Tips for New Con­do­minium De­vel­op­ers

Cambodian Business Review - - Front Page - By Tim Vutha

Be­hind suc­cess­ful con­do­minium busi­nesses, there are lots of com­pli­cated is­sues. The new and even young con­do­minium de­vel­op­ers need to re­al­ize those is­sues from draft­ing out the busi­ness model to con­struct­ing and to op­er­at­ing the build­ing if they wish to achieve suc­cess­ful de­vel­op­ment.

At a con­do­minium busi­ness talk or­ga­nized early Septem­ber 2015 un­der the theme “How to Build a Con­do­minium in Cam­bo­dia” where 50 par­tic­i­pants com­pris­ing of po­ten­tial con­do­minium de­vel­op­ers, land own­ers and real es­tate agents at­tended, ex­perts gave prac­ti­cal tips on things to con­sider be­fore en­ter­ing the con­do­minium busi­nesses.

The fun­da­men­tal step that new con­do­minium de­vel­op­ers need to know is about know­ing the right def­i­ni­tion of con­do­minium. Sim­i­lar in height to an apart­ment build­ing that is owned by a sin­gle owner for both the land and the build­ing, a con­do­minium is a high or medium-rise build­ing in which the space and units in the build­ing are sep­a­rately owned by dif­fer­ent own­ers.

Un­like own­ing res­i­dence in the res­i­den­tial block (borey), condo own­ers have the un­di­vided in­ter­est on the com­mon ar­eas such as lobby, park­ing, haul way, swim­ming pool and re­cep­tion ar­eas. They need to share the main­te­nance re­spon­si­bil­i­ties with the con­do­minium de­vel­oper on those com­mon ar­eas and that is why they are asked to pay the prop­erty man­age­ment fees that can be man­aged by de­vel­oper it­self or other prop­erty man­age­ment firm. They also have right on part of the land that the build­ing is built on. Mr. Kevin Goos, CEO of Cen­tury 21 Cam­bo­dia, the sub­sidiary of the U. S. based global real es­tate agency Cen­tury 21 that or­ga­nized the sem­i­nar. Cen­tury 21 Cam­bo­dia has reg­is­tered 20 lo­cal af­fil­i­ated real es­tate of­fices so far.

While Goos treats apart­ment in­vestors that are rental-based cash flow as long-term in­vest­ment, the con­do­minium in­vest­ments are short-term. “It takes few years for con­do­minium de­vel­op­ers to gen­er­ate their rev­enue and ex­pand to new pro­ject(s), but it may take up to 10 years to re­al­ize the in­come and move to other apart­ment build­ing for apart­ment owner.”

Type of Con­do­mini­ums

Be­fore pre­par­ing your con­do­minium busi­ness model, you should cat­e­go­rize clearly which con­do­minium type you will de­velop and whether it fits the mar­ket’s need or not.

Based on his ex­ten­sive ex­pe­ri­ences in global real es­tate busi­nesses, Goos raised sev­eral types of con­do­minium busi­ness model that awak­ens many Cam­bo­di­ans who have ex­pected only a sin­gle type ex­ist.

Op­er­at­ing like a ser­viced apart­ment, the ser­viced apart­ment con­do­minium al­lows the unit own­ers to lease the unit(s) back to a ser­viced apart­ment man­age­ment com­pany for a long pe­riod of time to yield in­vest­ment.

Hav­ing been fa­mous in United States, Tai­wan, Hong Kong, and Sin­ga­pore now, the town-house con­do­minium which is yet to see in Cam­bo­dia but sim­i­lar to mul­ti­story flat fit well for buy­ers that pre­fer liv­ing and do­ing busi­nesses in the condo unit in the down­town.

The mall con­do­minium which is built as a mall style like Sovanna and So­rya shop­ping mall al­lows de­vel­oper to lease the units to sep­a­rate ten­ants for a long pe­riod of time (lease-hold), than take the units back af­ter the con­tract is ended.

