Giant Development in Cambodia Hinges on Chinese Buyers

International New York Times | 6 May 2014

Koh Pich — Diamond Island in English — hugs downtown Phnom Penh’s shoreline. 

Cambodia Courts Chinese Buyers

Eight years ago, the island was handed over to a local conglomerate, which has since sold off parts to developers. Luc Forsyth for The New York Times 

The island will be home to more than 1,000 condominiums and a model of the French Riviera. 

Credit Luc Forsyth for The New York Times

PHNOM PENH, Cambodia — There is an island in Cambodia that, unlike others in Southeast Asia, is not the object of an ownership dispute. But it is equally clear whom its current owners would like to land there: Chinese property buyers.

If all goes according to plan, Koh Pich — Diamond Island in English — a 100-hectare, or about 250-acre, spit of land hugging downtown Phnom Penh’s shoreline, will be home to more than 1,000 condominiums, hundreds of villas, two international schools, a replica of the Arc de Triomphe, a near-clone of Singapore’s Marina Bay Sands Hotel and one of the world’s tallest buildings.

But in a city with a history of stalled real estate projects, the future of the island, in the Mekong River, is far from certain.

Phnom Penh, Cambodia’s capital, is coming into its own as a regional business destination, and investment in its property market totaled $1.9 billion in the first half of 2013, compared with $1.2 billion in 2011, according to Leng Vandy, senior associate at the financial services company SBI Royal Securities. Even as mainland Chinese property investors have pushed prices up in Hong Kong, London and Vancouver, they are also injecting piles of cash into smaller cities, including Yangon, Myanmar; Chiang Mai, Thailand; and Vientiane, Laos.

Phnom Penh, a city of nearly two million, is no different.

“Mainland Chinese, especially Shanghainese, are very impressive,” said Um Bun An, sales manager at Casa Meridian, a development that, when completed in 2017, will feature two 33-story condominium towers. “They don’t need loans. They make their purchases in cash.”

Development projects on the island are aimed at luring mainland Chinese investors. Luc Forsyth for The New York Times 

A luxury apartment building complex being built on Koh Pich. Luc Forsyth for The New York Times 

A street sign is written partially in Chinese. Plans for the island include a mixed-use tower topping out at 1,820 feet. Luc Forsyth for The New York Times 

A driving range for golfers is among the nonresidential projects on the island that have been completed. Luc Forsyth for The New York Times 

For now, most of the people coming to Diamond Island seem to be young Cambodians from elsewhere in Phnom Penh. Luc Forsyth for The New York Times

The heavy reliance on foreign investment has some observers questioning the viability of the development projects. Luc Forsyth for The New York Times 

With street signs featuring the simplified Chinese characters used on China’s mainland (elsewhere in Phnom Penh street signs are in Khmer and English only) and sales executives fluent in Mandarin, Diamond Island seems ripe for Chinese investment.

Eight years ago, the entire island was handed over to the local conglomerate, the Overseas Cambodia Investment Corporation, which in Mandarin calls itself the Cambodia Overseas Chinese-Cambodian Investment Corporation. Phnom Penh’s municipal spokesman, Long Dimanche, declined to disclose terms of the deal; there is no public information available about the corporation. The island’s previous residents, small-scale farmers, were either bought out or evicted.

Touch Samnang, the corporation’s deputy chief executive, also declined to discuss terms of the deal. The group has sold several plots on the island to developers for projects, including Casa Meridian, the gated villa development Elite Town, the pedestrian mall La Seine and The Élysée, a proposed mixed-use project that is to include a replica of the Arc de Triomphe.

After Cambodia passed a law in 2010 allowing foreigners to buy condominiums in towers above the first floor of approved buildings, developers in Phnom Penh have begun catering to growing foreign demand. A report in March by the Phnom Penh office of the property consultancy CBRE noted that 20 condominium projects had been completed or were under construction in the city.

