The Property Market in Cambodia

Posted on 19 December 2012 by ABPC

At Alan Bolton Property Consultants we pride ourselves on our knowledge of the property market and not just that it Pattaya. We like to keep abreast of World markets and to help you the following information was taken from the well respected website http://www.globalpropertyguide.com/Asia/Cambodia

Cambodia’s property market is still somewhat depressed. However, the new foreign ownership law is undoubtedly helping the property market recover. The number of property transactions increased threefold in 2010 thanks to the new law, according to Sung Bonna, President of National Valuers Association of Cambodia (NVAC).

Foreigners are now allowed to own apartments and condominium units, but not land, and therefore not the first floor of buildings, under the new foreign ownership law approved by King Norodom Sihamoni in May 2010. In 2010, tax revenues from property-related transactions soared 60% to KHR76.21 billion (US$19.5 million), from KHR47.7 billion (US$12.2 million) in 2009. This is still far below the level of transactions seen in 2007 and 2008 – but it is a real recovery.

In 2005, the Cambodian government amended its investment law to allow foreign ownership of buildings. However, the law was never implemented and the idea floundered, since the country was then experiencing one of the biggest property booms in Asia.

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.

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, Cambodia’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%.
TAXES AND COSTS

Rental income is subject to withholding tax in Cambodia

Rental Income: Income from leasing property is subject to withholding tax at 14% for nonresident landlords and 10% for resident landlords.
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, from 0% to 20%.

Transaction costs are moderate at 3.9% to 6.5%

The total round-trip transaction costs of buying property are between 3.9% and 6.5%. 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.

Cambodia’s rental system is pro-landlord

Cambodia’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.

Rapid economic growth

Cambodia has experienced enormous economic growth over the past few years. From 2003 to 2007, the Cambodian economy grew by an average of 10.6% per year. Growth is concentrated in tourism and the textile sector, which is dependent on most favoured nation status agreements.

Economic growth slowed to 6.7% in 2008, and then contracted by 2% in 2009, due to the adverse effects of the global crisis. In 2010, the economy resumed to growth, with a GDP growth rate of 4.8%. The total number of tourist arrivals rose by 16% to 2.5 million in 2010.

In 2011, the economy is expected to expand by about 7%, due to strong rebound in tourism, garments manufacturing, and agriculture, according to the Ministry of Economy and Finance. However, the construction sector, which fuelled Cambodia’s double digit growths for much of the past decade, is still down.

Phnom Penh is now an elegant, well-planned, prosperous city – whitewashed, bristling with economic activity. Angkor Wat, built during the glory days of the Khmer Kingdom of Angkor (900AD – 1200AD), attracts hordes of tourists, and Siem Riep is a charming city.

Nevertheless, Cambodia’s population of about 15 million is one of the poorest in the world, with a GDP per capita of about US$800 in 2010.

The country is still dependent on foreign assistance, which accounts for about half of the government’s budget.

The Cambodian economy is heavily dollarized; the Riel and the US dollar can be used interchangeably. However, the government has a long-term goal of reducing its reliance on the greenback, which accounts for more than 90% of all currency in circulation in the country, according to the Asian Development Bank (ADB).

Cambodia’s strong man, Prime Minister Hun Sen is one of the world’s longest serving prime ministers having been in power since 1985. He was re-elected in 2004 after a year of political deadlock. In 1997, he seized power from his co-prime minister, Prince Ranariddh. Political activists caution that his rule is increasingly becoming more authoritarian.

Some would call Hun Sen a visionary leader, though his rule attracts mixed reviews. There is extensive political and judicial corruption, but on the other hand the government is manifestly competent, which appears to be due to Hun Sen’s personal drive and energy.

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