Foreign Property Ownership in Cambodia – which is best for you?
By
B2B Cambodia
on
For a relatively small city, Phnom Penh offers a broad selection of real estate options for foreigners looking to get into the market.
From brand new condominiums with a rooftop pool to French colonial-style villas in need of some TLC, there is something for everyone if they know where to look and of course, the best method to legally secure the property. Let’s kick off by taking a look at the main holding structures available to foreigners:
You can also read the latest update in our comprehensive look at the Cambodian real estate market.
Apartments
Whether it be for living or flipping, a favourite among Western/European expats has always been the renovated apartment. The Indochina dream of owning an airy, French Colonial apartment with original tiles and wooden shutters is still alive and well, although it does come with its challenges. These apartments can be picked up for as little as $35,000 for an unrenovated 1 bedroom apartment, right up to $500,000 for a 3 bedroom penthouse overlooking the river.
If you are looking to renovate yourself there are boxes you need to tick before starting the project. Construction permit: this used to be a formality however, government officials are now a little more discerning with approving construction permits for renovation projects.
You will also need to get written approval from neighbours as they can bring your project to an abrupt hold with a single complaint to the Village Chief. If you are planning to renovate a property, I recommend making initial inquiries about construction permits and talking to neighbours before making a purchase so there are no nasty surprises following the purchase.
The entrance to the apartment is another important point to consider. An ideal entrance is a gated doorway, straight off the street which leads to a well lit (natural light or installed lights) staircase that’s clean and well maintained. I have been to many beautiful apartments that would be great to live in if you didn’t have to walk down a dark alleyway peppered with litter and the odd rat which led to a darker, rundown stairwell. The entrance has often been a deal breaker for potential buyers and renters. The good news is that most entrances can be greatly improved by simply giving the stairwells a coat of paint, installing some sensor lights and keeping common areas free of rubbish.
Although there are some hard title apartments out there, the vast majority of renovated/unrenovated apartments in Phnom Penh come with a soft title. Most of these can be converted to hard title (if you are happy to pay the 4% transfer fee) but they don’t qualify for the strata title that condominiums have. Given this and the relatively low cost for these apartments, IPS recommend using a nominee structure to hold these properties. The cost of this structure is in line with the required investment required to purchase an apartment and provides excellent security over the property.
Land Holding Company (LHC)
The first option for foreign property ownership is the creation of Land Holding Company or LHC. A LHC is set up in such a manner whereas the minority shareholder (the foreigner, holding 49% of the company) have all the decision making and voting rights within the company and the majority shareholder (a Khmer national, holding 51% of the company) has extremely limited rights and power. The majority shareholder needs to be a Cambodian national and is usually provided by the Law firm as part of an ongoing annual fee. There are extensive security documents which strips all the power from the majority shareholder and gives it to the minority shareholder (the foreigner) which makes it the most secure form of foreign ownership. Setting up a LHC costs between $4,000 to $12,000 depending on which lawyer you use. Another item to be taken into account with this structure is the tax obligations. Not only do you have to submit monthly/quarterly tax statements but you will also be hit with a 20% company profit tax when you sell any asset held by the company. Given the high setup cost and associated ongoing costs IPS only recommend this structure to clients looking to make a significant investment in excess of USD$1,000,000.Nominee Structure
The majority of properties purchased by foreigners in Cambodia use what’s known as a “nominee structure”. At IPS Cambodia, approximately 90% of all our foreign clients choose this structure as it’s cheap, secure and fast, especially when compared to alternative options such as a LHC. Often we have clients who have a Khmer partner or colleague who they put forward as a nominee, however, if they don’t, there are a range of options available to source a nominee for the property for the duration of your ownership. Having a nominee hold a property in their name on behalf of a foreigner definitely carries some risk which is why IPS highly recommend using “nominee security agreements” in order to mitigate the risk of having your property held in a third party’s name. These security agreements are directly between the foreign buyer and the nominee and as a general rule, there are 4 types of security agreements available:- Mortgage Agreement
- Loan Agreement
- Lease Agreement
- Security Agreement
Get to know the useful terminology for buying properties in Cambodia.
Apartments
Whether it be for living or flipping, a favourite among Western/European expats has always been the renovated apartment. The Indochina dream of owning an airy, French Colonial apartment with original tiles and wooden shutters is still alive and well, although it does come with its challenges. These apartments can be picked up for as little as $35,000 for an unrenovated 1 bedroom apartment, right up to $500,000 for a 3 bedroom penthouse overlooking the river.
If you are looking to renovate yourself there are boxes you need to tick before starting the project. Construction permit: this used to be a formality however, government officials are now a little more discerning with approving construction permits for renovation projects.
You will also need to get written approval from neighbours as they can bring your project to an abrupt hold with a single complaint to the Village Chief. If you are planning to renovate a property, I recommend making initial inquiries about construction permits and talking to neighbours before making a purchase so there are no nasty surprises following the purchase.
The entrance to the apartment is another important point to consider. An ideal entrance is a gated doorway, straight off the street which leads to a well lit (natural light or installed lights) staircase that’s clean and well maintained. I have been to many beautiful apartments that would be great to live in if you didn’t have to walk down a dark alleyway peppered with litter and the odd rat which led to a darker, rundown stairwell. The entrance has often been a deal breaker for potential buyers and renters. The good news is that most entrances can be greatly improved by simply giving the stairwells a coat of paint, installing some sensor lights and keeping common areas free of rubbish.
Although there are some hard title apartments out there, the vast majority of renovated/unrenovated apartments in Phnom Penh come with a soft title. Most of these can be converted to hard title (if you are happy to pay the 4% transfer fee) but they don’t qualify for the strata title that condominiums have. Given this and the relatively low cost for these apartments, IPS recommend using a nominee structure to hold these properties. The cost of this structure is in line with the required investment required to purchase an apartment and provides excellent security over the property.
Use the useful property guides at Realestate.com.kh