When investing in property 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, the currency’s stability, the quality of real estate development, and political stability.
Unfortunately, the COVID-19 epidemic has yet to be contained in many parts of the world. Real estate investors, on the other hand, must think in terms of the long term.
The resilience of humanity will assist us in overcoming one of the most difficult moments in our collective history. At the same time, countries that do a good job of caring for their people are likely to have a strong economic rebound and thriving real estate markets by the end of the decade.
The world is currently at 66 on the Economist’s normality index, nearly double the level in April 2020, with the pre-pandemic average (monitoring flights, traffic, and retailing across 50 countries) at 100. This indicates that the world is making modest but steady progress, however developing countries are anticipated to take longer to fully recover.
Because of the low real estate costs, many people are looking to invest in real estate right now. Given the escalating costs of real estate around the world, investing in properties in emerging markets such as Cambodia can be an economical yet effective strategy to grow one’s holdings.
Growth of the economy
Perhaps no indicator conveys a country’s potential as well as economic growth. The causes for steady economic growth differ from country to country, but a positive headline statistic every year sends the proper signal to anyone investing in the future.
Despite a volatile decade due to political events, Thailand’s economy continued to grow. Thailand was classified as a lower middle income country by the World Bank in 2011, with a GNP per capita ranging between $1,036 and $4,045.
Cambodia has expanded substantially as well, but from a smaller basis. Between 1998 and 2019, it climbed at a 7.7 percent yearly rate and reached lower middle income level in 2015. The World Bank predicts that Cambodia will grow by 4% this year due to increased global demand, foreign direct investment, and increased immunization rates. According to Moody’s Analytics, the country is likely to reopen in the third quarter, with vaccinations reaching more than 45 percent of the adult population by the end of the first half of the year.
Potential of the tourism scene
Thailand is a popular tourist destination. Cambodia is becoming increasingly popular year after year.
Tourist arrivals in Thailand 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 of those visitors were from China.
The relationship between tourism and real estate expansion is widely known. Popularity in 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 of 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 risky proposition in Thailand and Indonesia), Cambodia’s steady progress in vaccination efforts means it could achieve herd resilience – 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 vaccinations have reached more than 45 percent of Cambodia’s adult population.)
Given Cambodia’s close ties with China – it swiftly accepted vaccinations from Chinese businesses alongside the WHO-backed COVAX initiative, guaranteeing it sped ahead in terms of vaccine coverage – the country is also growing increasingly popular as a holiday destination among Chinese nationals. When flights resume and tourists can pack their backpacks and suitcases, Cambodia may easily follow Thailand’s lead and become one of the world’s top tourist destinations.
The middle class population
According to World Bank data, Cambodia has Asia’s third-youngest population (measured as 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 fallen substantially 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 expanding middle class (defined as anyone earning between $500 and $2,000 per month), however the majority are at the lower end of that spectrum due to their current employment in the garment industry.
Improving conditions in Western economies augur well for the apparel business, which is mainly reliant on exports. However, with the Cambodian government embracing an ambitious goal to diversify the economy by 2025, workers in the country may be able to look forward to jobs in a variety of areas in the future.
It would be a positive development for both Cambodians and real estate investors.
Real estate development quality
However, it is obvious that potential buyers are scrutinizing real estate due to concerns about climate change, construction quality, local infrastructure quality, and pricing. While there are many real estate developers, it is important to choose the correct one.
According to real estate firm CBRE Cambodia, 2021 will be the first year when completed office space in Phnom Penh, Cambodia’s capital, 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 grow as the country’s urban clusters develop.
While rating property developers in an emerging market is difficult, the top developers are likely to have a long-term vision, likely focused on sustainable real estate development.
Ream City, a city-within-a-city project in Sihanoukville, stands out among Cambodia’s various development initiatives. The 834-hectare project aims to attract $16 billion in investment in order to create a long-term centre for business and residential activity. It is a project by Canopy Sands Development, a member of Chen Zhi Prince Group (officially Prince Holding Group), and it clearly highlights how forward-thinking developers in the country are introducing best practices from worldwide real estate projects.
Notably, Prince Holding Group is also linked with Prince Real Estate, one of the most renowned developers of premier real estate in Phnom Penh, with over 12 million square meters of land reserve and more than 20 million square meters currently under development. The Group is run by Chinese-Cambodian entrepreneur Neak Okhna Chen Zhi, Chairman of Prince Holding Group, and has worked to improve Cambodia for more than a decade.
Investing in projects developed by real estate developers who understand how to capitalize on a variety of trends would be a good decision.
Stability of the currency and political climate
Regardless of one’s feelings on Cambodian politics, it’s a well-known fact that political and currency stability contribute 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 stayed in power. Meanwhile, the US dollar is the dominant currency for commerce, trade, and business in Cambodia, providing a remarkable level of currency stability.
Given the US dollar’s primacy in the international economic ecosystem as a result of the strength of the US economy, the independence of the US Federal Reserve, and the geopolitical influence of the American government, real estate investors purchasing assets denominated in US dollars do not need to be concerned about depreciation-related losses. (However, there is still a chance that the US government’s unprecedented stimulus measures enacted during the epidemic will result in a dollar depreciation in the very long term.)
Thailand suffers significantly on this front, since political turbulence caused by student-led uprisings and military coups has caused the Thai Baht to endure high levels of volatility throughout the preceding decade, necessitating central bank stabilization efforts.
Tourists, businesspeople, and investors have also been put off by various political problems.
Real estate is usually one of the most illiquid, difficult, and profitable investment opportunities. It takes perseverance and a thorough awareness of the basic elements that influence the decisions of potential buyers, sellers, future buyers, and the long-term market outlook.
Cambodia is a potential location for real estate investment. With the country expected to be one of the first in Southeast Asia to open up to tourism and plans in the works to restore regular business activity, it stands to benefit significantly from its strong ties with China.
Given the Cambodian government’s stable political environment and pro-business policies, there appears to be a secure basis for a vibrant and young population that will undoubtedly look for decent houses, workplaces, and provide commercial real estate developers profitable prospects.