Flat Construction Prices Unclear as Global Financial Crisis

By Soy Sophea

Cambodian construction company owners are concerned about their businesses as they observe the momentum that characterized the real estate market over the last two months calm down. Cambodian economists and private sector specialists suspect the slowdown is a symptom of worries over the global economic crisis.

Sung Bonna, CEO and President of Bonna Realty Group, said that the real estate situation and underperformance in the construction industry, especially in Phnom Penh was also caused in part by the as yet unresolved border conflict between Thailand and Cambodia.

Bonna, who is ​a well-known in real estate circles, considered that the slow down constitutes nothing less than a “Dying time for real estate”. He said that most of real estate agencies and brokers are now relaxing with tea and coffee.

The President also noted that the three-year real estate boom in Cambodia was stimulated to a large extent by Korean investors who sought to benefit from impressive figures generated by the sector. Given the global financial crisis, this flow of investment has reduced to a trickle, according to Bonna, as the impact of the financial crisis makes itself felt in Seoul.

“Before Cambodia’s national elections held in July and the onset of the crisis, land or houses could be sold easily at a handsome profit. Now however, it is impossible to sell land or property at the previous rates” the President said, speaking to the Cambodia Weekly by telephone.

Bonna continued that home sales had declined by 20 to 30 percent. He said that this situation was a result of Cambodia’s lack of confidence and worries about the uncertain future. Laboring under these feelings, there is little wonder Cambodians hesitate to lay out large sums of cash to buy houses or land.

“People are now thinking twice about buying land or flats because they are not sure about the real value, and we are unsure about market prices since they have been out of control,” He added that construction speculators could sell their assets and avoid trouble with the banks.

He also noted that on previous occasions, the Ministry of the Economy and Finance had issued regulations ordering Cambodia’s private banks to suspend their home loans.

In Channy, President and CEO of Acleda bank Plc told the Cambodia Weekly, November 18 that his bank has limited its loans for real estate purchases since the Ministry’s order came into force in July.

“We know that real estate investors will find these measures restrictive. But we have to place limits on the amount we can lend out of respect to the Cambodian National Bank,” he told the Cambodian Weekly by telephone.

The President said that currently, his bank offers a maximum of 30 percent of the total price in loans for real estate and development land. He said that this measure has been implemented to lessen the impact of the global financial crisis and restrict its spread in the Kingdom.

Channy said that housing and land prices have fallen after the National Bank of Cambodia issued a statement to all commercial banks in June this year, ordering them to rationalize land and home loan conditions. Henceforth, only 15 percent ($15 million) of the banking industry’s capital reserves are to be farmed out in loans.

He also said that approximately 12 percent of his clients who have borrowed money from ACLEDA Bank used this cash to buy land and houses. In speaking of these changes, Channy took a global view, “I think that the National Bank of Cambodia has created these principles because we have the example of the U.S. Housing market before us and we do not want to make the same mistakes as them.”

Chan Sophal, Senior Research Manager at the Cambodia Development Research Institute (CDRI) told the Cambodia Weekly by telephone on November 18 that it was almost impossible to make predictions for or describe the state of the construction and real estate markets in Cambodia at present when the world faces another period of financial crisis.

Referring to the Cambodia and Thailand border conflict, he said that this was a minor detail compared to global concerns. He noted that the downwards trend in the real estate market was an international phenomenon as people across the developed world too were not so eager to put their hands in their pockets to buy houses.

He said that this was the case despite the fact that the price of oil has fallen from a high of 147 dollars per barrel in July 2008 to the current price of 54 dollars.

Speaking of his view of the future, he said that this situation will probably take years to work itself out of the system. However, it was not all doom and gloom, as the global decline in the price of oil would mean cheaper raw materials for the Cambodian construction industry.

According to Lim Veasna, a construction manager, the price of steel has dropped from US $1,100 to US $580 per tone and from US $1,000 to 400 for 10,000 bricks.

He said that construction of flats and apartments had now largely stopped as people were concerned about their ability to make profit out of land development and housing construction.
Seng Sereyroatha, an employee of a private bank in Phnom Penh, said that with the current situation, she has hesitated to buy a flat.

She said that she was afraid to speculate on house prices because she understood that the current economic situation was unsuited to making long term investments in housing. She said that she will wait for a couple of months to observe the outbreak of economic recovery.

Iem Sakmay, owner of Sakmey Civil Construction, said that although raw materials for construction are now much cheaper, the demand for housing has declined, as have the number of construction companies. He noted that the housing market in particular stood or fell on the strength of market demand.

The construction industry in Cambodia has expanded rapidly in recent years as the positive influence of political stability, improvements in economic performance and continuing assistance from the international community for infrastructure construction becomes increasingly evident.

This is according to the Annual Development Review 2007-08 of the Development Policy Research Institute. The Annual Development Review also showed that there are between 8,000 to 10,000 new flats built in Phnom Penh each year. The number of guesthouses and hotels is also increasing, particularly in Siem Reap to meet the increase in tourist activity. Cambodian economists wait with anxiety to see how much damage the global financial crisis will cause to these activities. //