Investing in a Condominium in Phnom Penh: Returns and Key Indicators Investors Need to Know
By: Hoem Seiha, Partner and RE Advisor at ERA Data Intel
It is very common that buying a condo can be either for living in or for a profit return, especially in a fast growing real estate city. Investors are looking for a promising condominium project that offers low investment cost but will generates high return as their passive income.
For you as an investor looking for an investment in a condominium in Phnom Penh, the question popping up to you is that what are the favorable projects that you should shortlist for your consideration, how much will they generate per year, and how much will their values appreciate over the course of your expected final exit.
Here is a list of top five condominiums to look at for 2025.
Condominium Rental Yields
In Phnom Penh, condominiums provide better rental yields than do any other property types, by providing 6% to 8% per annum for most of condominium projects across the city. A few projects out there could make it even up to 10% to 12% due to their good management and quality of the products they offer. This is way better than a high price shophouse or a detached villa, both of which can only run through less than 5% per annum of rental yields.
For example, if you're going to put $100,000 into a studio unit at a condo project, let's say, Le Condé BKK1, it will yield a monthly rental return of about ~$666 based on the average rental rate in the area and considering the quality of the condo which should grab an annual rent of 8% of your bought price. Here is how it comes:
Annual Rental Yield = (Monthly rent x 12) / cost of investment
Annual rental yield = 666 x 12 = 8,000
8,000 / 100,000 = 0.08 (it means 8%)
Condominium's Value Appreciation
Despite having a high rental yield, on market average, condominium's values grow slower than do the other types of property assets such as a shophouse or a land parcel, both of which can grow up to 6% and 15%, respectively. Nevertheless, such a high growth in future value for land parcel, investment in this kind of asset will pose more risks than will other types of property assets such as housing and condominium. Land sometimes could be in the wrong place and wrong time where and when you expected it would be great but in reality it won't. Therefore, it is much more safe to invest in a condominium thanks to its rentable ability, high rental yield, just profitable resale value, though not high as comparing to other assets, and its liquidity as the market demand is starting to pick up gradually this year.
Read other article about condominium investment
For example, if your investment into a condo of $100,000, then over the next five years, your condominium's resale value would probably increase to $113,140, only if on the good market condition. Here how it comes:
FV = PV x (1+r) ^ n
Where: FV = Future projected value; PV = present bought value; r = known rate of value growth; n = number of years
Therefore, future projected value = 100,000 x (1+2.5%) ^ 5 = 113,140.8
Cashflows of Your Investment
There are many factors and metrics that influence your final exit result when investing in a condominium project, but let's take only the key parameters and metrics for easy and rough estimate.
Since you anticipate your revenue stream from this investment, you will either place your condominium unit for rent yourself or you buy it with a GRR (Guaranteed Rental Return) from the developer. Assumed it as you rent it yourself on Airbnb or by leveraging rental agents, here the cashflow will look like.
Cashflow - Rental Revenues
Since average rental yield is 8% for Le Condé BKK1, your projected rental revenue would be $666 per month, which turns $8,000 in gross per year.
Year 0 = $0
Year 1 = $8,000
Year 2 = $8,000
Year 3 = $8,000
Year 4 = $8,000
Year 5 = $8,000
Total Gross Revenues at Exit = $40,000
However, since you have to settle your operation costs and agents' referral fee of 10%, and risks such as vacancy and collection loss (V&CL) of 20% based on industry average here in Phnom Penh, here your revenues will look like.
Less operation cost and agents' referral fee: 40,000 - (40,000 x 10%) = 36,000
Less V&CL: 36,000 - (40,000 x 20%) = 28,000
So now your net revenue from rental is $28,000 from 5 years.
Resale Value Appreciation
Since condominium demand is starting to pick up, albeit slower, resale value increase at the secondary market can be somewhere between 2% to 3% percent depending on locations and quality of the condo projects. On average, it increases by 2.5% per annum for an average condo unit.
Year 0 = 100,000 x (1 + 2.5%) ^ 0 = 100,000
Year 1 = 100,000 x (1 + 2.5%) ^ 1 = 102,500
Year 2 = 100,000 x (1 + 2.5%) ^ 2 = 105,063
Year 3 = 100,000 x (1 + 2.5%) ^ 3 = 107,689
Year 4 = 100,000 x (1 + 2.5%) ^ 4 = 110,381
Year 5 = 100,000 x (1 + 2.5%) ^ 5 = 113,141
Therefore, your five years of holding up the asset, it is projected to increase its value from the presence of $100,000 to $113,141.
At an exit, some additional costs and taxes may happen to reduce the profitability of your asset. Those are duty stamp fee of 4%, capital gain tax of 20% (which hasn't been imposed yet so far). The good news is that if you buy a condo this year under the price of $200,000, those taxes are waived by the government for first home buyers and applicable to non-resident buyers too. In here, it is not to include the depreciation of the building value, as it is very insignificant to the overall result. So let's wrap up for the investment summary.
Summary - Key Indicators
Let's sum up your investment revenues and key indictors to make decision.
Net Rental Yields
Now you get a projected net revenue of $28,000 from 5 years of rental accumulation, so your net rental gain is like:
Net Rental Yield = Net Rental Revenue / Cost of Investment
28,000 / 100,000 = 0.28 (or 28%), so your net rental on your investment is 28%.
Net Capital Gain Yields
While your condo's value appreciation is projected to reach $113,141 at the exit 5th year, your capital gain yield should be:
Capital Gain Yields = (Projected asset value - Cost of investment) = Net capital gain
= Net capital gain / Cost of investment = Capital gain yield
113,141 - 100,000 = 13,141
= 13,141 / 100,000 = 0.13141 (or 13%)
Return on Investment (ROI)
Total return on investment determine your final exit return comparing the investment you put in the year 0. Here it will look like:
ROI = Net rental revenue + Net capital gain = Total return
= Total net return / cost of investment = ROI
28,000 + 13141 = 41,141
= 41,141 / 100,000 = 0.41141 (or 41%)
Therefore, your ROI is 41%, which is a favorable performance if compared to USD denominated deposit at an average bank, which, given the same amount of the investment, the return can only make 11.5% at the current industry average rate.
Internal Rate of Return (CAGR)
After getting all these numbers, IRR is also a key consideration for you as an investor to measure its compound annual growth rate, whether it is better than other investment options. Here is how it will look like:
((Projected asset value + Total net return) / (Cost of investment)) ^ (1/(No. of Years))-1
((113,141 + 28,000) / (100,000)) ^ (1/(5)) - 1
=0.71 (or 7.1%)
Summary of Analytics
Net Rental Yields = 28%
Net Capital Gain Yields = 13%
Return on Investment (ROI) = 41%
Internal Rate of Return (CAGR) = 7.1%
In sum, your projected IRR of 7.1% is a a favorable option, as the market average for low-risk investment scenario usually ranges from 5% to 10%.
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