Of­fice con­do­minium is po­ten­tially pop­u­lar in Tai­wan, Sin­ga­pore, Hong Kong and Thai­land. While de­vel­oper has the right

to name the build­ing, the in­side of­fice units are sep­a­rately owned by mul­ti­ple own­ers. Goos ob­serves smart for­eign de­vel­op­ers are bring­ing this kind of con­do­minium to Cam­bo­dian mar­ket af­ter they have re­al­ized that the of­fice rental fees are more ex­pen­sive here while more and more en­ter­prises pre­fer own­ing the of­fice unit rather than leas­ing. This con­do­minium doesn’t com­pete with res­i­den­tial con­do­mini­ums as well, while its de­vel­op­ment also cost cheaper than res­i­den­tial con­do­mini­ums.

The Peak pro­ject de­vel­oped by Ox­ley World Bridge is the first ho­tel con­do­minium in Cam­bo­dia where the Shangri-La ho­tel is also launched there. This con­do­minium al­lows in­sti­tu­tional in­vestors or retail in­vestors to buy the unit(s) as an in­vest­ment by leas­ing it back for 15 to 30 years to Shangri-La— the prop­erty man­age­ment com­pany to op­er­ate as a ho­tel.

Re­sort con­do­minium or time-share con­do­minium which is cur­rently pop­u­lar in many re­sort com­mu­ni­ties in Ja­pan and Korea al­low dif­fer­ent own­ers to pos­sess in ro­ta­tion of the same unit with dif­fer­ent pe­riod of the year for their va­ca­tion. The

idea of the time- share is to get af­ford­able va­ca­tion with the va­ca­tion place buy­ers want.

The CEO with fre­quent visit to many dif­fer­ent coun­tries said he be­lieves Cam­bo­dia is the most po­ten­tial real es­tate mar­ket among the three best Asian mar­kets in­clud­ing Ja­pan and Myan­mar. “While Ja­pan mar­ket is al­ready ma­tured, Myan­mar’s busi­ness en­vi­ron­ment such as law is still far be­hind Cam­bo­dia.”

Notic­ing that small in­vestors pre­fer de­vel­op­ing con­do­mini­ums with smaller units like Em­bassy Res­i­dence as big de­vel­op­ers like Ox­ley World Bridge, Nuri D&C and OCIC pre­fer the hun­dred-unit pro­ject, he rec­om­mends new de­vel­op­ers to eye on medium-rise con­do­minium, as­sert­ing that it is more at­trac­tive, fi­nan­cially af­ford­able, eas­ier for qual­ity con­trol as well as eas­ier to get the bank’s loan.

The prop­erty man­age­ment has also played a big role to en­sure the en­tire con­do­minium is nice, beau­ti­ful so that it can at­tract more buy­ers and more peo­ple to stay there, he added.

Com­ment­ing on the sit­u­a­tion of Cam­bo­dian con­do­minium mar­ket in the next 3 years, Goos an­tic­i­pated the most high- end con­do­mini­ums will face the prob­lems as they can’t find enough buy­ers and peo­ple to rent the ex­pen­sive. “There will be a shift to the more af­ford­able con­do­mini­ums to meet the need for lo­cal middle- class buy­ers that re­sort to live in the down­town condo dur­ing week­day and re­lax at their out­skirt villa at week­end, just like in Thai­land nowa­days.”

Fi­nanc­ing the con­do­minium de­vel­op­ment

Fi­nan­cial is­sues are what Mr. Charles Vann, Ex­ec­u­tive Vice-Pres­i­dent of Cana­dia Bank PLC and also the Act­ing Vice- Chair­man of As­so­ci­a­tion of Banks of Cam­bo­dia ( ABC) alerts new con­do­minium de­vel­op­ers, whereas most borey de­vel­op­ments don’t face fi­nan­cial hur­dles.

He ad­vises in­vestors in­tend­ing to de­velop the con­do­minium to en­sure ad­e­quate bud­get to fi­nance the con­struc­tion, not to de­pend on clients ‘ de­posit to com­plete the pro­ject, un­like few projects that are de­vel­oped by few for­eign de­vel­op­ers then stuck.

“You must en­sure that you have enough fi­nance to com­plete the pro­ject. You can’t just have a plot of land then draw a con­do­minium mas­ter plan, then do mar­ket­ing and sell it and rely on de­posits from cus­tomers to com­plete the build­ing,” he stressed, men­tion­ing the stalled Gold Tower 42 and pre­vi­ously- stalled De Cas­tle Royal as the ex­am­ple. “It is quite risky if you fol­low this ap­proach es­pe­cially when the econ­omy is fluc­tu­ated.”

