Cambodian Real Estate Market
The Cambodian real estate market has become one of the targets in Southeast Asia for foreign investors and real estate developers. Real Estate has remained aleading sector of the Kingdom notwithstanding the political crisis which occurredlast year following national elections and which impacted market sentiment.
With the market open to foreign ownership of private units in co-owned buildings from 2009, the demand for condominium, luxurious and high-end apartments in Phnom Penh has from that time significantly increased. Currently, there are 35 condominium projects in Phnom Penh, including both completed projects and developments under construction.
Cambodian Co-Owned Building Regulations
The background and catalyst to the growth and development of this segment of the market was the enactment by the Royal Government of Cambodia of Sub Decree No. 126 On The Management And Use of Co-owned Buildingon 12 August 2009 (“SD 126”).
In accordance with SD 126, the land parcel for any future co-owned building is required to start as a single certificate of title registered with the relevant land authorities. In order to then qualify as a co-owned building, the type of ownership reflected in this certificate of title must be converted from ‘normal ownership’ to ‘co-ownership’. SD 126 is also flexible in that both existing buildings and newly constructed buildings may be converted to co-ownership status. Notwithstanding, to date, we are not aware of any existing buildings where all units were owned by a single registered owner that have been converted into a co-owned building for the sale of individual units to foreigners.
With regard to newly constructed buildings, a certificate of title to land on which the co-owned building has been constructed may be converted from one title into a number of titles covering the individual units in the building. This is commonly known as the “strata title” process. At this stage a transfer of ownership to a new owner of a unit in the co-owned building may occur. As part of this process the single certificate of title is lodged with the land authorities and is replaced by the issue of a number of certificates of title referable to the units in the co-owned building.
Timing Around Issue of New Certificates of Title to Units
Historically, one issue with the strata titling process has been that the construction of the co-owned building was required to be fully completed before the strata titling process could be undertaken and new certificates of title issued to new owners of units. As the construction of a co-owned building may typically take years to complete, this condition proved a challenge to developers as it increased the risks for an investor who could only obtain their certificate of title to the unit at the very end of the construction process.
Change to Co-Owned Building Regulations to Meet Condominium Market Needs
In order to provide a more certain and attractive investment framework for the condominium market, the Ministry of Land Management Urban Planning and Construction amended SD 126, through Sub-Decree No. 114 dated 14 March 2014 (“SD 114”).
Specifically, SD 114 changed the definition of completion of the construction work of the co-owned building from full completion of the building (which included the internal fit-out) to completion of the structural work only. Accordingly, the developer may now apply for strata titling and transfer ownership to an investor at an earlier stage of the construction process.
In light of the above amendment to SD 126, the conditions for foreign investment in Cambodian condominium developments have become more favorable.