Investing in property in Cambodia

December 3, 2009

by Mathew Rendall, Lawyer & Senior Partner, Sciaroni & Associates


Reality check

Cambodia’s real estate sector enjoyed unprecedented growth from 2006 to mid-2008. During this period the sector created new-found wealth for hundreds and construction jobs for thousands. But in a market fuelled by speculators, prices became overinflated; people became intoxicated on property and are now suffering headaches.

Speculators who a year ago were buying up real estate in the hope of selling it on to developers for a profit, have been left high and dry as prices have fallen.

Property values have fallen by 25-30 per cent in Cambodia and investment in the sector has virtually ground to a halt. Construction investment has fallen 40 per cent; some major projects have been put on hold or cancelled, and the fortunes of many high-flyers have been lost, along with numerous property-related jobs.

Numerous developers in Cambodia buy land and advertise their proposed grandiose projects, yet have no capital. In order to fund construction they collect deposits from customers.

The Royal Government is now working on new laws to protect buyers. This will ensure that developers adhere to stricter codes of conduct, such as:
- Depositing 2 per cent of their project budget in the central bank.
- Purchasing licences with fees based on the type and size of the development.
- Holding a non-accessible housing account at a commercial bank for buyers’ down payments.

The government has been studying and working on these rules with developers to find a unanimous solution that accommodates the needs of both parties.

The doom and gloom brigade say the fall in the property market will have broader implications for Cambodia’s economy. They say that as a result of speculators losing their money, many businesses will face ruin, that there will be less disposable income and sales of consumer goods will subside. People who borrowed money to buy units that have not even been built yet will not be able to repay the banks. Suppliers won’t get paid and everyone will lose.

The optimists say that property prices needed a reality check and that a turnaround could come as soon as next year. In addition, the large developers have not gone broke and there won’t be too many job losses in Cambodia because the supply chain comes from abroad, i.e. almost all construction materials are imported.

Meanwhile, the cost of construction materials has fallen substantially and, as many of these projects haven’t even been constructed yet, what better time is there to build?

Optimists also do not agree that many people are in debt to the banks because few people borrow money to buy properties in Cambodia – most pay cash. Individuals are more likely to have used their savings to pay deposits.

Neav Chantana, Deputy Governor of the National Bank of Cambodia (NBC) – the central bank – told a recent banking conference in Phnom Penh that real estate lending of $161 million amounted to 7 per cent of total banks’ lending. A further 7 per cent of lending was to individuals purchasing property for their own use and another 8 per cent went to the construction sector.

She said that Non Performing Loans (NPLs) stood at less than 5 per cent, “Which means the financial system is strong and performing very well,” she added. However, this could be misleading as not all banks in Cambodia report their true exposure to NPLs.

In mid-2008, NBC restricted access to loans by doubling banks’ foreign currency reserve requirement to 16 per cent from 8 per cent. It also capped the amount of real estate loans banks could make at 15 per cent of their portfolios. In February 2009, NBC repealed those restrictions in response to the rapid decline in the property market.

According to the Ministry of Land Management, Urban Planning and Construction, investment in the construction sector fell to $2.8 billion for the first 11 months of 2008 – down from $3.2 billion in 2007.

At its peak, the sector employed in excess of 45,000 people nationwide and it is estimated that around 30 per cent have lost their jobs as a result of the downturn.

Despite falling demand, most major developers insist their projects remain on track and claim to have secured funding.

The government says that most major construction projects in Cambodia are progressing, but slowly.


As with most of the world, over the last 3 years Cambodia experienced a rapid rise in property prices. Primarily in the Capital city of Phnom Penh, but also in major tourist destinations such as Siem Reap and the southern coast, property prices rose as much as 10-fold in some areas. An influx of Korean investment in residential developments seemed to trigger a speculative property market frenzy with at one point property prices rising on a monthly basis. With loans being offered by local banks at around 10 per cent and property value increases being many times that, a sudden increase in property transactions ensued. At its peak prices for prime land in Phnom Penh reached $5,000 a square metre. Siem Reap saw increases in values peaking around $1,000 a square metre. Beach front land in Sihanoukville experienced similar rises.

