A boom year for building projects

A stunning rise in the value of construction projects approved by the government in the first half of the year could be a sign that developers have found a willing ally in the newly appointed minister of land management, who has pushed through hundreds of project applications he inherited when he took office in April.

Data obtained from the Ministry of Land Management, Urban Planning and Construction show 990 construction projects valued at over $6.5 billion were approved during the first five months of the year, compared with 2,305 projects worth $3.3 billion approved during the whole of 2015.

Hann Khieng, vice president of the Cambodia Constructors Association, said the surge in project value – over 400 per cent year-on-year – was because the new minister, Chea Sophara, “understands the needs of investors” and is keen to accommodate them. He said that since coming to office the progressive minister has readily given a green light to projects submitted under his predecessor, Im Chhun Lim, including many large-scale developments.

“The amount of the construction approvals has increased because the former minister left behind a stack of projects in the pipeline and the new minister has been duly checking and approving these projects,” he said.

When asked, Land Managment Minister Chea Sophara attributed the surge in the value of approved construction projects to two main factors: investor confidence in Cambodia attracting more big developers, and his team carrying out a government directive to improve the speed and quality of services.

“Based on the government’s new policy, we must provide good service to those investors who submit full details of their projects and specifics on their plans and investments,” he said.

Sophara said among the biggest projects approved this year were the Shangri-La Hotel, a 300-room luxury hotel to crown Oxley Gem’s $580 million mixed-use The Peak project in the capital’s Tonle Bassac district, as well as a separate 78-storey hotel development.

According to Kim Heang, president of Cambodian Valuers and Estate Agents Association (CVEA), Sophara has shown himself to be “much less conservative” than his predecessor.

Heang welcomed the faster processing of construction permit applications, noting that investors can become discouraged when they purchase land only to see the approval process for the permits to develop it move along at a glacial pace.

“Investors wanted the ministry to speed up the approval on the construction project so they can begin construction as soon as possible,” he said.

According to the World Bank’s annual Doing Business 2016 report, it takes 20 procedures and 652 days to obtain the necessary permits, inspections and certifications to build a mid-sized warehouse in Cambodia.

Ministry of Land Management officials have vehemently denied the World Bank’s timeline and reports of officials demanding informal fees to process documents, arguing that it takes a maximum of 45 working days to obtain a construction permit.

While the pace of the permit approval procedure may have created a backlog, Heang said this year’s surge in construction-project approvals was really more of an indication of the speed by which Cambodia’s property sector has been growing in recent years.

“I am not surprised by the number of construction-project approvals in 2016 because there were a lot of land transactions in Phnom Penh since 2012,” he said. “It takes from eight to 12 months to get a construction permit, so if you applied in, for example, January 2015, you might only get it in late 2015 or early 2016.”

According to Heang, the increasing scale and ambition of Cambodia’s construction projects will in turn attract more investors, which will have far-reaching benefits for the national economy.

“More capital will flow into Cambodia, bringing more jobs and tax revenue, and leading to improvements across the spectrum,” he said, describing what others might see as a property bubble forming as an opportunity in more competition.

While the Doing Business 2016 report indicated building quality was a serious concern – with Cambodia scoring just 6.5 out of 15 in the category – Heang said faster permit processing did not necessarily mean quality-control checks were being overlooked. He said the government had a master plan and diligently enforces regulations, which will prevent future issues.

This is important, he stressed, because the market is demanding high-quality projects.

“You must be number one, otherwise you will not be able to stand in the market,” he said.

Sear Chailin, CEO of CL Realty, said that while data show heavyweight projects are receiving construction permits he expects it could still be a long time until they break ground.

“There are always some problems that crop up in terms of the building itself so [developers] always end up postponing,” he said. “They seek permission, but do it later.”

He added, however, that this year he had seen many more companies start construction immediately upon receiving permits than in previous years.

Cambodian construction laws stipulate that developers must commence construction on their projects within two years of receiving a permit. According to Sophara, at least one major developer, South Korea’s Booyoung Group, has already had its permit revoked this year after failing to make headway on its project.

Additional reporting by Ayanna Runcie

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