The de­vel­oper’s back­ground and rep­u­ta­tion are also what he em­pha­sizes, ex­plain­ing that nascent de­vel­op­ers are dif­fi­cult to com­pete with ex­pe­ri­enced de­vel­op­ers that have al­ready gained cus­tomers’ trust through the many suc­cess­ful projects they de­vel­oped.

Over-promis­ing and over-mar­ket­ing pro­mo­tion to cus­tomers are also what this fi­nan­cial and build­ing guru warns new de­vel­op­ers if they wish to en­ter the mar­ket with suc­cess from one pro­ject to an­other. “Some de­vel­op­ers proudly an­nounce their cus­tomers will earn up to 15% of ROI from the unit they buy, but cus­tomers will lose con­fi­dence on them when they can’t ful­fill their prom­ise. This kind of over prom­ise will up­set buy­ers and will even af­fect their fu­ture projects as cus­tomers lost the trust on them.”

De­vel­op­ers also need to en­sure they have qual­i­fied peo­ple or pro­fes­sional agency that can en­sure prop­erty con­struc­tion qual­ity and do proper con­struc­tion cost­ing to en­sure the con­struc­tion cost are within the es­ti­mated bud­get.

He also warns de­vel­op­ers to be care­ful as con­trac­tor or their own pro­ject man­ager can ex­ploit on the con­struc­tion process by re­plac­ing the des­ig­nated con­struc­tion ma­te­ri­als with low-qual­ity ma­te­ri­als to save money into their pocket.

“Some­times the pro­ject’s land­scape de­sign looks great from out­side, but af­ter buy­ers move in and re­al­ize the equipped fa­cil­i­ties such as wa­ter sys­tem and paint are ter­ri­ble, how will they feel?,” he stressed. This lit­tle thing can hurt de­vel­oper be­cause of their neg­li­gence dur­ing con­struc­tion process. If you want to re­pair it, you need to re­pair the whole build­ing and it will cost largely.”

As he is also the act­ing chair­man of Cam­bo­dia Con­struc­tors As­so­ci­a­tion (CCA), Mr. Chalses Vann has also been ad­vo­cat­ing with the govern­ment to en­sure fire safety sys­tem like fire sprin­kler and fire horse cab­i­net are in­stalled in each condo unit and floor of the newly con­structed con­do­mini­ums due to the fact that no fire ex­tin­guish­ing ma­chine can’t pull off the fire ac­ci­dent on the build­ing higher than 20 floors in Cam­bo­dia now.

Le­gal agree­ment to set up a con­do­minium joint ven­ture

Seek­ing the right part­ner(s), share­hold­ers’ dis­putes and draft­ing prop­erty the Joint Ven­ture ( JV) agree­ment be­tween lo­cal com­pany that usu­ally owns the land and in­ter­na­tional firm that usu­ally has the fi­nance to de­velop the con­do­minium are the ma­jor trou­bles Dr. Sok Siphana, Man­ag­ing Part­ner of Sok Siphana & As­so­ciates, one of Cam­bo­dia’s’ lead­ing law firm em­pha­sized as the com­mon le­gal is­sues when it comes to build­ing a con­do­minium.

Based on his ob­ser­va­tion, many lo­cal land hold­ing firms are neg­li­gent when they reg­is­tered their com­pany with the Min­istry of Com­merce by pay­ing lit­tle at­ten­tion on how they list down the com­pany’s share­hold­ers, board res­o­lu­tion, and Mem­o­ran­dum & Ar­ti­cles of As­so­ci­a­tion ( M& A) which re­sult­ing in com­pli­cated le­gal prob­lems when they in­tend to set up a joint Ven­ture ( JV) agree­ment with for­eign de­vel­oper to de­velop a con­do­minium.

“The in­ter­na­tional part­ner doesn’t care if the share­hold­ers in your com­pany are all your rel­a­tives, but they only care that all the listed peo­ple in the com­pany’s board res­o­lu­tions must has the right to sign on the JV agree­ment. With­out their ap­proval, the JV agree­ment can’t be es­tab­lished.” he said. “Th­ese are the sources of dis­putes that can lead to share­hold­ers’ dis­putes that can stall the pro­ject con­struc­tion, al­though they have enough fund­ing.”

