AsiaLIFE

The Phnom Penh of yesteryear ¬with its tatty terraces of tumbledown shacks and dull Soviet monoliths is dying. Like a supersized serpent slowly shedding its skin, the city once referred to as the “Paris of the East” is being resurrected one brick at a time. Oknha Em Buntha, senior executive director of the Khmer-American Development Company, has seen Phnom Penh’s rebirth at first hand. He tells AsiaLIFE that Phnom Penh has come on in leaps and bounds since cautious Khmers reoccupied a devastated, deserted necropolis almost three decades ago.

Today’s Phnom Penh is undeniably poles apart from the city that lacked even a single traffic light a decade ago. “Everything has changed,” he says. “Before 1992, the price of houses in the city was not high like now.” Oknha Em attributes this to an ever-increasing political stability that has attracted foreign investors to Cambodia. A villa in the much sought after Boeung Keng Kang district 1 cost between US$50,000 and US$100,000 in 1992, Oknha Em recalls. The same property might now fetch in excess of US$1 million. Sung Bonna, head of Bonna Realty, claims real estate prices are stable for the moment, but will soon resume their upwards march on the tails of the CPP’s landslide win in July’s national election.

Douglas Clayton, managing partner of Leopard Capital, a private equity fund manager specialising in Asia’s frontier markets, is confident. “Cambodia has had a land speculation boom but not yet a construction boom,” he tells AsiaLIFE. “After four decades of under-investment there is still a shortage of high-end space in every segment of the property market. Where these shortages can be filled in off-prime locations the returns may still be attractive.”

His optimism is shared by CB Richard Ellis. The leading global real estate service provider recently decided to open an office in Phnom Penh after many years of involvement in the Cambodian property business. “CBRE is focusing mainly on property management, market research for investors looking at Cambodia as an alternative investment opportunity, and continuing valuation,” says Jessica Minogue, the company’s Research and Valuation Manager for Vietnam. “The aim is to provide an international standard of real estate service.”

Like Sung Bonna, Jessica reports that prices have remained quite stable in 2008, but she predicts the property market will pick up with the safe passing of the election. “Land prices rose significantly in 2007,” she adds. “We are now seeing land prices in prime locations at US$4,000 to US$5,000 per square metre.”  Despite plans for mixed use satellite cities, Jessica says there is still a shortage of adequate grade ‘A’ office space. “We predict that the first new high-rise office buildings will achieve premium rents due to the existing grade ‘C’ quality buildings and companies forced to conduct business out of villas,” she says. Nor is it just quality office space that is lacking. “There is also a lack of quality retail space and high-end hotels in the capital.”

Sound of the Suburbs

Given such drawbacks, and Phnom Penh’s often rudimentary infrastructure, current prices may seem absurd. But Phnom Penh lies on a low-lying floodplain bounded by rivers so space is at a premium, with demand driving prices ever-higher. As land near Phnom Penh’s boulevards breaks the US$5,000 per square metre mark, it is difficult to find affordable property in central Phnom Penh.

The solution could be simple - expand the city. Jeff Massnick, chair of Khmer-American Development, says the suburban exodus has already begun. “From a residential standpoint, it’s growing exponentially out in all directions,” he says. “We think it’s important they expand into the outlying areas because density is an issue.” His partner, Oknha Em predicts more dedicated office buildings, medium-rise apartment buildings and high-profile retail developments in areas currently on the city’s outskirts.

He says the web of national highways that radiates from central Phnom Penh will become the arteries of suburban communities. As the target areas are currently used for agriculture, developers and the government have a blank page. Jeff reveals that new developments are to be officially zoned, with industrial development along National Highway 4 that runs past Pochentong Airport. Substantial luxury residential and commercial developments are already underway at Chroy Changva, a peninsula linked to the city by the Japanese Friendship Bridge. “Entry level” properties from Cambodia’s nascent middle class are another possibility being explored by Khmer-American Development.

