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High-rise apartments are springing up across Cambodia's capital, part of a property boom led by expat demand. Photo: Reuters

Build it and they will come: Apartment boom in Cambodia's capital is being driven by expat demand and a leap of faith

Singapore firms like Oxley are building posh high-rise projects as foreigners account for up to 70 per cent of condominium sales

Reuters / South China Morning Post | 3 November 2015

High-rise apartments are springing up across Cambodia's capital, part of a property boom led by expat demand, while developers are also betting the country's growing middle class will shed a traditional distaste for “living on top of each other”.

As once red-hot property markets like Singapore lose steam, frontier markets such as Cambodia are gaining more attention from investors, and that is helping make the construction and real estate industries the Southeast Asian nation's most dynamic engine of growth.

Developers such as Singapore's Oxley Holdings and Teho International are embarking on high-rise upmarket condominiums complete with swimming pools, gymnasiums and river views. Japan's Creed Group as well as Taiwanese and South Korean firms have jumped into the market, while local developers are also building, albeit mostly low-rise apartments.

Cambodians prefer houses with land, many can't afford flats. Photo: Reuters

A lack of condominiums in prime Phnom Penh areas for expats has led to high rental yields for investors. But some experts worry supply could outstrip demand in a few years unless the country's middle class moves away from a traditional preference for houses with land.

With an economy of only $16.7 billion, Cambodia could be very slow in shifting to high-rise living as its urban middle class, while growing, remains small.

“Unless there is a strong take-up by local families, there could well be an oversupply,” said Marc Townsend, managing director for real estate services firm CBRE in Cambodia and Vietnam.

Property consultants note that most buyers of condominiums, even locals, are purchasing them for investment purposes - keen to rent them out and believing their value will appreciate over the next few years.

Labourers work at a construction site of The Bridge in central Phnom Penh. Photo: Reuters

They also estimate that foreigners account for 60 to 70 per cent of condominium sales in Cambodia, spurred on in part by the relaxing of restrictions on foreign home ownership in 2010, though some limitations remain in place.

“While most buyers are foreigners, the trend will change towards Cambodians. But it may take 10 to 20 years,” said Kim Heang, chief executive of Khmer Real Estate.

For the time being, the influx of foreigners over the past few years as multinational companies open offices is feeding demand. That helped the construction and real estate industries contribute more to GDP than the garment and footwear sector last year, according to the World Bank.

Prime residential land prices in the capital jumped 14.1 per cent in the first half of this year, the biggest rise among 13 Asian cities in a Knight Frank research report.

Developers are betting the country's growing middle class will shed a traditional distaste for "living on top of each other". Photo: Reuters

CBRE estimates there are 48 condominium projects, both finished and under construction, in Phnom Penh, where total condominium stock is set to jump to 19,745 units by the end of 2018, a 13-fold increase over levels seen last year.

Some of the most high-profile projects are being built by Oxley and Cambodian developer Worldbridge Land. These include The Peak, a 55-storey mixed-use development with two residential towers and a Shangri-la hotel, which is due for completion in 2020. It follows the 45-storey The Bridge, whose residential units are almost fully sold - with Cambodians, Singaporeans and Taiwanese the top buyers.

Due to current limited stock, gross rental yields for Phnom Penh's condominiums located in prime areas are among the highest in the region - 10 per cent versus 4-6 per cent in Bangkok and Singapore's 2-3 per cent, CBRE data shows.

But while $300,000 for a three-bedroom apartment may be cheap enough to attract potential investors like businessman Steven Chan, an attendee at an Oxley property launch event in Singapore, for many ordinary Cambodians those sums are out of reach.

“People like us don't like to live in apartments like this,” said 31-year old Hak Hab, a cook who lives in the neighbourhood of a 16-storey condominium block but whose wooden home borders a sewage canal.

“These apartments are only for the very rich.”