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