Monthly Archives: February 2014
CAMBODIAN RESORT MARKET BOOSTED BY INCREASING NUMBER OF INTERNATIONAL ARRIVALS MOVING INTO 2014
The number of tourist arrivals to Cambodia has increased significantly in the past four years following a period of uncertainty within the sector, adversely affected by the effects of the global economic crisis throughout 2008 and 2009.
Cambodia had received over three million arrivals by the end of September, 2013, with almost half of these flying into one of Cambodia’s two International Airports. With the ever increasing numbers in international arrivals, Cambodia’s resorts are now becoming a favorable investment opportunity in Cambodia.
The high number of visitors has continued to increase, despite the ongoing political unrest in the capital, Phnom Penh, which has remained predominantly peaceful since the General election of July 2013.
Traditionally tourists have arrived to Cambodia at Siem Reap International Airport, attracted by the Angkor Wat temples, before moving on in some cases to Phnom Penh. In more recent years the Ministry of Tourism has pushed to diversify Cambodia’s ‘Tourism Trail’ and encourage the development of the coastal region as a new tourist destination. In 2011 Sihanoukville was admitted to the prestigious ‘Most Beautiful Bays in the World Club’ raising its profile internationally. The area has established itself as South East Asia’s latest cruise destination, with ships arriving directly from Indonesia, Singapore, Thailand and Vietnam.
The increasing numbers of international visitors has driven a demand for western style boutiques and resort style accommodation within Cambodia, with the first three quarters of 2013 experiencing an increase in international visitors of 18.6% Y-o-Y.
A resort that has stepped in to meet the demand of the increasing international elite traveler in this region is the award winning Song Saa Private Island – Cambodia’s first luxury private island. Opening in March 2012 it offers five star villa accommodation, with a focus on sustainability and environmental awareness and a slogan of ‘Luxury that Treads Lightly…’ The resort also offers villas for sale for private ownership, with the owners returns based on the success of the resort, allowing for 30 days usage each year and a guaranteed yield of 8% for the first five years.
In 2013 the island of Koh Russey located approximately 10 kilometers from the coastal town of Sihanoukville was confirmed by Alila Hotels & Resorts to be the first internationally branded island resort to be built in Cambodia, developed by CityStar. CityStar plan to develop a low density project ensuring a high level of exclusivity and privacy with only 15% site coverage, comprising a total of 227 units (including 48 hotel suites) and luxury resort facilities and services. The first phase of the development is expected to complete in 2015, with the project set to become a pioneering development on Cambodia’s coastline.
Other developers that have been attracted to the region are KPIG on the Morocot Island development and Queenco Leisure Ltd who have a number of land plots close to the up and coming Otres Beach. A number surrounding island and land plots have been bought by developers who are now seeking investors to build resorts and infrastructure to support the influx of visitors in the area. Currently CBRE are working with the Royal Group in attracting investors to this unparalleled opportunity in the Gulf of Thailand.
Royal Group have signed a 99 year lease with the Cambodian Government for Koh Rong, to develop the island into ‘Asia’s first environmentally planned Resort Island’ and initiate high end international tourism on Cambodia’s coastline. The key attributes to this island are its location, size and natural beauty, with the construction of an airport planned in the first phase of development, Koh Rong is only approximately an hour flight from Bangkok and Singapore.
Both domestic and International airlines have recently announced plans to launch new flights from Siem Reap during the tourist season, with construction of the New Siem Reap International Airport (NSRIA) due to commence in early 2014, allowing for substantially higher numbers of tourist to be welcomed to Cambodia in the near future, further driving the need for developments such as Alila Hotels & Resorts and Royal Groups Koh Rong Island development.
The villa and shop house market has continued to grow in 2013 with current demand exceeding supply. Phnom Penh is experiencing strong commercial and economic growth which has driven foreign and local nationals to seek such properties.
New high quality supply has entered the market within larger currently operational developments. These developments have achieved high occupancy levels in a short time frame through off-plan sales and through the increasing demand for high quality residential accommodation within Phnom Penh.
