Cambodia’s capital may be experiencing one of the world’s fastest property booms - thanks to Chinese builders and buyers.
When Chinese president Xi Jinping arrived in Phnom Penh in October 2016 to expand the footprint of his Belt and Road initiative, he brought in tow more than 200 Chinese investors eager to fill the Cambodian capital’s skyline with billions of dollars in new properties.
Now, a city once known for its French colonial villas and modernist “New Khmer Architecture” in the 1960s is becoming unrecognisable. Heritage structures are being replaced with expensive high-rise condominiums in a city where the median household income is only around $11,000 (Dh40,398) per year.
“The pace of development for me is mind-blowing,” said Ross Wheble, country head of international realtor Knight Frank. “The high-end condo market is certainly oversupplied and what we are seeing now are sales and rentals are slowing. There are only a limited number of Cambodians who can buy these condos and for a market to be sustainable there needs to be domestic demand.”
Phnom Penh is one of the more extreme examples of a real estate binge that’s being played out across Asia as Chinese developers and speculators that became rich during the mainland’s property boom travel down Mr Xi’s New Silk Road looking for governments willing to offer prime land for investment.
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Of the 68 nations China lists as partners in its Belt and Road Initiative (BRI), the sovereign debt of 27 are rated as junk, or below investment grade, by the top three international rating firms. Another 14, including Afghanistan, Iran and Syria, are either not rated or have withdrawn their requests for ratings.
Many countries that lapped up Chinese BRI investment are coming unstuck as the governments that approved the projects are voted out and the resulting Chinese-owned enclaves push up prices and alienate local populations.
It is best to see the initiative as a "vast geopolitical project aimed at cementing China’s political and trade role over that of the US, not an economic one in the sense that each project will generate a return," said Michael Every, head of financial markets research at Rabobank Group in Hong Kong.
Michael Kugelman, deputy director of the Wilson Centre’s Asia Programme in Washington, added: “Ultimately, a lot of these projects are lining the pockets of top regime officials to little benefit of those on the ground. That’s one of the sad realities of Cambodia.”
As in other Belt and Road locations, project funding typically comes from China, which has become Cambodia’s biggest lender, trading partner and investor, holding nearly half of the South East Asian nation’s $6bn in foreign debt.
Cambodia welcomes Chinese investment, but is concerned about the growing dependence on China, said Mey Kalyan, senior adviser to the Supreme National Economic Council. “We must come up with strategies to manage this investment to avoid problems in the future,” he said. “We should not allow just one country to dominate investment.”
Foreign direct investment in Cambodia nearly doubled to $6.3bn in 2017, according to the Council for the Development of Cambodia, with China the biggest investor for the past five years. Earlier this year, Chinese firms pledged an additional $7bn in new projects, including a motorway that would connect Phnom Penh with Sihanoukville.
The coastal city and Siem Reap, gateway to the famous temple of Angkor Wat, are also targets of Chinese investors. Last year, the Ministry of Land Management, Urban Planning and Construction approved more than 3,000 projects throughout Cambodia with a value of $6.42bn, nearly double that of 2015, before Mr Xi’s visit.
“In terms of currency and returns, they are very happy to be investing in a dollar economy, which is more stable, and not so interested in capital appreciation or rental returns,” said Mr Wheble.
Most of the new stock of condos is being bought by Chinese investors, who neither live in Cambodia nor rent the units, leaving some development zones, such as the prime riverside area of Tonle Bassac, eerily dark despite dozens of completed high-rises.
Chinese developers “build and wait, because they don’t care if they get local buyers or not,” said Rithy Sear, chairman of local conglomerate and developer WorldBridge.
For the developers, Cambodia offers a way to generate earnings outside of China in a country with a largely dollarised economy and a friendly government. While land and condo prices have risen steeply, they are still a fraction of those in China.
“It’s like peanuts to them,” said Mr Sear.
Still, cracks are beginning to show in the market. Apartment owners who once enjoyed rental rates up to $30 per square metre catering to a small community of expatriates have been forced to drop them by as much as 40 per cent this year, said Mr Wheble. Developers are looking at building blocks with smaller, cheaper units, or switching projects to other uses.
China’s Sino Great Wall International Engineering this year pulled out of the $2.7bn Twin Tower project citing financing risks and “greater uncontrollable risks.” The project’s owners, Thai Boon Roong Group and Sun Kian Ip, insist it will go ahead and broke ground in March. Sino Great Wall didn’t respond to requests for comment.
Meantime, Phnom Penh’s skyline continues its transformation. Before 2011, the city had no buildings over 15 stories. Businesses worked out of old villas or shop houses, mixed with Buddhist temples and modernist marvels from a two-decade architectural revival that ended in 1975, when the capital fell to the Khmer Rouge.
Some of the city’s poorest have borne the brunt of the change. Thousands of families were driven out of the area around Boeung Kak, a former lake in the city centre that was ten times the size of Central Park Lake before it was filled with sand for development. The project, owned by the family of a senator in the ruling party, proceeded in fits and starts over the past decade, until it was revived in 2016 with a new Chinese backer.
“We are very afraid,” said Thida, 28, who lives near what used to be the shore of the lake and is worried her home could be demolished.
“I want to change everything in Cambodia, but I cannot do it alone.”