The island’s largest such project is the $700 million Diamond Island Riviera: three 33-story condominium towers supporting a 650-foot infinity-edge pool, a shopping mall, hospital, an international school, two pedestrian shopping streets — plus two additional 29-story condominium towers. In a nod to Chinese superstition, which considers the number four unlucky, the buildings will not have 4th, 14th, 24th or 34th floors.

Diamond Island Riviera is a joint venture between O.C.I.C. and the Chinese company Jixiang Investment on a prime plot with the island’s best river view. Mr. Touch said O.C.I.C. sold the land for “close to $100 million.”

The project has many ties to China’s growing overseas construction industry, which in 2013 included 22 of the world’s top 100 international contractors by revenue, according to the industry journal Engineering News-Record.

A local subsidiary of China State Construction Engineering Corporation China’s largest nonrailway construction contractor, which had more than $81 billion in revenue in 2012, is building the 900-condo development. The Vietnam-based Sino-Pacific Construction, a 100 percent foreign-invested consultancy with upper management from China and Taiwan, is in charge of the project’s structural design. The Chinese company Guangzhou Sunho Decoration is responsible for interior design, and A-Seven of Thailand is handling architectural design.

Yao Jiguo, the construction company’s project manager for Diamond Island Riviera, said it had plans for additional projects.

“We want to establish the mainland brand here, the China Construction brand,” Mr. Yao said.

Mr. Yao estimated that the Riviera project’s first two condo towers would be finished in 2016.

Chinese buyers account for roughly half of sales at Diamond Island Riviera, according to Brak Kim Seng, senior sales officer at the O.C.I.C. subsidiary Canadia Bank.

“The majority of Chinese buyers are buying as an investment,” Mr. Brak said in Mandarin. “They’ll hold on, and when prices rise, they’ll sell off.”

Sales for the project’s A and B towers, which contain smaller and less-pricey units, and Tower D, with larger, more expensive units, began in 2013. As of April, Canadia Bank had sold 20 percent of the units in Tower A, 50 percent to 60 percent of Tower B and 15 percent of Tower D, Mr. Brak said. Prices per square foot, which had been about $185 earlier this year, now range from $149 to $167 per square foot.

Diamond Island is unlikely to become the Chinatown that the Phnom Penh government has long hoped would attract more mainland tourists. Despite the Chinese money flowing into the island’s projects, Chinese tourists and residents are not a common sight in that part of the city.

Aside from construction workers, most people on Diamond Island seem to be young Cambodians from elsewhere in the city, who cruise the island’s wide, uncongested streets on motorcycles and socialize wherever they decide to put their kickstands down.

“Here there are good views of the rivers, and good people-watching too,” Kat Khemara, 23, said as he sat on a bench with his girlfriend.

Some nonresidential projects on Diamond Island have already been completed, including a driving range for golfers, a fire station and an events center replete with columns and fountains that is popular for wedding photos and banquets. An international exhibition center and the Koh Pich Theatre frequently are host to Chinese trade and cultural events.

Much remains to be built. Land is being reclaimed at the island’s north end for Phnom Penh’s most ambitious project, a mixed-use tower topping out at 1,820 feet. If built, it would be one of the world’s tallest structures. Mr. Touch said the tower was still in the design stage, and that the land would need to settle for one or two years after reclamation work was finished.

Limited demand from Cambodia’s relatively small wealthy class and a heavy reliance on foreign investment has some observers questioning the viability of the projects.

Mr. Leng said he saw residential supply outstripping demand in Phnom Penh in coming years, although he believes growing demand from high-net-worth Cambodians and expats as well as the upcoming integration under the Association of Southeast Asian Nations Economic Community, scheduled for the end of 2015, will narrow the gap.

Mr. Leng noted that the La Seine pedestrian mall will face stiff competition from the soon-to-open Aeon Mall, one of the largest shopping malls in Cambodia, which is just across a bridge. He cautioned that Diamond Island Riviera was vulnerable to downturns in Chinese investment — a possibility given the current liquidity crunch on the mainland. In Hong Kong, China’s efforts to wean the mainland economy off cheap money contributed to a sell-off of luxury properties in the first quarter of this year, with some owners cutting 20 percent off the purchase price.