$1.5 Bil­lion In­vested in Con­struc­tion Ac­tiv­i­ties An­nu­ally In Last 14 Years

Cambodian Business Review - - Front Page - By Tim Vutha

Cam­bo­dia’s bur­geon­ing con­struc­tion mar­ket has ab­sorbed an av­er­age of $1.5 bil­lion in in­vest­ments an­nu­ally from the year 2000 to 2014, a se­nior of­fi­cial gov­ern­ing the con­struc­tion sec­tor said.

Speak­ing at a con­struc­tion and real es­tate talk in Au­gust 2015, Dr. Huy Nara, Di­rec­tor of Con­struc­tion Depart­ment, Min­istry of Land Man­age­ment, Ur­ban Plan­ning and Con­struc­tion (MLMUPC) re­ported the in­vest­ments in con­struc­tion had no­tice­ably in­creased since 2004 un­til 2007 (a 4 fold in­crease in 2007 com­pared to 2004).

De­spite the in­dus­try fall­ing sharply dur­ing the 2009-2010 pe­riod re­sult­ing from the global fi­nan­cial cri­sis, he said the in­dus­try has re­bounded from 2011 to 2014 with the av­er­age in­vest­ment of $2.2 bil­lion an­nu­ally along with the global econ­omy’s re­cov­ery.

Ac­cord­ing to the min­istry’s data, 2,125 con­struc­tion projects worth $1.2 bil­lion were in­vested in 2011, 1,694 projects worth $2.1 bil­lion in­vested in 2012, and 1,641 projects worth $2. Bil­lion in­vested in 2013 and 1,960 projects cost $2.5 bil­lion in­vested in 2014.

In the first se­mes­ter this year, 915 projects worth $808 mil­lion were in­vested on with ex­pec­ta­tion of more large projects ap­ply­ing for build­ing per­mit this year. Among th­ese projects, 60 of them worth $665 mil­lion re­quested for con­struc­tion per­mits at the

Del­e­gates from the pub­lic and pri­vate sec­tors con­cern­ing the con­struc­tion, prop­erty and fi­nance sec­tors at­tended the con­struc­tion.

min­istry level, and 855 projects worth $144 mil­lion re­ceived the per­mits from the pro­vin­cial- city land de­part­ments.

Up un­til the first se­mes­ter of 2015, the min­istry granted con­struc­tion per­mits to 32,826 projects with a to­tal build­ing area of 74 mil­lion square me­ters. It cost a com­bined in­vest­ment of about $23 bil­lion.

The min­istry’s first se­mes­ter re­port this year iden­ti­fied 110 res­i­den­tial projects in the form of “Borey” are ei­ther com­pleted and un­der con­struc­tion in Ph­nom Penh. Con­do­mini­ums, apart­ments, of­fice build­ings, res­i­den­tial com­plexes, in­dus­trial plant s, busi­ness cen­ters, ho­tels, ware­houses, ed­u­ca­tional build­ings, spe­cial eco­nomic zones, shop­ping malls and gar­ment fac­to­ries are among the con­struc­tion projects be­ing in­vested in.

There are 628 build­ings from 5 lev­els up in Cam­bo­dia thus far, mainly in Ph­nom Penh. Among them 407 build­ings are from 5 to 9 story, 187 build­ings are from 10 to 19 story, 22 build­ings are from 20 to 29 floor, 8 build­ings are from 30 to 39 floor, and 4 build­ings are from 40 floors and up.

Since the data was recorded in the first se­mes­ter of 2015, the min­istry reg­is­tered 1,581 con­struc­tion-re­lated firms. While it li­censed 124 con­struc­tion-re­lated firms in the first six month this year (86 lo­cal firms and 37 for­eign-based firms), it li­censed 134 firms in the same pe­riod last year. How­ever, only 646 firms in­clud­ing 202 in­ter­na­tional firms are valid un­til now.

At the same time, 6 ar­chi­tects and 3 en­gi­neers were reg­is­tered at the min­istry com­pared to 15 ar­chi­tects and en­gi­neers reg­is­tered at the min­istry dur­ing the same pe­riod last year. There are a to­tal of 67 reg­is­tered ar­chi­tects and en­gi­neers so far.

It also recorded 2,000 units of co- owned build­ings pur­chased by for­eign­ers up to July 2015.

The re­port also re­vealed that the con­struc­tion in­dus­try is em­ploy­ing about 60,000 work­ers per day na­tion­wide, of which 40,000 work­ers are ab­sorbed in Ph­nom Penh’s build­ing sites.

Ac­cord­ing to the Min­istry’s sur­vey, by June 2015 in Ph­nom Penh’s con­struc­tion la­bor mar­ket, en­gi­neers and ar­chi­tects earn about $15 to $20 per day, chief work­ers earn from $15 to $20 per day, skilled work­ers re­ceive from $8 to $9 per day, while non- skilled work­ers can earn from $5 to $7.5 per day.

