PHNOM PENH (Reuters) - Guo Qirui, 30, says it’s a lonely journey when he goes home to his rented luxury condominium in Phnom Penh, the capital of Cambodia, the country where the Chinese retail executive has lived for nearly half a decade.
Guo now lives on Diamond Island, also known as Koh Pich, a neighborhood in the city where five condominium projects are underway or have been built. The majority of the homes, sales agents and residents say, are sold to absent Chinese landlords.
“Probably half of the completed units have been handed over but every night it’s all dark. Not one light is switched on,” Guo told Reuters.
A boom in high-end real estate investment by Chinese buyers in Phnom Penh has stoked concerns that they are pumping up a market already unaffordable for most Cambodians. The surge echoes fast growth seen in China’s own metropolitan hubs.
The Cambodian capital will have 22,828 luxury apartments by the end of this year, more than double the current number of 8,942 units, according to Ross Wheble, Cambodia country head at property consultancy Knight Frank.
He added this number, which includes condominiums that sell for an average of $3,500 a square meter, will swell to roughly 30,000 units by 2020. Many may soon face a struggle to find renters or local buyers who can afford the price-tag.
“In terms of the high-end segment there is oversupply,” he said. “This is a question that everyone’s asking in terms of sustainability. With Chinese investors buying these units, are they actually going to be occupied?”
Warming political ties between the countries and the promotion of Beijing’s Belt and Road initiative has attracted a surge of Chinese investment into the country, fuelling construction activity and a flurry of new hotels and casinos especially in cities like Sihanoukville.
Developers from countries including South Korea, Taiwan and Singapore began expanding into Phnom Penh’s condominium sector about four years ago in response to a shortage of such units and a relaxation of property laws, said James Hodge, associate director at real estate services firm CBRE Cambodia, adding that the city had just 1,500 such apartments five years ago.
The Chinese began arriving around the time President Xi Jinping visited Cambodia in 2016 in a visit that yielded a series of bilateral deals and a pledge to strengthen ties, Hodge and other industry executives said.
Among the Chinese developers active in Phnom Penh are Guangzhou Yuetai Group (600393.SS) and Prince Real Estate, which are selling schemes of over 1,000 units, larger than that of their foreign peers. Jiayuan International Group 2763.HK and Guangzhou R&F Properties (2777.HK) have also bought land in the city, with the latter’s project slated to have around 5,000 units, property agents said.
“As a group, the Chinese certainly are the most active,” Hodge said.
These developers have turned to Chinese buyers. Five property showrooms Reuters visited in Phnom Penh, which included those marketed by Singaporean and South Korean developers, now staff their receptions with Mandarin-speaking sales agents.
Sales agents said many buyers came via property purchasing tour groups organized by agencies and developers, but the hype is such that some like Beijing native Jiang Zheming bought a unit last month despite having never visited Cambodia before.
The 47-year-old engineer said he was attracted by the use of the U.S. dollar in Cambodia, which he felt was more stable than China’s yuan, as well as the six percent annual rental return guaranteed by the Taiwanese developer building his 80 square meter flat in central Phnom Penh.
Another Chinese buyer who asked to only identified as Alex, said he bought more than 100 flats over 12 stories in one condominium in the city’s center. He said he was not worried about being able to rent them out, saying that it was comparable to being in Beijing or Shanghai’s business districts.
Xi’s signature Belt and Road initiative was key to his decision, he said. “Phnom Penh is the initiative’s starting point so development here is booming.”
Developer Jiayuan, which announced that it had paid $35.6 million for a site in Phnom Penh this month, said the deal was part of its plan to develop quality projects in regions involved in the Belt and Road initiative and expand in Southeast Asia.
Guangzhou R&F said in an email that its Phnom Penh project represented its attempt to enter the local market and it would aim to sell units to both local and overseas buyers.
But some residents in the city are skeptical, including Diamond Island renter Guo.
The worry is that resale demand will be weak with only a small pool of tenants able to afford rents that can cost about $1,000 per month for a one-bedroom flat - out of reach for most locals in Phnom Penh who Knight Frank estimates have an average monthly household income of $600-$700.
CBRE and Knight Frank said there were already signs the market was softening. The frequency of new launches has fallen while landlords were reducing their asking rents, they said.
Chrek Soknim, chief executive of Cambodian property agency Century21 Mekong, said he did not think a market slowdown would be bad for locals given that these apartment owners were mostly Chinese.
“If they can’t sell, it’s not a problem for us.”
Additional Reporting by SHANGHAI Newsroom and Clare Jim in HONG KONG; Editing by Raju Gopalakrishnan