It's started to happen. There are businesses around Siem Reap's old market area and beyond that are closing down. One is an Indian restaurant ("Bangladesh, Madam, not Indian," sniffed a competitor).
Today I noticed Enjoy Villa, the Australian-Khmer guesthouse around the Central Market area had a big padlock on its gate. I asked the tuk-tuk guy parked beside the guesthouse what happened? Did it shut down? He said yes. The website is still in operation, so I have no idea what's happened. The Angkor Airways office around the same area is also up for rent, as well as numerous others.
Businesses operating on thin margins will find it harder and harder to survive. Businesses that signed on leases at high prices will also find it a challenge to make money. As businesses struggle, rents will have to fall, because otherwise landlords will face the prospect of having no tenants.
As rents fall, so will property prices, because a piece of land is only as good as what you can extract from it. Except for those people who buy residential or business property planning to live in them or run a small mom and pop shop, the value of a property is what you can rent it for.
That's why if you cannot get a good rent for your property, you'd probably won't be able to get a good selling price for it either.
Still, I think property prices in Siem Reap will not be as badly affected as those in Phnom Penh. At least in Siem Reap there is something that gives the property here real value, namely tourism. In Phnom Penh, it seems to me, property prices are driven by speculation. I am not a real estate agent and I don't have all the facts, but from what I've read, property in Phnom Penh have been snapped up by mainly Korean and Chinese speculators in the last few years, which accounts for the skyrocketing prices.
Speculators are not long term investors. When prices fall, they panic and pull out in order to cut their losses and in order to park their money on something else that seems a better bet.
The Korean won is at its lowest in a decade. As for China, GDP growth has now slowed for the last five consecutive quarters. As demand from the US (still China's top export destination) falls, the economy could be heading for a severe downturn. Two weeks ago the government said that half the country's toymakers had gone out of business.
Of course the Chinese are great consumers themselves, but even then indicators are that growth is slowing. There is falling demand for steel and the Chinese housing market is in a downturn:
"Numerous other property companies around China are similarly beleaguered. The Chinese press says that in September around 100 homeowners in the eastern city of Hangzhou stormed into the offices of Vanke, a big developer, to demand compensation for falling prices. In March a company in the southern city of Shenzhen caused a stir after it cut prices by 20%, by coughing up the difference to about 25 previous buyers of its property. Others have resisted giving cash, but have tried to calm homeowners by offering discounts on management services....In recent weeks 18 cities, including Hangzhou and Shanghai, have introduced measures to prop up the market." TheEconomist
Properties in areas such a BKK1 will suffer fewer losses because land there is limited. As long as there are expats around, there will be a demand for good houses in safe areas.
Maybe the only thing that will save this country is the oil. Because the Cambodians don't have the expertise to drill the oil, American expats (or whoever) will need to come in, and these guys are not going to do the work for peanuts. That'll bring more US dollars into the economy. It'll be just like when the NGOs first came into this country.
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