The National Bank of Cambodia (NBC) projects growth in the local real estate sector, particularly condominium, retail and office space, to slow down in upcoming months as supply increases.
In its first Financial Stability Review (FSR), released on Wednesday, NBC presented a mixed outlook for the sector, with the potential for supply to outstrip demand if external and domestic demand weaken.
The report also pointed out delays in several construction projects within the condominium, retail, and office segments during 2018’s last quarter. This pending supply is expected to hit the market during the first half of 2019, along with the scheduled delivery of other projects.
“By the end of 2019, the supply of condominium units in all segments, retail space, and office space is expected to surge,” NBC said.
“These developments have raised some concerns that perhaps incoming supply might outstrip demand. This is particularly the case if both external and domestic demand weaken going forward. As a result, sales, rental and occupancy rates across the market could be adversely affected in 2019,” it said.
NBC deputy director-general of central banking Khou Vouthy on Wednesday said there is no sign that excess supply will negatively affect the industry as a whole.
“We have noticed that investment has declined a little in construction, where most buyers are foreigners. Although this will slow growth in the real estate sector this year, it doesn’t pose any risks,” he said.
In its Office Market Update Q1 2019, released earlier this month, CBRE Cambodia said that after a slump in the fourth quarter of 2018, January and February saw $1.56 billion invested in the construction sector. CBRE estimates the amount increased to $1.8 billion by the end of the first quarter, indicating a healthy start to the year.
The report also shows that residential, particularly condominiums, is the most dynamic sector. The sector saw an increase of 7.7 percent with the recent addition of three finished condominium projects.
“We believe the international community will continue to drive the uptake of condominiums in the future,” said James Hewson, manager of CBRE Research and Consulting.
“We tend to find that in the landed property sector, there is a high portion of demand coming from the local community.
“In the future, we are expecting a rise in demand for affordable condominiums from the same community while the mid-range to high-end condominiums will continue to be driven by the international community.”
NBC’s FSR showed that after a long spell of growth, the regional and global real estate markets started to cool-off by the end of 2018. Property prices in major cities in Australia, the United Kingdom, Canada, and Thailand posted some significant drops as a result of rising borrowing costs, volatile stock markets, and lower demand from Chinese buyers.
“Although property markets in Cambodia seem unaffected at the moment, the risk of a property price drop should not be completely dismissed given the sizable role of Chinese investment in the Cambodian real estate market and risk of a potential slowdown in China,” it said.
According to the Ministry of Land Management, investment in construction dropped by 15.3 percent over the course of 2018, from nearly $6.8 billion in 2017 to $5.8 billion in 2018.
Similarly, the number of projects approved decreased by 3.6 percent with 3,294 projects receiving the green light in 2018 compared to 3,418 in 2017. Residential and commercial projects made up the largest share of approved projects.