Erin Hale

When the real estate gold rush ends, the city’s heritage could be lost forever in the pursuit of short-term gains.

The showroom of Prince Central Plaza, a $300 million, 37-floor luxury condominium project in Phnom Penh, predicts a luxe future for residents of the Cambodian capital.

The apartment staging seems to anticipate a professional class of buyer. Ornate furniture is accompanied by the trappings of upper middle-class life: a faux Macbook on a desk, working flat-screen TVs mounted on the walls, chandeliers overhead, and photographs from a fictional trip to Paris on a bedside table.

The best-seller at Prince Central Plaza, which is being built by a local subsidiary of China State Engineering Corporation, is a 245-square-foot studio. It goes for an opening price of $60,000 with a $10,000 down payment, often made in cash according to Yong Lyly, a Khmer-Malaysian sales associate who speaks fluent Mandarin.

“Eighty percent [of apartments] are small ones, like studios,” says Yong, while she shows off a scale model of the building. Most buyers, she says, are from China, Singapore, Malaysia, and Cambodia.

Many of these foreign buyers, however, aren’t looking for a pied-à-terre in Phnom Penh. They’re hoping to cash in on the city’s booming real estate and flip their condo after a few years of it appreciating in value, according to Yong. That means they’re also betting on the country’s economy shaping up into one with a growing middle and upper classes in Cambodia that can buy apartments like the ones inside Prince Central Plaza.

But it’s not just Prince Central Plaza that’s selling this Cambodian dream. The same scenario is playing out in showrooms across Phnom Penh’s central districts of Chamkarmon and Doun Penh. Both are already home to many foreigners thanks to their proximity to historical buildings, cafes, embassies, and NGO headquarters. In their present iteration, the tree-lined streets of Chamkarmon and Doun Penh have their own charm, despite chronic problems like uncollected garbage and potholes.

Now the skyline is dotted with cranes, and the clanging sounds of construction can be heard seven days a week. But while this construction boom has been enthusiastically endorsed by the Ministry of Land Management, Urban Planning and Construction, the absence of long-term planning could irreversibly change the face of some of the city’s most distinctive neighborhoods in exchange for short-term economic gains.

The real estate boom began following Cambodia’s return to democracy in 1993. The capital was evacuated in 1975 by the Khmer Rouge, who considered urban residents to be suspect “enemies of the people.” The city sat nearly empty until 1979, when Vietnam invaded and overthrew the Khmer Rouge. However, they still maintained restrictions on population movements during their 10-year occupation, so Phnom Penh’s population did not immediately return to pre-war levels.

During the return to democracy, anyone with money—embassies, foreign companies, politicians—snapped up prime real estate in the downtown for next to nothing. The trend has continued as many investors see Cambodian real estate as an emerging market.

For foreign buyers like Daisy, a 30-something Chinese national from Tianjin, the concern at the moment is not missing out on the kind of real estate boom that has made small fortunes for early buyers in other Asian cities. She’s lived in Phnom Penh for four years and says it’s a good time to invest. “I think Cambodia is similar to China’s real estate market in the 1980s,” she says, comparing Cambodia frontier economy to China’s initial opening to foreign capital. “They’ve just started developing.”

Daisy and her husband own one condo in Chamkarmon, where they live now, and recently bought two more: a two-bedroom at the Chinese-backed One Park and a studio at local project Olympia City. When they are complete, Daisy wants to move her small family into the new two-bedroom and sell the others in a few years.

Contrast Daisy, however, with your typical middle-class or elite Cambodian buyer. Condos are a hard sell in a country where most people still prefer to live with their extended family. It’s not uncommon for husbands to move in with their in-laws after marriage, and for several generations to live under one roof.

For this reason, if a Cambodian buyer can secure enough savings or a home loan (at a hefty annual interest rate from 8 to 10 percent), they are more likely to buy a shophouse (the Southeast Asian version of an American townhouse) or a standalone villa that comes with a plot of land for $80,000 to $90,000, says Cambodian architect Pen Sereypagna.