A High-rise Future

Many Asian developers see a different picture - a city in the sky. In a town where, within living memory, the fourteenth century Wat Phnom temple was the tallest building, several high-rise projects look set to permanently change the Phnom Penh skyline. Mu Hion Woo, GS Engineering and Construction’s business development chief in Cambodia, says Koreans are the natural choice for urban regeneration. “Which country has the most experience in developing satellite cities?” he asks. “

The answer is Korea. There are probably four or five such cities near Seoul. Korea is fully experienced in development and construction in this field. Our decision to build a 52-storey building here is because this is an anchor business for us. We have plans to expand into other fields such as satellite cities or infrastructure.”

He even claims that Cambodia could emulate South Korea’s meteoric rise from agrarian backwater to industrialised powerhouse.  “Cambodia has similar seaside harbour areas and natural resources but a small population,” he says. “I think they have a good potential in resources but due to some past destabilisation in their politics they couldn’t develop. Now that that has stabilised, it is the right time for Cambodia to step up and take its place in the world.” Many naysayers protest that Cambodia lacks the robust economy needed for showcase developments such as GS Engineering’s gargantuan IFC Tower.

Leopard’s Douglas Clayton notes that Phnom Penh’s prime land is already more expensive than Jakarta and is rapidly catching up to Bangkok. “At this point the risk to reward equation does not look favourable to us, however bargains can still be found in secondary areas.” Still, Phnom Penh property is “relatively insulated from the global slowdown as the economy is underleveraged and there is no excess supply of building space,” he adds. “The bigger risk is over-exuberance toward future development given the modest level of end-user demand, particularly at the high-end. Fortunately, while many construction plans have been discussed, few projects have actually been started.”

A second risk is that the global slowdown might “cripple” overseas speculators who have pushed up land prices. “But a correction in land prices would be healthy longer term,” he says. GS Engineering’s Mu Hion Woo is adamant high-rise and high-profile is the way forward. “I am often asked if Cambodia is ready for a 52-storey office building and I always answer yes,” says Mu Hion Woo. “But for us it is business on one hand, and a contribution to the development of Cambodia on the other. If you want to see the potential of Cambodia, you can see it in this project.”

Mu Hion Woo claims his project will contribute to the country and the economy. “We are building the highest class office and residential facilities - really good facilities for foreigners who would like to invest in Cambodia, so I think that that this project will attract both foreigners and more Korean companies.” Sung Bonna disagrees. He feels that such developments may be “a little bit early.” He warns that company predictions are not guarantees, and potential buyers “should study carefully before deciding to buy houses and land.” Confronted with a completely new concept, Cambodians certainly seem a little jittery.

The rumoured departure of one of the South Korean shareholders of Gold Tower 42 earlier this year sparked a spate of press rumours in April. The Chakraval Daily reported that he had “carried money from the sales of apartment buildings and escaped to South Korea.” Despite the sudden disappearance of advertisement billboards, Teng Rithy, Gold Tower 42’s senior manager, said that hearsay was to be expected - given the project’s unprecedented scale. “This is only a rumour,” he said, dismissing reports that Phnom Penh’s alluvial soil is not able to support such a towering structure.“ It is no problem, don’t be worried,” Teng Rithy assured, noting that over 80 percent of the apartments in Gold Tower 42 have already been sold.

Like Sung Bonna, Jeff Massnick seems unmoved by the Korean projects. He says his firm will focus on low-rise buildings of up to three storeys and medium-rise constructions of 12 to 14 storeys. Khmer-American Development Company has “no interest in high-rise construction,” he adds. “Once you get above about 14 storeys, it is an entirely different construction technique that is not readily available in Cambodia,” he says. “With these high-rises - particularly in the centre of the city - I’m concerned about the traffic impact. I’m hoping that future mid-rise and high-rise developments will be outside the centre of the city.”

