Mega-Projects Stall Amid Financial Woes

In September, before the globe slipped into a financial crisis, developers in Cambodia had planned at least 30 colossal construction projects, including a giant modern city, and buildings with as many as 20 to 50 floors.

But after the US housing market crashed and global markets plummeted, many projects, especially the biggest ones, have been delayed.

South Korean investors, such as BK Global, GS and Yonwoo have been hit hard by the economic crisis.

Teng Rithy, manager of BK Global’s Paros Mekong project, said the $250 million development had been slated to begin in October. It is now delayed.

The global economic downturn has slowed South Korea’s economy and brought its highest inflation in 25 years, Teng Rithy said. That means the company will lose money if it exchanges its won for dollars to begin construction.

More importantly, a credit crunch means investors can’t get the loans they’ve negotiated with Korean banks.

“We had planned to borrow 100 percent of the invested money, but recently Korea’s national bank didn’t provide loans to foreign countries,” he said. “Now it is very difficult…. There are no more investors providing loans to Cambodia.”

Teng Rithy said he was not sure whether Paros Mekong would continue in the future.

Other developers said they worried about customers backing away as the global economy sours.

Im Chamrong, general director of the construction department at the Ministry of Urbanization and Construction, said Cambodia had no new construction proposals in the past two months, but he refused to say how many projects were delayed or canceled.

Bonna Realty Group president Sung Bonna, who has studied the development of large construction projects, said 50 percent of them were delayed by late October.

“Foreign banks, as well as global financers, have delayed or cut down their finances for real estate investors,” he said.

Kang Chandararoth, president of the Cambodia Institute of Development Study, said investors have been forced to delay their project due to the shortage of foreign financing.

However, some investors say they have not had a problem with financial resources but have delayed their projects in the face of a new directive from the Ministry of Finance requiring them to keep more money at the National Bank.

The new directive, issued at the end of July, requires real estate investors to keep 2 percent of their total investment in the bank, restricting investment. Moreover, developers are only allowed to sell housing if they have finished 3 percent of the total construction, limiting the funds they can raise in advance.

Yonwoo, which is backing the construction of Gold Tower 42, a proposed skyscraper in central Phnom Penh, will likely cancel a $1 billion investment in a “modern city” project because of the new directive, said Rou Ratana, a sales manager for the company.

“We are delayed, and maybe completely cancelled,” Nou Ratana said. “The company is disappointed because when they are already facing the crisis, we have restricted their investment.”

Representatives of GS, which is supporting the construction of a 45-floor financial building along the Tonle Bassac, said they will continue unless the government makes more directives.

Nevertheless, Kang Chandararoth said the directive was likely just a pretext for some companies that have canceled or delayed their projects because of limited resources.

Either way, the delay will hurt Cambodia’s economy, which is in part driven by construction and real estate, he said.

Experts have already estimated a 20 percent fall in real estate prices since June.

Hang Chhun Narong, general director for the Ministry of Economy and Finance, agreed, but he said the slow process on some giant projects would keep Cambodia’s economic growth rate in check, sparing the country inflation and its own economic worries.