“I think one [issue] is culture. Cambodian people like to live in a house and a big plot of land,” he says. Cambodian buyers also see land ownership as an investment in the future, because they can sell of their plot of land separately when the value goes up, according to Sereypagna. Most of these houses are in the outer districts of Phnom Penh, which has pushed many local buyers out towards the capital’s airport, where land values are lower.

Hun Chansan, principal architect at the hip Cambodian firm Re-Edge Architecture, says condos are making some headway, but they are dependent on a deeper cultural shift in Cambodia. While most Cambodians still live in multi-generational households, condo life implies a cultural shift towards nuclear family or single-occupant living.

“I think the condominium market will [grow] because people are moving away from the traditional lifestyle,” Chansan says. Young Cambodians, especially those who are educated overseas, want “freedom, convenience … to enjoy their privacy, go to the mall, go to the movies, nightlife. It’s very different from before.”

(Erin Hale)

How long it will take for this cultural shift to happen in Cambodia’s real estate market is anyone’s guess, but developers should also be thinking about how long it will take for local renters to afford the condos. Middle-class urban Cambodians can make anywhere from $400 to $800 a month, while luxury condos can command rents of $1,000 and up. In the short term, many are hoping that other foreigners can fill in the gaps as renters, but that market could get tapped out eventually, says James Whitehead, the director of content at realestate.com.kh.

“All these condos are being built on the idea that Phnom Penh is going to become another Bangkok or Jakarta, and all the foreigners are going to come and live and work here,” he says. “But how many foreigners can come here and pay this price? Because most locals can’t.”

These concerns, however, haven’t kept developers from tearing down buildings across Chamkarmon and Doun Penh to make way for new condo towers. The absence of heritage laws means it’s fairly easy to bulldoze older buildings, from traditional raised wooden houses to modernist villas from the 1960s.

The boom shows no sign of stopping, with expectations that the local condo supply will increase from 2,979 to 24,553 units by 2020, according to U.K.-based real estate agency Knight Frank. It’s not just condos that are going up, either. The Ministry of Land Management, Urban Planning, and Construction approved $6.5 billion in construction projects across Cambodia in the first half of 2016, according to the Phnom Penh Post.

But developers and investors are also betting on the fact that all these projects will reach completion, which is not guaranteed in a frontier market like Cambodia. Driving around Phnom Penh, one can easily see a stalled building site for every successful one—with construction halted because funding dried up or the developer lost their building permit. An especially notorious example is Gold Tower 42, a hulking skeleton of a 42-story office, retail, and condo complex abandoned mid-construction by its South Korean developers in 2008. One buyer is still trying to get back $1.1 million investment.

The relatively unregulated real estate industry and the absence of any centralized government data on property values also means developers can ask any price they want, so it’s easy to quote an unrealistic value for a condo or house to an unwary investor. All these factors point towards sign of a bubble, says Matt van Roosmalen, the Cambodia manager of Emerging Markets Consulting, a regional investment advisory service.

“One of the signs that there could be a bubble is people seem to buy for the capital appreciation and not for cash flows, so not for rent. They’re looking to flip, which is not a great sign. They have low rent yields, a lot of them are sitting empty,” he says.

But this is where the situation gets complicated: While Phnom Penh may be heading towards a luxury-condo bubble thanks to oversupply, it’s still uncertain who will win or lose in the end. Unlike other potential property “bubbles,” most buyers and developers are foreigners, which means they stand to lose the most. Cambodians will lose out on construction and other support-staff positions, but they may win out when prices drop, predicts Whitehead.

They will also find that Phnom Penh has changed irreversibly in the meantime. Architects like Sereypagna are worried that when the real estate gold rush ends, the city’s heritage could be lost forever in the pursuit of short-term gains.

“The landscape of Phnom Penh is based on private dreams rather than [the] public’s,” he says. “We want the city to be like Hong Kong [or] Bangkok, but we don’t learn from them.”

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