The supply of villas in Phnom Penh is currently stable but marginally below occupier and target audience demands. Large scale villa developments are mainly located on the outskirts of the city due to the premium price of land in the center of Phnom Penh and whilst many landlords have yet to dispose of their assets, developers continue to seek land to accommodate the future demand of villas. There is currently an over supply of villas in Toul Kork, with many residents seeking to occupy residencies in more desirable locations with improved infrastructure. The market can expect new supply in 2014 such as Borey Lasen, part of the Canadia project located in central Phnom Penh.
As villas have a limited market among Cambodia demographics, new developments have focused on lower end residential properties. The supply of shop houses remains high, and is expected to grow from new projects, such as, New World and Peng Hurth. The forecasted opening of Olympia in 2014 is the main driver of new supply due to it’s central location.
Across the market villa occupancy rates are high. As new supply enters the market, high occupancy will further follow.
The increasing positioning of foreign employment, FDI, and purpose built office space will keep
occupancy levels at a premium. BKK1 has seen a significant increase in food and beverage outlets occupying existing villas which evidences changes of use of villa accommodation.
The Shop Housing market in Phnom Penh is extremely popular among local businesses and families. Therefore occupancy rates of these premises are meeting the local populations demands and the delivery of expanding supply in this sector will retain such towering occupancy.
Demand for villas in most developments has remained strong, especially due to the increasing inflow of foreign residents, local and multi national companies, NGO’s, and restaurants. The introduction of new developments launched in 2012 and 2013 saw many units sell out and the increasing demand of these will remain strong and absorb the new supply, allowing rents to remain stable.
Shop Houses are continuing to grow in popularity among Cambodian nationals and demand for these units has remained by far the largest sector of the market in terms of units sold.
Sales and Rents
Sales activity is currently booming within the villa community especially with Basac Gardens and Borey Sunway with both having sold 95% of units at the achieved asking price. Monthly rental figures in the popular expat area of BBK1 range from $3,500 – $6,000 and in Toul Kork from $800-$3,000.
Shop Houses have followed a similar high performing trend with Borey La Sen having sold out by 100% and Olympia City selling 90% of available units. Borey Peng Huoth and New World are performing well but due to their peripheral location are attracting primarily residential uses rather than local businesses.
Overall the demand for villa and shop houses in Phnom Penh remains high with growth factors including increased foreign investment and economic advances driving market growth into 2014. The market in Phnom Penh is currently exceeding the current level of supply with high occupancy rates from domestic and foreign nationals. The introduction of further high quality products in 2014 including the centrally located Olympia development and the high class Borey Sunway have displayed rapid off-plan sales which demonstrates the necessity of future supply to contain the expanding demand growth.
While a large amount of villas are being sold off to developers who enjoy the lucrative investment of the rapidly advancing serviced apartment market, landlords that have retained their villa have turned towards commercial tenants. A number of central villas available in the market for lease are currently occupied by large multi-national corporations. The change in land use shows positive signs for the growth of Phnom Penh with commercial properties and apartment developments on the increase.
The demand for shop houses is showing no signs of slowing down with the introduction of new stock from New World, Borey Penh Houth, and Canadia which is evidence that the local population is benefiting from the expanding economy through commercial and residential uses. For the emerging Cambodian middle class, shop houses represent the opportunity to purchase land. The ground floor can be used income producing and the upper floors have the option to add further accommodation to adapt to a growing family.
Therefore the immediate future of the villa and shop house market is attractive as shown by the increasing stock, occupancy rates, and increasing level of demand. Although not everyone in Phnom Penh can will be able to own freehold land in the city, condominiums may become a rapidly growing market when the space for shop houses becomes limited.
