Interview with Ross Wheble, Country Head of Knight Frank Cambodia and Real Estate and Construction Committee Vice-Chairman

This week, we interviewed Ross Wheble, Country Head at Knight Frank Cambodia and Vice-Chairman of the Real Estate and Construction Committee. Mr. Wheble has been working in real estate in Cambodia for the past 10 years, and has seen the sector go through many transitions during that time. Read our interview to hear his thoughts on where the industry is headed and where investment is flowing.

EuroCham: Pre-Covid, construction was a big factor in Cambodia’s impressive GDP growth. How has the sector changed since then and how have you adapted your strategy?

Ross: There’s been over development in Phnom Penh, basically, across various sectors. Initially it was condominiums, now its office and retail. And it’s not just oversupply, it’s oversupply of overpriced properties.

This year is of course an election year as well, my third one since I moved to Cambodia. The run up to the election has always been slow in terms of business activity, including real estate, so that’s not uncommon. It has been compounded by macroeconomic factors, that aren’t specific to Cambodia, but affect the whole globe.

In terms of market fundamentals, there is positivity there, and tourism is making a comeback. At the moment, it’s lower-value tourism. Tourists are arriving from Thailand and Vietnam, so it’s over land, cross border, not the more long-haul high-value tourists. But it’s good that tourism is bouncing back because that was one of the key drivers of the economy.

It's good for retail and hospitality, two important real estate sectors. But overall, it has been four years of negative effects from COVID, and it was actually slowing down before COVID as well.

There was a lot of Chinese FDI coming in and that was dropping off already. Chinese expatriates went back for Chinese New Year in 2020 and China was locked down, so they couldn’t come back, and that had a big impact on the market.

I actually had to adapt my strategy when I came here 10 years ago because it was an unregulated market. It was a different environment, now we have more transparency and laws governing the real estate sector. That was something I had to get used to after working in the UK, which is a very developed market with lots of laws and regulations.

Regulation is needed, and it does help to attract FDI, but you also don’t want to be over-regulated. Now, it’s ESG (environmental social governance) that is a main driver for decisions within multinational companies, with governance being the key factor.

The activity you see now in various sectors is from big companies that have been here a long time, and they’re expanding or relocating. There’s not necessarily new companies coming into the market. We expect that to change over the medium-term, the next five to seven years.

EuroCham: What are the most popular areas for real estate investment in Cambodia?

Ross: Agriculture is increasingly becoming a key sector. At a recent breakfast talk with AusCham, we discussed how there’s a lot of technical assistance coming from various countries and governments. Australia has been heavily involved in agriculture for a long time, and they’re leaders in agri-tech.

Hospitality is coming back slowly as well, especially in the coastal provinces, Kep and Kampot. Siem Reap is going through a challenging time, but long-term I thing it’s got some of the most potential in Cambodia. Sihanoukville, on the other hand, has a bit of everything: tourism, a coastal location, industry, a deep sea port, and agriculture.

The development of pretty much every country has always ben though manufacturing and industry. It needs to move to more high tech, high-value here, which we’re slowly seeing. If you look at statistics, I believe textile exports were down about 18% from January to June, but overall exports were only down 2%, showing that Cambodia is exporting more diversified goods to more diversified destination markets.

Cambodia is in a prime location as well to ensure it keeps growing. At the moment, there’s a lot of trade happening between Vietnam and Thailand, and a lot of that is done through shipping. But if you have that overland connection by rail or road, then Cambodia will really benefit. The government has many plans in the pipeline for this. The expressway between Phnom Penh and Sihanoukville was a game changer and now they’re building one to Bavet. And I hear that in Vietnam, they’re building one from Bavet to Ho Chi Minh. So you’d actually be able to drive to Ho Ch Minh in the same time it takes to get to Siem Reap.

They’re conducting a feasibility study now for an expressway from Phnom Penh to Siem Reap and Sem Reap to Poipet. This land connectivity will be huge for Cambodia. Finally, they’re also working on a canal from the Tonle Bassac River to connect with the ocean in Kep, so you won’t have to transport goods via Vietnam. This will be another game changer for Cambodia.

