Are you contemplating purchasing real estate in the Kingdom of Wonder? Are you uncertain whether it’s advantageous to buy now or defer until next year?
Market timing is subjective, and opinions vary. Your childhood friend residing in Phnom Penh might advocate for investing now, deeming it an opportune moment. Conversely, your Cambodian wife might hold a differing perspective, advising to wait for more stability before making a decision.
The property market in Cambodia is currently facing challenges due to the country’s fragile state. Stability is a crucial factor to consider when investing in properties, as it minimizes risks and provides a secure investment environment, especially for foreigners.
Regrettably, Cambodia’s stability is far from optimal. According to the last Fragile State Index, the country scored 80.5, one of the lowest values globally. This fragility stems from Cambodia’s ongoing recovery from decades of civil war, heavy reliance on foreign aid and investment for its economy, weak infrastructure, and relatively nascent and corruption-prone political institutions.
This initial assessment indicates a negative outlook. Further examination of additional data may provide more insights.
Considering purchasing property in Cambodia? It’s essential to gauge the strength of the country’s economy beforehand.
According to IMF projections, Cambodia is poised for substantial growth. By the end of 2023, the country is expected to achieve a growth rate of 5.8%, showcasing accelerated progress. Looking ahead to 2024, experts predict a further increase to 6.2%.
But that’s not all. The forecasted trajectory suggests ongoing robust growth, with Cambodia’s economy anticipated to expand by a staggering 28.4% over the next five years, averaging a GDP growth rate of 5.7%.
This anticipated surge in growth implies that investing in Cambodian real estate now could yield significant returns in the future. Moreover, as more individuals invest in the country, the real estate market is likely to become more stable and secure.
It’s crucial to consider these indicators alongside other relevant factors before making any investment decisions.
Cambodia’s population is experiencing growth and an increase in wealth, which is positive news for real estate investors.
When exploring real estate options, it’s crucial to consider both population growth and GDP per capita, as they have significant implications:
- A growing population translates to a higher demand for housing, as more people require homes.
- A rise in GDP per capita means individuals have more purchasing power, potentially leading to increased spending on housing and appreciation of property values over time.
Over the last five years, Cambodia has seen a satisfactory average GDP per capita growth of 7.4%. Additionally, the country’s population has grown by approximately 4% during this period.
For investors looking to purchase and rent out properties, this trend bodes well, as it suggests a growing pool of tenants with the financial means to cover rental expenses. Moreover, there may be an uptick in rental demand in major Cambodian cities like Phnom Penh, Siem Reap, or Sihanoukville in 2024.
However, it’s essential to also assess rental yields, which indicate the return on investment from rental income. Based on data from Numbeo, rental properties in Cambodia offer gross rental yields ranging from 3.5% to 6.2%. While this indicates a moderate level of income generation, investors should conduct a detailed analysis, considering various factors such as property type and location, before making investment decisions.
In Cambodia, anticipate a moderate inflationary effect.
In simple terms, inflation occurs when prices rise. For instance, your favorite tuk-tuk ride in Phnom Penh may now cost 4,000 Cambodian riel compared to 3,500 Cambodian riel a couple of years ago.
For property investors, high inflation can offer several advantages:
- Property values typically appreciate over time, leading to potential capital gains.
- Inflation can drive up rental rates, increasing cash flow from rental properties.
- Inflation reduces the real value of debt, making mortgage payments more manageable.
- Real estate can serve as a hedge against inflation, preserving the value of investments.
- Diversifying into real estate provides stability during periods of inflation.
According to IMF projections, Cambodia’s inflation rate is expected to increase by 13.7% over the next five years, with an average annual increase of 2.7%.
This data suggests that Cambodia may experience inflation in the near future, leading to higher prices. Consequently, purchasing property could become more costly. However, investing now may offer the opportunity for your investment to appreciate, potentially allowing for a higher resale value in the future.
So, is it a favorable time to buy real estate in Cambodia?
In conclusion, considering the current factors, 2024 may not be the most opportune period for property investment in Cambodia due to several concerning indicators. Despite projections of significant growth, various factors temper this potential. While the growing population and improving prosperity indicate a larger market, the country’s overall fragility introduces instability that could impact property investments.
Neutral signals, such as the absence of high rental yields and expectations of moderate inflation, further contribute to a cautious stance. These aspects suggest that immediate returns and purchasing power may not align with investor expectations, necessitating a balanced assessment of long-term growth potential against short-term gains.
Moreover, Cambodia’s current fragility stands out as a notable negative signal. The country’s vulnerable state poses risks to property investments, including potential disruptions to the property market, political instability, and economic challenges that could affect property values and returns.
In summary, while some favorable and neutral factors exist, the overall context, marked by Cambodia’s fragility and associated uncertainties, suggests that 2024 may not be the most advantageous time for property investment in the country. Investors should carefully evaluate potential risks and rewards before making decisions.
