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Real estate sector ‘shift’ a time to reassess: Asian Business Brokers

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Many operators have handed back their businesses; Naim Khan-Turk, Asian Business Brokers’ Cambodia representative. Post staff

Real estate sector ‘shift’ a time to reassess: Asian Business Brokers

With the global economy reeling from the effects of the Covid-19 pandemic, Naim Khan-Turk, Asian Business Brokers’ Cambodia representative, advises that the acceptance of a seismic shift in the Kingdom’s real estate sector is key to market recovery.

Asian Business Brokers provides services for the buying, selling and renting of commercial property and land throughout Cambodia.

With lockdowns easing, can we expect a return to normality?

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Naim Khan-Turk, Asian Business Brokers’ Cambodia representative.

The Covid-19 crisis has brought about unwelcome changes to the world, from travel, to supply, to ways of doing business, and for those who had hoped that once lockdowns were over, everything would immediately return to normal – it won’t. This must be accepted, and moving forward, real estate professionals will have to reassess strategies and plans across the board.

What changes have there been since the global lockdown?

International travel has diminished to a trickle, and the hospitality industry has therefore been hit tremendously hard as would-be investors in Cambodia have dried up. Projects under construction have either slowed or stopped.

In the residential sector, just look on social media and witness the number of condominium and borey developers offering huge discounts to buyers. In the office sector, with a new supply of completed buildings on the market, developers will be open to negotiate deals.

With many small to medium-sized enterprises (SMEs) having had to hand back their business to landlords, those that have managed to negotiate rental reductions have been able to stay afloat. Businesses with a firm financial footing have temporarily closed operations, wisely using this time to renovate their properties and preparing for better times ahead.

How will this affect the condo market?

While we have seen new developments breaking ground recently, the actual commencement of construction is dependent on pre-sales, and as the condo market has largely targeted overseas buyers, they are not in abundance due to the current pandemic.

We can therefore anticipate construction rates to slow down or even stall until the market picks up.

Are recent developments cause for optimism?

Most governments across the world have had to implement lockdowns and travel restrictions internally and externally. Here in Cambodia, while travel restrictions have been eased, virus checks and quarantining are part of the new reality that visitors will have to comply with.

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Khan-Turk anticipates construction rates slowing. Hean Rangsey

It was recently reported that foreigners looking to invest in Cambodia will not have to pay the fee for entry as long as they are virus-free. While this is a positive step, don’t expect investors to immediately come back in their droves as this will take time.

What should tenants and landlords do?

Take a deep breath is the answer. However, those tenants and landlords who have worked together on rental reductions will have to review the agreement every few months until such times the situation starts to improve.

Existing landlords need to understand that real estate values have decreased in some cases by as much as 50 per cent and the rental levels of prior to the crisis can no longer be achieved, especially now there is a dearth of would-be lessees, a glut of rentable properties and no tourists.

Which sector has been hardest hit?

No sector will walk away unscathed, and what has become apparent is Cambodia’s need for continued FDI, both large and small, and tourism. One of the main weaknesses of the tourism sector here is that Cambodia is often just a one-off destination for most tourists – once experienced never to be revisited – and this needs to change.

The opening of regional airports and the development of ports will help with this in the long term as greater diversity in the Kingdom’s tourism is much needed, not just the usual Phnom Penh to Siem Reap for Angkor Wat and then back home.

Hotels, guesthouses and hostels – all dependent on tourism – are suffering most. Prior to the pandemic, some places were already under pressure due to an increase in rents, coupled with declining rates of room occupancy as it was becoming quite competitive between like-for-like accommodation.

This is why we have seen so many operators both large and small handing back their businesses or temporarily closing due to the pandemic.

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The hospitality industry has been hit hard as investors have dried up. Post staff

In the short to medium term, such businesses need to look at long-term rentals, such as offering attractive “staycation” packages with many additional extras included – be it the use of a pool, free Wi-Fi, free cleaning, free laundry, free breakfast etc – that can make it more attractive to tempt locals and expats who may be leasing an apartment and paying all the associated costs on top.

What does the future hold?

While there are no easy answers here, every downturn is good for planning, reassessing and buying.

The residential sector will see a competitive price war, while the office sector will have more supply than tenants. Therefore, while companies can plan for the future and obtain new office space, and homebuyers can demand more when purchasing, small businesses will struggle unless they have a strong client base, with hospitality being the hardest hit until visitors return in number.

It will take months if not years before the market strengthens, and the sooner the realisation is accepted that the real estate sector has shifted from a seller’s market to a buyer’s market, the sooner the market can rebound. The key now will be to target internal consumers wherever possible.

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