Condo oversupply concerns enter danger mode as buyers go on hiatus
Condo oversupply concerns enter danger mode as buyers go on hiatus
After market conditions took a turn for the worse in mid-2016, the condo market was the first to put its foot on the brakes with the suspension of high-profile condo The Bay in August, which was subsequently followed by a slowdown in sales in the high-end condo sector.
If the rate of housing sales this year continues to crawl, a substantial number of condo projects will not be spared ‘non-occupancy’, especially following the latest CBRE report which showed that 8,000 condo units are expected to enter the market by the end of 2017.
Also included in the report was the number of units to come online next year – 13,000.
According to Thida Ann, associate director of CBRE Cambodia, 80 percent of this year’s 8,000 expected condo units have been sold.
Cheng Kheng, head of Hutton CPL’s advisory board, reiterated the point that competition in the market was getting tighter, with developers switching from luxury condos to mid-range ones catering to the middle-income bracket.
“The concerns of some developers are valid because they are inexperienced. They invest to gain profits,” he said.
Continuing, Kheng cautioned: “At this point in the game, those who don’t have enough funds and are waiting for deposits from their buyers to continue the construction will not succeed.”
Nonetheless, he reassured that there were developers treading cautiously in starting new projects while waiting for the opportune time.
When speaking of supply and demand, Kheng said there were only a handful of high-rise residential buildings in Cambodia compared to neighbouring countries, raising the question of why there was even an oversupply in the first place.
“While thousands of young Cambodian couples are getting married every year, their financial capability is still very much limited compared to the price of condos,” he said.
Intan Kasen, investor of high-end condo project Habitat, situated in Tonle Bassac, said she wasn’t worried about the competition in the market because her development catered to a niche market of foreigners desiring utmost privacy. Habitat has only 13 units.
“I like investing in small projects because I see potential in this market as some of those who stay in condos are in need of privacy and relaxation after a long day of work,” she said.
Three of the 13 units have been sold, with prices starting from $200,000.
Ly Senleap, CEO of FURI Real Estate, said in the current market, both investors and buyers were anxious about the political situation with communal elections nearing this year and national elections occurring in 2018.
He added, “In my opinion, investors should not be worried because the politicians know how to work together.”
Senleap said now was still a ripe time to purchase condos on an own-to-lease basis, since Cambodia’s rental market was doing much better than its sales counterpart.
“For condo buyers, if they buy the wrong condos, they won’t be able to sell, which in turn causes them to lose trust [in developers]. Consequently, developers have to ask themselves how high the quality of their product would have to be in order to compete and appeal to a larger pool of the market.”