Most of the busi­ness con­flicts in­clud­ing the con­do­minium joint de­vel­op­ment he has ob­served is the re­sult of a small dis­pute like this, not be­cause they don’t have enough fi­nance to de­velop the pro­ject.

“Ja­panese de­vel­op­ers are the good ex­am­ple of the way they set up the JV agree­ment to build the con­do­minium with lo­cal part­ner be­cause they have clar­i­fied ev­ery­thing in­clud­ing le­gal is­sues be­fore they can reach the signed JV con­tract,” he ex­am­pled. “So, there won’t be any fu­ture dis­putes oc­cur be­cause they have solved ev­ery le­gal con­flicts prior the sign­ing agree­ment al­ready.”

To pre­vent fu­ture con­flicts, some strict de­vel­op­ers, af­ter set­ting up the JV agree­ment, even es­tab­lish the part­ner­ship agree­ment that can cover on deeper aspects of their busi­ness re­la­tions. Other de­vel­op­ers even go to one more de­tail step by clar­i­fy­ing the spe­cific per­sons that can de­cide on the spe­cific tasks in­side the de­vel­op­ment, he added.

He also alerts lo­cal in­vestors to be dou­bly care­ful when se­lect­ing for­eign part­ner to set up a joint ven­ture since they don’t know each other’s back­ground well.

The mis­com­mu­ni­ca­tion be­tween lo­cal and for­eign part­ner due to lan­guage bar­rier can also be a route of dis­pute, ac­cord­ing to him.

Dr. Sok who lead in draft­ing the king­dom’s long-awaited con­struc­tion law also re­mind de­vel­op­ers that this 360- ar­ti­cle law will im­pact much on ev­ery de­vel­op­ers once it will en­ter into force next year.

Be­sides touch­ing on le­gal frame­work, he also said us­ing dif­fer­ent build­ing codes to build the con­do­minium can also hurt de­vel­oper when it comes to pro­ject cost­ing es­ti­ma­tion. “If you hire a con­sul­tant grad­u­ated from Sin­ga­pore to cal­cu­late the pro­ject cost­ing for a pro­ject de­signed us­ing the French build­ing code, it will cost a big prob­lem for cost­ing as their meth­ods of cal­cu­la­tion are dif­fer­ent. You can cor­rect it, but it is all about ex­tra ex­pense and de­lay time again.” Se­lect­ing the ar­chi­tect and en­gi­neer with only the­atri­cal knowl­edge but not prac­ti­cal ex­pe­ri­ence liv­ing in the condo to de­sign the con­do­minium struc­ture can also be an­other headache.

“They [Ar­chi­tect and En­gi­neer] may be great at de­sign­ing the con­do­minium mas­ter plan based on what they learnt at school, but not all of them have ex­pe­ri­enced liv­ing in the real condo. So, they may not know if their de­sign can prac­ti­cally com­fort the habi­tants or not,” he said. “In other de­vel­oped coun­tries, they do a com­pre­hen­sive mo­tion study to see if what they de­sign can com­fort peo­ple liv­ing in the condo or not, but in Cam­bo­dia it may not be com­mon yet.”

Gain­ing gen­er­ally knowl­edge about the com­mer­cial sit­u­a­tion, in­dus­trial de­vel­op­ment, eco­nomic trans­ac­tion and up­dated poli­cies can also ben­e­fit con­do­minium de­vel­op­ers be­cause those in­for­ma­tion can im­pact the con­do­minium busi­nesses. How­ever, there are many more things that suc­cess­ful con­do­minium de­vel­op­ers need to know in­clud­ing pro­ject de­sign and pre­de­vel­op­ment, mar­ket­ing and sales, con­do­minium pre-reg­is­tra­tion and oc­cu­pancy, con­do­minium reg­is­tra­tion, ti­tle deed, man­age­ment etc.

THE BRIDGE CON­DO­MINIUM

DE­VEL­OPED BY A JV COM­PANY

BE­TWEEN SIN­GA­POREAN OX­LEY

HOLD­INGS AND CAM­BO­DIAN

WORLD BRIDGE LAND.

BODAIJU RES­I­DENCES

CON­DO­MINIUM DE­VEL­OPED

BY JA­PANESE CREED GROUP.

The Bay Ho­tel Con­do­minium de­vel­oped by a JV beetween Sin­ga­porean Teho In­ter­na­tional and Cam­bo­dian Sok Bun Group.

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