An increase in foreign investment, partly motivated by property laws becoming more friendly to foreigners, was a major factor in the construction of major projects such as Gold Tower 42). When it is completed investors will rely heavily on demand from foreign parties. Photo by: PHA LINA
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Peter Mewes is an English solicitor and legal advisor with HBS Law Firm and Consultants in Phnom Penh. For information about legal services for corporate, commercial and private clients he can be contacted at peter@hbs.com.kh .
Thursday, 28 October 2010 15:00 Peter Mewes
via CAAI
AS foreign property ownership laws are set to change it is essential for potential investors in Cambodia’s property market to understand the legal requirements and the advantages and pitfalls you may encounter while purchasing real estate.
Although it is difficult to predict if future legislative changes will improve the current financial or tax system, the government seems likely to continue to enact “foreigner-friendly” legislation to encourage increased confidence and economic growth.
The climate for foreign investors, ranging from major developers and real estate agents to individuals, is becoming friendlier, but it is still highly important to be aware of the way Cambodian property law works before you invest.
Although the land laws passed in 2001 and investment laws passed in 2003 prevent foreigners from owning land in the Kingdom, there are many options available to foreigners to invest in property in Cambodia. The rights listed below are of particular significance.
Foreigners can use a Cambodian land-holding company to purchase freehold property, with the Cambodian partner required to own at least 51% of the shares.
Sign long-term leases (more than 15 years).
Buy a freehold unit above ground level in a shared building, with some limits placed on the percentage of space that can be foreign owned.
Although the problem exists mostly in rural areas, anyone buying property should make sure that the person on the selling side can prove legal ownership of the property. The land title registration system is still incomplete in its scope and the Cambodian Ministry of Land Management, Urban Planning and Construction sometimes issues sporadic registrations in some circumstances despite improvements in policy.
Make sure the current owner can verify their possession of the original title for the property, if they are able to do that (and their title documents are authentic) then you are likely to avoid problems like fraud or overlapping titles down the road.
Currently, there are no restrictions on the eligibility of foreigners for loans in Cambodia. In practice, an individual - foreign or Cambodian - may be granted a long-term loan of up to 10 years or more at the bank’s discretion to buy freehold residential property. Generally, Cambodian banks provide loans of up to 60% of the market value of the property with an interest rate of 10% to 12% per year.
Also, using immovable property as security is recognised by Cambodian law and usually enforceable in Cambodian courts. Most banks in Cambodia now accept the land titles owned by the borrowers as security for both short-term and long-term loans.
In conclusion: potential property owners may well wish to take advantage of an improving climate for foreign investment, but they must realise that improved policy does not immediately lead to improved practice and it is still important to proceed with caution in a property market that is largely untested since crashing just two years ago. Feel free to follow the adage “buy low and sell high,” and just make sure you get legal advice to ensure that your assets will still be in order when the market moves back up.
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