Will the recent increase of interest rates by the US Federal Reserve affect real estate in Cambodia, is a question that has been bandied back and forth by investors and property experts since interest rates were recently hiked by 0.25 per cent after nearly eight years at an unprecedented near-zero per cent following the global financial collapse – a measure that was implemented to buoy the world economy and help financial institutions remain solvent.

In Cambodia, shareholders of the financial market worry about the impact the hike could have towards drawing in investment while making debt more costly, with the increase translating to 0.28 per cent in Cambodia. However, what tangible impact this will have varies between real estate experts, bankers and government officials.

Chrek Soknim, CEO of Century 21 Mekong, said, “The increase of the interest rates in the US will increase those in other banks accordingly because the US collects a percentage of this money back home. So these banks will become stricter on their ability to loan. It will eventually affect the exchange flow because the real estate sales and purchases and development in Cambodia rely on bank transactions.”

He added: “If the banks increase the interest rates and reduce credit terms, this will slow down development, housing deals and mortgages. Now, commercial banks are increasing the interest rates from between 6 and 6.5 per cent to between 8 and 9 per cent, which is a sensitive issue for real estate.”

However, “there has been no major negative sign yet,” he said, before adding “that there will be because this will affect the investment and development in this sector.”

“It will hinder some development projects. The purchasing power would decrease, and so would real estate.”

While he maintained that there has been no immediate effect, he believes that if interest rates continue to increase over time, “it will cause a very serious problem.”

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On the other hand, Khum Monyroth, chairman of the board of directors of Daily Realty Group, does not see any serious problem, especially for local investors. He affirmed that the increase of the interest rates by the US Federal Reserve would primarily affect foreign investors. The repercussions depend on how investors engage with respective banks, he said.

“I think the trading flow will not go down if a project has already started. However, some projects may be postponed. Anyway, I don’t think that this slight increase of the interest rate will seriously affect this sector,” he said.

Sung Bonna, chairman of Bonna Reality Group, stated that the increase of the interest rates in the US is unlikely to significantly affect Cambodia, because the raise is on a relatively small scale. Furthermore, interest rates in the US are very low when compared to Cambodia’s. The discrepancy of rates between the US and Cambodia is too large for the issue to even be of much concern.

In Channy, CEO of Acleda Bank, also agreed that this issue of slightly raised interest rates will not lead to any serious backlash in Cambodia.

From the economic perspective, the effect may not be so serious at all, but the result varies from the real estate industry’s standpoint.

Mey Kalyan, senior advisor to the Supreme National Economic Council, said that traditionally, whenever the US Federal Reserve increases the interest rate, real estate in Cambodia faces considerable problems as it is pegged to the US dollar; especially as investors here initially expect to attract more investment after the ASEAN integration due to not only to the free flow of goods and services, but also to weakening power of regional currencies.

However, he continued, investors will not be able to repay banks when the cost of construction increases, or developments can’t spin a profit without a ready pool of local buyers and renters. Due to not being able to sell off their property, credit pressure may occur thus clotting the flow of cash, he said.

“This could then result in an economy wherein banks may reduce credits, paving the way to a slowing local economy,” said Kalyan.