Since the last quarter of 2021, bubbles have been bursting one after the other, in cascade, as predicted since the post-covid recovery of the economy, which was probably too rapid. Everything is bursting, starting with crypto-currencies and NFTs, which many people wrongly believed to be uncorrelated with inflation and the financial markets, followed by technology stocks whose valuations were abnormally high given their fundamentals, and finally a good number of stocks and mutual funds that are suffering from the rise in interest rates, global supply chain problems and inflation.  

Many will say that these bubble bursts will allow economic fundamentals to finally take over.  But who knows for sure if we have hit bottom?  

There is still the big question of the housing bubble! We have been talking about it for months, not to say years. Particularly with regard to French SCPIs in the broad sense. Will the real estate bubble burst too, as the American media have been fearing for a few weeks now, as well as some European media.  US real estate prices have started to decelerate in the US since last summer 2022.
 
Why a real estate bubble, you may ask? Well, real estate is generally known to be a resilient asset capable of resisting inflation and also of weathering crises. However, this is a given. The excess liquidity injected into the economy since the 2008 crisis, as well as the policy of extremely low or even negative interest rates, has slowly, insidiously, but surely inflated the property bubble in most developed countries. 

Today, even by borrowing at a higher rate, for example 3%, in the face of probable inflation of 8% or 9% this year and certainly next year, it should be remembered that the real rate of the operation will be negative (-5% to -6%).  Even including the annual rental yield of around 2 to 3%, the gross yield will remain negative.

In Europe and the United States, all investors have understood that a normalisation, not to say a rationalisation of property prices is necessary. This is called repricing , just like what has been happening on the stock market since the end of 2021, when most stocks were overvalued. And repricing has begun, starting with a significant drop in the number of transactions. This drop in trading will probably allow the supply to expand. And when supply catches up with, or even exceeds, demand, sellers generally lower the valuation of properties, while listing times increase. 
As a result, in order to regain profitability in Europe or the US, it will be necessary to buy at a lower price... or not to buy at all. 

For European investors who do not want to settle for returns of 2% or less in the years to come, probably eroded by inflation that will not fall back down to earth (around 2% level) quickly.  Our conviction is that there is an entry point today in emerging markets, in Cambodia in particular.

Pricing in Cambodia remains a fraction of the cost of comparable properties in developed markets and this stands even in the case of neighbouring nations such as Thailand and Vietnam. The Kingdom’s properties have a high potential to yield greater returns on investment as a result. This potential is backed by aggressive population growth in urban centres, consistent annual economic growth, key improvements in infrastructure and a boom in tourism.

As a smart investor, you know that the common investment advice is to ‘not put all your eggs in one basket’. What this means is that you want to hedge your risk by not betting on a single type of investment product or only one sector. If one market goes down, it does not take your entire portfolio with it.

In more developed markets, these portfolios will likely consist of a mixture of assets and investments, from stocks, bonds, gold, land and real estate, pension or retirements funds and perhaps direct investment in a business or startup

While growing, Cambodia still has limited investment options, putting more pressure on land and real estate, particularly residential real estate. This sector continues to be the primary asset within the country. This does not mean that diversifcation is not possible, but it does look different from other countries. An investment portfolio is likely weighted heavily towards land, residential real estate, business, and fixed deposit accounts. A relatively new option to Cambodia is office condos. By introducing commercial office space into your portfolio, you are protecting yourself against risks in other sectors. If oversupply of residences reduces prices, or the economy slows, prime office space holds its value better, and can quickly recover as the economy comes back. New homes are always coming into the market, each one offering to be “more luxurious” than the last , but iconic, one-of-a-kind commercial buildings in central locations never go out of style. The key is, as we say in English, “don’t put all your eggs in one basket”, keep your portfolio diversifed, balanced and more relisient over the long term.

In the residential real estate market, in offices, in plots of land, but also in venture capital, expected returns for next year 2023 and beyond stand well above inflation (12 to 20% denominated in USD). We explain in the WHY CAMBODIA? page all the reasons that support our conviction. 

We invite you to get acquainted and make up your own mind !