Understanding Key GRR Options and Investment Analytics When Looking at Comparative Condominium Projects in Phnom Penh, Cambodia
By: Hoem Seiha, Partner and RE Advisor at ERA Data Intel
When you are looking for a condominium to invest in Phnom Penh, you will definitely be hassled by which one to choose to maximize your expected returns, since as many as 520 condominium buildings scatter across different areas of Phnom Penh.
In this example, I will provide a simulated comparable analysis for your study to understand it as compared to the real situation.
Looking at the five comparables, you might have to consider and choose one to invest. Let me simplify to make you easier to understand.
There are five condo projects for you to choose. They are condo A, B, C, D, and E, each with three investment options.
Option 1: Non-GRR - Self-Rental Service
Non-GRR (no guaranteed rental return) means your unit won't be leased back by the developer or the property management firm who manage everything at your condo project. You just buy it for your own stay or you may opt for renting it out by yourself. In the case you rent it by yourself to your client, your projected revenues, ROI, and IRR are based on market average in Phnom Penh. For this option, it seems Condo A outperforms all the other comparable projects by achieving:
Condo A should be the top choice for you (unless some other factors outside these numbers affect your decision).
ROI = 32.4% vs Project B: 30.6%, Project C: 26.2%, Project D: 26.0%, Project E: 27.3%
IRR (CAGR) = 5.8% vs Project B: 5.5%, Project C: 4.8%, Project D: 4.7%, Project E: 4.9%
Cost-to-performance ratio = 0.76 vs Project B: 0.77, Project C: 0.79, Project D: 0.79, Project E: 0.79
Option 2: With GRR and Combined with Self-Rental Services
GRR (guaranteed rental return) means you buy your condo with a plan of leasing it back to your developer for a period of time, say it 3 years. In this case, since you expect 5 years for your investment, the guaranteed rental return is 8% per annum for 3 years. After the fixed term expires, the developer releases your bough condo unit back to you and you do the rental service yourself for another span of 2 years, on average of 5% of the yield per annum.
Therefore, the result still favors Condo A.
ROI = 38.63% vs Project B: 32.37%, Project C: 31.4%, Project D: 32.0%, Project E: n/a
IRR (CAGR) = 6.75% vs Project B: 5.77%, Project C: 5.6%, Project D: 5.7%, Project E: n/a%
Cost-to-performance ratio = 0.72 vs Project B: 0.76, Project C: 0.76, Project D: 0.76, Project E: n/a
Option 3: GRR 18% Upfront Advance/Deduction
Sometimes if you are short of capital for the condo project you are considering on buying, you may opt for GRR 18% upfront advance or deduction. That allows you a less 18% on the unit you are going to buy. However, this will affect it ability to generate revenue for you. See the result below:
Condo A can still perform better than the rest.
ROI = 33.44% vs Project B: 23.72%, Project C: 28.9%, Project D: 28.8%, Project E: n/a
IRR (CAGR) = 6.77% vs Project B: 4.35%, Project C: 5.2%, Project D: 5.2%, Project E: n/a%
Cost-to-performance ratio = 0.62 vs Project B: 0.70, Project C: 0.75, Project D: 0.75, Project E: n/a
In conclusion, Project A outperforms and therefore you should choose this as an investment option, unless some other factors outside these numbers affect your decision.
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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