With traditionally strong markets flailing (Europe, the US, China) in recent years, emerging economies have been grabbing headlines and investment attention. In Asia-Pacific, the globe’s economic engine right now, Southeast Asia is making all the noise. Among those is Cambodia, possibly the little engine that could.

Sound Economic Footing
Over the past five years, Indonesia, the Philippines and Cambodia have been among the region’s strongest economic performers, but only Cambodia has remained significantly under the radar. According to Knight Frank’s Asia-Pacific Capital Markets report from May, real annual GDP growth in Cambodia outpaced Australia, China, Japan, Korea, Indonesia, Taiwan, Thailand, Singapore, Malaysia and Hong Kong in 2015 so far. Only India (at nearly 7.5 percent) did better, and that pattern is set to repeat in 2016.

The country of just over 15 million is in an enviable position as it were. Wedged amid Vietnam, Thailand and Laos and governed by Asia’s longest serving leader, Hun Sen, the Kingdom of Cambodia is still dominated by agriculture, textile manufacturing — which is stealing China’s thunder — and tourism, with construction on the rise. All of it is leading to more foreign investment and more services, which are buoying the market. “Rents in Phnom Penh increased by 3.1 percent on the back of steady demand from foreign companies seeking to capitalise on Cambodia’s strong economic growth,” said Knight Frank.

But there are challenges that could put a serious dent in the country’s appeal. Part of Cambodia’s amazing growth stems from the fact it’s coming from a low base. Poverty and hunger are major issues, as is general socio-political development. More crucially, Transparency International ranked Cambodia 156 out of 175 countries — below China, Russia and Colombia. In its annual report in 2014, Amnesty International noted a severe lack of human rights (including a ban on public gatherings), threats, harassment and violence towards activists, and nothing in the way of impartial investigation. Further, “Thousands of people affected by land grabbing by private companies for development and agro-industry faced forced eviction and loss of land, housing and livelihood,” Amnesty wrote.

That’s the kind of news that can send investors scurrying for cover. But Ross Wheble, country manager for Knight Frank in Phnom Penh points out those factors have a more significant influence on multinationals with public CSR policy to enforce entering the market. “Corruption and lack of transparency are two of the main factors that deter these companies from entering the market,” begins Wheble. “However, the Government is implementing policy to tackle this obstacle and the climate in gradually changing. In terms of individual investors looking to purchase condominiums or other such investments, these factors do not play such an important role.”

Town and Country
Phnom Penh’s condominium sector is nicely underpinning the investment market overall. At the end of 2014, CBRE reported centrally located condos were enjoying capital gains of up to 30 percent. Developers are also starting to flirt with non-core luxury projects, a sign of a maturing market. CBRE also noted ongoing “Strong interest from the wider Asia-Pacific region, with increasing investment from Singaporean, Japanese, Hong Kong and Chinese residents. Although the comparatively high yield guaranteed by a number of leading developers is appealing to oversees purchasers, the main driver remains anticipated capital growth.” Supply in the capital is set to explode between now and 2018, increasing over 500 percent, largely catering to expatriate labour. CBRE argued the country’s domestic rising affluent are also key to demand.

For international investors, it’s worth noting that overseas buyers are limited to 70 percent of a given project in Cambodia, which could make it appealing to investors. That limit hovers around 40 percent in neighbouring countries. As Wheble sees it, that 70/30 break benefits developers more than individual buyers by increasing the target market, but the rule can be a benefit for owners. “This is also true for individual buyers when they look to resell their investments on the secondary market.”

Buyers in Asia-Pacific (adding South Korea, Taiwan and Malaysia to the mix) make up the majority of current investors, and Wheble does point out there is limited investment from Western buyers as well. The interest “Is predominantly within urban centres such as Phnom Penh and Siem Reap. As of yet, resort investment has not really taken off, largely attributable to a lack of infrastructure such as international scheduled flights into Sihanoukville, Cambodia’s main resort destination,” explains Wheble. A robust resort market is still a few years away, however, “We are gradually seeing an increase in investment in the resort segment due to the introduction of luxury resorts such as Song Saa Private Island and the under construction Alila Koh Russey, but certainly not on the same level as Thailand or Bali,” he adds.

Adventurous investors undeterred by risk are starting to take notice of the so-called resort frontier. Rory Hunter, founder and CEO of Song Saa Hotels and Resorts, notes his investors are HNW expats from Hong Kong and Singapore that have experience with similar properties in the region and are keen to duplicate rapid capital value growth. But “The biggest area of growth in broader coastal development has been from Chinese investors who are flocking to area. The largest development, undertaken by the Union Group is well in excess of US$2 billion and has the potential to transform the somewhat nascent area in the coming years,” says Hunter. With that investment is comprehensive infrastructure (including a cruise terminal and second airport), a golf course and multinational hotels. The future of Cambodia’s resort sector could well be in its untouched islands, but as Hunter finishes, “A strong sense of opportunity pervades Cambodia’s coast these days, but clear government oversight and a commitment to sustainable development will be critical for this beautiful part of the world to stay that way for generations to come while providing economic prosperity for Cambodia and her people.”