What Can Phnom Penh’s Property Sector Learn From Bangkok’s Condominium Bubble?

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Phnom Penh: Phnom Penh’s condominium sector mirrors Bangkok’s overheated industry in many ways.

Both cities experienced an oversupply of condo units in the past two years that have depressed prices in Bangkok and is expected to do the same in Phnom Penh in the next few years. Last year, 65,000 units were added to Bangkok’s supply, an 11 percent year-on-year increase. In comparison, Phnom Penh’s supply of move-in ready units will increase by 120 percent this year–totaling at 30,112 units, ten times the amount registered in 2016.

The Bangkok market has already experienced an average price decrease by six percent year-on-year, according to Knight Frank Thailand. In Cambodia, a decrease in prices has yet to take effect, but analysts believe it to be highly likely.

The Cambodian market has yet to change compared to the same period last year, according to James Hodge, associate director of CBRE Cambodia.

“There hasn’t been a noticeable decline in activity since this time last year as the market position remains much as it was at that point,” said Hodge.

Much of the expected issues hinge on the expected downturn in demand from Chinese investors and buyers in both capital cities. The condominium sectors rely on foreign buyers to buoy the industry but the trade war between US and China and global recession concerns threaten investment inflows into Thailand and Cambodia.

The Bank of Thailand warned that foreign demand for condos in Thailand would cause an excess condo supply risk because of global economic concerns.

“Even though [foreigners] always purchase condominiums with cash, we’re wary that they will give up down payments amid the economic slowdown,” said Bank of Thailand deputy governor Mathee Supapongse to the Bangkok Post. “The supply surplus will increase and create risk.”

Similarly, the National Bank of Cambodia warned that the real estate and financial sector could be put in peril if foreign investments into the kingdom dried up due to global economic volatility.

Foreign condo investors in Cambodia also make transactions in cash and developers face identical risks that developers do in Bangkok.

“To purchase high-end properties, foreign customers borrow from their own overseas banks because they enjoy better interest rates at home than here,” said Grace Rachny Fong, CEO of Century21 Cambodia.

“There’s oversupply in mid-range and high-end condos in Phnom Penh. The amenities do not fit the price range,” added Fong. “So these condos are not selling because the developers are pricing it too high. Customers are not seeing the value.”

But most analysts are in agreement that any talk of a “bubble bursting” is premature for both cities. For both cities, massive planned infrastructure projects are expected to inject funds into the economy and renew investment flow into the property sector.

“Ask anyone who’s been in property how many times they’ve heard the bubble will burst?,” Knight Frank Thailand Residential director Frank Khan said to Bloomberg. “I’ve heard this more than 10 times, but in my last 15 years, it’s never burst.”

Analysts in Phnom Penh mirror their counterparts’ sentiments for the Cambodian property sector.

“Boutique, high-end developments typically see a mix of wealthy Cambodian and foreign investors, depending on their targeting, quality and the marketing focus used by the developer,” said Hodge.

“Buying units in bulk is quite common, often this will happen in larger projects where a developer should have more scope to adjust pricing in order to attract a multiple-unit buyer, but it can also occur in smaller, boutique developments if the buyer’s objectives are aligned with the investment offering of the development.”

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