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Foreign Direct Investment in Real Estate in Cambodia

Posted by IPS Cambodia on August 9, 2023
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Cambodia’s real estate market is still in its early stages of development, presenting significant growth potential for the future. As the country continues to progress, the demand for property is expected to rise, opening up opportunities for foreign investors to capitalise on the expanding Cambodian real estate market.

According to the Council for the Development of Cambodia (CDC), foreign direct investment (FDI) in real estate in Cambodia increased by 53% in 2021 – from US$1.5 billion in 2020 to US$3.4 billion. This marked the highest level of FDI in real estate since 2013. The CDC projects that FDI in real estate in Cambodia will continue to grow to $4.6 billion in 2023.

The surge in foreign investment in Cambodian real estate can be attributed to several key factors:

Foreign direct investment, net inflows (% of GDP)

Source: WorldBank.org

Strong economic growth
The Cambodian economy grew by 7.5% in 2021, positioning it as one of the fastest-growing economies globally. This robust growth has created new opportunities for businesses and investors, particularly in the real estate sector.

Affordability
Compared to other Southeast Asian countries, Cambodia offers relatively affordable property prices. This affordability makes it an attractive market for investment.

Favourable tax rates
Cambodia boasts a favourable tax environment with comparatively low tax rates. This further enhances its appeal as an investment destination for foreign investors.

Supportive business environment
The Cambodian Government has implemented measures to facilitate business operations for foreign investors, making the country an enticing investment destination.

Political stability
Cambodia provides a stable political environment, ensuring a secure climate for foreign investors.

Growing middle class
Cambodia’s middle class is rapidly expanding, resulting in increased disposable income. As a result, there is a growing demand for housing and other goods and services, driving investment in the real estate sector.

The rise in foreign investment in Cambodian real estate has yielded several positive impacts on the country, including:

Economic growth
Foreign investment has played a significant role in stimulating economic growth in Cambodia.

Job creation
Increased foreign investment has led to job opportunities in sectors such as construction, real estate and tourism.

Improved living standards
The influx of foreign investment has contributed to improving living standards across Cambodia.

Infrastructure development
Foreign investment has driven the development of essential infrastructure, including roads, airports, ports and power plants.

The government of Cambodia has enacted a number of recent laws and regulations to promote foreign investment in real estate.

The Law on Investment in the Kingdom of Cambodia was implemented on 15 October 2021.

This legislation has attracted increased foreign investment to Cambodia by providing a clear, transparent, predictable and non-discriminatory legal framework for investment. It offers several incentives and guarantees for investors, several of which do not apply in neighbouring Southeast Asian countries:

INCENTIVES FOR FOREIGN INVESTORS

  • Income tax exemption
    Foreign investors are exempt from income tax for the first five years of operation. After this period, they are subject to a reduced rate of income tax.
  • Land ownership
    Certain restrictions notwithstanding, foreign investors may be eligible to own land in Cambodia.
  • Repatriation of profits
    Foreign investors have the freedom to transfer funds in and out of Cambodia.
  • Customs duty exemption
    Foreign investors are exempt from customs duties on imported goods used for their investment.

GUARANTEES FOR FOREIGN INVESTORS

  • Non-discrimination
    Foreign investors are protected from discrimination based on their nationality.
  • Access to dispute resolution
    Foreign investors have access to international dispute resolution mechanisms, such as the International Chamber of Commerce.
  • National treatment
    Foreign investors are entitled to the same favourable treatment as domestic investors.
  • Protection from expropriation
    Foreign investments are safeguarded from expropriation, except in cases of the public interest for which there must be adequate compensation.

The amendment to the Strata Title Law of Cambodia (2009), introduced in 2015, has made it easier for foreigners to purchase property in Cambodia. This amendment establishes a more transparent and democratic system for managing strata-titled buildings.

The amendment to the Strata Title Law of Cambodia has brought the following benefits:

BENEFITS FOR FOREIGN INVESTORS

  • Equal rights
    Foreign investors have the same ownership rights as Cambodian citizens for owning strata titles. This allows foreign investors to own and enjoy strata-titled properties, as well as utilise communal areas.
  • Transparent rules
    The rules for the sale and transfer of strata titles have been made more transparent and democratic. This simplifies the process for foreign investors wanting to buy and sell strata-titled properties.
  • Building size
    The minimum-size requirement for a strata-titled building was adjusted to 100 units. This change facilitates the development of condominiums that are more appealing and affordable for foreign investors.
  • Fire safety standards
    Strata-titled buildings are now mandated to have a fire-safety system, providing added security for foreign investors.

These benefits have positioned Cambodia as a more attractive destination for foreign investment in the real estate sector. In recent years, there has been a notable increase in the number of foreign investors acquiring strata-titled properties in Cambodia.

The Trust Law of Cambodia (2019) is a significant piece of legislation that promotes the expansion of the trust sector in Cambodia. This law establishes a clear and comprehensive legal framework for the use of trusts, protecting the interests of settlors, trustees and beneficiaries of trusts.

BENEFITS FOR FOREIGN INVESTORS

  • Increased investment
    The Trust Law of Cambodia has led to a rise in foreign investment in Cambodia by providing a clear framework for trust utilisation. Trusts can be employed to invest in various assets, including real estate, businesses and securities.
  • Reduced risk
    The law minimises the risk of disputes between trustors, beneficiaries and trustees through a clear process for dispute resolution.
  • Enhanced asset management
    The law enhances the value of trusts by assuring foreign investors of ownership and management certainty.
  • Asset protection
    Trusts provide foreign investors with a means to safeguard assets from creditors, lawsuits and other risks.
  • Tax planning
    Trusts can facilitate tax reduction for foreign investors.

The Trust Law of Cambodia offers numerous benefits to foreign investors considering the use of trusts to hold assets in Cambodia. The law establishes a clear and comprehensive legal framework for trust utilisation and includes safeguards to protect the interests of foreign investors.

The foreign investment trend in Cambodia real estate is expected to continue in the future, driven by several factors, including the development of new:

  • condominiums in Phnom Penh and Siem Reap
  • commercial centres in Phnom Penh and Siem Reap
  • coastal resorts
  • industrial parks
  • infrastructure projects, such as roads, bridges, ports, railways and airports

With a favourable business environment, political stability and robust economic growth, Cambodia continues to attract FDI. The development of new projects, along with the growing demand for housing and infrastructure, will further fuel this trend in Cambodian real estate in the coming years.

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