Affordable Housing with Financing Solutions
Affordable Housing with Financing Solutions
Business Model Description
Invest in B2C models engaged in building affordable homes for low to middle-income families with a focus on sustainability. Affordability is made possible through innovation or practical location (SEZ), as well as with the provision of financial assistance (loans, subsidies and tax exemptions).
Worldbridge Homes Co. Ltd. (WHC), founded in 2017, is a subsidiary of the Worldbridge Group of Companies. It is engaged in affordable housing development in partnership with RGC to provide sustainable/livable communities with high quality, affordable homes, and quality and reliable amenities to serve low and middle-income earners, particularly the civil servants.
In 2015, WHC and Straits Construction Singapore Pte. Ltd, signed a memorandum of understanding (MoU) on affordable housing with the RGC. WHC is developing 2,457 housing units, priced from USD25,000-30,000. Loans are offered with a down payment policy, requiring 5% of the price in 1st month; while balance can be paid in 24 months at no added interest. [9][10][11]
Arakawa Co.,ltd (Arakawa), founded in 2008 by Japanese investors, is a housing development company. After developing Bellevue Serviced Apartments, they are currently engaged in construction of a USD 70 mn (12) project for affordable housing complex of 2960 units, with price ranging from USD 28,000-61,200. (13)
First Finance PLC (FF), founded in 2006, provides long-term home and medium-term home improvement loans to underserved low-middle income households and families who do not have access to formal commercial lending in Phnom Penh. It also offers home equipment loans.
FF lends 80% of the home’s value to borrowers to repay over a term of upto 20 years, at a competitive rate, allowing the client to have upto 3 co-borrowers (siblings).
Expected Impact
Affordable housing solutions to ensure improved well-being, reduced inequalities and urban planning support by expanding projects in city-outskirts.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Cambodia: Phnom Penh
Sector Classification
Infrastructure
As of 2018, ~45.1% urban population was living in slums.(1) Royal Government of Cambodia (RGC) estimates that ~8 mn people (>44%) will be living in urban areas by 2030 (2) [>4 mn people (>27%) reside in urban areas as of 2020 (3)].
TCdata360 ranked quality of Cambodia’s infrastructure as 99/137 in 2017, indicating a lack of housing, waste management and water treatment facilities that is commensurate with the rapid urbanization. (4)
National Housing Policy 2014
aims to enable people across the country to gain access to adequate housing to reside with welfare, peace and dignity, especially low- and medium-income households and vulnerable groups.
In Cambodia’s 7 biggest urban centers, ~2,700 young people were homeless due to higher unemployment and migration to the cities from rural areas.(5) Majority of low-income migrants who are unable to pay rent in the city live beside railroad tracks in extreme poverty, and unsanitary conditions.
2 mn houses require critical improvement. As of 2013, 51.3% of households did not have toilet facilities.) Such unsanitary and harrowing conditions in urban areas result in severe health issues. (6)
Furthermore, gender disparities exist in construction jobs as women have lower access to such jobs in comparison to men. Lack of adequate infrastructure, such as roads and electricity, supporting employment policies are a prime obstacle for the growth of businesses run by women. (7)
RGC encourages private operators to bring their technical expertise and help fund infrastructure projects, particularly to extend utility provisions to new areas under licensing arrangements (water connections, small scale power, water treatment plants and the like).
Infrastructure in Cambodia is not only underdeveloped, but also underfunded. Access to adequate project finance is complicated due to long payback periods, thereby limiting cash flows to finance rapid expansion. Upfront costs are significant and regulatory environment is not very conducive.
Real Estate
~10 mn Cambodians lack adequate housing, and ~2 mn houses need necessary improvement to meet the minimum quality standards. In Phnom Penh, 1 in 5 people live in slums and lack access to basic services (sanitation, toilets). (5) To meet the growing demand of urbanization, a supply of 50,000 affordable new homes would be required each year. (8)
New Affordable Housing Policy (2017)
aims to encourage developers to focus on low-cost housing projects.
Housing shortages and homelessness is a serious and ongoing issue. Even though RGC adopted the National Housing Policy to improve access to housing, the policy has not yet influenced housing for low-income and middle-income families. (5) Migrant women and children are particularly vulnerable to health and safety issues arising from unsanitary habitation in urban areas.
