic of ChinaT: (86) 532 6887 7222F: (86) 532 6887 7234

WUHAn Suite 3308, 33/F, Block 1New World International Trade Centre568 Jian She Avenue, Jianghan DistrictWuhan 430022People’s Republic of ChinaT: (86) 27 8555 8277F: (86) 27 6885 0506

SHenyAngSuite 2102-2103 North International Media Centre167 Qingnian Street, Shenhe DistrictShenyang 110014People’s Republic of ChinaT: (86) 24 2318 2688F: (86) 24 2318 2689

CHongQingSuite 2005-2006, 20/FChongqing International Trade Centre38 Qingnian Road, Yuzhong DistrictChongqing 400015People’s Republic of ChinaT: (86) 23 6310 7070 F: (86) 23 6310 7171

TAiPei13F/A, Hung Tai Centre170 Tun Hua North Road Taipei 105, TaiwanT: (886) 2 2713 2266F: (886) 2 2712 3065

SingAPore6 Battery Road #32-01Singapore 049909T: (65) 6224 8181F: (65) 6225 1987

168 Jalan Bukit MerahTower 3 #01-09Singapore 150168T: (65) 6854 8688F: (65) 6271 2583

ToKyo, jAPAn5/F JEI Hamamatsucho Building2-2-12 Hamamatsucho, Minato-kuTokyo 105-0013, Japan T: (81) 3 5470 8711F: (81) 3 5470 8715

1/F JEI Hamamatsucho Building2-2-12 Hamamatsucho, Minato-kuTokyo 105-0013, Japan T: (81) 3 5470 8800F: (81) 3 5470 8801

*17 offices throughout Japan

SeoUl, KoreA21/F SC First Bank Building100 Gongpyeong-dong, Jongno-guSeoul, Korea 110-702T: (82) 2 2170 5800F: (82) 2 2170 5899

PHnoM PenH, CAMBoDiAColonial MansionA-One Building, 1A Street 102 Phnom Penh, CambodiaT: (855) 12 822 509

neW DelHi, inDiAG/F P.T.I Building4 Parliament StreetNew Delhi 110 001, IndiaT: (91) 11 4239 0200 F: (91) 11 2331 7670

MUMBAi, inDiA#5, 3/F Tower C, Laxmi TowersG-block, Bandra Kurla ComplexBandra (E), Mumbai 400 051, India T: (91) 22 4069 0100 F: (91) 22 2652 7655

BAngAlore, inDiAHulkul Brigade CentreG/F, No. 82 Lavelle RoadBangalore 560 001, IndiaT: (91) 80 4074 0000F: (91) 80 4112 1239

CHennAi (MADrAS), inDiA2H, 2/F Gee Gee Emerald 2C & 2D 151 Village Road, NungambakkamChennai 600 034, IndiaT: (91) 44 2821 4599/4571F: (91) 44 2821 4607

HyDerABAD, inDiA211, Maximus 2B, Mindspace CyberabadSurvey No: 64 (Part)APIIC Software Layout, MadhapurHyderabad 500 081, IndiaT: (91) 40 4033 5000F: (91) 40 4033 5050

PUne, inDiA705-706, 7/F Nucleus, Church RoadPune 411 001, IndiaT: (91) 20 2605 5437/5367F: (91) 20 2605 5405

KolKATA, inDiA2/F, Block B, Jindal Towers21/1A/3, Darga RoadKolkata 700 017, IndiaT: (91) 33 4019 0200F: (91) 33 4019 0230

jAKArTA, inDoneSiAMenara BCA 45/F, Suite 4502 Jalan M. H. Thamrin No. 1Jakarta 10310, IndonesiaT: (62) 21 2358 7337F: (62) 21 2358 7227

KUAlA lUMPUr, MAlAySiA#9-1, Level 9, Menara Millenium Jalan Damanlela, Bukit Damansara50490 Kuala Lumpur, MalaysiaT: (60) 3 2092 5955F: (60) 3 2092 5966

joHor BAHrU, MAlAySiAUnit 7.06, Level 7, Menara PelangiJalan Kuning, Taman Pelangi80400 Johor Bahru, Johor, MalaysiaT: (60) 7 331 8118F: (60) 7 331 8119

PenAng, MAlAySiA#9-B, Tingkat 9, Menara BHL Bank51 Jalan Sultan Ahmad Shah10050 Penang, MalaysiaT: (60) 4 226 4888F: (60) 4 226 4111

MAnilA, PHiliPPineSSuite 1002-1005, 10/FAyala Tower One & Exchange Plaza Ayala Avenue, Makati CityMetro Manila 1226, PhilippinesT: (63) 2 752 2580F: (63) 2 752 2571

10/F, National Life BuildingAyala Avenue, Makati CityPhilippinesT: (63) 2 893 9325 / 2 894 5120

CeBU, PHiliPPineSSuite 2, 2nd LevelWaterfront Hotel, LahugCebu City, PhilippinesT: (63) 32 318 0070

BAngKoK, THAilAnD46/F CRC Tower, All Seasons Place 87/2 Wireless Road, LumpiniPathumwan, Bangkok 10330Thailand T: (66) 2 654 1111 F: (66) 2 685 3300-1

PHUKeT, THAilAnD12/9 Moo 4, Thepkrasattri RoadKohkaew, Muang, Phuket 83000ThailandT: (66) 76 239 967F: (66) 76 239 970

SAMUi, THAilAnD3/6 Moo 1, Baan Bophut - Plailaem RoadBophut, Koh SamuiSurat Thani 84320, ThailandT: (66) 77 430 737F: (66) 77 430 740

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