Market in Depth

Phnom Penh's condominium market is attractive, but challenges lie ahead

Maria de Guzman | February 08, 2019

Phnom Penh's condominium market had mixed results in Q3 2018.
  • In the affordable category, the average condo price in Phnom Penh was around US$ 1,400 per sq. m., up by 0.2% from the previous quarter, and by 5% from the same period last year.
  • In the mid-range category, the average price of a condominium unit was US$2,600 per sq. m., up by 0.4% q-o-q, but down by 2% y-o-y.
  • In the high-end category, the average condo unit price was US$3,250 per sq. m., up by 0.5% from the previous quarter, and by 1.8% from the previous year, according to CBRE Research.

CBRE Cambodia associate director James Hodge noted that recent price trends indicate that the mid-range condominium sector is most likely to be oversupplied, while prices of affordable and high-end condominiums have risen in Q3 2018.

Cambodia saw limited new condominium completions in Q3 2018, with only 218 units from two projects added to supply, according to CBRE Research. However condominium supply is still expected to double to around 20,000 units, as compared to the previous year, with new projects expected to add 2,374 additional units in Q4 (up by 5.2% q-o-q), indicating that developers' confidence is rising.

"The new supply has largely been focused on affordable projects in secondary districts," said Hodge in a recent news report.

In terms of demand, the condominium sector is gaining steam, especially among Cambodians. "Before, 80 percent of my clients were foreigners. Now, however, most are Cambodians," according to ERA Cambodia CEO Khorn Kungkea. CBRE Cambodia residential project marketing manager Jonathan Flexer says that most buyers still come from China, Hong Kong, Malaysia, and Singapore, but the market has also been attracting more locals due to an increase in living standards.

Phnom Penh's property prices plunged by around 40% from 2009 to 2010 due to the global crisis. The housing market started to recover in 2011, buoyed by strong economic growth and the introduction of the new foreign ownership law. From 2011 to 2018, the economy expanded by an average of 7.1% per year, fuelled by strong tourism, garments manufacturing, and agriculture. In 2019, the economy is expected to expand again by 7.1%, according to the Asian Development Bank (ADB).
The foreign ownership law boosted demand
Under the Foreign Ownership Property Law passed in April 2010 foreigners can own apartments and condominium units, but not land, and therefore not the first floor of buildings. Also, foreign investors are allowed to own up to 70% of a condominium project.

Cambodia prime condo pricesIn 2005, the Cambodian government amended its investment law to allow foreign ownership of buildings. However, the law was not then implemented and the idea floundered.

Land ownership is against the Constitution and is still out of the question. Land can however be held by foreigners on long (renewable) leases and through majority locally-owned companies incorporated in Cambodia. These structures are argued by lawyers in Cambodia to be safer than legal schemes in any other South East Asian country in which foreign land ownership is formally prohibited.

Analysis of Cambodia Residential Property Market »

Rental Yields

Attractive returns on apartments in Phnom Penh

In Cambodia, apartments are a different thing from flats. Cambodia defines apartments as non-landed housing units in a building, or what is commonly known in the wider world as condominiums. Flats, also known as shop houses, are landed properties, with a ground floor, and up to two or three floors. Flats are the equivalent of row houses.

Foreigners cannot own land in Cambodia. So they can only buy apartments. We would therefore have wanted to survey the prices of apartments. However, very few, in fact almost none, are listed on the websites of realtors in Cambodia. So our survey is about the prices of flats (row houses) and villas.

Flats in Phnom Penh, Cambodi''s capital city, cost around US$3,000 per square metre (sq. m.). We surveyed flats located in the prime residential areas of Phnom Penh, like Daun Penh (KDP), Tuol Kork (KTK), Chamkarmon (KCKM), and 7 Makara (K7MKR).

Rents range from US$9 per sq. m. to US$13 per sq. m. per month. A 65 sq. m. flat costs US$600 per month to rent. A 120 sq. m. flat costs more than twice as much, at around US$1,500 per month.

The gross rental yields for flats in Phnom Penh, i.e., gross return on investment in a flat if fully rented out, ranges from 3.27% to 5.33%.

Villas are more expensive than flats, ranging from around US$3,500 to US$4,500 per sq. m., with smaller villas fetching the higher prices.

Rents are also highest for smaller villas. For example, a 150 sq. m. villa costs around US$13 per sq. m. per month, while a 300 sq. m. villa costs only US$9 per sq. m. per month.
Villas earn poor rental yields, ranging from 2.8% to 3.43%.

Read Rental Yields »

Taxes and Costs

Rental income is subject to withholding tax in Cambodia

Rental Income: Income from property earned by nonresident individuals is subject to withholding tax at a flat rate of 14%.

Capital Gains: Capital gains are subject to profits tax at a flat rate of 20%.

Inheritance: There are no taxes on inheritance in Cambodia. By law, foreigners must apply for citizenship to be able to inherit property in Cambodia.

Residents: Residents are taxed on their worldwide income at progressive rates, up to 20%.

