Investment Q&A – 金柬世紀 GCC

In the past, investors put their focus on the market in America, Australia, Canada and the UK. However, since 2017, there are more investors with international insights choose Southeast Asian market, hoping to do some oversea asset allocation. The most important reason is that we can be more rational and objective to see the advantages and disadvantages of Euro-American and Southeast Asia countries. At the time of investing at America, Australia and Canada market, we look at the country stability, legal system, social system, education resource, and resources of natural environment and humanity. They do have their own shortcomings. Let’s say America for example, the property tax is relatively high. Besides, the buying cost, holding cost and maintenance cost are very high. The Euro-American market is relatively mature and stable. Its growing rate is relatively low. In the past two years, the “One-Belt-One-Road” tactic of China has created great influence towards Southeast Asia. In terms of the economy, its growing rate is relatively high. The expected growth rate of property is relatively high. In Southeast Asian property market, the overall cost are low. This is a very big advantage of having property in Southeast Asia.

Why investing in Cambodian property is a choice?

Capital Safety Protection

1. Country Stability

Constitutional monarchy, a mix of royalty of middle ages and government with system of capitalism and democracy. One of the characteristics is it is relatively stable. Cambodia is a politically stable country in Southeast Asia. From 80s to now, the stable politics keep the economy of Cambodia in a constant growth state.

2. Friend with China

Among Southeast Asian countries, Cambodia remains a friendly relationship with China. This kind of friendship is kept not only in the political and economical way. Mostly, it is also in the community. The friendly relationship with China is already reached to the recognition of culture. This friendly relationship is very stable.

Economic Growth

1. High GDP growth

GDP growth is at 7% during normal year. Other than China and India, it is rare to have a third country like Cambodia. In terms of economic growth, it has a satisfying and stunning result.

2. Demographic Dividend

The demographic structure of Cambodia is extremely youthful. The average age of the citizen is 27.5. 70% of the population is 34 averagely. The demographic structure of Cambodia provides a strong support of powerful manpower to the economic growth. It also contributes the powerful growth of domestic demand in the country. The purchasing power of the youth is the strongest. Because of the long term influence from the French colony, the citizens strike for living quality is relatively high. Because of the fact that the population growth rate of Cambodia is highest among Southeast Asia, population will grow rapidly in the coming 10 to 20 years. The demand of living is significant. This is also one of the reasons why the property market in Cambodia is brightening in the future.

3. The “One Belt One Road” Strategy

The “One Belt One Road” policy has already changed the living in Cambodia. Chinese invested most of the local infrastructure facilities . Investment projects include electric grid, optical submarine cable, highways etc. It is believed that there will be a strengthened investment trend and exponential growth.

4. US dollar assets

English and US dollar are widely used in Cambodia. Most of the assets here are valued and traded in US dollar. US dollar is used in both bank savings and loan. Using US dollar in the currency market can make the assets of the investors remain at a stable situation. This is one of the greatest advantage for Cambodia compare with other country in South-East Asia.

What is the rental return rate of the prime location in Cambodia?

With a low base period of property price, high economic growth, high rental return, investing in Cambodian property becomes a world trend in recent year. Cambodian property is a hotly contested spot of foreign investment. We all know that investing in Cambodian property has a leading investment return rate in Southeast Asia ,according to the “ 2018 World Wide Return Rate of Rental”, Cambodia hit 8-12% of return rate of rental.

In the whole property market in Cambodia, especially Phnom Penh, situated in the heart area in Southeast Asia. The net growth of the population is 250,000 from 2011 to 2016. The average growth is 2.97%, ranking 3rd in the world in terms of population growth. It is forecasted that the population of Cambodia will be increased from 15 million to 19 million in 2030, 3 million in Phnom Penh. At that time, there will be a housing needs up to 800 thousand apartments. It is worth to mentioned that the rental ratio in Phnom Penh is at 80%-95%. The vacancy rate is low. We can see that the rental needs in Phnom Penh is strong. The future rental growth has become a trend. Under the current speedy development stage, the progress of urbanization is going fast. Benefited from the foreign business investment, the prosperity of the tourist industry, the growth of the property price and high rental return rate, Phnom Penh has become the oversea property investment city with the highest return.

What are the tax issues in Cambodian property investment?

Property transaction	1. Registration tax 4% (responsible by buyer) 2. Property tax 0.1% of the market value ( Paid by landlord annually, below 25000 US dollars is exempted)
Property for rent	10-14% of the annual rent
Land transaction	Transfer tax 4% of the market value Vacant property tax 2%
Land and property	Value-added tax (exempted for individuals)

With the emerge of the Southeast Asia property market and the low investment entry barrier, it attracts the sight of the worldwide investors. With the benefits of low housing price, low tax, no restriction of buying, permanent property right, US dollar assets, Cambodia became the hotspot of the emerging property investment.

For the other tax items, Cambodia needs to collect property tax (0.1% of the value of the real estate of the part that exceed 25000 US dollars), also 2% of the unused land tax. Other than that, property holders need to pay 10% of the rental tax. Other tax items include 4% registration tax of property and transportation transaction, 0.1% registration tax and licence tax for the service and goods contract signed between Cambodia companies and government.

Is the economic development stable in Cambodia?

According to the report announced by the Council for the Development of Cambodia indicates that, for the first 4 months in 2019, there are 115 projects approved in Cambodia. The investment amount is about 40 billion US dollars. Compare with the 81 projects in 2018, it is a great increase. From 2014 to 2018, there is a healthy growth in Cambodia investment. According to the Cambodian Development Council (CDC) report, there are 959 investment projects approved in the whole country. The total investment amount is 23 billion US dollars. The political situation in Cambodia is stable. There is an average GDP growth rate of 7% for consecutively 9 years. It hit 7.5% in 2018, exceed the expected 7.1%, exceed the average GDP growth rate of ASEAN by 2.5%. It attracts the attention worldwide, got a name of “New Economic Asian Tiger” from Asia Development Bank(ADB). Under the tension of the worldwide economy, many international organizations lowered their forecast on economic performance of different countries, Cambodia is still keeping a strong growth, considered optimistic.

Does Cambodia allow foreign to have the right of real estate possession?

According to the legal regulation in Cambodia, the right of land possession is only restricted to Cambodian citizens. In general, only if the company has the 51% ratio of shares owned by Cambodian citizens, it can apply for buying lands. The bill of foreigners to acquire land rights passed in 2010, foreigners are allowed to buy property units except those on the ground floor with no restriction on the foreign capital ratio. They can legally invest and buy the apartment above second floor (included), which means they can have the right of apartment possession, but not the right of land possession. Foreigners can buy properties above second floor (included) with their passports. Because of the large number of foreign investors focusing on the high speed development in Cambodia, Cambodia pass the trust law in 2019, giving the foreign investors a legal investment approach under the protection of the government regulations. Nowadays, Cambodia government just issue five Trust Company license for the well develop company.

(For more information, please refer to the articles in GC Trust. https://gcc-gp.com/gc-trust/)