Buyers push for prakas

Photo by: Heng chivoan
Work continues on the Camko City satellite city last month. Buyers’advocates say the implementation of a housing development prakas delayed since late September will give buyers confidence to invest in housing projects like this one before completion.

The Phnom Penh Post

Written by MAY KUNMAKARA AND NGUON SOVAN
Wednesday, 11 February 2009

Supporters say a long-delayed financial edict will boost confidence among buyers and help developers raise money to finish projects

Property agents and buyers are striking back at opponents of a controversial prakas, or edict, that would tighten financing rules for new buildings and require companies to set aside funds to protect consumers.

"Normally, customers are required to pay 20 percent or 30 percent to real estate development companies in advance in order to get ownership in developments even when only the foundation has been piled," said Sieng Sambath, a Phnom Penh-based realty broker. "When the prakas comes into effect, customers will be 100 percent sure that their investment in real estate is safe."

He said the prakas will build confidence among prospective buyers of residential units, which would have a positive spillover for real estate developers. "I hope the regulation will strengthen the capacity of those developers whose developments are relying on deposits from buyers," he said.

A Phnom Penh land speculator, Kong Vy, said she is worried that some building companies are not financially sound and are unlikely to complete, or even start, developments on time.

"Some of my friends have paid deposits to developers," she said. "Now due to the crisis, developers are failing to complete projects on time, and they cannot get their money back.

"If the prakas were in effect, customers in a similar position would be more confident to buy, as developers that need their capital will not be able to cheat them."

Chan Sophal, president of the Cambodia Economic Association, agreed that the prakas will prevent customers from being cheated when they buy property.

"In the past, some customers have lost money from developers that have had no capital and have just relied on their deposits for development, such as in the case of Chinese-owned Long Chhin (Cambodia) Investment Ltd," he said. "The prakas is a good filter to identify the good developers."

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When the prakas comes into effect, customers will be 100pc sure that their investment in real estate is safe.

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In 2007, officials from Long Chhin (Cambodia) fled the country with millions of dollars in buyers' deposits after the government demolished a luxury housing complex it had built on a lake the company illegally filled in. The Ministry of Economy and Finance began drafting the housing development prakas following the scandal.

On hold

The prakas, which was circulated by the Finance Ministry last July, was slated to take effect on September 30, but was delayed at the last minute following an outcry from a property sector worried the poorly thought-out regulation could lead to a mass exodus of foreign developers.

Mao Pov, deputy chief of the ministry's Real Estate Division, told Prime Location at the time the rules would be reintroduced in January following further consultation with the sector.

In late January, Ngy Tayi, an undersecretary of state at the Ministry of Finance, said it will come into effect after the conclusion of an upcoming interministerial working group if the private sector could be persuaded to accept it. He acknowledged that could take "three months, four months or five months until we achieve it".

Finance Minister Keat Chhon told Prime Location last Friday at the official launch of the National Valuers Association of Cambodia that the government will stay firm on the edict, but refused to say when it will finally take effect.

"We will discuss deeper with developers about this prakas to get more understanding from them," Keat Chhon said.

Troubled clauses

The edict requires developers to deposit two percent of their project budget in the central bank. The funds are intended to reimburse buyers if a project goes bust. Developers are also required to obtain licences from the inter-ministerial working group and pay fees based on the type and size of the development.

The most controversial requirement is that developers create a locked "housing account" at a commercial bank for buyers' down payments. The developer would require ministry permission to access the funds, which Korean developers have said would be unacceptable to investors back home.