While ex­ist­ing chal­lenges re­main, more may come

How­ever, amid the pros­per­ity, the pub­lic reg­u­la­tors and pri­vate sec­tors deal­ing with con­struc­tion, real es­tate and fi­nance that are known to be in­ter­de­pen­dent also warn that ex­ist­ing and fu­ture set­backs will po­ten­tially harm the in­dus­tries as well as the whole econ­omy if no ef­fec­tive so­lu­tions are ap­plied from now.

Gath­er­ing at a real es­tate talk un­der the theme “Op­por­tu­ni­ties and Chal­lenges in the De­vel­op­ment of the Real Es­tate In­dus­try in Cam­bo­dia”, of­fi­cials and pro­fes­sion­als deal­ing with con­struc­tion, prop­erty and fi­nan­cial sec­tors agreed th­ese sec­tors are mov­ing healthily now, but risk as­sess­ments are re­quired to iden­tify clearly to avoid fu­ture cri­sis.

Be­sides re­fer­ring to the lack of prop­erty-re­lated data for an­a­lyz­ing, H.E. Ngoun Sokha, MEF’s Sec­re­tary of State that su­per­vises the real es­tate busi­nesses af­firms the govern­ment doesn’t fore­see any warn­ings in this in­dus­try now, but as­sert­ing that iden­ti­fy­ing fu­ture risks is com­pul­sory to en­sure its sta­bil­ity.

She said that the min­istry hasn’t been able to mon­i­tor this in­dus­try firmly to iden­tify the ex­act risks yet due to the lack of ac­cu­rate in­for­ma­tion and data. This in­spires her team to set up the ef­fec­tive statis­tic and in­for­ma­tion sys­tems to anal­y­sis the in­dus­try. She warns both buy­ers and de­vel­op­ers to un­der­stand deeply about de­mand-sup­ply con­cept.

Ac­cord­ing to H.E. Mey Vann, head of MEF’s Fi­nan­cial In­dus­try Depart­ment as of the first se­mes­ter 2015, the min­istry had li­censed 62 res­i­den­tial de­vel­op­ers (47 lo­cal and 15 in­ter­na­tional-based firms) and 94 res­i­den­tial de­vel­op­ment projects (77 lo­cal­based projects and 17 are over­seas-based) with a to­tal in­vest­ment of over $1.2 bil­lion.

It also li­censed 116 real es­tate com­pa­nies (76 lo­cal firms and 40 in­ter­na­tional firms) with 125 reg­is­tered realty agents and 70 appraisal agents.

The reg­u­la­tor doesn’t have the mech­a­nism to as­sess the in­vest­ment value of those de­vel­op­ers yet. It only de­pends on de­vel­op­ers to de­clare their in­vest­ment costs.

For fi­nan­cial con­cerns rel­e­vant to real es­tate loan; the high and volatile growth of real es­tate loans; high Non-Per­for­mance Loan (NPL) in real es­tate sec­tor of 0.25 per­cent off the to­tal 2.66 per­cent of NPL, the shadow bank­ing prac­tice as many de­vel­op­ers are il­le­gally pro­vid­ing loans to buy­ers as if they are the fi­nan­cial agen­cies, the lack of longterm fund­ing sources for banks to fi­nance the long-term loans, care­less lend­ing con­di­tions of­fered by fi­nan­cial in­sti­tu­tions, price over­val­u­a­tion and spec­u­la­tion for prop­erty ap­praisals to get the loans, and the data un­avail­abil­ity for anal­y­sis.

Ac­cord­ing to NBC data, as of June 2015, loans pro­vided to real es­tate-re­lated sec­tor reached over $2 bil­lion about 19% (4% for res­i­den­tial loan, 8% for con­struc­tion loan, and 4% for prop­erty-re­lated ac­tiv­i­ties) of the to­tal banks’ loans. “This 19% loan hasn’t reached the alert point yet,” he stressed.

NBC has mon­i­tored the prop­erty loans care­fully to en­sure fi­nan­cial and real es­tate sta­bil­ity. Hav­ing men­tioned this, NBC has ap­plied both mi­cro and macro so­lu­tions to se­cure the fi­nance-to-real es­tate sec­tor, he ad­vised bal­anc­ing be­tween the real es­tate de­vel­op­ments and fi­nan­cial sta­bil­ity, en­hanc­ing ef­fec­tive loan pol­icy, im­prov­ing trans­parency on data dis­tri­bu­tion about prop­erty value, in­vest­ment scale, and un­of­fi­cial fi­nance, en­hanc­ing prop­erty appraisal pro­fes­sions, and re­duc­ing the gap be­tween de­mand and sup­ply.

Charlse Vann, ABC Trea­surer and also the act­ing chair­man of Cam­bo­dia Con­struc­tors As­so­ci­a­tion (CCA) ex­pressed con­cern with the high in­ter­est rate of Cam­bo­dia’s bank­ing sec­tor of 7- 9% com­pared to 2-3% in other ASEAN coun­tries. He is also con­cerned about the cit­i­zens’ lim­ited knowl­edge on fi­nan­cial sec­tor, while there are tight com­pe­ti­tion in this small fi­nan­cial mar­ket.

