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Cambodia: Real estate industry faces headwinds amid pandemic
The majority of the large number of high-rise properties all over the capital are eerily quiet and dark as dusk falls over the city. To get an insight into the actual situation of Phnom Penh’s high condominium properties and their status amid the economic downturn, the purported over-supply, price wars and the COVID-19 pandemic, Khmer Times’ Scarlett Green spoke to Thomas O’Sullivan, chief executive officer and director of realestate.com.kh, to get his perspective on the subject.
KT: How extensive is your data on apartment rentals, rates, types etc and has the pandemic affected your data collation?
O’Sullivan: We have limited data on the occupancy rates of apartments, serviced apartments or similar housing types in the rental market at the moment. However, occupancy has certainly decreased as a result of COVID-19 and travel restrictions. Generally speaking, occupancy rates were quite good before the pandemic. It was probably a bit of a myth that there was an oversupply issue throughout 2019.
Because of COVID-19, rental prices have decreased up to 30 percent in some areas and landlords have been offering rent relief and other incentives to retain tenants. Landlords across the whole industry have also had to increase marketing activities and incentives to attract new tenants.
The pandemic also increased unexpected competition from hotel operators for apartment owners and landlords looking to rent out units. As tourism ground to a halt, many hotels shifted their focus to long-term rentals and very attractive pricing, as well as generally reduced room rates. At the top end of town, we witnessed Naga offering great room rates, while boutique hotels such as Patio in BKK1, for example, running a special for $350 per month for long term rents at the moment.
KT: Many investor-owned properties seem not to be occupied. Are there no takers for the leases? Or is it that the owners do not want to lease them out?
O’Sullivan: This depends on the development. Some remain reasonably well occupied even through COVID-19, while others are less so. Although there are forecasts of over-supply in the apartment sector, we have to remember that while more than 100,000 units are scheduled for handover in the next five years, very few of the larger condo projects have been completed and handed over. And while a large percentage of these units are being purchased by international investors, the renters will be, of course, not necessarily expatriates but the booming Khmer middle class. Again, COVID-19 has halted the aggressive growth in the middle class but it will certainly ramp back up.
In addition to this, many of the units that have been purchased and handed over have been purchased on guaranteed rental return schemes, so, yes, some owners are not bothered on whether their unit is rented out or not. This becomes the developers’ or property management companies’ concern to ensure apartments are occupied.
During COVID-19, some landlords who can afford to hold their pricing are doing so because they do not want to degrade their standards. However others are simply falling in price until they find the perfect spot where people see it as a good deal at a time when there should be good deals available. Remember, too, that owners of these apartments have enjoyed a 7 percent-plus ROI (return on investment) on their purchases in recent years. I think they would still remain quite happy even if that same apartment is returning a little less during this time.
Incomplete buildings in Phnom Penh. KT/Mark Hughes
KT: Have rental rates shown a downward trend compared with a year ago? What is the percentage? Are lease -hunters spoilt for choice?
O’Sullivan: Yes, rental markets have shown a downward trend throughout 2020. The worst-affected have been commercial unit rates in office and retail areas, which have seen at least a 30 percent decline. Residential leases have also seen a downward trend and, in some cases, I would say it is at least 20 percent if not more. However, public pricing (what we call the listed price) compared with what the property seeker actually ends up renting the apartment for, are two very different things. So the actual figures are hard to obtain. But, yes, lease-hunters can get a great deal at the moment, as well as buyers.
KT: How many completed new units will enter or have entered the market this year and how many more are there to be completed by 2021?
O’Sullivan: At realestate.com.kh we are tracking the top 120 condo projects in the country that are currently under construction. There are also a few notable omissions because we are unclear on some developers’ strategies right now.
Those 120 projects will produce at least an additional 91,000-plus units addition to the market over the next three years and, of those, roughly 23,975 units are scheduled to be handed over this year. However, we do forecast that some of these completions will be pushed into 2021. This is not because the developers lack cash-flow because developments being completed in 2020 are well sold. On the contrary, the delays will be mostly down to being unable to get materials during COVID-19 or retaining skilled labour forces who are generally Chinese or Vietnamese. Notably, projects such as Urban Village have recently handed over phase 1 units, so we are still seeing projects completed during 2020, albeit in a tougher environment because of the pandemic. In 2021, we forecast that up to 40,087 units will be handed over but, here again, this number will be slightly higher because of projects that we are not tracking as well as projects that were scheduled to be completed in 2020 being pushed to Q1 2021.
KT: Are these apartments sought by locals to be owner-occupied or as investment? What would be the percentage?
O’Sullivan: Traditionally, apartments have been sought after by international investors and expatriate owner-occupiers. However, we have seen a major shift by developers during COVID-19 to focus more on the local market. And the younger generation Cambodians as well as middle to affluent Cambodians are buying into the condo market, much more now than ever before.
Developers who traditionally focused on international investors have had to change and adapt their strategies and are now adapting to offer units to suit the local market. For the most part, this has been executed with great success.
KT: How are the landed-properties doing? Now that the government has a law to control developer loans to buyers, would it affect sales?
O’Sullivan: Landed-property developers may have been slightly affected. Again, for the most part, this market segment has remained very strong. I don’t think developer-loan restrictions have hindered this in any major way because local banks are also big supporters in the landed-property market and are picking up these loans where there is a need for buyers.
KT: How many borey units of all types are in the capital?
O’Sullivan: There are at least 108 landed-property /borey projects in Phnom Penh, all of which are at varying levels of completion. Of course many of these are 100 percent completed already and very well tenanted. It does seem harder for a buyer to rent out properties within a borey compared with a condo investment but there is demand from renters in the gated-community part of the market. There is also a strong argument to say the value in a borey property for investment purposes is when the buyer wants to resell it, rather than use it for rental returns. Most people buying landed property are buying it as a place to live.
KT: Have real estate activities started or are they bustling in the vicinity of the new international airport?
O’Sullivan: Land prices have certainly increased in the area as well as the value of real estate in the area generally. I see further increases as the airport itself progresses, infrastructure improves and general activity increases in Takhmao city.
Source: https://www.khmertimeskh.com/50774443/real-estate-industry-faces-headwinds-amid-pandemic/