Fallout from land speculation
January 11, 2009
It looks like the recent land speculation has begun to take a toll on the Cambodian economy.
Retailers are complaining about poor business as consumer spending has slowed down considerably due to money being tied up in land investments.
Some people, e.g. farmers, who have sold their properties to buy cars and other luxury items, are having to sell the material possessions to buy food. They no longer have land to grow their own food.
Food prices have not come down with real estate prices as much land formerly used for agricultural purposes have been fenced off and kept idle for resale, and farmers who sold their properties are no longer employed in their natural trade.
Although land prices have declined by around 20%, the real estate market has become stagnant; no one is buying or selling. The stagnation is due to sellers not wanting to take a loss on their investments and buyers not having money or interest to invest in real estate. Land prices had risen by as much as 20,000% during the height of speculation, so a 20% pullback is not a sufficient correction. I think a 90-95% price drop is necessary to overcome the stagnation.
Additionally, people who bet their life savings on real estate paid with real money. It's obvious that that money had not been re-invested in education, infrastructure, and social and rural developments. Where did the money go?
This is only the beginning. The current speculation-- yes, speculation!-- is that the real estate prices will recover and even surpass their recent heights in two years, as world economies recover from the current global crisis. That partly accounts for the stagnation in the real estate market. If in two years, something big (e.g. foreign investments, booming oil production) does not come up to fuel a second round of land speculation, consequences can be severe. Besides, there's no guarantee that "something big" will fuel another round of speculation in land; people may very well speculate on tulip bulbs or white rabbits out of irrational greed...who knows?
Retailers are complaining about poor business as consumer spending has slowed down considerably due to money being tied up in land investments.
Some people, e.g. farmers, who have sold their properties to buy cars and other luxury items, are having to sell the material possessions to buy food. They no longer have land to grow their own food.
Food prices have not come down with real estate prices as much land formerly used for agricultural purposes have been fenced off and kept idle for resale, and farmers who sold their properties are no longer employed in their natural trade.
Although land prices have declined by around 20%, the real estate market has become stagnant; no one is buying or selling. The stagnation is due to sellers not wanting to take a loss on their investments and buyers not having money or interest to invest in real estate. Land prices had risen by as much as 20,000% during the height of speculation, so a 20% pullback is not a sufficient correction. I think a 90-95% price drop is necessary to overcome the stagnation.
Additionally, people who bet their life savings on real estate paid with real money. It's obvious that that money had not been re-invested in education, infrastructure, and social and rural developments. Where did the money go?
This is only the beginning. The current speculation-- yes, speculation!-- is that the real estate prices will recover and even surpass their recent heights in two years, as world economies recover from the current global crisis. That partly accounts for the stagnation in the real estate market. If in two years, something big (e.g. foreign investments, booming oil production) does not come up to fuel a second round of land speculation, consequences can be severe. Besides, there's no guarantee that "something big" will fuel another round of speculation in land; people may very well speculate on tulip bulbs or white rabbits out of irrational greed...who knows?