It will be a major driver for economic growth and touch all sectors, including real estate. That’s what the government needs to focus on, because at the moment, as I said, there’s been over construction and oversupply across many sectors. For any real estate sector to be sustainable long term, it needs to be driven domestic demand, not foreign investment.

Some other key factors driving real estate growth include the young population, and sustained economic growth that will naturally drive demand for real estate. The new generation of Cambodians want to be more independent and it’s moving away from the traditional style of living with your family.

There’s more opportunity and you can see similarities to what’s happened in other countries 10, 20, 30 years ago. You can look at that as a benchmark, and can see it happening now with social media and globalization. Good or bad, it’s changing market dynamics everywhere.

EuroCham: What are the current risks or downsides in investing in real estate in Cambodia?

Ross: When you look at residential investment, we speak with our HQ in the UK, and we talk about selling overseas projects in Cambodia, they ask what is the construction code? What is the law in terms of construction quality? There isn’t one. What’s the fire safety code? That’s just coming along now. So that is definitely one concern.

The lack of regulations and construction planning policy as well. When you go to BKK you see buildings that are very close together, there should be more space. The current supply and demand situation and pricing are also key factors. We are consultants and we advise clients if they should invest or not. Pure agents will try to just sell, whereas we will give trusted advice.

Sometimes you see projects that guarantee returns of 8% per annnum for three years, or something close to that. But at the end of year there, your returns are actually 2% because the rental market has dropped about 40% since pre-COVID. This isn’t a bad thing, because it makes Cambodia more competitive.

When I moved from Malaysia, I though I’d be able to get something better for less money, but it was four times more expensive than Kuala Lumpur. That was a supply and demand issue, there was no supply. That’s why the construction sector was so active. And now we’re in a situation where pricing is going down and we’re seeing a softening in the market, a pricing correction. There’s always ups and downs in real estate, but in the long term, real estate is always a really good investment.

EuroCham: There’s not much, if any, green space in Phnom Penh. What are your thoughts on this?

Ross: A lot of what I do is development consultancies. We do feasibility studies and development consultancies for advising developers on what they should build. We have recommended so many times to create open green space. Some don’t understand that by having some green space, you’re actually adding value to all of the real estate around it. You’re improving marketability, you’re increasing selling prices, you’re adding value for your buyers.

But there’s no thought process for that. It’s just maximizing built up areas, they want to build as much a possible and sell it.

Koh Pich has potential, we’ve been in talks about rebrand it a little bit. You’ve got Coconut Park and Treellion Park. It would be great to create something like a Marina Bay Gardens or botanical gardens, or some other tourism destination that drives traffic to the island. Footfall is another thing that drives demand for real estate. Then you can have coffee shops, retail, and residential.

There’s still this mindset that the land is too valuable and you can’t just put a garden there. You need to build. Globally, if you look at cities with parks, they are usually owned by the government, and the government has sold much of the land in Phnom Penh.

EuroCham: The REC Committee will host the Breakfast Talk: Beyond the Square Meter on September 7. Could you please explain why measurement standardisation is such an important issue and why people should attend?

Ross: This basically helps improve transparency.  For example in a condominium, the price is often quoted on the gross floor area. But what does the gross floor area include? Sometimes it’s circulation corridors, lift lobbies, areas that are not in your livable space. When you convert that gross price to what your net living area is, it’s a very different price.

That’s one side of it in terms of real estate agencies buying and selling residential or office space. There are international property measurement standards and there is a push to adopt these. For big institutional investors that are buying office buildings around the world or retail locations, you need to be able to compare apples with apples, right?

So how do you measure this building in this country? And is it the same as how I measure another building in another country? And how do you compare pricing, valuation, legally here as well, to get your strata title for condominiums?

You can only have the certain areas included within that strata title. Yet the developers will quote, I mentioned before on the pricing, in terms of gross area, what is that? We need a clear definition of measurements.

Now, different companies in Cambodia will use different standards. Oftentimes, developers from different markets will adopt their measurement practices and apply it here.

For example, in Singapore, they measure from the internal area of a wall, whereas here they measure from the outside surface of the wall. This can create a 10-15% difference in the area. In legal contracts, it often states if there’s a difference of 5-10%, the developer needs to compensate the buyer.

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