Comparative Investment Return and Risk Analytics by Portfolio Types Based on Average Industry Rates
By: Hoem Seiha, Partner and RE Advisor at ERA Data Intel
For general understanding of the investment performances by each of different investment portfolios, below lists some important investment types with their IRRs and degree of risks. Some investment choices may yield less but pose low risk, while other may yield higher but pose higher risk. Therefore, you have to choose the ones with optimal yield and risk.
1. Condominium
On average, let's put it into a fixed term of five-year investment. If you're going to invest into a condominium unit in Phnom Penh, the threshold of internal rate of return (IRR) is between 3% (lowest) to 8% (best), with the average of 5.5%. Some condo projects may return better thanks to their quality, location, management, and facility factors. And the most important point is that condominium poses less risk and is a mild passive investment.
2. Bank Deposit (Denominated US Dollars)
Bank deposit (term deposit) is the safest investment of all. If you have a large amount of capital and don't want to take any risk, depositing money into the bank with a fixed term is the safest, usually with the return of 2% to 3% per annum. However, it is the most passive investment which means comparatively very low return rate.
3. Land Asset (Located in Outskirt Areas)
Investing in a parcel of land can be very lucrative, yielding a high return and some may bring a fortune just a blink of your eyes, but it may pose a huge risk too in some circumstances. For example, the area where your land is located has been laid out plan by the government to develop a satellite city. And you bought it just for $10,000 for a half hectare as it was a wet land condition just 5 years ago. The next day after the plan's announcement from the government, your land price will hop up $500,000. That's a fortune, isn't it, though this sometimes happens in Phnom Penh city. So your IRR should be about 118.7%.
(500,000 / 10,000) ^ (1/5) - 1 = 118.7
Let's forget about this very high rate of IRR, as it this relies a lot on fortune. For average possible return, land values in outskirt of Phnom Penh has opportunities to return between 15% to 20%, as listed in the sheet.
4. Informal Loan Interest
In Cambodia, informal loan business is not protected by laws. But you can still operate it, as it exists in many different parts of the world too. This investment portfolio provides a high rate of return, yet it poses very high risk. The average rate is between 18% to 24% per annum, that a very huge return compared to normal investment options. You can get rich very fast, but also risk losing a lot too, due to defaults and having no laws to enforce your loan contracts when bad things happen.
5 & 6. Stock and Bond
In Cambodia these two options are not popular.
7. Startup
Startup a new business can sometime yield a good result, thanks to your contribution to the revenue generation and therefore yield a higher rate of return. Some business ideas can make you rich fast, but it really needs your smartness, hard work, good and right idea, and the way you operate. It is the very active investment.
Contact R.E. Advisor
For additional details or real estate investment consultation, please contact Mr. Hoem Seiha via telephone: +855-12-699-553 / +855-10-699-553 | Telegram: t.me/Hoemseiha | E: hoem.seiha@eracambodia.com | Condo listings on Telegram channel: https://t.me/seiha_era_condo_listing
Disclaimer:
This analysis is an opinion made solely by Hoem Seiha, an independent real estate advisor and analyst for ERA Data Intel, based on some criteria and metrics deemed reliable for the current market. The opinion DOES NOT reflect any viewpoints of ERA Cambodia and therefore, we are not responsible for any loss or damage pertaining to reliance on this analysis for your investment.
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