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Post-Crisis Construction Recovery Lagging

Two years after the onset of the global economic crisis, Cambodia’s construction sector has struggled to recover, despite promising indicators in the country’s other economic earners.

Both garments and tourism have recovered some since the downturn, but officials say a lack of confidence from both local and foreign investors has stymied construction recovery.

“We are watching the situation very closely, and we have seen that the construction sector is still in a downturn,” Im Chamrong, directory general of the Ministry of Land Management’s construction department, told VOA Khmer. “There is still a reduction in local and foreign investment.”

The country’s real estate and construction sectors were booming through 2007 and into 2008, bolstered mainly by investment from South Korea, China and small investors. The rise of the real estate market made construction one of the economic pillars of the country, which, along with garments and tourism, helped make up a third of the country’s GDP.

Two years after the crisis, garment exports reached $603 million in the first quarter of the year, up from $562 million during the same period last year. The number of tourists has increased 10 percent for the same period, to more than 884,000. But in the real estate market, there is still a 50 percent or 60 percent decrease.

“Land and housing prices can’t be increased in 2010,” said Sung Bunna, president of the Real Estate Valuers Association. “Wait until 2011, and don’t hope that it will increase to the same rate as 2007 and 2008. It will increase very slowly until our economy looks stronger.”

Companies and Markets, a global research group based in London, expects a contraction of Cambodia’s construction sector this year. Recovery may have to wait until 2011, with a slow increase of 6 percent through 2014. That’s down from a growth rate of 19 percent before the downturn, according to the group.

Meanwhile, construction investment projects have also declined, though some, like Camko, Grand Phnom Penh, Posco and the Diamond Center, all in Phnom Penh, have continued.

The Ministry of Land Management reported a decline of 82 percent in construction project approvals, or just $159 million, in the first quarter of the year.

Seng Sopheal, a real estate appraiser for Cambodia Properties, Ltd., said the decrease came from a shortage of foreign capital.

A restriction in bank lending has also slowed the sector. Since early 2009, major commercial banks halted large loans, especially for real estate development. Those restrictions remain in place, as banks have sought to avoid risks.

“We don’t seek to provide loans for real estate development,” Stephen Higgins, CEO for ANZ Royal Bank, told VOA Khmer. “We may only do it in some special cases, but we don’t do it in general because generally a real estate loan is more risky than normal lending.”