Now and Penh

Low-key Phnom Penh quietly making property waves

Like its neighbour, Vietnam, Cambodia recently emerged, relatively speaking, from a violent, bloody and complex period in its long history. One of the youngest countries in the world, with a median age in the mid-30s, Cambodia has one of the region’s strongest performing economies and its tourism sector is growing rapidly. Spurred by the pristine beaches of its nearby islands and purely tropical climate, the country has seen massive hotel and resort development over the last few years. Travellers are beginning to discover valid destinations and sights beyond Angkor Wat, Choeung Ek (the Killing Fields) and Sihanoukville.

Once referred to as the Pearl of Asia, Phnom Penh, the capital and largest city, is quietly becoming a mini-hub in Southeast Asia, as evidenced by the swanky bars, cafes, shopping and hotels dotting Sisowath Quay, one of the city’s most famous landmarks. Many expect tourism to be the next great growth engine for Cambodia, as its economy to now has relied on fishing and agriculture. “At the moment it is a frontier economy. The country is very young, its emergence with new legislation and government and law really dates back to 1993. So the infrastructure, both legislature and real infrastructure is really in its early stages. It’s pre- Ho Chi Minh and pre-Bangkok,” states Daniel Parkes, Country Manager for CB Richard Ellis Cambodia.

There’s no denying the country also faces a serious corruption problem that puts a damper on foreign investment: Transparency International ranked Cambodia 154 out of 178 on its 2010 Corruption Perception Index — ahead of Sudan, Myanmar, Laos and Russia as a few examples. Nonetheless, hope springs eternal, and CBRE’s special report, Building a New Cambodia from April 2010, stated an influx of foreign and repatriated money kicked off a real estate boom that started approximately 10 years ago, with Phnom Penh at the heart of it.

Cambodia is trying to make things easy for investors: though land can only be fully owned by Cambodians, it’s easy to do business in the country, corporate taxes are low, and companies can be fully owned by foreign investors. Exports to the EU are up by almost 50 percent due to attractive tax policies, agriculture is at the point where Cambodia is the region’s new rice bowl — and is exporting to traditional powerhouses Thailand and the Philippines — and garment manufacturing is booming too. “It’s cheaper to manufacture in Cambodia than it is China now,” Parkes points out.

But like many emerging Southeast Asian markets, Phnom Penh is wisely diversifying in a way that could make it less dependent on those reliable though old school industries. Aside from textiles, tourism and agriculture, “Phnom Penh has also got a lot of business people coming in and out. The amount of work going on in the professional services, design and construction is on the up, and so there are a lot of businessmen and women coming in week in and week out. It’s got tourism, retail for both expatriates and Cambodians, and it’s got a growing office market,” Parkes remarks.

The changes are clearly visible in Phnom Penh’s quickly morphing landscape, from a secondtier Southeast Asian city to an international metropolis. The city is developing a luxury residential rental market, and Western-styled housing could be on the horizon, even though the country wasn’t fully insulated against the economic downturn of 2008. “Nobody escaped that. I don’t think even Outer Mongolia managed to avoid that,” Parkes quips. “It came at a bad time. Cambodia was just about to take off and then the global economic crisis hit and it’s delayed that [take-off]. Delayed but not stopped it entirely. That long-term growth is still going to occur. 2010 saw growth return to 5.5 percent and it’s estimated to be 7 percent in 2011.” Office leasing is leading the city’s property market right now, with multinationals (such as Manpower, Prudential and Tesco) either setting up offices or expanding. Retail leasing is on the rise (Mango and Zara just moved in) and serviced apartment and villa rentals are strong.

Unlike its recent past, Phnom Penh’s future is looking bright. As CBRE’s report concluded, Phnom Penh has, “strong underlying demand, very few high grade offices, residential projects and retail centres but plenty of potential for significant growth.” Likening the city to a budding Bangkok is less of an easy comparison than a harbinger of things to come. Because we all know how Bangkok is doing these days.