Investing in Phnom Penh

By Tan Kok Keong

/ REMS Advisors, The Edge Property |

June 12, 2015 9:00 AM SGT

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As a real estate professional, we often recoiled in horror at first instinct when we see apartment or condominiums that are mickey-mouse sized. In almost every city in Asia Pacific region that we have visited, apartments/condominium units are getting smaller as developers try to keep the total price quantum manageable for investors. This practice has some downside in certain countries. For instance, in Australia, if an apartment is below a minimum size, the banks might not even consider providing home purchaser financing. However, in some markets, “small” to outsiders might be what the locals want. In this article, we seek to share our thoughts on small apartments in the Phnom Penh residential property market.

New launches in Singapore has spiked

In recent year, there has been a rush of projects from Phnom Penh being made available for sale in Singapore, namely, The Bay, Axis Residences, The Skyline, Le Vie Residences and The Bridge. These projects offers units of varying sizes, but a large proportion of the total is small units.

Our surveys show a large proportion of small units

We have spent the past months investigating the market in depth. In April, we carried out a field survey of 11 of the larger residential projects that were launched for sale in Phnom Penh. The total number of units available for sale is shown in Graph 1. A large proportion of the housing units are the one bedroom apartments with about 57.3% of the available units being 1-bedroom unit. This is mainly due to the large number of smaller sized units at The Bay.

Graph 1: Proportion of units available in 11 of the most prominent projects in Phnom Penh

Source: REMS Advisors from field surveys of 11 prominent projects in Phnom Penh

Commentators and observers have lamented about the supposed “poor living” conditions that these “pigeon-hole” units will offer and might brush these off as speculative investments that will not find favour in the market. However, as we investigated the market further, we realised that based on available government statistics, this might not be the case.

80% of the population stays in units less than 79sqm

Based on the Cambodia Socio-Economic Survey released in 2014, the average space per household in Phnom Penh is 52.7 sqm and per person is 11.0 sqm according to official statistics. 80% of the population stays in apartments with less than 79 sqm. 30% of them stay in units between 20-39 sqm. 74% of the population stays in apartments that have 2 rooms or less. These are not sizes which they might find ideal but most likely due to affordability.

However, the point to note is that the typical apartment sizes occupied by locals are comparable to the unit sizes of the new apartments/condominiums that are being offered by developers currently.

Graph 2: Types of housing occupied by Cambodians in Phnom Penh

Source: Cambodia Socio-Economic Survey 2013

In short, while looking at Phnom Penh residential market, we should not apply our space standards when looking for investible assets. Even Singapore’s public housing flats started at 59 sqm (net) in the earlier days. My parents moved from sharing a room in an attap house in Changi that has 8 other families to a 3 bedroom HDB flat of 59sqm.

Anecdotal evidence of willingness to trade space for convenience

In addition, as mobility is limited with a poor public transport system and increasingly bad traffic jams, the locals we spoke to are increasingly more inclined to trade-off space for convenience by accepting units that are closer to the city but are smaller. The other value proposition to the end-users will be in the form of improved finishing, better design, and better facilities.

Consider the “rentability”

Another point to note is the “rentability” of the units you purchase. Purchasers may buy into large units in the hope of renting to the expatriates but do note that the number of expatriates are small and many are not the very well off expatriates that can pay you the desired rents. Catering to a local market via purchasing smaller units provides you with a wider catchment in Phnom Penh. Arguably over the medium term, smaller units should continue to fare well in Phnom Penh.

On the verge of transiting to a middle income country

In March 2015, the Asian Development Bank (ADB) President Takehiko Nakao said that Cambodia is on the verge of transforming from a low income to a middle income country. "Cambodia is among the world's fastest growing economies," he said in a press conference. "The country's rapid economic growth driven by strong gains in industry, services and agriculture has brought Cambodia to the verge of transitioning from a low income to a middle income country.” This should have positive upside for the market as the multiplier effect of years of political and economic reforms start to produce downstream effect for the population.

Medium risk-medium return market

Taken all into context, we believe that Phnom Penh real estate is considered a medium risk-medium returns market that is worth adding to your portfolio. In some ways, it can be considered a form of social investment, where the people of Cambodia needs better living conditions to thrive and you are the providing the platform for that to happen via contributing to the development of projects that they strive to live in, while at the same time ensuring that you get reasonable risk-adjusted returns on your investment.

This article appeared in The Edge Property Pullout of Issue 680 (June 8) of The Edge Singapore.

Tan Kok Keong is CEO of real estate consultancy REMS Advisors, and co-founder of Fundplaces, a real estate-dedicated crowdfunding platform. The views expressed here are his own.

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