Will the construction suspension of some Boreys pose a risk to the Cambodian real estate market?

Several Borey project developers in Phnom Penh, largely low-to-middle-income-customers-oriented ones, have announced the permanent construction suspension due to financial and contract issues. As the result, buyers have gathered on the public street protesting for justice.

Some have expressed concerns that if the issue prolongs or spreads to other majors, it will put the entire local market. However, local experts believed that the issue is still small-scale and will not affect the market in general. It is rather a process that the market filtering out unstable developers and keeps trustworthy ones.

Mr. "Sorn Seap" president of Cambodian Valuers and Estate Agents Association (CVEA)  said that Recent construction suspension of residential projects reflects loose market regulations, the issue was caused by the spillover negative effects of the COVID-19 crisis as well as the current global economic crisis and the war.

“Borey market and real estate market in Cambodia has yet to recover with a low number of transactions happening. Some Boreys expect cash from the sale to pay for the land and build houses. As the sale is in bad condition, they have to postpone construction or quit the project in the worst case,” said Mr Seap.

“However, what happens at the moment is still very small-scale. The suspension of several Boreys will not affect the whole market. The issue is just a free-market nature that will eventually be resolved through negotiation or legal procedure, ” he added.

He added the issue is also outside the association’s jurisdiction to involve.

Similarly, Managing Director of PropNex Cambodia Mrs."Ann Sothida" sees the crisis as the elimination of unqualified developers who are also not financially stable from the market, while also teaching buyers to be more cautious before investing.

“Some developers enter the market without adequate skills, experience, and finances. Thus, to attract customers, they drop their prices low. Then, when there is no buyer due to economic issues, their cash flow is in trouble and could lead to construction suspension temporarily or permanently,” she said.

“However, the suspension of several boreys would not affect the whole market. Other developers are still being able to sell their projects well. Rather, this incident is a mechanism filtering unstable and underregulated developers out of the market while keeping only the good ones,” she added.

Nevertheless, she still encourages buyers to cautiously check the developer’s background, licenses, and background before making the investment.

Although the crisis has yet to affect the real estate sector as a whole, the victims are low- to middle-income people as the legal procedure or negotiation will take time.

Analyzed in depth, the issue arises from the loose regulations enforced on developers. Requirements to become a developer shall be stricter, in particular in terms of financial status. Strict regulation will help ensure that investors will have sufficient finances before being able to start selling projects.

The strict regulation shall be applied to all types of real estate businesses, especially the ones that target low-to-mid income customers such as Dey Lo (plotted land business) as they are very vulnerable to lose due to not trustworthy developers. 

In the meantime, the government does not stand still and has been actively working on new regulations while also improving law implementation.

Source: Construction and Property