Cambodia’s real estate market has seen significant growth over the past few years. As the economy continues to develop, more and more investors are looking to invest in this market. However, before investing in Cambodia’s real estate market, it is important to understand the regulatory framework and comply with the laws and regulations. In this guide, we will cover the regulatory compliance requirements for investing in Cambodia’s real estate market.
Land Ownership
The state owns all land in Cambodia, making it a unique system of land ownership. Private individuals and companies can only hold the right to use the land. This means the government requires investors who are interested in buying or investing in the property to obtain the appropriate land-use rights.
There are two types of land-use rights that investors can obtain in Cambodia: hard title and soft title.
Hard Title
A hard title is a government-issued ownership certificate that entitles the holder to perpetual use of the property. This means that the holder can use the property indefinitely and can even sell or transfer ownership to another party.
Soft Title
A soft title, on the other hand, is a certificate of possession that the local government issues and gives the holder the right to use the land for a specific time. This period is usually between five and ten years, and the holder can renew the certificate once it expires.
Investors must ensure that the seller has the right to sell the property and that the land-use rights are properly registered. Due to the lack of a centralized land registry system in Cambodia, it can be challenging to verify land ownership, which is why investors must exercise caution and conduct proper due diligence before investing in any property.
Furthermore, investors should note that the owner can mortgage or sell the land-use rights, which may affect the investor’s ability to utilize the property. Therefore, it is essential to ensure that the land-use rights are free from any encumbrances or disputes before making any investment.
Property Ownership
Investors must ensure that property ownership is properly transferred to them when investing in Cambodia’s real estate market. To achieve this, investors must ensure that there is a valid sales agreement in place that clearly outlines the terms of the sale, including the purchase price, payment terms, and any other conditions that the parties have agreed upon.
Moreover, investors must ensure that they register the transfer of ownership at the relevant government office. The transfer of ownership process involves submitting the sales agreement and other necessary documents to the government office, paying the required transfer taxes and fees, and waiting for the transfer of ownership to be registered.
It is important to note that the transfer of ownership process in Cambodia can be complex, particularly for foreign investors who may be unfamiliar with the country’s laws and regulations. Therefore, it is advisable to seek the assistance of a local lawyer or real estate agent who is familiar with the process and can guide investors through the necessary steps.
Investors must also note that property owners may have additional costs, such as property taxes and maintenance fees. These costs can vary depending on the location and type of property, so investors must do their research to understand the ongoing expenses they will be responsible for after acquiring the property.
Foreign Ownership
Cambodia permits foreigners to own property, but they must be aware of certain restrictions. Although foreigners can purchase apartments or condominium units, they are not allowed to own land outright. However, foreigners may obtain a long-term lease on the land for up to 50 years, with the option to renew the lease for another 50 years.
The process of obtaining a long-term lease on land as a foreigner typically involves negotiating with the landowner or developer and drafting a lease agreement that outlines the terms and conditions of the lease. To be legally binding, the relevant government office must register the lease agreement.
It is important for foreign investors to understand that the long-term lease on the land does not grant them ownership of the property. Therefore, they cannot transfer the land to another party or use it as collateral for a loan without the landowner’s approval.
Furthermore, foreign investors must also ensure that they comply with all relevant laws and regulations when investing in Cambodian property. For example, they must obtain the appropriate land-use rights from the government and register the transfer of ownership in accordance with the law.
Taxation
Investors looking to invest in Cambodia’s real estate market must also take into consideration the tax laws that apply to property ownership. The tax obligations that investors must comply with include property tax, rental income tax, and capital gains tax.
Property Tax
Property tax is a tax on the value of the property and is payable annually. The rate of property tax varies depending on the location, type, and value of the property. Typically, the taxpayer pays the tax to the local government office.
Rental Income Tax
In addition to property tax, investors who generate rental income from their property must also pay rental income tax. The government generally sets the rental income tax rate at a flat rate of 10% of the gross rental income received. However, if the investor is a non-resident, the rate is set at 14%.
Capital Gains Tax
The government imposes a capital gains tax on the profit earned from the sale of a property. The capital gains tax rate is generally set at 20% of the profit earned from the sale. The rate is 30%, however, if a non-resident sells the property.
It is important to note that there may be other taxes and fees associated with property ownership, such as transfer taxes and stamp duty. The amount of these taxes and fees can vary depending on the location and value of the property.
Investors must ensure that they comply with all tax laws and regulations in Cambodia to avoid penalties and legal issues. It is advisable to seek the advice of a local tax expert to understand the tax obligations and to ensure that all taxes are paid on time.
Due Diligence
Before investing in Cambodian property, investors must do rigorous due diligence to detect risks and assure suitability. Due diligence includes researching the property’s history, getting a survey report, and searching the title.
Reviewing the property’s history involves researching the property’s ownership and use over time. This involves investigating the property’s former owners, any conflicts or legal difficulties, and any changes made over time. This information can help investors understand the property’s value and identify any potential risks associated with it.
Obtaining a survey report requires assessing the property for physical faults or defects that may influence its value or use. This includes checking for any structural damage, environmental issues, or other concerns that may require repair or remediation.
A title search checks for liens, debts, and other legal concerns that could influence the property’s value or ownership. This involves analyzing the property’s land-use rights, checking for unpaid taxes or debts, and verifying the seller’s permission to sell.
Investors must do rigorous due diligence to detect property hazards and issues. Failing to identify these issues can lead to legal disputes, financial losses, and other complications. A property advisor or lawyer can help investors navigate the due diligence process and advise on property concerns and hazards.
Conclusion
Cambodian real estate investors must comply with land ownership, property ownership, foreign ownership, taxation, and due diligence. Keller Williams Cambodia’s property advice, legal aid, and market insights help investors negotiate these regulations and make informed investment decisions. To discover more about investing in Cambodia’s real estate market and how Keller Williams Cambodia can help you, contact us today.