For Dr. Huy Nara of MLMUPC’s Con­struc­tion Depart­ment, the govern­ment’s in­abil­ity to con­trol the prop­erty price firmly so far has al­lowed de­vel­op­ers to set the price freely, while many peo­ple in­clud­ing con­struc­tion pro­fes­sion­als and prop­erty own­ers are liv­ing out­side the in­sur­ance cov­er­age.

“For the case of an ar­chi­tect that earn few thou­sands U.S. dol­lar per month to de­sign a con­do­minium, how can he or she pay­back for the build­ing’s de­fects re­sult­ing from his or her er­ror in de­sign­ing plans?”, he alerts.

Con­cern­ing the con­struc­tion qual­ity, he said the min­istry does set the strict reg­u­la­tions to en­sure qual­ity and safety for con­struc­tion projects, men­tion­ing the Con­struc­tion Man­age­ment Sys­tem (CM), a sys­tem which fol­lowed the Korean con­struc­tion sys­tem that con­trol the con­struc­tion from be­gin­ning un­til the end which is to be im­ple­mented in Cam­bo­dia soon. It will also launch by end this year the on­line ser­vice to ease de­vel­oper con­cern in ap­ply­ing for con­struc­tion per­mit on­line.

While he warns buy­ers not to buy prop­er­ties that don’t re­ceive the con­struc­tion per­mit, he also warns de­vel­op­ers to be care­ful on build­ing their projects es­pe­cially re­lated to safety, struc­tural works and lo­ca­tion.

Sorn Seap, CVEA act­ing chair­man stressed the need to en­hance the real es­tate pro­fes­sion­al­ism for Cam­bo­dian agents, im­prove prop­erty data col­lec­tion, en­sure trans­par­ent com­pe­ti­tion among agen­cies and set up stan­dard­ized prop­erty ad­ver­tise­ments. He also re­quests the govern­ment to speed up the prop­erty own­er­ship trans­fer­ring process as it will ben­e­fit both the real es­tate busi­nesses and the govern­ment to col­lect the prop­erty tax.

Ross Whe­ble, coun­try man­ager of Knight Frank added that cur­rently, the ma­jor­ity of city cen­ter con­do­mini­ums are be­ing pur­chased by for­eign buy­ers, which is in­flat­ing prices and is not sus­tain­able over the long-term; there need to be more af­ford­able con­do­minium de­vel­op­ments that will cater more to the lo­cal mar­ket.

“It could be viewed that land prices are ris­ing too quickly com­pared to Cam­bo­dia’s GDP per capita, as lo­cal buy­ers are be­ing priced out of the cen­tral Ph­nom Penh mar­ket due to salaries not in­creas­ing at the same rate as prop­erty prices,” he said, as­sert­ing that many condo pur­chasers are buy­ing for spec­u­la­tion as op­posed to owner- oc­cu­pa­tion, with the an­tic­i­pa­tion of cap­i­tal ap­pre­ci­a­tion.

With the ex­ist­ing sup­ply of con­do­mini­ums at ap­prox­i­mately 2,400 units and, as­sum­ing all projects in the de­vel­op­ment pipe­line are com­pleted on sched­ule, there will be more than 16,000 units by the end of 2018, ac­cord­ing to him.

“When th­ese units come on­line, that is when Ph­nom Penh’s sec­ondary mar­ket will be tested. When this hap­pens in­vestors will come to sell their units to re­al­ize their in­vest­ment, they may strug­gle to sell the prop­er­ties at their de­sired prices due to stiff com­pe­ti­tion,” he pre­dicts.

A new For­eign Di­rect In­vest­ment (FDI) sur­vey may lead to new prop­erty reg­u­la­tions. Ahead of the ASEAN In­te­gra­tion, a wider ac­cess to trans­par­ent in­for­ma­tion about the FDI fu­elling the sec­tor could lead to the adop­tion of stronger reg­u­la­tory prin­ci­ples and stan­dard­ized prac­tices that could ben­e­fit the in­dus­try and at­tract more in­vest­ment.

A few months ago, NBC an­nounced it would launch a de­tailed sur­vey ex­pected to be com­pleted by the end of Septem­ber of for­eign in­vestors op­er­at­ing in the King­dom to un­der­stand the ben­e­fits in­vest­ment brings to the lo­cal econ­omy and pro­mote in­formed pol­icy mak­ing de­ci­sions. Many in­dus­try in­sid­ers see this mea­sure as po­ten­tially paving the way to en­cour­age more in­vest­ment.

Panoramic views of Ph­nom Penh's thrilling prop­erty land­scapes.

PANORAMIC VIEWS

OF PH­NOM PENH'S

THRILLING PROP­ERTY

LAND­SCAPES.

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