Asia’s Next Big Thing (and How to Buy Land Here)

Saturday, March 29, 2008

Read more about investing in foreign real estate in International Living Postcards—Saturday Edition

Real estate values in Cambodia have been on the rise for close to a decade. One friend active in the country tells me he’s doubling his money every 12 months. Another friend invested here is aggressively seeking further buy opportunities, even though land prices in the capital, Phnom Penh, are up 300% over the last two years.

In other words, he sees more upside to come.

Both of these guys are investors I respect…and, important to note in this context, they’re both non-Asians.

This creates an issue for them…the same issue you face if you’re interested in jumping into the Cambodian real estate market yourself.

As in many Asian countries, foreigners can only own land in Cambodia through leasehold title...not freehold. This is enough of a concern for many foreign investors, including myself to date, to keep them out of the market altogether.

However, as I write, the Cambodian government is talking about allowing foreigners to hold real estate in their country freehold. It isn’t clear yet what this might eventually mean. Perhaps Cambodia will allow foreigners to own condos outright (as Thailand does). Or perhaps they’ll open the market even more broadly and allow foreigners to own land freehold, as well.

Meantime, what are your options if the upside potential (which, admittedly, is big) is enough in your mind to overcome the risks of non-freehold title?

First, you could buy leasehold…and leave it at that. You’d need a Cambodian in the deal (someone to set up the lease)…and holding a lease to a piece of real estate isn’t the same thing as owning that piece of real estate. However, leases are typically 99 years and renewable, and, in some ways, I think this could be the most sensible route.

Second, you could become Cambodian. In fact, it seems to be a straightforward process that requires but an investment of $50,000 (called a “donation” to the Cambodian government). Once you’re a citizen, you’ll encounter no restrictions to property ownership. Of course, there’s no guarantee that some new government someday in the future might not revoke your paid-for citizenship.

Given that, here’s what most foreigners are doing: Establish a local corporation. You need a Cambodian partner. He owns 51%, you own 49%. He signs over the shares to you, and your attorney holds them. Your Cambodian partner also signs a power of attorney allowing you to act on his behalf for the corporation, in effect giving you control over the corporation’s assets…that is, the real estate.

This approach has been used in Thailand for many years with success. However, the Thai government last year began raising issues related to this form of foreign ownership. They started asking questions such as…where did the Thai partner obtain the money to buy his share of the company? Had he paid taxes on those funds?

In other words, this isn’t a fail-safe method of ownership, but, again, I know guys doing it…so far without problems. They’ve decided the rewards are worth the risk.

I’m considering getting in myself. I believe the boom in Cambodia will continue for many more years. In fact, it’s just getting started. Most development to date has been in the capital and, to a lesser extent, other major cities around the country. Cambodia could be on its way to becoming the next retirement hotspot in Asia, meaning new areas of the country would enjoy attention.

Right now, development is moving to Siem Reap (the nearest city to Angkor Wat) and Sihanoukville on the coast. The province of Kompot on the coast, specifically the town of Kep, is a growing hotspot, as well.

Here’s a good source of current listings: http://www.angkorrealestate.com. Note, though, that these properties are listed with “gringos” for sale to gringos. The prices are negotiable.

As always, hire your own attorney to help carry out your due diligence.

Lief Simon
For International Living

P.S. In fact, there’s one more way foreigners can become eligible to own real estate in Cambodia freehold. Take a Cambodian spouse. Going this route, though, it’d be the Cambodian spouse, in fact, taking ownership...

Editor’s note: Lief Simon will speak about the best places to invest around the world and how you can profit from international real estate at the Ultimate Event in Cancun, Mexico, May 28–31. If you want to pick up expert tips or begin your journey into the world of real estate investing, sign up to attend IL’s Ultimate Event.