Dateline: Phnom Penh, Cambodia
It’s been eleven months to the date since I last departed Cambodia’s capital city of Phnom Penh.
To say that this city, and this country, is no stranger to change would be an understatement. Thirty-seven years after a murderous regime left the country with their plans for an agrarian utopia in shambles, Cambodia is a frontier market that doesn’t entirely feel like a frontier market.
It feels, well, like anywhere else in Southeast Asia, only with more grit.
However, the grit is fast waning. In the tourist and expat-friendly parts of Phnom Penh, new shops and restaurants are opening quickly.
It was only a year ago that I suggested that the window was closing on earning easy money from simple businesses like a restaurant. That window now appears to be closed.
Just walking one mile from the city’s backpacker-filled riverside to my villa in the trendy BKK1 district, I noticed a number of new high-end restaurants. I’m told that one Chinese restaurant cost more than $250,000 to build.
Old money that has been sitting on the sidelines is now coming out to play in the form of new boutique villa-style hotels, clone coffee shops, and Western restaurants.
A lot of that is stupid money. Some of the hotels I sifted through before settling on my current home were in locations that seemed difficult for attracting business. Sure enough, I’m told that there are some new projects here where some Cambodian guy with money figured “if that guy is making money, I can, too”, and put a few bucks into some cheap construction.
However, that easy money mentality can be found anywhere. When you begin to scratch the surface, there are some very interesting opportunities here.
In my case, I’m in Cambodia looking at cheap properties for sale. I’m going to purchase a property, do a little fix-up, furnish the place, and then progress from there. I’ll be documenting the entire process.
And, since I’ve been speaking highly of Cambodia for years, I wanted to share five reasons why I’m investing in Cambodian real estate.
1. It’s one of the few sane investment markets in Southeast Asia
I’m a big fan of Southeast Asia. The business culture, the opportunity, the weather. That’s why I set up a base in Kuala Lumpur, Malaysia; I wanted to be close to the action, as well as have easy access to flights to other emerging hotspots like China, the Middle East, and Africa.
I’m also a big believer in doing business in Southeast Asia. The sky is the limit here. Sadly, the same business-friendly Asian culture I love so much is also a big fan of investing in real estate.
And that has created some bubbles.
You see, historically, Asian governments have been rather oppressive. Economic freedom has not seen its brightest days in Asia. The hard-working people here have saved their money and don’t necessarily trust banks or other savings strategies that could allow for the government to get its hand on their money.
Enter real estate investing. The Chinese, Hong Kongers, and Singaporeans, in particular, are scouring Asia for opportunities to invest as a safe haven for their cash.
While cultures like China and Vietnam have an affinity for gold, they also love real estate.
That has led to surging prices in much of Southeast Asia. Last month, I reported that the Philippines condo market – the only real estate investment market open to foreigners – was in bubble status. $200,000 for a mid-range condominium of mediocre construction is no great bargain.
It only looks like a bargain if you’re in Singapore paying four times the price to buy a shoebox.
While Cambodia is definitely among the most emerging of markets here in Southeast Asia, prices are still somewhat reasonable. Of course, like anywhere, the sky is the limit. But for $30-50,000, you can buy a standard-sized, 600 square foot apartment in decent areas of Phnom Penh.
For the same money, you could purchase an apartment near the beach in Sihanoukville, just a short boat ride from the islands where wealthy Russians are spending gobs of money and selling $1 million private villas.
Cambodia is largely devoid of the flashy sales techniques that I’ve closely associated with a bubble. Having lived in Arizona and briefly in California during the go-go days, I see much of the same madness unfolding in places like Bangkok.
However…
2. Real estate renovation and flipping is still possible
As a conservative cash flow investor, I’ve never been a big proponent of the “fix and flip”. It often falls under the banner of “if it sounds too good to be true…”.
However, as a frontier market, Cambodia still has a lot of properties in need of renovation.
Sure, these properties can rent for $100, $200, or even $400 a month as is, but the trend is moving toward $1,000 and even $2,000 per month for properties to rent to expats working in oil and gas, finance, and other growing industries.
