Interview Hong Lai Huat: Real estate in Cambodia promises high margins

Especially when you enter a new market, challenging situations arise. Different legal frameworks, processes, and new construction companies always require you to be flexible as a builder and make adjustments step by step. However, we have now completed the first projects and can justifiably claim to have arrived in Cambodia. We already knew many potential pitfalls from our many years of work and were therefore well prepared. As a Singapore-based company marketing apartments and retail outlets in Cambodia to both locals and foreigners, we see ourselves perfectly positioned. Investors from the rest of Asia, in particular, feel comfortable partnering with Hong Lai Huat to invest in an emerging market like Cambodia.

Cambodia combines the trend of a long-term appreciation of real estate prices with the characteristics of a true tiger economy. The country stands out positively even within Asia when we take a closer look at its growth rates. Compared to saturated markets, such as Singapore, real estate investors still find great opportunities in Cambodia. The reason is that there are not yet so many market players operating in Cambodia. For us, this means higher margins. Coupled with the experience already gained in Cambodia, Hong Lai Huat has everything it takes to implement successful long-term projects in Cambodia.

D'Seaview was a project where the processes had to be right - after all, 737 residential units is no small number. In retrospect, the fact that we successfully completed the project confirms the trust investors placed in our Company from the moment we announced our expansion into Cambodia. The concrete lessons learned are manifold and relate, for example, to the concrete synchronization of work processes. All the local stakeholders now know each other, making cooperation easier in many areas. However, our local employees report first and foremost that during the sale of the apartments, they now understood even better how the market works and what customers expect. This experience will be incorporated into further projects and improve the buyers' experience with Hong Lai Huat.

We are tapping into new target groups, yes. Cambodia is an emerging country that is gaining traction in Asia. However, it was important to us from the outset not to launch projects purely for foreign investors. We are aiming for a heterogeneous ownership structure. For example, around 55% of the buyers of D'Seaview's apartments are from Cambodia, while the rest are investors from abroad who mainly use the apartments themselves.
The upcoming Toul Kork District project is expected to appeal even more to Cambodia's emerging middle class. So here we expect an even larger proportion of Cambodians. Especially in emerging markets, it is essential not to invest in speculative objects but in needed projects. We are, therefore, particularly pleased about the response from buyers from Cambodia.

Covering about one-seventh of Singapore, the Agri Hub is a gigantic project, about an hour from the Cambodian capital of Phnom Penh. According to our master plan, the Agri Hub will consist of various zones, including light industry with solar roofing, fish farms with solar roofing, food processing, and commercial and residential zones.
The targeted first phase of development is expected to have a gross development value of USD 1 billion. We intend to develop the Agri Hub through joint ventures and the sale or lease of land, which will provide the Group with several diversified income streams. For example, the Group has entered into a partnership with HSC Group for the exploration and mining of mineral resources in Agri Hub. The joint venture is close to regulatory approval.

In exchanges with authorities, it quickly becomes clear that the country is on the verge of major development. Officials recognize the opportunities that come with construction projects and show themselves to be cooperative. Since we have already advanced several projects in Cambodia, both sides have a great deal of trust.

Typically, it takes about two to three years to complete construction in Cambodia. Hong Lai Huat was an early entrant in Cambodia and has been operating in the country since 2007/2008. That has helped the Group build business networks in the Kingdom and understand the business environment in Cambodia, which gives us a competitive advantage over our peers.

Since November 2021, Cambodia has reopened its borders to overseas travelers, as nearly 90% of the population has been vaccinated. That is expected to help Cambodia achieve a strong economic recovery. Fitch forecasts real GDP of 4.7% in 2022. Cambodia's industrial and agricultural sectors support economic growth. We assume that these sectors will continue to provide solid support for the further development of Cambodia's economy.

Hong Lai Huat saw a turnaround in earnings in FY2021 as revenue more than doubled. This was supported by stronger property sales in Cambodia as business activities resumed in the second half of 2021. Gross profit margin also increased to 62% in 2021 from 38% in the previous fiscal year.

With the reopening of the Cambodian borders, we expect property sales to remain positive as the Group continues to market its properties to be sold in Royal Platinum and D'Seaview. Should our joint venture around mining receive regulatory approval for mining in Agri Hub, this could provide a new source of revenue for the Group in the coming years.

The shares are mainly held by my father, brother and mother. Because of our substantial stake in the Company, management's interests are strongly aligned with those of the minority shareholders. Over the past year, the Ong family has been actively increasing its stake in the market as a sign of support for the Group's business, and we believe the Group's share price has great potential.