Private property sector slowly opens up to foreigners living in Cambodia

Phnom Penh (Cambodia), 10/01/2009. A Cambodian Buddhist monk standing for alms not far from a future branch of Canadia Bank, a skyscraper like many others in Phnom Penh
©Vandy Rattana

Ka-set

By Duong Sokha
06-03-2009

Building sites suddenly brought to a standstill or extremely slowed down and stricken by the global financial tornado-crisis, desperate plummeting of land prices … The incredible property frenzy that hit the little Khmer Kingdom and rampant prices now belong to the past. In order to try and reflate the sector, the Cambodian government got out of its drawers an idea they already mentioned earlier: opening the private property market to foreign residents. A Draft law, currently under preparation, will indeed allow them to buy a flat or a condominium in their own name. Real estate agencies had been hoping for such a measure to come up.

Following the example of neighbours
Since the end of 2008, the Cambodian Ministry of Land Management, Urban Planning and Construction has been working on a Draft law which is the result of the government’s political will to make things easy for foreigners, and more particularly for investors who have settled in Cambodia, says Sek Setha, under-secretary of state at the Ministry of Land Management and in charge of the project. “The government started working on the Draft law a long time ago and were inspired by the neighbouring countries and those in the region who have already authorised foreigners to become owners”, he says, adding that the measure will above all benefit non-nationals who bring their contribution to Cambodia, whether in terms of economic growth, the protection of the country’s environment and natural resources or social development.

The Draft law is a subject to the expectations of the main real estate agencies in the country. The director of the Bonna Realty Group , one of the leaders in the property sector, claims he has been urging the government for the swift adoption of the law at the National Assembly for two years. “In these times of economic crisis, more than ever, the government must accelerate the establishment of that legislation since the point is to attract foreign investors and diplomats, who will be the first to be potentially interested in that. It will be easier to persuade the first ones to invest, without, from now on, having to rent, especially if they are planning to live in Cambodia for a while. And this will help boost the market again!”, Sung Bonna says.

Such a scenario is equally part of the hopes of Thorng Vichheka, marketing representative for the South-Korean De Castle Royal development and construction company, currently working on a condominium project in the heart of the Cambodian capital. “Foreign investors have been waiting for the Draft law for a long time and it should have been adopted before the economic crisis broke out”, he reckons.

A flat: yes. Land: no.
The principle stipulated by the Land law, promulgated on August 30th 2001 and according to which only natural or legal persons bearing the Khmer nationality can have access to ownership of land in Cambodia, will remain valid. The under-secretary of state Sek Setha insists on the fact that foreigners will be able to obtain title deeds for flats and condominiums, but not for plots of land. They will therefore not be allowed access to ground-floor accommodation. This security measure was taken to make sure that the Cambodian territory does not end up in the hands of non-nationals.

This restriction, according to Sek Setha, appears in the legislation drafted by other neighbouring countries like Singapore, where foreigners are only entitled to buy flats located on the sixth floor and above. “We are still undecided as to the floor we will choose to allow them to buy accommodation. We have to define it according to the current state of property in Cambodia”, the jurist explains. He adds that for its part, Thailand allows foreigners to buy land, but under certain conditions. As for the examination of the Draft law by MPs, it is still difficult to establish a schedule, the under-secretary of state indicates.

Foreigners entitled to inheritance tax
Future foreign owners “will be entitled to sell, bequeath or pawn their property assets; the only requirement for new owners will be to respect internal rules aiming at ensuring the good management and maintenance of the building”, Sek Setha says. The internal rules are currently being elaborated by his Ministry, and will determine the rights, duties and responsibilities of foreign owners.

Risky leases for investors
Up until now, foreigners who wished to buy land or accommodation of any sort in Cambodia teamed up with a Cambodian national, who acted as a frontman for them. Most of the time, that person would then have the would-be owner sign a lease which cannot exceed, according to the law, a duration of 99 years, as part of a land concession. The law does not stipulate any limit of time for flat or house renting. According to estate agent Sung Bonna, this is a highly risky practice since foreigners are not protected from the loss of their assets in case of death, divorce, fraud or if their frontman goes bankrupt. “With the new law, investors will feel more secure, especially those with small budgets.”

Among foreigners who invested in the De Castle condominiums – where a square metre costs between USD1,300 and USD1,800 – 10% did so on behalf of their company via a partnership with a Cambodian national, and plan to live there, when 60% plan to establish their offices. The motives of the remaining 30% are unknown, Thorn Vichheka details.

For the time being, it is still impossible to know the practical details of foreign access to private property, which are still said to be the subject of talks.