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Construction Cambodia – CBRE Cambodia MarketView in February 2013

CONSTRUCTION COSTS REMAIN STABLE WHILE PHNOM PENH CONSTRUCION APPROVALS FLUCTUATE QUARTERLY

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Construction costs year on year have increased on average by 1.36% compared to Cambodia’s inflation rate projected at 3.5% for 2012. The minimal increase and costs remaining broadly stable can be attributed to the competitive market conditions and labour cost remaining the same year on year. General labourers on average receive US$5 per day which is the same rate as in 2011.

The major driver affecting the stability of construction costs are material costs. Most material prices have remained the same year on year except for steel decreasing. Global steel prices have fallen from US$778/ton in December 2011 to US$721/ton in December 2012. This has not heavily affected the construction costs as the majority of construction in Cambodia consists of concrete framed structures. Although imports of steel in November 2012 rose by 47.8% month on month to US$9.3 million.

Standard office and shopping centre construction costs are quoted without finishes. Grade A offices include high specification such as raised floors, centralised air conditioning and high speed lifts. Cambodia will not have Grade A office space until the completion of Vattanac Capital.

Although 5* hotels and resort hotels saw an increase year on year, 3* hotels were the only building type to see construction costs decrease due to inferior materials and simple designs.

Industrial factory units as expected have the cheapest construction cost with most units in Cambodia being used by garment manufacturers, requiring only a low quality build specification.

Compared to regional construction costs Cambodia has approximately 10% higher costs than neighbouring Thailand and Vietnam. Even though labour costs are significantly lower the low supply of construction materials manufactured domestically has created a dependence on imported materials resulting in higher costs.

The construction sector is one of the main benefactors of the Cambodian economy. In 2011 the country attracted a total investment of US$1.7 billion for a total of 2,129 individual projects. The sector was heavily affected by the Global Financial Crisis and in 2012 decreased by 25.5% but due to Cambodia’s resilience the sector has rebounded well. The sector is projected to grow by 9.9% from 2012 to 2015.

Construction approvals made by The Ministry of Land Management, Urban Planning and Construction (MLMUPC) have seen large fluctuations in recent years. The first three quarters of 2012 saw construction approvals reaching US$541.3 million in Phnom Penh. That is already higher than the yearly total for the last three years since 2009. Approvals have still not reached the levels of pre Global Financial Crisis  of 2008 where projects approved in Phnom Penh reached US$1117 million.  Although a number of the projects approved in 2008 are unlikely to have continued due to the market demise.

The value of the construction projects has been steadily increasing each year. This gives clear indications that the market dynamics are starting to shift with strong growth in the property market returning.

The construction sector is set to experience continued growth with a number of large scale projects breaking ground in 2013. Obtaining construction approvals for large scale projects can be time consuming –  with the average request and then approval taking one year. Total building permit fees are in the region of US$6,000 to US$7,000.

General labourers wages are likely to increase in line with inflation due to the young demographics of the country providing a high level of supply. With a limited amount of vocational training on offer the current supply of skilled workers is not meeting the increased demand of the growing construction sector.  Skilled worker wages are likely to increase at a faster rate due to the current lack of supply. This will potentially lead to an increase in construction costs.

While the price for steel has fallen in recent months, the demand for materials remains high in the region, particularly China. This high level of demand from other markets will mean construction material prices are unlikely to decrease in the short or mid term.

Material costs are only set to decrease if there is an increased supply of domestically manufactured construction materials but this is not likely to change in the coming months.

The outlook for the industry is positive, but construction materials will remain subject to international forces while the supply of skilled labour will increase overall construction costs and could detrimentally affect development phases.

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