The Kingdom’s construction boom will slow down in the next five years, according to government estimates, due to a glut of building space in the capital Phnom Penh and falling demand for new properties. According to figures from the Ministry of Economy and Finance, the slowdown has started this year and construction of new buildings will get progressively slower over the next five years.
The ministry gave a breakdown, indicating that this year will see a growth rate of 15 percent in the construction sector, compared to a growth rate of 19 percent last year. Next year, the construction sector will slow down to a growth rate of 12.4 percent. In 2018 it will decline to 10.3 percent and 2019 it will drop to 10 percent.
Minister of Economy and Finance Aun Pornmoniroth said on Tuesday in a workshop on macroeconomic policy framework and public financial management at the National Assembly that the country must brace itself with the expected slowdown in the global economy.
“We will see a slowdown in the construction sector. But that’s a good thing for the Cambodian economy because the property sector is reaching the stage where there is an oversupply of building space,” said Mr. Pornmoniroth.
“This oversupply can be a risk factor for the economy,” he added.
Nonetheless, the economy minister pointed out that Cambodia still enjoyed a strong year-by-year economic growth of seven percent, though, next year growth is expected to decrease marginally to 6.9 percent.
Kim Heang, president of the Cambodian Valuers and Estate Agents Association (CVEA), told Khmer Times yesterday that the slower growth of the construction sector in the next few years was a sign that the industry was correcting itself to be healthier.
“It was reaching a stage where demand will be met with supply, after the correction,” he said.
“It’s not surprising why the growth of the construction sector will keep falling progressively from 2016 to 2019. There is a current oversupply of properties,” Mr. Heang pointed out.
“The rich have bought houses and condominiums as residences and for investment purposes, the middle class, too, have their own places ‒ some with investment properties. So there is a glut now,” he said. “It’s the poor who cannot afford to buy any property that are left out. And no developer seems to be catering to them.”
Mr. Heang explained that the Kingdom saw a first boom in the construction sector from 2004 to early 2008 due to investments coming in from South Korea, China and Singapore to build condominiums and satellite cities.
Between 2008 and 2010, many businessmen who were involved in the first boom went into bankruptcy due to mismanagement in their projects. “In that period, there was almost no big construction projects,” he pointed out.
Then, things began to look up for the sector between 2010 and 2012, he said.
“Chinese, Taiwanese, Singaporean and Japanese investors started flocking to Cambodia and with local partners, the construction industry again began booming,” said Mr. Heang.
“Phnom Penh started seeing projects like The Bridge Condo, Bali Resort and the big land deal to later build Aeon Mall,” he added.
The 2013 general elections were also a crucial phase in the construction industry.
The 2013 general elections were also a crucial phase in the construction industry.
Mr. Heang said top developers and businessmen sold large tracts of land in order to get enough cash to fund politicians campaigning in the elections. According to him, there was a hiatus in the construction sector.
Construction started to pick up again after the 2013 elections seeing big malls like Aeon spring up in the capital, he said.
Mr. Heang said with the forthcoming commune council elections next year and the general election in 2018, there will be fewer construction projects.
“Developers and businessmen will again sell land and properties for cash to fund politicians,” he said. “And we will see a fall in construction projects.”
Investment in the construction sector reached a phenomenal $832.2 million this month, compared to $39.7 million last June, according to government figures.