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Construction suffers from low growth

Chhut Bunthoeun / Khmer Times Share:
A borey project in Chroy Changvar in Phnom Penh. KT/Pann Rachana

One of the Kingdom’s major economic pillars, the construction sector, is set to experience negative growth rate this year, which it has never seen since the global financial crisis between 2007 and 2009.

The sector has enjoyed an impressive growth curve in recent years. According to official figures from the Ministry of Land Management, Urban Planning and Cons- truction, investment ran to around $11 billion in 2019, an increase of nearly 90 per cent on 2018’s amount of $5.5 billion.

In the light of COVID-19, however, the sector is estimated to have suffered negative rate growth of 5.3 percent in 2020 and is expected to hit a growth rate of 3.3 per cent next year, according to an updated report by the Ministry of Economy and Finance.

“This dramatic decrease in the construction sector has resulted in anticipation of a decrease in foreign direction investments (FDIs), especially from China and the construction demand in tourism – commercial as well as local investors’ confidence – because of COVID-19,” the reported stated.

The sector is expected to recover at a low growth rate in 2021 that, according to the report, is largely because it may take time to restore investor confidence.

“It also due to the fact that the sector heavily depends on FDIs. The negative impact of COVID-19 has caused a global economic downturn and, as a result, it has posed a risk to the country’s construction sector,” it said.

It added that Cambodian government is attentively monitoring the construction and real estate sector development, setting out policy intervention in order to prepare for or avoid risk.

Huy Vanna, general secretary of the Housing development Association of Cambodia, said yesterday construction on the residential projects known as boreys remain on track.

He said the borey projects continue to be built because the project owners have contract deals with their buyers.

However, almost all condominium projects have halted work on construction because they are being paid for by foreign investors, especially Chinese nationals. “Their technical and engineering teams still cannot fly out and this is why most condo projects have paused.

“Borey projects are mostly focusing on the local market and there is still  demand for them, but in terms of transactions, the figure has decreased by 50 percent,” he added.

During the first four month periods of the year, 1,547 projects were approved, an increase of 322 projects over the same period last year.

The construction investment was valued at roughly $3 billion, up 12 percent, occupying 6.8 million square metres, according to the report.

Chiv Sivpheng, general manager of the Cambodia Construction Association, said the ability to construct the projects was significantly weakened because of issues with importing the raw construction materials needed, after the virus shut borders.

“Once the virus ends and these projects restart, the sector will come back  strongly,” he said.

According to a World Bank report, Cambodia’s total approved FDI value declined by 52.2 percent in the first two months of 2020, attributing the significant drop to the global COVID-19 pandemic effect on the appetite for international investment.

The majority of Cambodia’s approved FDI projects mainly flow to the local construction and real estate sector.

However, as the rapid spread of COVID-19 has devastated international economies this has resulted in major cutbacks by international investors, the report said.

Global foreign direct investment is projected to plunge 40 percent in 2020.

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