Whereas a lot of the purchasing was from the local market, a not insubstantial portion was foreign investment. This in turn required mechanisms being put in place to hold title to land in a country where there is a constitutional prohibition of foreign ownership. Local partners are required to hold 51 per cent of the shares of companies established to hold title (Land Holding Companies). Various ‘protection’ documents are then executed to protect the equity interest of the foreign investor and limit the liability/obligation of the local shareholders the appropriate extent. This way of acquiring land is the most commonly utilised method by foreign investors currently in Cambodia.

However interesting legal developments have occurred in sync with the increase in property values and transactions: developments which make investment more attractive to a foreign investor. One is the advent of the long term lease registration system. Previously there was no effective mechanism to register leasehold on land titles in Cambodia. That has now been remedied with the introduction of the ‘lease certificate’. Long term leases of up to 99 years can now be registered at the national cadastre and duly noted on the Title Deed (for an investor it is pleasing to note that leases can be 100 per cent held by foreigners). In addition, the Cadastre issues a Certificate separate to the title deed which notes the lessee’s interests in the property. This Certificate can be traded and used as security for loans.

The other development of note is the pending ‘co-ownership’ regulation. This will allow for separate titles to be issued over apartments and condominiums with the land being jointly ‘owned’ by all the apartment owners. It is expected that the extension of this will be a law recognising the rights of foreigners to directly own such apartments.

The leasehold system together with the pending co-ownership law (and expected foreign ownership law) all combined dramatically revamp the legal framework around property acquisition in Cambodia in a way that should make foreign investors see Cambodia as a more attractive proposition.

However, it needs to be noted that currently the majority of land in Cambodia remains unregistered (i.e. registered only with the local authorities) and as such Due Diligence is a major factor – and expense – in property transactions. It is crucial that all the correct checks are made with the appropriate government authorities before purchasing property. Checks need to be made not only with regard to any existing third party claims, and the veracity of the seller’s claims on title. Checks also need to be made as to whether the property would receive national level registration once purchased. Some lands (such as those deemed state public, or bordering national parks, rivers, etc.) may not be eligible for national title. In this sense it is a Caveat Emptor situation as the seller is merely passing on what they have (local level rights) and not warranting national title. Local level registration only may impede a development project and as such it is important to clarify the situation before proceeding with a property transaction. Most large scale investments are processed through the Council for the Development of Cambodia (CDC) and assessment of the land (by the CDC) forms an important part of any investment application.

In the past three years foreign investments in property have been in the form of establishing land holding companies and acquiring title (most property developments in Phnom Penh and Siem Reap proceed on this basis), while others have been in the form of Concessions. Concessions are in essence (up to) 99-year conditional leases with the government. As with leases these Concessions are also able to be registered at the national cadastre and certificates duly issued; again, as with leases, Concessions can be 100 per cent foreign held. Master-plans are submitted and approved and the land is subsequently developed in accordance with the Plan. The islands off the coast of Sihanoukville and most large scale agriculture plantations have been obtained this way. Again, the CDC plays a significant role in such investment projects.

The steady strengthening of the legal framework around property, and the gradually increasing awareness of the opportunities for property development (residential, tourism, agriculture, mining etc) in Cambodia, have led to an increase in investment into the country. The recent global economic downturn has seemingly slowed the process for the moment, but the government’s continuing reform efforts will no doubt ensure that the future will see an ongoing increase in property development both within the major population centres as well as throughout the rural areas. This is particularly so with the introduction of strong leasehold and concession registration mechanisms, 100 per cent foreign rights to leasehold and concessions, titling of condominiums and apartments, and the expected right of foreign ownership of condominiums and apartments.

***Please note that the comments contained on this page are for information purposes only and do not constitute legal advice.