Affected by the epidemic, global foreign direct investment (FDI) has declined by 40%, which has also affected Cambodia’s economic development. Construction and real estate were also hit, with FDI falling by 10.8% year-on-year. Is the Cambodian real estate market, which is loved by foreign investors, entering an industrial ice age?
The global FDI recession, Cambodia only slightly reduced
The world is affected by the new crown pneumonia epidemic, not only the economy is shut down, but foreign direct investment has also plummeted by more than 40%. According to the United Nations Conference on Trade and Development (UNCTAD) report, global FDI fell by 42% last year to only US$859 billion. Such a low amount only appeared in the last century and the 1990s, and this figure was even lower than that during the 2009 financial turmoil.
Global FDI has suffered serious setbacks. Although Cambodia can hardly survive alone, it is only slightly affected. Its FDI in 2020 will only decline by 1% year-on-year.
Foreign investment substantially cuts investment in construction and real estate
China has always been Cambodia’s biggest supporter. In Cambodia’s FDI, 51% of the investment comes from China, far ahead of the second-placed Singapore (8.2%) and the third-placed South Korea (7.9%).
Among the industries favored by foreign capital, construction and real estate are among the top three industries with the highest proportion of FDI in Cambodia. According to a report by the Central Bank of Cambodia, foreign investment in construction and real estate will account for 17% of total FDI in 2020. Although the total proportion only dropped by 1%, compared with the figures in 2019, the amount of foreign investment attracted by the secondary industry dropped by 10.6%. Because of border control measures, investors cannot visit Cambodia, and the economic shutdown has reduced the willingness of foreign investment institutions to inject funds.
China also reduces Cambodian real estate investment
According to the Cambodia-China Times, Chinese buyers have won the triple crown of Cambodian home buyers. Without local inspections, overseas real estate investment has made many people timid. Although China is still the number one overseas buyer of Cambodian real estate in 2020, the purchase amount fell 36% year-on-year to only US$168 million. The second-ranked Singapore and the third-ranked United States have only US$122 million and US$30 million in investment. With the retreat of foreign capital and the negative growth of the Cambodian economy, Cambodian real estate seems to be cooling off.
Not afraid of the epidemic, the domestic demand market grows against the trend
Compared with the cooling of overseas investment, domestic buyers have grown substantially. According to data from the Central Bank of Cambodia, in 2020 bank credit loans, the total amount of housing loans accounted for 13.7% of total bank loans, a year-on-year growth of 2%. During the virus pandemic, the amount of mortgages continued to increase, with a year-on-year growth of 40% in 2020, which is not inferior to the 41.3% in 2019. This reflects the strong demand of the local people for the real estate market. It also means that the rigid demand market for Cambodian real estate has taken shape and is gradually growing and rising.
Just need to take shape, the market scale can be expected to grow
Rigid demand is an important basis for supporting a country’s real estate. With economic development, Cambodia’s real estate market has gradually shifted from foreign investment to domestic demand. From the perspective of the real estate market cycle, Cambodia is about to enter a period of rapid growth. The size of the local real estate market will likely expand rapidly in the next few years, especially after the epidemic is under control and economic activities resume.
Although real estate has suffered due to the epidemic, the future of the market can be expected. For this reason, entering the market on dips at this time is a good time to deploy future business opportunities ahead of time.