VZCZCXRO6958
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0608/01 2320948
ZNR UUUUU ZZH
R 200948Z AUG 09
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC 1092
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 02 PHNOM PENH 000608 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, P, D, DRL, IO, EEB 
 
E.O. 12958: N/A 
TAGS: ECON EINV CB
SUBJECT: LAW ON STRATA TITLING PAVES THE WAY FOR FOREIGN PROPERTY 
OWNERSHIP 
 
REF: A) PHNOM PENH 60, B) PHNOM PENH 276 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (U) SUMMARY.  The Council of Ministers passed a new sub-decree 
July 31 which allows Cambodian citizens to apply for titles to 
individual apartment or condominium units in a larger building.  The 
new law is the precursor to a widely anticipated draft law which 
would allow foreigners to own properties above the ground floor. 
Royal Government of Cambodia (RGC) representatives hope that 
allowing limited property ownership for foreign investors will 
attract much-needed capital for the country's flagging real estate 
sector.  However, the law's real impact may be limited outside of 
major commercial centers.  END SUMMARY. 
 
NEW SUB-DECREE OUTLINES CO-OWNERSHIP OF BUILDINGS 
--------------------------------------------- ---- 
 
¶2. (U) The Council of Ministers passed a sub-decree July 31 
outlining the regulations for co-ownership of apartment and 
condominium buildings, also known as "strata titling".  Under the 
new law, Cambodian citizens can apply for hard titles, registered in 
the national cadastre, to individual units within a larger building. 
 All owners within a building have use rights to common areas and 
co-own the land underneath the building in proportion to the value 
and number of units they own.  The law requires buildings to 
establish a corporate body to manage governance and maintenance 
issues.  Majority decisions are required for changes to a building's 
governing rules, and 75% agreement is required for demolition, 
rebuilding, or renovation decisions.  If the land on which a 
building sits is sold, the building occupants receive compensation 
in proportion to the value and number of units they own. 
 
¶3. (U) Prior to the passage of the new law, apartment and 
condominium owners could only possess soft titles to their 
properties, issued by municipal authorities rather than the national 
cadastral administration (Ref A).  Building occupants commonly 
accepted that the ground floor residents "owned" the land under the 
building, although this was rarely formalized with hard titles. 
Local real estate attorney Matthew Rendall explained that because of 
this informal convention, he only saw the new law on strata titling 
applying to new and future apartment buildings.  In order for an 
apartment building constructed before the passage of the 
co-ownership sub-decree to become eligible for strata titling, 
residents would be required to establish a governing body and 
formally agree to the regulations on proportional ownership of the 
land underneath the building.  Rendall doubted that most ground 
floor residents, who likely enjoy greater authority over their 
apartment buildings, would agree to the proportional building 
ownership rules that come with strata titling. 
 
FOREIGN OWNERSHIP BY END OF YEAR? 
--------------------------------- 
 
¶4. (U) Under Secretary of State Sek Setha, head of the Ministry of 
Land Management, Urban Planning, and Construction's (MLMUPC) Legal 
Unit, told Poloff that the strata titling sub-decree creates the 
foundation for a new law allowing foreign ownership of properties 
above the ground floor.  Per the Cambodian Constitution, foreigners 
are barred from owning land, but RGC representatives hope that 
allowing limited property ownership will attract foreign investors 
to the flagging real estate sector, which has been weakened by the 
global economic crisis (Ref B).  The MLMUPC has developed a draft of 
the law in consultation with private sector stakeholders and expects 
the National Assembly to review and pass it by the end of this year. 
 Sek Setha was upbeat about the prospect of foreign ownership 
benefitting the sector, saying that foreign investors had shown a 
great deal of interest in the draft law. 
 
¶5. (U) According to the current draft of the law, foreigners would 
be allowed to apply for hard titles to properties above the ground 
floor, which would carry all the same entitlements and rights as 
those outlined in the strata titling sub-decree, except for 
proportional ownership rights to the land underneath buildings. 
Foreigners would be limited to owning no more than two properties 
within a single building.  The current draft stipulates that no more 
than 49% of a building can be foreign-owned, and foreigners would 
not be able to own property within 30 kilometers of a national 
border.  Private sector stakeholders have asked for clarification as 
to whether the latter requirement refers to maritime borders in 
addition to land borders, citing the interest in beachfront 
properties along Cambodia's coast.  (NOTE:  Territorial waters 
extend only 22 kilometers from shore.  END NOTE.) 
 
COMMENT 
-------- 
 
¶6. (SBU) The draft law on foreign ownership seems to have garnered 
strong interest from the expatriate community in Phnom Penh, but it 
 
PHNOM PENH 00000608  002 OF 002 
 
 
remains to be seen if this interest will translate into an injection 
of foreign capital into the real estate sector.  Outside of the 
larger commercial centers such as Phnom Penh and Sihanoukville, 
foreign property ownership may be slow to take off and have limited 
impact on economic growth.  While foreign investors may welcome the 
chance to own property in Cambodia, they will still have to contend 
with the more difficult challenges in the Cambodian business 
environment, namely corruption and lack of dispute resolution 
mechanisms. 
 
 
 
RODLEY