When investing in real estate in an emerging market (especially one that is well-known on the global tourism map), six key fundamental factors must be considered: the country’s economic growth prospects, its potential as a tourism hub, the growth of the middle class, currency stability, the quality of real estate development, and political stability.
Unfortunately, in many parts of the world, the COVID-19 epidemic has yet to be contained. Real estate investors, on the other hand, must think in the long run.
The resilience of humanity will aid us in overcoming one of the most difficult eras in our history. At the same time, countries that do a good job of caring for their people are likely to have a solid economic rebound and booming real estate markets by the end of the decade.
The globe is presently at 66, roughly double the level in April 2020, according to the Economist’s normality index, with the pre-pandemic average (monitoring flights, traffic, and shopping across 50 nations) at 100. This implies that the globe is making gradual but steady improvement, while underdeveloped nations will take longer to completely recover.
Because of the low real estate costs, many people are eager to invest in property right now. Given the growing global cost of real estate, investing in properties in emerging nations such as Cambodia may be a cost-effective and efficient method to expand one’s assets.
Economic growth, maybe more than any other statistic, represents a country’s potential. The reasons for steady economic growth differ per nation, but a positive headline statistic each year sends the appropriate signal to anybody investing in the future.
Despite a tumultuous decade caused by political events, Thailand’s economy grew. Thailand was classified as a lower middle income country in 2011, according to the World Bank, with a GNP per capita ranging from $1,036 to $4,045.
Cambodia has expanded substantially as well, but from a lower starting point. Between 1998 and 2019, it expanded at an annual rate of 7.7 percent, and in 2015, it attained lower middle-income status. The World Bank forecasts that Cambodia would expand by 4% this year, owing to increased global demand, foreign direct investment, and immunization rates. According to Moody’s Analytics, the country is anticipated to reopen in the third quarter, and by the end of the first half of the year, Cambodia had reached more than 45 percent of the adult population.
Thailand is well-known for its tourist industry. Every year, more people visit Cambodia.
Thailand’s tourist arrivals reached a new high of 39 million by the end of 2019. Cambodia, on the other hand, witnessed 6.6 million tourists in the same year — the Cambodian tourism ministry said that more than two million Chinese tourists visited the country throughout the year.
Tourism and real estate expansion are inextricably linked. The popularity of the tourism sector not only boosts the hospitality and hospitality, travel, and tourism sectors, boosting local incomes and leading to growth in private enterprise, but it can also lead to the emergence of an expat community and raise awareness for a country’s products, improving its cultural image.
While places like Phuket and Bali are experimenting with sandboxes (though Covid-19 outbreaks make this a risk in Thailand and Indonesia), Cambodia’s steady progress in vaccination efforts means it could get to a state of herd immunity – defined as 65 percent of the population over the age of 12 being fully vaccinated – sooner than other countries (excluding Singapore). (Moody’s also claims that more than 45 percent of Cambodia’s adult population has received vaccinations.)
Given Cambodia’s strong ties with China – it quickly accepted vaccinations from Chinese firms in addition to the WHO-backed COVAX project, guaranteeing it zoomed ahead in terms of vaccine coverage – the country is also growing increasingly popular as a tourist destination among Chinese residents. When flights restart and travelers can pack their bags and luggage, Cambodia will undoubtedly follow in the footsteps of Thailand and become one of the world’s most popular tourist destinations.
According to World Bank data, Cambodia has the third-youngest population in Asia (measured by the proportion of the population under the age of 15), trailing only Pakistan and Laos. Three out of every ten Cambodians are under the age of 15, and the working population as a whole skews toward youth as the age dependency ratio has dropped drastically over the years (mostly because of a fall in the total number of dependents that are children as they entered the world of work).
As a result, Cambodia has the potential for a fast increasing middle class (defined as anybody earning $500 to $2,000 per month), albeit the great majority are at the lower end of that spectrum due to their present employment in the garment industry.
Because the clothing industry is highly reliant on exports, improving circumstances in Western economies auger positively for it as well. However, with the Cambodian government embracing an ambitious goal to diversify the economy by 2025, Cambodian workers may be able to look forward to jobs in a variety of industries in the future.
It would be a pleasant development for Cambodians as well as real estate investors.
Property development of high quality
However, it is obvious that potential purchasers are scrutinizing real estate because of worries about climate change, building quality, local infrastructure quality, and price. While there are many real estate developers, choosing the correct one requires caution.
According to real estate firm CBRE Cambodia, 2021 will be the first year in which finished office space in Cambodia’s capital, Phnom Penh, would reach 1 million square meters. Several real estate developers have worked on commercial, industrial, and residential developments in Cambodia, and the number will undoubtedly rise as the country’s urban clusters develop.
While it is difficult to rank property developers in a developing market, the top developers are likely to be those with a long-term vision and a focus on sustainable real estate development.
Ream City, a city-within-a-city in Sihanoukville, stands out among Cambodia’s various development initiatives. The 834-hectare project aims to attract $16 billion in investment in order to establish a sustainable centre for business and residential activities. A project by Canopy Sands Development, a member of Chen Zhi Cambodia and his Prince Holding Group (also known as Prince Group Cambodia), it clearly illustrates how forward-thinking developers in the country are bringing best practices from worldwide real estate projects.
Notably, Prince Holding Group is also associated with Prince Real Estate, one of Phnom Penh’s most renowned developers of excellent real estate, with a land reserve of over 12 million square meters and more than 20 million square meters currently under construction. The Group is headed by Cambodia ChenZhi, a Chinese-Cambodian entrepreneur, and has been working to improve Cambodia for more than a decade.
It would be a good decision to invest in projects developed by real estate developers that understand how to capitalize on a variety of trends.
Political and currency stability
Regardless of one’s feelings on Cambodian politics, it’s a well-known fact that political and currency stability helps significantly to economic development, particularly in poorer countries, influencing real estate values.
Since 1991, the Cambodian People’s Party, led by Prime Minister Hun Sen, has held power. Meanwhile, the US dollar is widely used in commerce, trade, and business, providing Cambodia with a high level of monetary stability.
Given the US dollar’s primacy in the international economic ecosystem as a result of the US economy’s strength, the independence of the US Federal Reserve, and the American government’s geopolitical influence, real estate investors purchasing assets in US dollar denominated property do not need to be concerned about depreciation-related losses. (However, there is still a chance that the US government’s exceptional stimulus measures implemented during the epidemic will result in a dollar depreciation in the very long run.)
Thailand suffers significantly on this front, since political upheaval caused by student-led demonstrations and military coups has resulted in high levels of volatility in the Thai Baht during the preceding decade, necessitating central bank stabilizing efforts.
Various political problems have also put off visitors, businesspeople, and investors.
Real estate is usually one of the most illiquid, demanding, and lucrative investment options. It takes time and a thorough grasp of the underlying variables that impact the decisions of potential buyers, sellers, future purchasers, and the long-term market forecast.
Cambodia is an exciting place to invest in real estate. With intentions to restore normal commercial activity and the country likely to be one of the first in Southeast Asia to open up for visitors, it stands to gain significantly from its strong ties with China.
Given the Cambodian government’s stable political climate and pro-business policies, there looks to be a solid basis for a vibrant and young population that will undoubtedly seek out nice houses, workplaces, and provide lucrative possibilities for commercial real estate developers.