During the Khmer Rouge period from 1975-1979 the land title system was completely abolished and all records of previous land titles were destroyed. The land titles system was not re-introduced until 1992 when the land law was passed, enabling people who have lived on the same piece of land for 5 years to qualify for titles. Currently, land in Cambodia is either owned privately or by the state but not all land is registered as the land system remains underdeveloped. Investors are advised to check whether a proper land title exists. Land titles are represented in two forms soft and hard title. Soft title refers to a title where a property is registered at the local municipal level but which cannot be used as collateral for bank loans while hard title refers to a title issued at the national government level which can be used a collateral for bank loans. Hard title is the most secure form of ownership. However, the majority of transactions still occur for land with soft title to avoid high transaction costs which include property registration taxes and ownership transfer fees. Private freehold ownership is permissible for all types of land but the full ownership is restricted to Cambodian citizens or companies with the majority of shares being owned by Cambodian citizens. Foreign investors are not allowed to acquire freehold land unless a land holding company is established with at least a 51% share controlled by a Cambodian citizen or company. Foreign investors can also use land in Cambodia under a long term lease. The maximum lease term is restricted to 50 years determined by the civil code established in December 2011. The lease structure system allows foreign investors to lease property if the property is properly registered with a land title certificate.
Property Tax is levied on all property worth over KHR 100 million (US$24,000) in Cambodia. The tax is payable annually by the owner of the property at a rate of 0.1% of the government assessed value.
Unused Land Tax is payable for all unused land. The tax is calculated at a rate of 2% of the market value of the land per square meter as determined by the Unused Land Valuation Commission of the Ministry of Economy and Finance. The unused land tax is paid annually by the landowner.
Property Transfer Tax is levied on a sale of land with Hard Title, at 4% of the assessed property value determined by the tax department, by the purchaser.
MAJOR LAND & INVESTMENT TRANSACTIONS
Oxley Holdings acquired 2 adjoining land plots in 2013 as follows: They acquired a 2,300 sq.m. plot in Duan Penh for US$1,800 per sq.m. from Home Ground Investment Co., Ltd in Q2 2013. Oxley then acquired an adjoining larger plot of 6,625 sq.m. from City Star for US$ 1,700 per sq.m. in Q3 2013.
MAJOR INVESTMENT ANNOUNCEMENTS
A number of significant development projects were announced or launched in 2013 as follows: The Korean developer Booyoung started work on their vast US$1.1 billion mixed use “Booyoung Town” project on Russian Boulevard. Construction started in Q2 2013 of Phase 1 on 25,000 sq.m. of land comprising 17,000 residential units, commercial buildings, a sports facility and a school. A Japanese – Cambodian joint venture between Tokoyo Inn Co., Ltd and OCIC started construction on a 1,200 sq.m. plot near Hang Bridge to develop a 304 room, 3 star hotel which should be open by 2015. Hong Kong Land started construction on their “Landmark”project in September 2013. The 10,700 sq.m. site is located on Street 106 next to the US Embassy. Phase 1 of the project, to be built on approximately a third of the site, will comprise a 20 storey mixed use retail and office tower, providing approximately 12,000 sq.m. of retail space on the lower floors and 18,000 sq.m. of office space above. Additional phases are planned and are likely to include a mix of residential condominiums and either a hotel or serviced apartment. Citystar announce plans to develop their land on Bamboo Island for an integrated hotel resort and villa project over the 25 Ha of land. The development will comprised a five-star hotel of 152 keys and 80 villa residences for sale and the hotel will be branded and managed by Alila.
PHNOM PENH CONDOMINIUM MARKET IS BOOSTED BY HIGH SALES RATES, PROMPTING FURTHER CONSTRUCTION
The condominium market in Phnom Penh is still very much within its early stage of development and thus is unlikely to flourish until there is a cultural shift towards owner occupants relocating to condominium developments within the city.
This however will be heavily dependent on the urban expansion of Phnom Penh, whilst also making considerations to the rate at which the cities population increases, and the rate at which urbanization in the city continues.
CBRE has see an increase in investment from both Japanese and Chinese clients that do not expect a high level of return upon their investment, and rather are investing on the basis of speculative capital growth.
Currently, there are 18 Condominium projects in Phnom Penh, inclusive of both finished developments, and developments under construction, with the main developers including De Castle and Canadia.
