As the national elections approach in mid-2018, the real estate industry expects a significant slowdown will soon begin.
However, the brunt of this downturn appears likely to fall on the foreign investment market – most specifically the high-end condo market.
Bretton Sciaroni, the senior partner at law firm Sciaroni & Associates, recalls “the 2008 election as the most noteworthy.”
“By the time the election was over and a new government formed, the international financial crisis had reached Cambodia and the real estate and construction sector essentially crashed, and in my opinion took years to recover,” said Mr. Sciaroni.
“Gold Tower 42 remains as a reminder of this period, and what happens when over-leveraged foreign investors meet periods of turbulence in Cambodia.
“However,” added Mr. Sciaroni, “the recent boom in property development projects indicates a robust recovery is underway.”
The market has since not suffered as drastically from elections as it did in 2008.
“In 2013, property sales stalled for a three-month period preceding the election and picked up within just a couple of months of the CPP forming government,” recounted David Murphy, the Managing Director at Independent Property Services (IPS) Cambodia.
“The political climate creates more uncertainty in the market which reduces investor confidence during that time. We saw this being reflected by lower sales numbers during the previous election campaign,” said Desmond Yap, the General Manager of Yong Yap Properties.
But, added Mr. Yap: “Those who understand the market well still can capitalize on the situation.”
Saraboth Lee, the Managing Director at Maxem Property, suggested that “property buyers and sellers generally take stock of their financial situation about six months before the start of elections and pause their transactions until they feel a sense of stability again.”
The 2018 elections, however, present a “perfect storm” in the condo market as a significant oversupply of units are scheduled to come online in line with the election period.
“What’s different from the last election cycle in 2013 is that the local market supply of condos will reach unseen levels in the next few years,” said Mr. Lee.
Mr. Murphy agreed: “Prices across the condo market will drop.”
“This is because it is predominantly foreign developers funding the condo projects and foreigners buying the end product. Investors will take a wait and see approach,” noted Joe Phelan, the Head of Personal Financial Services at Hong Leong Bank.
But inner city renters look set to benefit.
“Six months prior to the 2013 election – while sales enquires nearly dried up completely – the rental market remained buoyant throughout,” said Bobby Peoples, Country Manager at Home Connect (Cambodia) Ltd.
The combination of an oversupply of condos, in combination with the 2018 election transaction slowdown, will feed into a price drop in the prime rentals market, said Mr. Lee.
Mr. Murphy agreed, and noted that “the rental market broadly will remain strong as clients hold off on their purchasing decision until the election result is known.”
The domestic market, focused on land and landed properties, however, is likely to show a lesser downturn.
“I don’t see there being too many issues with landed properties in Cambodia,” said Joe Phelan, Head of Personal Financial Services at Hong Leong Bank.
“Although there was a slowdown in landed property transactions for a few months prior and post-election in 2013, property prices still managed to stay relatively stable,” said Mr. Phelan.
“Cambodians going about small to medium property purchases will likely continue throughout the election period.”
Mr. Sciaroni believes that “over the years, as Cambodians have gained greater confidence in the electoral process, the influence of the election period on domestic property transactions has been shorter and shorter.”
Home lending, an industry predominantly focused on the Khmer market, will weaken somewhat.
“As real estate activity decreases the home loan market by definition will contract for the short term,” predicted Mr. Peoples.
Yet Mr. Phelan noted this slowdown in lending was primarily in relation to the high end property market “for about three months before the 2013 election and about another two months after.
“In relation to standard properties inside Boreys and more affordable property purchases generally, however,” he added, “I didn’t see too much of a slowdown at all – with these types of home loan applications continuing to flow as normal.
“Overall, in terms of volume of loans, there was only about a 30 percent slowdown during this five month period, mainly because people were just waiting to see if anything major was going to happen – which it didn’t.”
“To maintain international investor confidence through election periods, the government can offset some of the anxiety in the market by improving infrastructure and easing some of the strains of rapid growth, things like reducing traffic gridlock and providing a more stable energy supply,” said Mr. Lee.
James Whitehead, director of content @ realestate.com.kh