22^nd July 2012

A well-know property expert is predicting that Phnom Penh’s rental market, especially in the inner city, is about to fall through the floor due to a massive increase in the supply of apartments.

This follows a claim last week by Wayne Rookie of Independent Real Estate Brokers (IREB), a local estate agency, that rental prices in the capital were about to spike as the number of new high-rise apartment sprouted across the central city.

“With lots of quality apartments coming on-stream, we are seeing prices for high-end apartments doubling and tripling, with many new blocks fully booked even before they are completed,” he insisted, citing the example of Moonbeam Mansions on Street 51.

However, other professionals in the industry have thrown cold water on the idea that increased supply is somehow leading to increases in rents.

“This defies logic,“ said regional CRBE boss Inigo Jones. “When supply outstrips demand, prices fall. At least, that is what happens when market forces prevail. With the huge increase of apartments coming on to the market, its inevitable prices will start to float downwards. Prices can’t defy gravity forever. I’m picking they’ll come crashing down and the correction is just around the corner.”

“That’s total crap,” replied Ozzie Chancer, Wayne’s boss at IREB. “The Cambodian market is totally insulated from conventional market forces because the people who are behind these new buildings are not financing them through debt. They have strong cash flows from years of hard graft and see their property portfolios as stores of value. They are quite willing to accept negative rates of return for as long as it takes – just like buyers of Western government bonds, really.”

Jones conceded that the local market isn’t necessary subject to normal business logic.

“Yes, I’m afraid they prefer to leave a place empty with the lights on a night rather that rent it out for less that they believe it’s worth. It’s a matter of pride. But all it will take is for one to weaken and the whole market will recalibrate,” Jones explained. “I mean, where are all the new tenants going to come from now that so many NGOs are moving on to the greener pastures in Burma.”

Meanwhile, foreigners are being encouraged to buy real estate in the city to compensate for a fall off in local demand, according to government spokesperson, Chip Butty, just so long as they don’t buy the ground on which the property sits.

“We can’t have them buying up the country but we are perfectly happy for them to buy as much air about the ground floor as they like. After all, there is no shortage of this,” he said in reference to the recent law change that allows expats to purchase apartments above the ground floor.

“They would have to be mad!” Jones responded when this was explained to him. “How are you expected to gain access to your apartment if the ground floor owner denies you egress?” he asked. “Helicopters? The whole things a joke and its time people woke up and smelt the coffee.”

With new coffee shops now appearing on nearly every corner of BKK1 in central Phnom Penh, this shouldn’t be too difficult.

“The Chinese are coming,” says Paul Revere of Golden Luo Guan Properties, a local developer. “Sure the Koreans got badly burned here after 2008 but now the Chinese are arriving by the planeload with suitcases full of money and they are happy to pay anything – they just don’t seem to care. And there are plenty more where they came from,” he concluded with a broad smile.