By Geoffrey Cain
PHNOM PENH - Planned to tower 52 stories above this city's low-slung skyline, the US$1 billion International Finance Complex (IFC) embodies the bold new ambitions of Cambodian capitalism. If South Korean investors actually complete all the projects they have announced and launched, the once colonial
Led by property developers, South Korean investors accounted for over 70% of the $1.5 billion worth of foreign direct investment (FDI) that entered
With all the building activity, some are beginning to wonder if the economics of the building spree compute and how the broader Cambodian economy might be affected if
There are clear risks to the high-end developments, which are banking heavily on the arrival of high spending foreigners once a purported major oil and gas find on the country's southwestern coast is realized and exploited. The World Bank once estimated the country's total offshore production potential to be at around 2 billion barrels, though Chevron, the
Consider, for instance, Gold Tower 42, a $240 million condominium project financed by
The same is true of the $2 billion
During an inauguration event in May for a new road project, funded by the South Korea International Cooperation Agency (KOICA), Hun Sen pointed to the
He attended in person the inauguration earlier this year of South Korean President Lee Myung-bak and surprised many when he told a local television reporter that Lee was his former "economic adviser".
South Korean investment signals a shift from
At the same time, there are mounting and apparently unhedged market risks to the breakneck growth. The building spree in
Some analysts believe fast rising property prices, fueled by rapid South Korean capital inflows, might even be inflating Cambodia's first-ever property market bubble.
The National Bank of
Some economic and financial analysts have drawn worrying comparisons to neighboring Vietnam, where land and property prices skyrocketed in line with rapid FDI from Taiwan, Singapore and South Korea in 2007, but fell back around 25% in the first half of 2008 due to softening economic conditions and dried-up finance for buyers. In response, Vietnamese banks have restricted their lending to property buyers and developers.
South Korean property developers in
Other analysts say
The South Korean won has depreciated around 10% against the US dollar this year and foreign capital outflows from
Add to that mix fast rising prices for building materials and it seems possible the more ambitious of the South Korean property projects could become financially unviable before they are completed. To fill all the high end space now scheduled to be built - assuming it's actually completed - Cambodians will eventually need to occupy a substantial percentage of many developments, some property analysts say.
Yet with a national GDP per capita of $1,800, it's not clear yet that locals, apart perhaps from government-linked elites, can afford the prices South Korean developers and their financial backers still expect to fetch. There are also potential cultural barriers: middle class and elite Cambodians' have long favored to live in stand-alone, colonial-style villas rather than cement and glass skyscrapers.
While South Korean developers continue to ramp up their building spree, the sky may yet be the limit to their Cambodian designs.
Geoffrey Cain is based in Phnom Penh and a contributor to the Far Eastern Economic Review and Integrated Regional Information Networks (IRIN), a United Nations-run news wire service. He may be reached at email@example.com.
Monday, September 15, 2008
Korean investors reach for Cambodian skies
By Geoffrey Cain