In only 4 years of living in the high-rising Capitol of Phnom Penh, Cambodia, I have experienced a few trends shaping the way Developers and Investors are driving to make their money work for them today and are starting to change the whisper to a grumble of maintaining the value of their purchases for tomorrow.
The most important decision either party begins with is surely using the age-old real estate adage, Location, Location, Location. As Phnom Penh continues to rapidly grow, long and short-term rewards are available for those that seek to profit in on projects that are being presented as potential opportunities in every direction outside the central part of the city. As this initial phase of the real estate market begins to witness the completion of its first phase of high-rise Condominiums and Serviced Apartments from 2015 construction projects, a new goal is beginning to shift for anyone seeking to invest into real estate.
Buyers are starting to understand which projects are being built as promised, which are experiencing delays in the construction’s final stage for various reasons, or even completed better than expected. One thing for sure is that these pioneer Condominium and Luxury Borey Projects are introducing the preparation for what will be the expectation for the 2nd phase of homes entering the city. When the first phase brought buyers interested in buying to take advantage of the current sellers-market, coupled with incredibly high rental returns at the time of construction in 2016, a new reality is beginning to set in. The rental market is going towards a downward turn due to the influx of units entering the market for rental return purposes. Projects that offered Guaranteed Rental Returns (GRR) are strategizing how they can maintain those 6-8% ROI for the next promised 3-5 years. Even those developers that opted from those promises are leaving everyone on their own to find a way to maintain value in their rental race of catching tenants without a cheap solution. Although the market was showing ranges of 6-8% over the last two years, a positive note remains of the inflating supply, that the expected return on investment is still amongst the highest offered to investors when compared to neighboring countries. In a study by www.globalpropertyguide.com, Cambodia currently averages a 5.33% rental return, ranking 3rd, just behind Philippines and Indonesia, offering buyers from countries like China, Taiwan, Hong Kong, and Singapore excellent opportunities to invest in Phnom Penh for double their rental rates that average from 1.5-2.6%. Today, the trickiest part of the investment game, is finding the property and location that will offer the better than average return. The good news for this market is there are still ways to beat the average, but it does come with a cost that up until now, few developers or investors have wanted to accept the investment cost of professional property management.
As more projects pop up around the city, what made them great when first launched, may now have competitive issues with new construction nearby, or sub-standard finishes deteriorating the value of purchased units if not maintained properly. Other potential concerns expressed by owners are of occupants that are not controlled due to lack of building enforcements. Management issues like these create delays in the re-sale market that will be seen over the next 2-4 years, so anyone expecting to gain appreciation value off a sale from currently purchased units will have to wait longer than expected to find appreciation gains if their buildings are not maintained and managed correctly.
Over the next few years, apartments, condos, and leased villas all share the same competitive understanding in seeking highest potential value. As it stands, rental returns will be more important than appreciation gain while buyers wait for the demand of their unit to be activated by the unit sale completion of the building or reputation of value within that particular project. Should the return on investment drop due to mass supply, maintaining the quality level of the unit and building itself will add additional value in keeping rental prices and appreciation at their best.
Entering the next development phases, professional property management will become the supporting contributor to maximizing the best return potential for investors and home buyers purchasing units in Phnom Penh. The good news is that even if any 1st phase developers ignore the value for professional service managers, the owners and unit occupants are noticing the need for this service past the elementary steps developers and apartment owners may take from management companies to save costs. The industry will naturally demand it as tenants will seek out buildings and apartments that offer justifiably higher rent in exchange for the best service and assistance between vacant units. Owners and developers should seek a solution outside the reactive way of managing projects. Paying for management companies just to say a professional is managing their project but only using them as lease agents must change if we seek to maintain the quality that is being built in this growing market. Those Developers or owners that act ahead of the curve and seek for proper management service early will benefit in higher rental rates and higher long-term quality buildings for future re-sale value. With proper preparation, those that seek for proper help early will create the reputation needed to stay ahead of the pack.
Now that projects are completed and keys are being handed over, the final piece to the investors’ puzzle is finally here. If investors or home owners seek to maintain the highest potential purchase value or rate of return for the coming years, they must ask their developer selling their unit more in depth questions about how their unit will be managed, serviced, maintained, and request an explanation during the purchase process justifying the low or high management fees. No more one generic price management fee across the market for management solutions. No more ignoring support of the body corps or sinking fund that support owners after the developer’s warranties expire and deterioration begins if there is no proactive fund set up to protect your investment. Yes, the key to a fruitful real estate investment will always be location, location, location… but now to protect your unit value best… it is also about who and how is it managed.
Text : Jovany Antonio, Founder and Managing Director at Wayhome Capital Management