Cambodia is on the verge of becoming a prime destination for expats interested in buying property. Boasting one of the fastest-growing economies in the world, early risk-taking investors can gain significant yields. Moreover, Cambodia is the last frontier Southeast Asian nation, hence welcoming foreign investors with open arms.
Unsurprisingly, corporations and individuals pour in to partake in this flourishing market. Before engaging in the Cambodian property market, however, you have to consider several things. These include ownership regulations, where to buy, what type of property you should purchase, and so on.
The Cambodian Housing Market
Per the Global Property Guide, Cambodia has an oversupply of the housing market. In Phnom Penh, the average cost of high-end condominium units dropped by 1.1% y-o-y to $3,190 per sq. m. in Q3 2019. That is according to the figures from CBRE Cambodia. Quarterly, prices of high-end condo units slumped by 1.9% in Q3 2019 from the prior quarter.
Per local real estate experts, the apartment market in Phnom Penh will likely cool this year. That is thanks to the oversupply of apartments in the city. CBRE Cambodia reveals that the overall supply of condo units is up by 5.1% from the previous quarter.
The World Bank advises the Cambodian government to closely monitor the construction and real estate growth by crafting policies that could help minimize speculative activity.
Recent reports indicate that Cambodia’s economy grew by roughly 7.5% in 2019. That figure is up from a 7% expansion in 2017 and a 7.2% average yearly growth rate over the past six years. And, credits to strong exports as well as tourism, construction, and real estate sectors, the economy is expecting another 7% boom this year.
Can Expats Buy Property in Cambodia?
Expats buying a property in Cambodia is okay, but with certain restrictions. The Cambodian foreign ownership property law permits expats to purchase and own properties on the first floor or higher, not the ground floor. They cannot buy properties on the ground floor of a building since owning land outright is illegal in Cambodia under the foreign ownership property law. Therefore, expats can acquire a freehold condominium in the country.
Expats can own a maximum of 70% of a single building with a strata title. A strata title is a hard title that lets an owner divide a building into several individually saleable properties. It is also called the “condominium law,” and is generally given only to new condominium buildings that are being constructed for such purpose.
On the other hand, expats partnered in a legal entity in Cambodia can buy 49% of private property, with or without a structure. A Cambodian legal entity refers to any legal entity with at least 51% of shares held by Cambodian citizens. You can own any type of property you want in conjunction with a Cambodian national.
Buying Property in Cambodia
The process of buying a property in Cambodia is not risk-free, nor easy. Therefore, it is advisable to hire a competent property lawyer and real estate agent. You have four options when buying property as a foreigner in Cambodia.
Acquiring Land Through a Cambodian Company
This is arguably the safest way to buy property in Cambodia. It is a recommendable option in several other nations, such as Indonesia. However, setting up a company requires some time and capital. As a foreigner, you can only own a maximum of 49% of company shares. So make sure to set up the company with a trustworthy individual(s).
Although you are a minority shareholder, you can control property ownership by employing different contractual setups. It is important to do due diligence and get a property lawyer to aid you in the process.
Purchasing Land Alongside a Local Nominee
Buying a property in Cambodia with the help of a Cambodian nominee is a common strategy among expats. Purchasing through a local nominee means that you ink a trust-agreement with a Cambodian citizen. That grants you an absolute right to control the land.
The landowner typically mortgages and leases the land to you as an investor. Several other documents need to be drafted, commonly called “nominee security agreements.” The documents state the rights you have to control the land. These also reduce the risks that the nominee lease, sell, or transfer the land to another individual.
Taking Control of Land Through a Lease
Long-term leases are a popular way for expats to control land in Cambodia. Foreign investors can use land with a 15- to 50-year lease period. An example of this is the super-luxurious Phnom Penh Raffles Le Royal Hotel, which is on a long-term lease.
A long term lease grants the lessor rights to develop the land. While it is extremely simple, it is less secure than the company structure.
The period for which land can be leased from a private owner is indefinite in the Land Law. Typically, leases last 50 years, 70 years, or even 99 years. Those exceeding 15 years need to register at the Land Office. Meanwhile, the maximum lease period for state-owned land is 40 years, with a chance of extension.
As is the case with the landholding company structure, conducting a background check on the owner is necessary. You always have to check the title before entering any leasehold agreement with a landowner. This document states the owner of the property, along with your rights as a property owner.
Buying Land by Obtaining Cambodian Citizenship
This is perhaps one of the least attractive options since it is the hardest and most time-consuming. You have two options to qualify for Cambodian citizenship. The first is to live in Cambodia for at least seven years and show full proficiency in Khmer. The other one is to make a significant investment or donation.
However, it does not end there. The President should approve any citizenship application, which sort of speaks for itself.
What Are the Property Taxes Relevant to Buying Property in Cambodia?
Cambodia Property Tax is a crucial aspect that foreign investors have to understand when planning to buy real estate in the nation. There had been several changes over the past decade. Regulators are now more rigorously implementing existing legislation that was not previously followed. Additional regulations are also being introduced or in future consideration.
Cambodia Property Tax seeks to promote the utilization of land while benefiting the sub-national administrative budget. Officially known as Tax on Immovable Properties (TOIP), it taxes any immovable property with assessed values exceeding 100 million riels or roughly $25,000.
Who Is Responsible to Register and Pay for TOIP?
The term “property” includes lands, buildings, houses, and other constrictions built on the land. The collection of property tax is yearly, at a 0.1% rate on the property. The market price by the property evaluation committee formed by the Prakas of the Economy and Finance Minister determines the value of lands, buildings, houses, and other constructions built on the land.
TOIP is payable by the possessors, “final beneficiaries,” or owners of immovable property. That includes both legal and physical persons. The definition of a final beneficiary is any “physical person or legal person who obtains the right to use, the right to enjoyment, the right to disposition, and the right to final enjoyment over the real estate/immovable property.”
Meaning, they can be a long-term lessee with a lease of more than 15 years. The long-term lease contract must specify the party responsible for TOIP.