Korean developers critical of new construction rules

HENG CHIVOAN; Labourers at work on the site of CamKo City, a huge South Korean-backed development project on the outskirts of Phnom Penh.

The Phnom Penh Post

Written by Chun Sophal
Friday, 26 September 2008

Builders say regulations could stifle Kingdom's construction boom but others see rules bringing order to chaotic sector

AN association of Cambodia's leading foreign developers has lashed out at recently approved regulations requiring builders to place large cash deposits with the government and obtain a raft of additional licences before breaking ground on new projects.

"Cambodia would be seen as a ‘high risk' country if the new regulations on housing development take effect," said Shin Woo Kim, a legal adviser to the Korean Real Estate Development Association (KREDA), whose members are involved in some of the Kingdom's most ambitious construction projects.

The Finance Ministry in July issued the new rules, which require all developers to obtain licenses from an Inter-Ministerial Task Force, purchase construction site insurance and deposit at least two percent of the total project cost in a ministry account at the central bank.

The Finance Ministry said the regulations will tighten up a largely unregulated construction sector, and set this coming Tuesday as the deadline for all developers to apply for new licences. But Shin urged the government to delay the law until next year.

"Developers normally have to sign many contracts with partners and related parties. The regulations would make these negotiations more difficult," he said at a seminar earlier this week at the Finance Ministry.

" THE BEST PERIOD FOR ENFORCEMENT TO BEGIN IS IN THE FIRST QUARTER OF 2009. "

Govt to consider delay

Ngy Tayi, an undersecretary of state at the ministry, defended the rules, saying they would protect developers and customers. But he added that the government would consider the delay request. "We will evaluate the suggestion, but we can't delay as long as one year," he said.

Five hundred developers operate in Cambodia, but only 80 have obtained government permits, the ministry said, adding that only 20 companies have applied for the real estate valuation licenses.

Sung Bonna, president of the newly formed Cambodian National Valuation Association, agreed that rushing to enforce the regulations would stifle the construction boom.

"I think the best period for enforcement to begin is in the first quarter of 2009," he said.

Risk and confusion

Finance Minister Keat Chhon, however, told the seminar this week that the regulations would generate more tax revenue and service fees, and improve project management.

"The real estate market in Cambodia has become a confused and high-risk process. Both housing developers and their clients have become increasingly nervous," Keat Chhon said.

"We think the regulations will strengthen the development sector by boosting customer confidence and creating sustainable economic growth.

"They will also bring the housing development market into compliance with national and international standards," he added.

Licences cost between 1.5 million riels (US$375) and 12 million riels and remain valid for two to five years, depending on the size and scope of the project, according to the Finance Ministry.

One prominent local business leader who did not want to be named welcomed the new rules. "Some of the construction that is being done is a disaster waiting to happen," he said.

ADDITIONAL REPORTING BY HOR HAB AND GEORGE MCLEOD