Economic slump to spill over into real estate, construction

Cambodia’s construction and real estate sector will be hit hard this year as the Covid-19 pandemic slows down the economy. HENG CHIVOAN

Cambodia's construction and real estate sector will be hit hard this year as the Covid-19 pandemic slows down the economy, the World Bank said in a report earlier this month. The bank adjusted its projection of the Kingdom’s 2020 economic growth to 2.5 per cent from its earlier “slightly below seven per cent” prediction.

However, it expects growth to rebound to 5.9 per cent next year under the baseline scenario.

The tourism sector has been the hardest hit by the outbreak while the garment industry currently faces a global demand shock as well as the partial withdrawal of the EU’s “Everything But Arms” trade preferential scheme.

The report said: “Spillovers to the construction and real estate sector – one of Cambodia’s major growth drivers – amid financial market turmoil could potentially be detrimental to growth.

“It is crucial to implement macro prudential measures such as bank limits in terms of exposure to construction and real estate sectors and tighten loan-to-value ratios, except for first home buyers, to cushion the potential impacts of the real estate market correction.

“Recent monetary policy measures announced [by the National Bank of Cambodia] include reductions of reserve requirement rates, benchmark rate, and liquidity coverage ratio, he said.

Cambodia Constructors Association general manager and secretary Chiv Sivpheng said the association had not compiled a report of the condition of the construction sector.

However, he acknowledged that construction activity and imports of construction materials this year may be stagnant or slightly down.

He said the situation could be due to two main factors – restrictions on trans-border trade in goods and the principle of social distancing, which is intended to reduce the risk associated with the spread of Covid-19.

“Cross-border freight barriers could be a major reason for the decline in imports of construction materials earlier this year,” he said.

Keller Williams (KW) Sen Sok regional operation principal and Sam Sn Realty Co Ltd president Sam Soknoeun said the outbreak’s spread is showing signs of slowing.

Overall, the Kingdom’s construction and real estate sector is cooling but not stalling, though rising concerns over the pandemic have thrown a wrench into the production, transport and distribution of goods around the world, he said.

“The construction and real estate sector is definitely being affected, but not very seriously,” said Soknoeun.

Huy Vanna, secretary-general of advisory firm Housing Development Association of Cambodia, told The Post recently that construction of high-rise housing and townhomes developed by locally-owned clients was modest.

However, he said, larger-scale buildings owned by foreign investors or clients are set to decline in the first half of this year.

“Of course, the impact of the pandemic has caused some major projects to be suspended or slow down construction,” said Vanna.

Investment in the Kingdom’s construction sector reached $11.4 billion last year, an increase of 98.74 per cent compared to $5.3 billion in 2018, said a Ministry of Land Management, Urban Planning and Construction report.

The World Bank noted that economic rebounds in China and other major markets next year would improve Cambodia’s growth outlook.