Property buyers turning their attention to affordable housing

• 4 March 2020
• Local News
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The demand for affordable housing continues to increase as the number of middle-class citizens continues to grow. Thus, developing affordable housing as well as high-quality commercial offices will likely be the major focus for the year 2020, according to local real estate experts.

The real estate sector, which is the core of Cambodia’s economic growth, is expected to grow over the next five years, according to Mr. Chrek Soknim, President of Cambodian Valuers and Estate Agents Association (CVEA).

In ‘Real Estate Market Outlook 2019 Cambodia’, CBRE reported that the Cambodian real estate market remains healthy despite some risks. The report attributed the growth to the fact that the Cambodian real estate market appears to be more mature and more resilient. According to the report, developing affordable housing and developing a high-quality commercial office market will likely be a significant focus for the year 2020.

Condominium supply continues to grow rapidly, especially in the high-end and mid-range sectors. By the end of 2019, Phnom Penh had a total condominium supply of 40,000 units (adding 16,939 units to existing condominiums), equivalent to 120% of total annual supply growth.

By the end of 2020, Chamkarmon district will continue to be the largest source of condominium supply with approximately 12,000 units, followed by 7 Makara district and Sen Sok district, representing 14% of total supply in 2020. A new 5,140-unit new condominium project has been announced that will be launched during the first quarter of this year. The start of the new project focuses on 44% of Chamkar Morn and Chroy Changvar areas, with 40% of all newly launched condominiums.

The report highlights two possible effects of rising supply, the first one being a fall in prices due to a downward adjustment of the average sale prices and rental rates across the sector and increased condominium conversions to be serviced apartments with the aim of reducing over-saturation throughout the market.

The office market sector in Phnom Penh has grown significantly in recent years. The main factor driving the development of this new supply is due to office tenants looking to expand and establish themselves in multi-tenant commercial offices as well as new market entrants.

Overall, the supply of commercial office space is expected to reach 394,605 square metres by the end of 2019. For 2020, it is projected that overall market demand is positive, and supply surplus will be absorbed by rising rates of commercial office rents.

The supply of apartments in Phnom Penh has increased steadily over the last decade. By 2019, grade A serviced apartments and grade B serviced apartments in Phnom Penh are projected to reach a total of 2,497 units, including 1,335 units for grade A and grade B serviced apartments, with 908 units. For 2020, the accumulated stock of Grade A and B serviced apartments are expected to grow slightly, reaching 2,763 units by the end of this year.

Despite the growth of the real estate sector, Chrek Soknim, President of Cambodian Valuers and Estate Agents Association, said in an interview with Radio France International recently that housing supply was still scarce because of rising demand caused by economic growth. “Demand for housing will continue to grow for the next five years, with an annual increase of at least 30,000 to 50,000 homes”, said Soknim.

As for a reason for the increase in housing, Chrek Soknim has a consistent view with the CBRE’s recent forecast report that it is due to rapid rises in land prices throughout Phnom Penh in recent years leading to the land being unaffordable for young Cambodians, pushing young families and rising middle-class buyers towards the condominium sector.

In terms of real estate investment decisions for 2020, Mr. Chrek Soknim recommended that “people should buy as a house, a house can be a flat or a villa within their own affordability; and for young buyers, they tend to opt for the condominium.”

It should be reported, however, that because of the increasing trend of domestic buyers focusing on condominiums, the sale price could be as low as US$1,400 per square metre, to less than US$50,000 per square foot.

Both experts and the CBRE’s Real Estate Market Outlook Update report see the increase of affordable housing as the middle class grows, thus making them more likely to decide on a home, which is more affordable than other property options.

Therefore, developers for apartments or the Borey sector should look at developing affordable housing in response to market demand and affordability. For condominiums, prices should range from US$40,000 to US$70,000 per unit, while condominium developments should be sold for between US$50,000 and US$60,000 per unit. For high-rise townhouses or apartments, prices ranging from US$100,000 would be less competitive in the market.

With the aim to help low to middle-income citizens live in decent housing, as well as to boost the economy, the government has recently implemented a new stamp duty tax exemption scheme for property worth less than US$70,000. The exemption will be valid for a year, from February 2020 to January 2021. (Read More)

In addition to the tax exemption, the government also urged all local property developers to lower their housing prices as well as the interest rates on home purchases. (Read More)

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