The World Bank has warned that the significant growth recorded in the construction and real-estate sector, considered one of the country’s economic pillars, could ultimately affect overall growth due to a trinity of unanticipated and now negative factors.
In 2019, the construction and real-estate sector garnered investment worth approximately $11 billion, a 90 percent rise on 2018’s figure of $5.5 billion. But in a statement, the World Bank said that there are now significant downside risks that include a local COVID-19 outbreak, a prolonged decline in tourist arrivals and real- estate market correction.
Another major issue, according to the World Bank is Cambodia’s increasing reliance on Chinese investment and high outstanding levels of credit.
Mr Van David, Senior Associate at the PLATFORM IMPACT, a Public Private Partnership, pointed to the bursting of the real-estate bubble in the final two quarters last year, with the prohibition of online gambling and Chinese funding for casinos and real estate.
Van added that a flurry of condo projects, both old and new, have now been having difficulties finding buyers. “Many local entrepreneurs, borrowing loans from banks to rebuild their properties and then hoping to rent to Chinese tenants, are also scrambling to repay loans as these tenants have now dried up,” he told Khmer Times.
“Add this to the halt of consumerism, job losses and an increase in non-performing loans and the property boom that once fueled growth could now seriously hinder Cambodia’s economy,” he added.
However, the World Bank has offered some measures to lessen this gloomy outlook. Key to this is cushioning the potential impacts of real estate market correction, through implementing macro-prudential measures such as bank limits in terms of exposure to construction and real-estate sectors and tightening loan-to-value ratios, except for first-time home buyers.