Stuck in Sihanoukville: projects grind to halt in Cambodia resort town

Last month, a handful of Chinese developers sat around a desk on the fifth floor of a beachside hotel in Sihanoukville, the Cambodian coastal city they once saw as a promised land.

Over tea and cigarettes, they described how their dreams of seaside success had turned into a nightmare of costly stalled projects and drawn-out legal disputes with landlords.

“There was a lot of greed,” said Zhang Jiawei, head of a Chinese business association in Sihanoukville.

“Business people wanted to get money, even if they knew the prices of land or rent were too high. It was a bubble and people knew it would break, but you don’t think anything bad will happen to you.”

This month marks three years since the abrupt end of Sihanoukville’s multibillion-dollar construction boom. Rapid, unchecked development turned what was a seaside destination popular with backpackers into a jumble of under-construction casinos, condos, hotels and shopping malls.

While the city attracted aspirational labels such as “the Macau of south-east Asia”, the growth was almost solely the result of the online gambling industry, which began setting up in the city around 2017. The sector drew hundreds of thousands of workers and increased demand for space.

“Business was so good,” recalled a developer named Gong, who arrived from Sichuan province in October 2019. “People didn’t think. The market pushed them into making decisions.”

In August 2019, the Cambodian government — under pressure from Beijing to curb criminality and illicit money outflows from the sector — banned online gambling, sparking an exodus of workers.

Covid-19 quickly exacerbated the downturn as the city’s reputation further deteriorated, with spaces vacated by online gambling companies filled by criminal gangs running global web scams with forced labour trafficked into the country.

The city now has 1,155 unfinished buildings, according to official figures. Work on most has halted. The only big changes to the cityscape since the boom abruptly ended are the new roads, footpaths and drainage systems the government was forced to build after the rapid development overwhelmed and destroyed much of the city’s infrastructure.

In an attempt to find a way forward, several Chinese developers met provincial government officials in early July. The group wants authorities to cut taxes and create a land-value index to help with lease negotiations.

They also want the government to help resolve disputes with landlords by persuading the latter to become stakeholders in the projects.

A developer named Qiu, who arrived in Sihanoukville from China in 2017, is among many in his business who are engaged in legal disputes with the Cambodian landowners.

His $3mn high-rise hotel on Independence Avenue was finished around February 2020 after 18 months of construction. It has yet to open. Instead, he has been embroiled in a rent and legal dispute with his landlord, who wants to take complete control of the project.

“I made some very good business decisions in China, built a shopping mall for clothes and earned a lot of money,” Qiu said. “I saw an opportunity in Sihanoukville and came (and) now look at what has happened. I had very bad luck.”

In a country where corruption is endemic and land speculation by connected elites is rife, the developers’ proposals were unlikely to materialise, said researcher Ivan Franceschini, who has studied Chinese investment in Sihanoukville.

Franceschini, a postdoctoral fellow at the Australian National University, said many were fruitlessly holding on in the hope that new investors would return to reinvigorate the city.

“They still expect people to come back and invest, which is very unlikely to happen any time soon,” he said.

The government has commissioned the Urban Planning and Design Institute of Shenzhen to complete an “ambitious” master plan to turn the city into a “commercial, services and logistics hub”.

But there has been little discussion about how to deal with the hundreds of stalled projects. The provincial government failed to return requests for comment.

As their limbo lingers, some developers have scaled back their ambitions. The developer Gong initially planned two projects: a five-story shopping mall and a 30-floor apartment building. Only the first was built, at a cost of $3mn. It remains about 30 per cent occupied, with a beauty salon and some restaurants, all of which pay leases at a 35 per cent discount.

“The rent I get from the shops means I could just break even one week ago,” he said. “Maybe if the situation improves, I can reduce the discount.”

But signs on the horizon, such as a slowing Chinese economy, do not bode well for Cambodia’s construction industry, which contributed more than a third of growth to the country’s gross domestic product.

According to the World Bank’s June economic update, approved foreign direct investment in Cambodia’s property sector plummeted from $1.7bn in 2019 to $142mn in 2020.

Even as the pandemic eases, the construction industry has remained “sluggish”, according to the bank.

In the first three months of 2022, the value of approved construction permits dropped 66 per cent and the approved construction permit area 67.9 per cent, while the volume of steel and cement imports decreased 37.5 per cent.

The slowdown could have broader consequences for the economy, the bank warned. “High credit growth and concentration of domestic credit in the construction and real estate sector remain a key risk to Cambodia’s financial stability,” it wrote.

Still, some remain cautiously optimistic. Zhang of the business association said he had invested in more than $15mn of hotel developments. Five of his projects have so far been seized by landlords amid disputes.

Even then, he still thinks Sihanoukville has a “bright future” with lots of opportunity.

“If China opens the gate, more people will come to invest. Even if some people have lost money, more people will come,” he said. “Today is very hard, but you need to survive now and tomorrow will be good.”

A version of this article was first published by Nikkei Asia on August 5 2022. ©2022 Nikkei Inc. All rights reserved

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