The Trouble with Cambodia’s Affordable Housing Plan

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The Trouble with Cambodia’s Affordable Housing Plan

The effort is neither affordable nor well-planned.

The Trouble with Cambodia’s Affordable Housing Plan
Credit: Flickr/Paul Arps

When Singapore’s then-Prime Minister Lee Kuan Yew was touring Phnom Penh in April 1967, he is said to have turned to the Cambodian leader Norodom Sihanouk and remarked: “I hope, one day, my city will look like this.” Of course, given the diverging trajectories of both countries over the past half a century, it would probably be Cambodian Prime Minister Hun Sen today urging the same remark on his Singaporean counterpart.

While the property sector in Phnom Penh is now booming (countrywide, the construction and property sector is the second-largest contributor to Cambodia’s GDP) missing on the capital’s skyline is anything similar to Singapore’s HDB blocks. Indeed, development in Phnom Penh is largely designed for the wealthy. Most developers are busy building luxury homes for a proportion of the population they think are wealthy enough to afford them – a proportion of the population that doesn’t appear to exist in any great number. At the same time, housing and land costs are skyrocketing, further inflating a property bubble that many expect to pop in the coming years.

The luxury condos are also being snapped up by foreign investors, many from China, though for how much longer is a question that continues to be up in the air. A walk around the capital at night reveals unlit tower blocks, a sign that many buyers have no desire to actually live in their properties.

A National Housing Policy for low-cost housing was adopted in 2014, but little progress has been made since, despite high demand. The Minister of Land Management, Urban Planning, and Construction, Chea Sophara, said last year that 800,000 low-cost urban homes would need to be built by 2030. By that time, Phnom Penh’s population is expected to grow to between 4 and 7 million, compared to about 2 million today.

Under this proposal, as many as 55,000 new apartments need to be built each year to reach the 800,000 target. But, as the Phnom Penh Post reported in April, less than 10,000 had been announced at that time. The government is offering incentives, such as tax breaks, and to speed up the bureaucracy of getting permits and licenses. But this approach doesn’t seem to be working.

One major problem with the government’s low-cost housing program is the semantic nature of “low-cost” and “affordable.” The average-priced condominium in Phnom Penh costs between $30,000 and $50,000 per unit. However, many of the so-called affordable projects are constructing homes that that verge into this category.

One project, Worldbridge Homes, was announced in January 2017. Located in Saang district of Kandal province, just outside Phnom Penh, it is developing 2,297 two-story flats priced between $25,000 and $30,000. The chairman of Worldbridge Group, Sear Rithy, told a local newspaper that this “price bracket is still affordable for civil servants and low-income families earning less than $500 dollar a month.” Another project also in Kandal province, aimed at civil-servants, members of the military, and middle-income earners, has units priced between $23,500 to $24,800. Another, in the capital’s suburbs, has units priced between $20,000 to $30,000.

However, these “low-cost” housing projects appear affordable only for middle-income earners and above. The middle class in Cambodia is generally defined as a household earning between $500 and $2,000 a month. Most, however, are closer to the $500 mark.

That matters. Take this hypothetical: To be able to afford a $30,000 apartment, assuming no deposit and a home loan over 20 years at an 8 percent interest rate, it would mean monthly loan repayments of $251, which would require monthly income of $836 if 30 percent of income were to be used for home loan repayments. This is much higher than the income of typical low-income earners in Cambodia.

For example, let’s take the monthly minimum wage of the 800,000-odd garment workers, which was recently raised to $182. A couple earning this amount (based on the same parameters as stated previously) would only be able to afford a home costing $13,000, much lower than most of the so-called affordable housing projects. But, on top of this, buyers are required to pay a deposit. One current affordable-housing development will charge a 30 percent deposit for units priced between $23,500 and $24,800. So the buyer would have to pay an upfront deposit of between $7,050 and $7,440. So, for perspective, it would take a single garment worker 38 months to save that amount if they didn’t spend their entire salary on anything else.

Another glaring problem is that many of the “affordable-housing” developments currently under construction are built for sale, not to rent. There is ample cheap rentals in Phnom Penh, with many apartments costing less than $100 per month. These mainly cater to migrant workers in garment, service, and construction sectors, as well as students. But many are said to be low-quality, with poor sanitation and security. Many are simply dormitories rented by several people to the room. Indeed, not many are designed to appeal to a low-income family that wants to settle in one home for a lengthy period of time.

What would be far more effective as part of a city-wide housing policy would be significant investment in long-term, low-cost rental developments, perhaps something akin to Singapore’s HDBs. The overarching argument against all private-led low-cost housing is it simply isn’t profitable for the developers. Indeed, many of the developers have said they are only investing in such developments because of the government’s housing policy. In the long-term, however, low-cost rentals could prove profitable for private investors.

Take the earlier mentioned Woodbridge Homes. The $60 million development is building 2,297 two-story flats priced between $25,000 and $30,000. Crude calculations would estimate that if all the properties are sold, half at the most expensive and half at the cheapest, then it will bring in roughly $63 million, so not much of a profit. However, if each of the units were rented for $150 per month for 15 years then it would bring in the same revenue – and would continue bringing in revenue for the subsequent decades. What this requires is long-term planning, which isn’t always in the interest of property developers – especially when many can now build high-end condos to be sold quickly to foreign investors.

However, the government could opt for some new measures. For example, it could offer more subsidies to developers that build genuine low-cost housing for long-term rental. Even better would be a requirement that every property developer must designate a certain percentage of their development to affordable rental units. Irrespective of what is actually done, one thing is clear: Cambodia’s affordable housing plan now is neither affordable nor well-planned.