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Cablegate: Law On Strata Titling Paves the Way for Foreign Property

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

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