Real Estate Boom in Cambodia's Capital

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Since Cambodia is still a very poor country that has never seen so much investment capital flying around, the trend is unnerving some observers. "Where is the money coming from? Cash coming out from under the mattresses, cash coming from overseas," says John Brisden, vice-chairman of Acleda Bank, the largest bank in Cambodia. He calls the real estate boom "very unusual" because much of it is not being financed by bank loans. Are there signs that the boom may be running its course? Brisden doesn't see a sudden popping of the bubble. Instead, he says, "people envision a slowdown. The scenario is a lot of empty high-rise properties but no forced sales."

Most of the big new projects are coming from Korea. Financing the Gold Tower 42 skyscraper is Korea's DaeHan Real Estate Investment Trust. Yonwoo is the developer. A director at Yonwoo in Seoul, who asked not to be named, says his company began exploring real estate development opportunities in emerging economies three years ago, when Korea's domestic construction market began cooling. "In view of a number of wealthy Cambodians and a growing number of foreign investors arriving in Cambodia, we are confident Gold Tower 42 will be a success," the director says. Phnom Penh-based salesman Rithy says there are "high-ranking Cambodians" involved in the project, but he won't say who.

Investors Face Legal Hurdles

The 52-story skyscraper announced in January is a project of Korea's GS Engineering & Construction. The Seoul company plans to start construction in June and finish in 2012. A 34-story project near the Russian embassy will have serviced residences for 280 households and several floors of apartment blocks on top, as well as shopping and an international school, according to GS spokesman Choi Byoung Geun. "Cambodia really needs this kind of Class A facility," says the business development chief in Cambodia, Mu-Hion Woo, who figures by the time the $1.2 billion project is built, the demand will be there.

A Korean developer is also behind Camko City, a new suburb northwest of Phnom Penh with a $2 billion price tag that is in the early stages of development. World City, the property developer, began construction last June and is scheduled to complete the first phase by November, 2009, according to Korean contractor Hanil Engineering & Construction, the Seoul-based company that is also the contractor for Gold Tower 42.

There are some legal hurdles for potential investors to overcome. For instance, foreigners are not allowed to own real estate outright in Cambodia. But there are plenty of ways to get around the law. Foreign investors can set up a joint venture with Cambodian partners, use long-term leases, or put the land in the name of Cambodian partners. There's even the possibility of becoming Cambodian. "With an investment of a certain size, you can get citizenship. It's a contribution to the country," says Matthew Rendall, a lawyer with Sciaroni & Associates, a law firm in Phnom Penh.

Evictions in the Name of Development

National Assembly lawmaker Sam Rainsy, a former Finance Minister and leader of the largest opposition party, calls many of the real estate deals "shady." He argues that Cambodia is awash in illegal cash plundered from the sale of national assets, including illegal logging and the sale of public lands, where land titles are easily changed and the sales revenues never get accounted for in the state budget.

And there has been a social cost to all the new development. The scramble for prime land has led to widespread evictions of people without clear land titles to the properties. A report by human-rights group Adhoc in Phnom Penh says in 2006 and 2007 more than 50,000 people were evicted for development. Chan Soveth, program officer at Adhoc, says he expects 4,252 families in Phnom Penh to be evicted from villages surrounding Boeng Kak, a lake in the city where a developer wants to build a new township that will have condos, a hotel, and shopping. "It is very bad and getting worse," says Soveth. Adds human-rights lawyer Am Sam Ath of the nongovernmental organization Licadho: "There is no balance between the big development and the rights of the people."

But with land prices continuing to skyrocket, regardless of what happens with the skyscrapers, there is no indication that the land speculation boom will stop. "No one can predict," says Bonna, but he thinks it could run "maybe five years more."

With Moon Ihlwan in Seoul.

Postlewaite is a reporter for BusinessWeek in Phnom Penh.