Women working construction in the Tole Bassac commune of Phnon Penh’s Chamkarmon district on January 15. Heng Chivoan
Over four years have passed since the 2020 Covid-19 crisis, which severely impacted global and regional economies. Adding to these challenges, the Russia-Ukraine war has further strained economic activities, in a series of events that has led to a sharp decrease in construction and real estate activities, with Cambodia also feeling the effects.
Slow progress in construction
According to the latest report from the National Bank of Cambodia (NBC), construction grew at a pace of 1.1% last year compared with 0.5% in 2022, supported by the development of public infrastructure such as bridges, airports and expressways.
At the same time, imports of construction materials and equipment rose slightly by 4.7% in 2023, down from the previous year’s 25.6% growth.
The area and cost of approved construction projects increased, particularly for residential and public construction projects, while the total number of undertakings decreased by 20.5%.
The real estate sector increased at a modest 0.5%, up slightly compared to 0.2% in 2022. Sales of homes, including apartments, twin and single villas, fell by 49.7%, while condo sales rose by 2%.
The Residential Property Price Index (RPPI) fell by 2.4%, with Phnom Penh down by 3.2%, while in the provinces it rose by 3.2%.
Chrek Soknim, president of the Cambodian Valuers and Estate Agents Association (CVEA), told The Post that although the construction sector experienced its slowest growth rate in a decade last year, it still signifies a positive sign of recovery.
He explained that the industry experienced its highest growth during the pre-pandemic period, particularly from 2018 to early 2020, when the country attracted billions of US dollars in investment from both foreign and local investors due to high demand.
“Since the emergence of the Covid-19 crisis, demand has been dropping while construction projects have been slowing down,” he said.
“We saw very little improvement in the sector last year after being hit hard by the spread of Covid-19 and then the ongoing Russia-Ukraine war. The growth rate for the industry remains very low,” he added.
Project approval remains strong
From January to November 2023, the government, through the Ministry of Land Management, Urban Planning and Construction, approved 3,142 projects covering an area of 12.69 million sqm with an investment of $5.255 billion, according to data from the Ministry of Economy and Finance.
Though the number of projects decreased by 684 compared to the same period in 2022, the total development area and capital investment saw increases of 92.8% and 99.7%, respectively.
In November alone, 218 projects were approved, encompassing an area of 362,517sqm and an investment of $145.7 million.
“The construction sector’s status in November was slightly better than in the previous month, while at the beginning of 2023, there was a significant recovery,” stated the finance ministry.
Chiv Sivpheng, general manager of the Cambodia Constructors Association (CCA), said the reduction in the number of investment projects, coupled with an increase in capital investment and construction area, suggests that most of the projects approved by the authorities are large-scale with considerable capital investments.
He said this demonstrates the confidence of major financiers, particularly foreign ones, in investing in Cambodia.
Sivpheng noted that the sector is anticipated to gradually recover from the sharp downturn experienced during the pandemic.
“Political stability and strong economic growth are key factors in attracting more real estate and construction investors … As direct investment increases, so does the demand for office buildings and factories,” he said.
Positive 2024 outlook
NBC governor Chea Serey, while addressing the closing ceremony of the central bank’s annual meeting in late January, highlighted that capital flows may fluctuate with the pace of monetary policy normalisation, potentially leading to uncertainty in investment flows and exchange rate pressures.
In this context, she said the Cambodian economy may continue to face high external risks.
Serey also pointed out that internal risks could be challenging, including the weak recovery of the construction sector and declining demand in the real estate sector.
She said this was primarily due to the real estate crisis and slowing economic growth in China, a major investor in Cambodia.
“Low inflows of foreign investment into the real estate sector will lead to a decline in revenue sources, which also support domestic demand for real estate,” she said.
“Despite these challenges, the Cambodian economy is optimally projected to grow at around 6.4% in 2024, largely buoyed by the continued growth of the services sector, especially tourism, and the recovery of the manufacturing sector, while agriculture, construction and real estate continue to see low growth,” she added.
Soknim recommended that the government should initiate a fund through commercial banks to provide more loans to help developers whose construction projects have been stalled.
“We should have a special fund to rescue the sector. Although the government approved many construction projects last year, they have not [begun], while some other projects have been halted or are being constructed at a very low speed,” he said.
