Beyond Phnom Penh International Airport where thousands of empty shophouses sit in various stages of completion—some finished, others still a mere skeleton of orange bricks—61-year-old Hong You Kheng doubts she will ever be able to sell her home.
Like many Cambodians in 2007, Ms You Kheng wanted to cash in on the booming real estate market as prices increased tenfold in some areas.
For $50,000, she purchased a three-story shophouse at the Borey Sen Monorom development in a field several kilometers past the airport, beyond the outskirts of town, believing she would be able to sell it for a higher price, or at least set up a grocery shop in what she thought would become a thriving neighborhood.
However, 90 percent of Borey Sen Monorom’s 400 odd units still stand like empty concrete boxes, a far stretch from the sharp manicured homes depicted in the company’s advertisements.
And despite a persistent lack of demand in Phnom Penh, the developer continues to list the shophouses at $50,000 each, even as real-estate prices around the city have decreased by 50 percent.
“I bought this house when the company started basic construction in 2007 when the land price was skyrocketing,” she said from the front room of her property on an unpaved street flanked by dozens of empty units. “Now, I don’t know whether I can sell my house because there are so many other houses being built.”
Realtors say the sheer oversupply, vacancies and half finished units in Dangkao district’s Choam Chao commune continue to represent some of the greatest excesses of the real estate bubble that came about prior to the global financial crisis.
Though many sectors of Cambodia’s economy have recovered, the real estate market remains sluggish and realtors say that such projects face tough years ahead. Though some realtors say the prices there have decreased by as much as 40 percent, many developers have not reduced their prices.
Many of the shophouses–ubiquitous multi-purpose structures with open-front ground floors that can be used to park cars or run restaurants–were planned when demand for property was high and Cambodian families bought and sold two or more properties a year. Many were purchased on speculation and the buyers now cannot sell them and will not move in.
The property flipping ended in 2008 during the financial crisis leaving many of the projects like ghost towns, with dusty roads, and in some cases lacking full utilities.
“They are a physical illustration of what happened in the heady days when the property market became red hot, and the world economic crisis hit,” said Matthew Rendall, a partner at the legal consultancy Sciaroni & Associates. “You have to ask, will the city expand that way anytime soon?”
Mr Rendall said that many of local developers lacked experience in analyzing the property market before pushing ahead with their projects. Many also accepted payments for properties before they were finished being built.
“You have to wonder if they were using financial advisors on this. Even if they did, you have to wonder if a financial advisor would have been able to prevent it,” he said. “People don’t want to live in an area with half finished buildings around them. And that is not what they went into the scheme for.
“When they sold off the plan they were shown the nice picture of finished houses and bikes up and down the street.”
A handful of workers continue to toil at Borey Sen Monorom, which broke ground in 2007.
Theng Socheat, a construction manager at Borey Sen Monorom Co, said the company had completed 20 percent of its 400 units, though he did not know when it would be finished or how much would be finished this year.
He declined to discuss why the price of unsold condominiums had not changed and blamed customers who have not completed their payments for the sag in sales. He said he did not know how many had been sold.
“Some customers want to buy the house for sale but they delay the payment at the moment making it hard for the company,” he said, adding that the developer must recoup millions of dollars it has spent to break even.
“Prior to the crisis, the developer wanted to build all houses and sell them back but everything got stuck when the crisis came,” he said. Other company employees declined to comment.
A draft law, supported by many realtors, exists that would license and regulate developers to prevent them from accepting payments without building anything. It would also put more financial restrictions on developers that would reduce the risk of unfinished buildings. Still, it is unclear when the five-year-old draft will make it to the National Assembly.
Many of the properties will not sell at their original price and the fact that many developers and buyers have not accepted this fact shows that the property bubble never completely burst, said Sunny Soo, country manager of property consultancy firm Knight Frank. He said sales in the area could happen years after more attractive property in the city is purchased, though some projects will succeed if they are close to the airport and well planned.
But he said it was difficult to predict the future of the area, because there is very little information compiled on the property market.
He expects that the next major wave of demand could come in ten years from Cambodia’s young population, half of which is younger than 25-years-old.
Still, that could be too late for some projects in Choam Chao, where homes could simply become housing for the poor, meaning big losses for developers and buyers.
“If it doesn’t sell in five or six years time it will not be a slum, but the price will get low and lower,” he said.
Comparatively, the properties are still relatively cheap. Shophouses in the central part of the city can often cost $300,000.
Stephen Higgins, CEO of ANZ Royal Bank, said that most people and banks had learned their lesson from the property bubble.
But the fact that many people paid with their cash savings also slows the process of turnover in the market.
“Most of these people don’t have debt against their property, so they don’t have to sell and they will wait for their prices to improve and I think they will be waiting for quite a while,” Mr Higgins said.
Either way, construction is still slowly continuing in the area.
Sung Bonna, president of the National Valuers Association of Cambodia, said the market for low and medium developments would remain strong but that recovery would be slow. He said he expected sales to take off around the city toward the year, but that some of the airport properties face a 30 to 40 percent decrease and will lag behind.
“The reason that Cambodia cannot recover back fast is because our market is very small in terms of property, demand. The amount of demand is very small,” he said.
Just across the airport landing strip, the Overseas Cambodia Investment Corporation, which has financed some of the largest projects in Cambodia, has finished 20 percent of its 339 unit development, sold 70 percent and will finish nearly 50 percent by the end of the year, according to Banh Souly, a sales manager for Canadia Bank, which shares the same owners as OCIC. The shophouses start at $89,000, a price that predates the crisis and will not change, she said.
“It is unfair to other customers who already bought it” to change the price, she said. She said she did not know how many customers had purchased property this year but said, unlike smaller developers, OCIC had the means to finish buildings that are not yet paid for.
Acknowledging the problem that vacant buildings have had on other projects, she said OCIC was finishing some properties for clients, even though some would prefer to wait.
“We want to finish it but the customers keep asking for it to be postponed,” she said. “People might think the company is bankrupt and that we won’t finish it.”
Jacky Lim, a 31-year-old who runs an import business from his house in OCIC’s project, said he did not regret his purchase but that even after paying $100,000 for his shophouse, the property had little to no value.
“There is not demand for it but maybe in to two or three years,” he said, adding that he liked the neighborhood. “It’s OK. The security is OK. The environment is OK. But it is so quiet.”
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