Read Taxes and Costs »

Buying Guide

Transaction costs are low at 7.40% to 8.00%

The total round-trip transaction costs of buying property are between 7.40% and 8.00%. Much of this goes to the real estate agent, around 3%.

Foreigners will need to set up a landholding company or a lease structure, which can be more expensive than the buying cost because of legal fees.

Read Buying Guide »

Landlord and Tenant

Cambodia's rental system is pro-landlord

cambodia residential luxury housesCambodia's legal system is generally pro-landlord.

Rent: Rents can be freely negotiated and there is no specific tenant protection law.

Tenant Security: There are no limits to the duration of leases, though residential long-term leases usually last for one year. However, the rental agreement may be terminated prior to expiration if either the tenant or the landlord serves a notice one or two months before termination.

Read Landlord and Tenant »


Economy threatened by EU's trade preferences withdrawal

cambodia gdp inflationCambodia is expected to have grown by around 7% in 2018, supported by strong growth in exports, robust domestic demand and tourist arrivals, more FDI inflows, and an expansionary policy, according to the ADB. The ADB also expects the country to replicate this economic success with another 7% GDP expansion in 2019. in 2017 the economy grew by 6.9%, following 7% growth in 2016, according to the Asian Development Bank (ADB).  From 2000 to 2003, the economy grew by an average of 8.3%, and then by an average of 11.1% from 2004 to 2007. After a slight pause during the global crisis, from 2011 to 2015, the economy expanded by an average of 7.2% per year, fuelled by strong tourism, garments manufacturing, and agriculture.

However Cambodia's economic growth is concentrated in tourism and the textile sector, which is dependent on most favoured nation status agreements. In October 2018, the EU officially notified Cambodia that it had launched the procedure to withdraw Cambodia's Generalised Scheme of Preferences (GSP), an agreement that allow Cambodian exports a tariff-free entry in EU under the Everything But Arms (EBA) scheme. "Our recent EU mission to the country demonstrated serious and systemic violations of, for instance, freedom of expression, labour rights and freedom of association. This comes on top of longstanding issues as regards workers’ rights and land-grabbing," EU Trade Commissioner Cecilia Malmstrom wrote in the European Commission's official blog. "As I have underlined many times as Commissioner for Trade, our EU trade policy must be led by our values. Accordingly, when we are faced with blatant disregard for those values, the EU must act."

Cambodia is the second-biggest EBA scheme beneficiary next to Bangladesh, accounting for about 18% of EU's EBA imports, according to the European Commission's 2016-2017 report. The withdrawal of the EBA scheme would mean trouble for about 800,000 Cambodians employed in the garment industry, since around 40% of Cambodia's garment exports goes to EU alone.  Ratings agency Moody's said that the EU's move of withdrawing the country's duty-free trade status would harm the economy. "Additional cost increases as a result of tariffs would undermine the price competitiveness of Cambodia’s garments exports unless they are offset by productivity gains," according to Moody's. The expected rise in costs and wages are likely to deter foreign investors, especially Europeans, which could weaken foreign direct investment inflows.

However during the first half of 2018, the tourism sector saw a 12.7% y-o-y increase in tourist arrivals to more than 3 million, according to the Ministry of Tourism.

In addition to its buoyant tourism sector, Cambodia's garment export also remains strong, expanding by 10.73% y-o-y to about US3.2 billion in the first half of 2018, according to the Ministry of Commerce.

Some of the events that has led to the suspension of Cambodia's EBA scheme, include:
  • Sam Rainsy's resignation as president of the Cambodia National Rescue Party (CNRP), the main opposition party, in February 2017.  Rainsy's deputy, human rights activist Kem Sokha, replaced him as the new leader of the CRNP.
  • In September 2017, Sokha was arrested on treason charges.
  • The Supreme Court dissolved the CNRP in November 2017.
  • Controls on media outlets and civil society organizations critical of the government have continued to tighten.

Landslide win for ruling party
Cambodia gdp per capitaIn the July 2018 the ruling Cambodian People's Party (CPP), headed by Prime Minister Hun Sen, won all 125 seats in the Parliament with 77% of the vote. However, the government's critics condemned the recent election as a "sham" as it lacked a major opposition. Aside from the EU, other international governments such as the United States, Australia, and Canada also issued statements condemning the election process. In July 2018, the US House of Representatives passed the Cambodia Democracy Act, that imposes sanctions against several government and military officials.

In October 2018, inflation rate stood at 3.1%, up from 2.1% in October 2017, according to the Ministry of Economy and Finance (MEF). Inflation is expected to have reached 3.2% in 2018, and will increase further to 3.5% due to strong economic performance and higher food and oil prices.

Cambodia's economic status was officially raised by the World Bank from low-income to lower middle-income economy in August 2016. Lower-middle-income countries are those with a GNI per capita between US$1,026 and US$4,035. In 2017, Cambodia's GNI per capita was US$1,230.

Two decades of economic growth have helped make Cambodia a global leader in reducing poverty, said the World Bank. The country´s poverty rate dropped from 47.8% in 2007 to 13.5% in 2014.

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