When it comes to overseas real estate investment, especially Cambodian real estate investment, I think that many people have the image that the risk is higher than that of Japanese real estate investment. The reason why Cambodia is now attracting attention as an investment destination is that Cambodian real estate investment in emerging countries has many merits unique to emerging countries that Japan and developed countries do not have.
Advantages of real estate investment
- Cambodia’s high growth and future potential
- Sustaining growth through demographic dividend and planned development
- Low currency risk and foreign exchange fluctuation risk that can be used with the US dollar
- Exit strategy, Cambodia is relatively easy to remit overseas
- Easy to open bank accounts for non-residents and high deposit interest rates
■Cambodia’s high growth and future potential
The real estate investment market in Phnom Penh, the capital city, is booming as Japanese and overseas companies are actively expanding into Cambodia, where economic growth continues. How about expanding your horizons to Cambodia, which is about to enter high economic growth in the future? ” The charm of Cambodia “, you can find out the background of why investment is gathered in Cambodia, which is said to be the poorest in Southeast Asia.
In Cambodia, investment incentives are equally granted to all investors, and all economic fields are open to investment. As a result, investment and support funds are currently being collected from Japan, China, South Korea, Singapore and many other countries and companies, and are being invested in various fields such as infrastructure equipment, real estate development, road and bridge construction, railways, finance, and airport relocation. increase. Among them, in Cambodia, which has many rivers, the effect of constructing roads and bridges is enormous, pushing up land prices.
With a well-working national character, companies from overseas are continuing to enter the market in search of a low-wage Cambodian labor force. The government is increasing the number of special economic zones with well-developed infrastructure and actively attracting domestic and foreign companies. This has led to employment expansion, and Cambodia’s young and abundant labor force has responded to its national strength. As national power rises in this way, income rises and purchasing motivation increases, which in turn raises prices and land prices. Cambodia, which has entered the growth stage, is in such a virtuous cycle.
■ Sustaining growth through demographic dividend and planned development
The demographic dividend of “average age 27 years old, more than 90% of the population will be the working population and children who will lead the next generation” will create a further virtuous cycle and will be a great advantage of sustaining economic growth.
The average age of the people at that time was 14 years old when the number of people in their 50s and over became extremely small due to the Pol Pot administration that took place from 1975 to 1979. With support from around the world, it was only over a decade ago that we began on the path to economic growth.
Now, Cambodia is at the same level as Japan in 1945-60 and is about to enter a period of a high economic miracle. Many people have flocked to Phnom Penh from rural areas in search of work, and the population of Phnom Penh has increased from 900,000 to more than 2.12 million in the last decade, and the capital has expanded and doubled in area.
Even though it is said to be the poorest country in ASEAN, the price of land in Phnom Penh is soaring, the construction of skyscrapers and condominiums is rushing, and the consumption boom is high. You can see how development work is progressing everywhere, bridges are being built, and the entire city is modernizing and undergoing major changes. These are led by the Cambodian government’s master plan.
The master plan is a “government-led economic development plan”, and the development of the capital Phnom Penh and the sub-center of the suburbs are systematically developed based on this master plan. According to the official material released in 2014, all plans are currently being implemented and new developments at the same level have begun.
■Low currency risk and foreign exchange fluctuation risk that can be used with the US dollar
Even if you are attracted to real estate investment in emerging countries, currency risk will inevitably follow. In particular, the purchase of real estate is often limited to the home currency despite the high price, and real estate in all Southeast Asian countries except Cambodia is an asset denominated in the home currency. As a result, it has no value outside of its own country or neighboring countries.
Even for properties with a purchase guarantee such as condominiums, even if you can pay in US dollars at the time of purchase, there are also properties such as rental income and purchase guarantee payments in your own currency several years later. In such cases, foreign exchange risk is also a major factor.
Cambodia, which can complete real estate investment in US dollars, can have assets in the key currency, reducing currency risk and foreign exchange risk at the same time. Since the return on investment is also in US dollars, it is a great advantage regardless of the return on currency fluctuations.
■ Exit strategy, Cambodia is relatively easy to remit overseas
Since the civil war continued until the 1990s in Cambodia, the situation has continued to rely on foreign capital for economic growth. Furthermore, since the US dollar, which cannot be issued in your own country, accounts for 90% of the distribution amount, the flow of attracting foreign capital and obtaining foreign currency cannot be stopped. As a result, regulations on foreign capital are still looser than in other countries.
■Easy to open bank accounts for non-residents and high deposit interest rates
In Cambodia, even foreigners and non-residents can open a US dollar-denominated bank account and deposit their rent income directly into a Cambodian bank. Cambodian banks are also attractive because of their high deposit interest rates. For example, as of August 2021, the 12-month fixed deposit interest rate is 0.01% for all three major Japanese banks and 4.5% in US dollars at ACLEDA Bank in Cambodia. You can also choose from world brands for debit cards, so you can shop around the world or withdraw at ATMs. Further asset management is possible by combining real estate investment and bank accounts.
Disadvantages of Cambodia Real Estate Investment
- Loans are difficult to do in Cambodia
- Be aware of the risk of unfinished pre-building
■Loans are difficult to do in Cambodia
Most real estate investments in Cambodia are purchased in cash, and we recommend that you provide your own funds.
For a long time, no financial institution in Cambodia offered mortgages for foreigners, but now due to the rise of the real estate investment market, some banks, such as RHB Cambodia, which is a Malaysian bank, are now starting to offer mortgages for foreigners.
When applying for a bank loan in Cambodia, first open a bank account and then apply for a loan. Your ID and salary will be checked and you will be asked for collateral and a guarantor commensurate with the loan amount. If you can clear the preliminary judging, you will select a loan plan and it will be the final judge.
However, the judging is strict and the loan interest rate is in the 8% range, and some of them exceed 10%, which is very high. In addition, since the loan period is short, it is still realistic to select a financial institution in Japan when considering financing.
Japanese financial institutions have high hurdles for lending to overseas real estate, but there are some banks that can apply for a mortgage loan if the property can be used as collateral in Japan. However, full loans are not always available, so it is necessary to confirm the collateral conditions for each financial institution before applying, taking into account the withdrawal of own funds.
■ Be aware of the risk of unfinished pre-building
When choosing a building for real estate investment in Cambodia, high-rise properties such as condominiums for the wealthy are often targeted for investment. In Japan, it can only be sold after the property is completed, but in Cambodia, the pre-build method is the mainstream as in other Southeast Asian countries.
Pre-build is a method of purchasing a property in the middle of construction work and paying in multiple times according to the progress of the construction work. Considering that it is difficult to get a loan, this point can be regarded as an advantage.
In addition, it can be purchased before the start of construction, and the low price will gradually increase as the construction progresses. Therefore, it is possible to invest in capital gains that are purchased at an early stage and sold without waiting for completion.
However, it is necessary to be aware that some properties are not selling well due to projects with bicycles in operation, there is a possibility that construction will stop due to lack of funds on the way, and there is a risk that the seller will go bankrupt. Although not limited to Cambodia, when purchasing a pre-built property, it is important to check the seller’s financial status, past completion record, property sales, and sales start time.