Government of Cambodia Draft Law on Real Estate Business and Services

The royal government of Cambodia is preparing a draft "Law on Real Estate Business and Service" to more effectively regulate and monitor the development of the real estate sector. This is according to a press release released by the Real Estate Business and Pawnshop Regulator (RPR).

The Real Estate Business and Pawnshop Regulators held a public consultation meeting on the drafting of the Law on "Real Estate Business and Services" to gather opinions from the government and the private sector to further improve the content of the draft law.

Under the high presidency of H.E. Chou Vannak, Director General of the Real Estate Business and Pawnshop Regulator, the meeting was also attended by representatives of the private sector, such as the "E" Working Group on Banking and Finance Services, the Cambodian Valuers and Estate Agents Association, the Housing Development Association of Cambodia, and the Association of Banks in Cambodia.

The government's decision to draft the law is believed to be an effective response to the current difficulties facing the industry and the huge risks to the national economy and society.

In addition, the Real Estate Business and Pawn Regulators also signed a Memorandum of Understanding (MOU) with the CamEd Institute to work together to increase performance and capacity in Cambodia's industrial sector.

The Ministry of Economy and Finance issued a Prakas in December 2022, deciding to reduce the validity period of business licenses from three years to one year to evaluate and monitor the behavior and activities of developers more effectively.

With the influx of foreign investment in 2018 and 2019, many developers have launched high-end condominiums, most of which are sold to foreigners. Therefore, the developer also attracts local customers to buy landed properties by offering various installments.

However, after the outbreak of the COVID-19 epidemic, many developers also experienced a financial crisis.

The ASEAN+3 Macroeconomic Research Office (AMRO) cited a report from the real estate business and pawnshop regulators that stated that due to the inability of homebuyers to make timely payments and the fact that banks will tighten lending in the real estate sector in the first quarter of 2023, up to 63% of developers face cash flow problems.

AMRO also states that housing developers in Cambodia generally allow customers to buy a home on installments and become a "Shadow Bank," and developers who receive a bank loan can also repay their loans to customers at high interest rates as well.

According to AMRO, by 2022, home loans accounted for 14.9% of the Cambodian banking system, and real estate and construction loans accounted for 24.8%, while total banking loans accounted for 183% of GDP.

A 2022 survey by the CVEA revealed that 21.2% of customers bought their homes through installments with developers, and 39.8% paid based on the project's construction progress.

According to AMRO calculations, if installment payments and project progress payments provided by developers are financed by bank loans, the size of the "shadow bank" could reach 112% of GDP.

"Even if only 50% is financed by banks, the size of the 'shadow bank' could reach 60% of GDP."

AMRO said that at present, "Shadow Bank" is not controlled by the National Bank of Cambodia or the real estate business and pawnshop regulator, so the authorities cannot capture the lending data of "Shadow Bank" completely.

AMRO added that if the "shadow bank crisis" breaks out, in addition to causing financial difficulties and cash flow problems for developers, it will also cause most customers' homes to be foreclosed on for failing to repay loans on time, resulting in reduced consumption.