Cambodia is a market that is rapidly developing, and is on the cusp of being transformed from a backwater economy into one that is the centerpiece of Asia.
For real estate investors, one of the best times to enter a market is before it appears on the radar of mainstream and institutional investors.
While the risk may be high, the potential rewards and capital appreciation is many times that of investing in a developed economy.
What are some of things that real estate investors should look out for before investing in Cambodia real estate?
Stay in Phnom Penh
For investors getting into Cambodia for the first time, it would be wiser to stick to the capital city of Phnom Penh.
Even though there is a lot of talk in the market about the property market there being in a bubble, it is still early days of the country’s development compared to neighbouring Thailand and Vietnam.
USD is the main currency
While Cambodia has its own currency, the Cambodian Riel, much of the commerce done in the country is made in USD.
In fact, up to 90% of the economic activity in the country is done using USD. The visa to be purchased on arrival needs to also be paid in USD.
The USD is therefore the country’s unofficial second currency.
That said, the Cambodian Riel trades at approximately 2940 KHR to 1 SGD, or 4000 KHR to 1 SGD.
Stick with renowned developers
Foreign investors would do well to stick to projects developed by renowned international developers rather than local outfits.
Needless to say, international developers will have an established processes of doing business and oversight from reputable boards of directors. In contrast, domestic developers would probably not be held to such stringent standards.
For foreign investors, the presence of a Singapore office of a developer makes recourse much easier in the event there is a dispute.
Some Singapore developers that have ventured into Cambodia include Oxley, Teho International, TA corporation and Capitaland.
The law on investment restricts foreigners from owning land in Cambodia. However, foreigners are allowed to have a renewable long-term lease for up to 50 years plus 50 years.
In addition, foreigners can have freehold ownership of certain condominiums.
5.6 million visitors to Cambodia in 2017
According to Wikipedia, 5.6m tourists visited Cambodia in 2017, an 11.7% increase from 5.0m the year before.
The number of arrivals is a stark contrast to the 1.1m in 2004.
Vietnam visitors form a large portion of the inbound visitors, contributing 950,000 in 2016, with China the next largest contributor at 830,000 visitors in 2016.
The number of tourists is set to rise as the country opens up, budget air travel becomes cheaper and the growing middle class in China contributes to inbound travellers.
Guaranteed rental returns
Most overseas investors will not be familiar with Cambodia real estate because the country is just opening up and real estate investment by foreigners has only been made available recently.
In this regard, many developers offer guaranteed rental returns to ensure that their projects will be well received.
For example, The Peak Shoppes at Phnom Penh, a project managed by Capitaland, is offering guaranteed rental returns.
The rental returns are as follows
- 1st to 5th year – Net 5% return per annum on purchase price to the investor
- 6th to 10th year – Net 6% return per annum on purchase price to the investor
As an example, a retail unit that costs S$200k will mean a guaranteed rental return of S$10k a year to the investor (or approx S$833 per month) for years 1 to 5.
For years 6 to 10, the guaranteed rental return will be S$12k a year, or S$1k a month.
Do note that after year 10, the rental guarantee expires and the investor’s returns will be subject to the performance of the asset.
For investors thinking of getting a foothold in the market, guaranteed rental returns are a fantastic way to invest in property and yet have some downside protection.
Mentions in the press
Cambodia is a growing economy but there has been quite a bit of press coverage of developments in the country.
These range from China signing new aid agreements with the country, the construction of a new airport in Siem Reap and US developments in the country.
The infographic below shows some of the press mentions in the country in recent times.
Aside from ownership taxes, property investors are subject to taxes upon sale or transfer.
The tax is 20% on the profit realized from the transaction.
The government will also levy a Value Added Tax of 10% on the sale value.
A withholding tax of 10% is levied on rental income from residential properties and 14% on non-residential property income.
Property taxes are 0.1% of 80% of the property value worth over KHR 100m (approx US$25,000).
The Peak Shoppes
The Peak Shoppes is a Cambodian retail development built by Oxley. The retail portion of the project will be managed by Capitaland.
Investors now have a chance to buy into the property market in a developing country and gain outsized returns as the economy develops.
The location of The Peak Shoppes is comparable to that of Ngee Ann City or Orchard Road, namely that it will be in the heart of the shopping district of Phnom Penh.
One great feature for first time property investors in the country is the guaranteed rental return which works as follows:
- Years 1 to 5 – Investor gets nett 5% per annum of their purchase price
- Years 6 to 10 – Investor gets nett 6% per annum of their purchase price
- Years 11 to 15 – Guaranteed rental and renewal based on mutual agreement between developer and owner
For a S$100k investment, the return over the first 10 years is definitely S$55k (S$25k in years to 5 plus S$30k in years 6 to 10).
Booking costs and progressive payments on a purchase are as follows:
- Booking S$1,700
- Signing of sale and purchase: 20%
- 31 Dec 2018: 10%
- 31 Mar 2019: 10%
- 30 Jun 2019: 10%
- Handover/completion: final 50%
- Title transfer tax after handover/completion: 4%
- Non-refundable administration fee of S$200 imposed on purchasers for any changes
Bulk purchase discounts when 2 units and above are bought are 2.5% or 5%.
Each retail unit size ranges from 5 to 95 sqm, and restaurant sizes range from 5 to 30 sqm.
The Peak Shoppes has been soft opened in Mar 2018.
Benefits of investing in Cambodia include:
- Strong GDP growth
- Increasing Foreign Direct Investment from Singapore, Korea and China
- Rising middle class with stronger purchasing power
- US dollarized economy – no FX risks for overseas investors
- Investor friendly with no TDSR, ABSD, BSD, SSD etc.
Investors interested in The Peak Shoppes can reach out using the following contact form.