Uneven Development

But an increased number of traffic jams is not the only consequence of rapid development. Naly Pilorge, director of human rights organisation Licadho, says uneven development is driving the capital’s poor further towards destitution. “Everyone accepts the need for development in Phnom Penh and elsewhere, but this development should be for the benefit of the majority of the people, not simply for the financial benefit of a few powerful and influential individuals,” she told AsiaLIFE. “Urban development in Phnom Penh has all too often impacted on the land rights of communities, particularly poor ones, who have been violently forced off their land without adequate compensation. Thousands of Cambodians have been evicted from their land in Phnom Penh, often with grossly excessive force by the authorities, some resulting in deaths of villagers, and thousands more are living under threat of eviction.”

Forced evictions are a major concern - even international groups such as Amnesty International have lambasted authorities and developers for ignoring residents’ rights. “The case of Sambok Chap village is perhaps the clearest example of how so-called ‘development’ can trample over poor citizens,” Pilorge explains. “In 2006, more than 1,000 families were evicted from Sambok Chap and dumped in squalid conditions at Andong on the outskirts of Phnom Penh. Two years later, conditions at Andong remain appalling - with grossly inadequate water, sanitation and health services - and the authorities’ promises of land titles for the people who were relocated there have not been fulfilled. Meanwhile, the land in Sambok Chap that the people were evicted from remains bare and unused.”

The rights of residents must be prioritised, according to Naly, something she claims rarely happens at the moment. “The land rights of people in urban communities need to be respected and the input from communities on development needs to be heard and considered,” she says. “The authorities and the courts need to follow the land law properly and ensure that villagers with legitimate land rights or land ownership cannot be bullied and threatened legally or physically into giving up their land.”

Economic Foundations

Such concerns may fade when the looming global downturn arrives in Cambodia. Jeff is stoic. “Economies are always in an ebb and flow,” he says. “Nothing stays consistent. Sure there will be downturns, and there will be upturns as well. It’s impossible to accurately predict the future.” He claims Cambodia’s cash economy may shield the Kingdom from a real estate crash like in neighbouring Vietnam, where real estate has lost around 40 percent of its value this year. “A lot of the economies are in trouble due to poorly considered loans,” he claims. “Neighbouring countries have grown much faster and inflation has been much greater.”

Jeff thinks that Cambodia’s stability, especially in the banking sector bodes well. “The combination of the stability of government and the accountability of banks will have a good deal to do with Cambodia’s future success,” he confidently predicts. CBRE’s Jessica Minogue agrees that Cambodia still has a lot of room left to grow. “Prices have risen considerably in the past eight years in Cambodia since peace was attained, however it is still considered relatively cheap compared to neighbouring countries such as Vietnam and Thailand,” she notes.

She still believes there is a gap in the market that could be filled in the next few years. Mu Hion Woo is also unfazed by the global downturn. “There are so many expensive parts of the world compared to Cambodia,” he says. “The Camko City project and Gold 42 Towers have started to sell places - especially Gold Tower 42 - at high prices. Our product is really high quality and there is a limited supply of this kind of accommodation available in Cambodia. “He says the construction of the Tower will take about four years. “I think there is a lot of potential.”

Caveats and Concerns

Jessia’s rosy appraisal is tempered by caveats over a possible glut. “Developers need to be careful not to flood the market with an excess of properties before the country is ready,” she warns. “They must do their research on existing supply and future demand for the types of developments they are undertaking.” Leopard Capital’s Douglas Clayton has concerns over city planning. “As the city’s population grows, we would like to see more thought given to mass transit, to prevent future gridlock in the city centre, as has happened everywhere else in Asia,” he says. “These systems take many years of advance planning, which doesn’t appear to have started yet in Phnom Penh.”

Jeff shares similar concerns. “Zoning is tricky,” he says. “I certainly wouldn’t want to build an upmarket housing project, then suddenly a scrap metal yard opens up right next to me. So from that point of view, the lack of zoning concerns me and I hope that they make progress working on this.” For Naly Pilorge, reform cannot come quickly enough. “The government needs to radically change how it views the development of urban areas and ensure that the needs and input of poor communities are put first, above all else,” she affirms.