Real Estate News

Draft Law on Providing Ownership Rights
in Private Units of Co-Owned Buildings for Foreigners

August 2009: Draft Law Unveiled
In an effort to stimulate the flagging real estate industry and encourage overseas investment, the government unveiled its long-awaited draft law on foreign ownership of private units in co-owned buildings.

Few would disagree that Cambodia’s property ownership laws, where they apply to foreigners, are not particularly attractive to overseas investors. Forming a Cambodian-registered company to hold property is a relatively safe way of buying property in the Kingdom but the procedures sometimes deter small investors. The government’s amendment to the laws governing foreign ownership of Cambodian property was therefore eagerly awaited by the real estate industry.

What Does the Draft Law Do?
The draft law has now been published. Its principal aim is to allow foreign investors a 100% right of ownership over private units in co-owned buildings such as apartment blocks and condos. Previously a foreigner would have needed to form a limited company in Cambodia, or to have vested at least 51% of the ownership in a Khmer citizen. If the draft law is confirmed, foreigners will be allowed a 100% right of property ownership in the Kingdom for the first time.

Are there any provisos?
There are several provisos within the draft law. Firstly, any private units owned by foreigners must be on the first floor or above. This is to prevent foreigners owning Cambodian soil. Foreigners will not be allowed to own ground-floor property, the sub-soil of a property, or any common [shared] areas in co-owned buildings such as gardens, stairways, access points and maintenance areas.

For security reasons, the law does not apply to property within 30km of Cambodia’s national land borders, with the exception of Special Economic Zones or important urban areas.

A further contentious proviso states that the total foreign ownership of private units within a building cannot exceed 49%. For example, in an apartment block of 100 units, only 49 units could be sold to foreigners.

Are there any drawbacks to the draft law?
Unfortunately the answer is ‘yes’, and the drawbacks in question negate many of the positive effects the draft law might have had on stimulating the sales market.

‘Useful’ Foreigners
The opening Article is as follows:

“This law provides ownership rights in private units and rights to use common areas of co-owned buildings to legally qualified foreigners who are considered by the Royal Government to be useful to the Kingdom of Cambodia.”
[Chapter 1, Article 1]

The term ‘useful’ foreigners is highly subjective and clearly open to interpretation. Consistent nationwide interpretations of what constitutes a ‘useful’ foreigner are unlikely and there is worrying scope for corruption in the way Chapter 1, Article 1 is worded. In Chapter 1, Article 4, the law-makers defined ‘useful’ foreigners as:

“foreigners who have contributed to national economic development, or have provided assistance in the social and cultural sectors, or in environmental and natural resource protection, or have provided assistance in the physical infrastructure development in the Kingdom of Cambodia.”
[Chapter 1, Article 4]

Reporting of the draft law, even in the New York Times [see NYT, 26th November 2009: ‘Cambodia Warming to the Idea of Foreign Ownership’], implied that the legislation applies to all foreigners when clearly it does not. Very few commentators have picked up on the possible ramifications of Chapter 1, Article 4; namely that the majority of foreigners will be excluded by the draft law if Chapter 1, Article 4 remains unchanged when the draft law is eventually ratified. The critical passages mentioned above suggest that the draft law only applies to foreigners that already have some involvement with the Kingdom and, by definition, exclude any foreigners that are not considered ‘useful’.

The 49% Rule
“A co-owned unit can have private units involving foreign ownership not exceeding forty-nine [49] percent of the total private units in a co-owned building.”
[Chapter 2, Article 12]

This rule is likely to deter developers because any planned development would have to cater to the tastes and budgets of foreigners and Cambodians. It would take a highly creative design concept to do this. Mathew Rendell of the Phnom Penh-based Sciaroni & Associates was quoted in the New York Times article as saying this rule would cause “big problems for developers in the region in their initial business plans.”

In the same article, In Channy, Chief Executive of Acleda Bank, voiced similar concerns from a Cambodian perspective. His point was that Cambodians are unlikely to be attracted to buying 51 percent of the units in a development designed for foreigners. He also expressed doubts about whether there are sufficient numbers of wealthy Cambodians to make co-owned developments viable.

Will the draft law help the Cambodian real estate market?
Yes, but only to a very limited extent if it is ratified in its current form. The general consensus among estate agents is that the draft law does not go far enough towards encouraging new investment and that its potential impact has been diluted by being too specific about who the law applies to.

What was required by the real estate market was a law that would provide a genuine incentive to invest in Cambodia. There are far too many strings attached to the draft law to enable it to do this, and a golden opportunity appears to have been missed.

Article:
David Coleman [General Manager]
CARE

Sources:
Draft Law on Providing Ownership Rights in Private Units of Co-Owned Buildings for Foreigners
27 August 2009 [Unofficial Translation]
See copy at: http://www.us-asean.org/Cambodia

‘Cambodia Warming to the Idea of Foreign Ownership’:
New York Times, 26th November 2009

‘Foreign Ownership: Finally a Possibility?’ by Christopher McKenzie
See copy at: www.hg.org

‘Cambodia approves sub-decree of co-ownership regulations’ Edited by Li Shuncheng
See copy at: http://news.xinhuanet.com/english