Thursday, April 24, 2008

Do you think there is a property price bubble in Cambodia?

The interview between US lawyer Bretton Sciaroni and the Cambodia Daily's Tim Sturrock:

Q [Tim Sturrock]:Do you think there is a property price bubble in Cambodia?
A [Bretton Sciaroni]: Not in a sense that a lot of people talk about a bubble because… usually a bubble occurs when there’s so much involved.

A bubble happens when everyone is borrowing to buy the land or finance it and all of a sudden the whole thing collapses. It implodes because they can’t make their payments, and so on and so forth. But here I have the impression that so much of acquisitions are 100 percent equity. It’s cash transactions.

I keep on thinking about what happened after Untac. When the UN came in here, they needed housing. Everyone needed housing. And they were willing to pay top dollar, and there was nothing there. This was really a different city in 1993, 1992.

And so all kinds of people were getting unbelievable amounts of money for their property and the UN left. And all money, all the millions and millions of dollars left too. And what happened? Did people lower their prices? In many cases, no. They figured, “No, we’ll let it go empty. Sooner or later someone is going to pay that price the UN was paying.”… So, let’s say people stop buying. They say, “OK, I’m not going to put any more money into land.” Are [owners] then going to put a fire sale on their property and slash the price and take a loss? Or are they going say, “I’ll sit on it, and sooner or later someone is going to come along and pay me what I paid or pay more than what I paid”.

With the image of a bubble- I’m not sure it’s applicable here.

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Free-Thinker said...

But a lot of the urban development projects are financed by banks, e. g. Canadia, and when the supply outstrips the demand, you will have desperate developers selling at discounts, which usually is the beginning of the downward slide, which may end in a bust. So you do have a bubble.

Free-Thinker said...

Also, see my blog at re 'Will the land and building boom.....'

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