Phnom Penh may be a popular stop for backpackers – who are slowly being crowded out – but it also doubles as a new boom market where people are willing to pay much higher rents for properties in move-in-ready conditions.
Additionally, as Cambodian tastes become more Western and newly middle-class Cambodians seek Western luxuries, they will look to these renovated properties.
There are some rules to renovation that I’ll be teaching in my Master Class – such as “the Asian kitchen trick” – but in general, open, brighter spaces are a great improvement over what many older style Cambodian apartments look like now.
3. Tourism in Cambodia is growing
Again, being a cash flow investor, I like to see some money back before selling. I don’t subscribe to the mantra that “real estate never goes down” no matter how bullish I am on an area.
While I’ve made good money selling real estate before, I never make appreciation my only play.
For me, one of the best ways to earn solid yields is through tourism real estate. I outlined this play last year when I talked about buying foreign real estate just to rent on Airbnb.
In cities like Manila, Bangkok, and Ho Chi Minh City, you can earn nice returns simply handing over the keys to your cheap apartment to foreign tourists.
For now, Phnom Penh has plenty of boutique villas for tourists to stay in. I’m paying barely $50 a night for a full-service place in the middle of town, complete with a pool shared between only a few other rooms.
That means that the Airbnb play won’t come into effect quite yet. However, direct flights are about to start from Tokyo and even Istanbul. Routes from cities like Singapore and Kuala Lumpur have beefed up to Phnom Penh in recent years, as well.
More and more tourists are coming to Cambodia and the net effect will be positive for real estate.
4. International groups are locating here
Set aside oil companies like Chevron that negotiate profit-sharing deals with the government, a large number of international real estate companies, chain restaurants, and other companies are setting up shop here.
Part of that is to cater to the local market, where the middle class enjoys Sundays licking ice cream at Dairy Queen. Part of it is Vietnamese gamblers who cross the border for cheaper action. And part of it is the growing number of well-paid expats, a departure from the days when individuals working at NGOs were the only white people you’d see.
However, international groups that are already here are expanding their presence. One of the largest international schools, which I visited while here in Phnom Penh last year, is moving south in the city and expanding its footprint.
Other companies are following suit. International companies, which can deploy their capital anywhere, are choosing to increase their bets on Cambodia and have already seen the results.
5. Foreign real estate benefits on steroids
US persons can own foreign real estate and not declare it to the IRS.
It’s totally legal, at least until the government decides to make it illegal.
Cambodia is so far removed from the western world that it offers interesting benefits worth considering. If you’ve ever worried that your government could help themselves to money in an offshore bank account whenever they wanted, consider how much harder it would be for them to negotiate with a court in Cambodia to force the sale of a property they don’t even know about.
For those already following the law, but worried about future wealth confiscation, real estate in Cambodia is an attractive and cheap proposition.
There are, of course, the naysayers and those who claim that any gain in property prices is a bubble.
However, investing in real estate in Cambodia is different from your past experiences if you live in the West. Adaptation is the most important financial survival technique when taking part in what I call the world’s “new boom markets”.
For example, the title system here is very unregulated. There is no official property data or analytics, and any you could compile would be inaccurate. The market here is quite informal, yet the real risks are rather low.
I look at it as a true free market for real property, unlike the over-regulated mess present in Western real estate markets. Ironically, those markets are seeing declines and I believe the declines will get far, far worse.
You can argue against Cambodian real estate for technical reasons, but it’s hard to avoid the numbers. Cambodia has one of the world’s youngest populations and is well-positioned in a growing region with emerging tourism, resources, and labor opportunities.
There is plenty of room to offer “value add” here and outpace any competition, be it in real estate or anything else.
We have seen examples of places like Dubai and Cancun where the place went from zero to sixty practically overnight. Cambodia has great potential to be a similar success story. That’s why I’m putting my money where my mouth is.
At some of the prices here, anyone can get into the game, especially considering the massive credit bubbles and zero down loans we’ve seen propping up worthless property values in far-flung California desert cities.
The opportunity to make good money in the short term is very good if you follow the right steps. In the long haul, I expect Cambodia, property to be a very solid bet.
If you’re interested in Cambodian real estate or investing in emerging markets in general, all you have to do is contact me to get started.