The construction market has responded to a lack in high quality condominium developments being provided within central Phnom Penh. With a number of new developments set to come online at the end of 2013, and through until 2016.
Although Phnom Penhs condominium market supply increased in 2012 by 29.25%, the market for condominium developments is still meeting current demand, if not slightly over-supplying the market.
The economic downturn is still heavily effecting investor input into the market, directly effecting the supply of condominiums developments in Phnom Penh. With a number of planned condominium projects now classed as ‘offline’ (awaiting review), suppliers have been cautious in their attempts to bring new projects to the market.
In 2014 three new condominium projects will be completed, supplying inevitably, products that are under supplied. It is apparent throughout Phnom Penh however that although the market is not booming, there is a need for high quality condominium developments – De Castle, I240, and HK Condo will provide for this.
In the following two years a further 4 developments will be coming online, again supplying high quality products, focused towards investors, whilst a number of projects are under construction, most notably at the Booyang Khmer site on Russian Boulevard, where 85% of the development will comprise condominiums.
Sales of condominiums in Phnom Penh have been heavily marred by publicized failures of developments that have been sold of plan and have subsequently ceased construction. This has put many potential investors off the market, however in 2013 there has been a slight rise in condominium sales when compared to respective figures in 2012, showing albeit slight, but confidence in the condominium market once again.
Sales levels vary across Phnom Penh, however in accordance to finished projects a notable high in sales rates of 95% has been achieved. These sales are generally as previously mentioned to Cambodian nationals looking to take advantage of products available at an attractive rate.
Developments that are still currently under construction have sold between 10%-60% off plan. Most notably seen at the Di Rivera development currently under construction on the evolving diamond island.
Canadia who are developing Di Rivera and have previously developed Rose Gardens Condo’s, asking sale prices of $1,500/Sq.m, with De Castle asking $2,000/Sq.m, however it must be noted Canadia are selling the most condominiums in the market place.
Generally condominiums within central Phnom Penh asking sale prices of $1,500-$2,000/Sq.m, with condominiums located on the outskirts of Phnom Penh (e.g. Toul Kork/ Chroy Changvar) asking sale prices of $500-$1,000/Sq.m
Demand for condominiums is anticipated to increase and be met by supply in 2014. The introduction of high quality products in downtown locations will offer prospective investors and opportunity to acquire products that focus on the needs and requirements of a heavily expatriate driven area of Phnom Penhs residential market as foreign nationals continue to require exclusive and up market accommodation in popular locations.
Following the global financial crisis in 2008 when the condominium market dropped significantly, although greater yields can be achieved elsewhere, the influx of desirable products will further develop the market for condominiums into 2014 and onwards.
Overall the condominium market in Phnom Penh has been supplied on a basis of relatively cost effective products that provide nominal rates of return, that have been predominantly purchased by Cambodian nationals. The market in Phnom Penh is currently supporting its current level of supply, however it is expected with the introduction of high quality products in 2014-2016, to strengthen in accordance to both Cambodia’s stability, but also in line of global financial stability projections.
Although these projections are still very much unsteady, it is hoped that the introduction of De Castle Royal, I240, and HK Condo’s will not only offer foreign individuals and investors a product that they desire. With Overseas Cambodian Investment (Canadia) developing Di Rivera Condominiums that have thus far been successfully sold of plan, it is anticipated that further development’s that are currently under construction such as the centrally located Olympia development, and others such as Galaxy Condo’s and Bali Resort being equally successful. The expansion of Phnom Penh will inevitably further drive the increase of condominium yields.
CBRE note that a number of individuals and corporate companies and organizations are making considerations towards the construction of further condominium developments, instilling their focus on the market, and furthermore their confidence in it.
Condominium Definition – A condominium (or condo) – also know in some countries as an apartment or flat – is a building where individuals have freehold strata title of their own residential unit and where the common areas such as lifts, swimming pools and gyms are jointly owned by all the co-owners. In Cambodia, foreigners are allowed to own up to 70% of the total area of a condo building with the exception of the ground floor.