Demand for housing has increased with growing number of workers and students who've come to reside in Phnom Penh and its outskirts. As of 2020, Cambodia had 5 affordable housing development projects comprising a total of 8,331 units. Such investments need to increase to provide socio-economic stability with owned accommodation to low-income urban dwellers. (8)
Land privatization and profits generated by luxury projects make affordable housing project unattractive financially. Incentives provided by RGC might not be sufficient to address the increasing cost of land in urban areas. Lack of innovative financing schemes can also raise the final price of properties, substantially.
Home Builders
Pipeline Opportunity
Affordable Housing with Financing Solutions
Invest in B2C models engaged in building affordable homes for low to middle-income families with a focus on sustainability. Affordability is made possible through innovation or practical location (SEZ), as well as with the provision of financial assistance (loans, subsidies and tax exemptions).
Worldbridge Homes Co. Ltd. (WHC), founded in 2017, is a subsidiary of the Worldbridge Group of Companies. It is engaged in affordable housing development in partnership with RGC to provide sustainable/livable communities with high quality, affordable homes, and quality and reliable amenities to serve low and middle-income earners, particularly the civil servants.
In 2015, WHC and Straits Construction Singapore Pte. Ltd, signed a memorandum of understanding (MoU) on affordable housing with the RGC. WHC is developing 2,457 housing units, priced from USD25,000-30,000. Loans are offered with a down payment policy, requiring 5% of the price in 1st month; while balance can be paid in 24 months at no added interest. [9][10][11]
Arakawa Co.,ltd (Arakawa), founded in 2008 by Japanese investors, is a housing development company. After developing Bellevue Serviced Apartments, they are currently engaged in construction of a USD 70 mn (12) project for affordable housing complex of 2960 units, with price ranging from USD 28,000-61,200. (13)
First Finance PLC (FF), founded in 2006, provides long-term home and medium-term home improvement loans to underserved low-middle income households and families who do not have access to formal commercial lending in Phnom Penh. It also offers home equipment loans.
FF lends 80% of the home’s value to borrowers to repay over a term of upto 20 years, at a competitive rate, allowing the client to have upto 3 co-borrowers (siblings).
Business Case
Market Size and Environment
> USD 1 billion
>1 mn new houses required (~800,000 in towns) to meet the demand of 8 mn people by 2030 (2)
~80% of housing construction is focused on low-income market. Houses costing <USD 40,000 per unit are seeing a strong demand, driven by solid economic growth and a young population. (2)
As of 2020, Cambodia had 5 affordable housing projects – 2 in Phnom Penh, 2 in Kandal province and 1 in Banteay Meanchey province – comprising 8,331 landed units and 7,256 strata units.(12)
WHC is engaged in developing an affordable housing community, encompassing ~24 out of 45 hectares, including 2,457 housing units, 88 shophouses, a central community market, a community health clinic, a kindergarten school, and three landscaped parks. (10)
Indicative Return
10% - 15%
Margins/returns vary with the type of business model, cost of land and location of the project.
Houses under affordable scheme range from USD 25,000-30,000. Additionally, builders also provide financial assistance in the form of housing loans for buyers, with an initial deposit of ~10% of the housing cost, and the balance payable in monthly instalments. (9)
WHC is developing 2,457 housing units, [10] priced from USD25,000-30,000. [9] Loans are offered with a down payment policy, requiring 5% of the price in 1st month, with the balance payable anytime up to 24 months at no added interest cost. [11]
Arakawa is engaged in developing 2960 affordable housing units, with price ranging from USD 28,000-61,200. (13)
Investment Timeframe
Long Term (10+ years)
As per expert consultations, as construction business is capital intensive, investors will be able to break-even in the medium to long term, particularly if sales are linked with financing schemes offered to buyers.
Ticket Size
> USD 10 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Market - Volatile
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
Encouraging private investment in infrastructure sector to meet economic growth targets. Currently, Cambodia lacks adequate housing, waste management and water treatment, which is indicated in TCdata360's (World Bank) ranking of 99/137 in 2017 for quality of Cambodia’s infrastructure. (14)
Private investment in construction sector can offer affordable housing solutions to ensure shelter for the entire population. Currently, despite a sustained growth in the economy, housing remains an issue as ~10 mn Cambodians, that is nearly 60% of the population, lack adequate housing. (5)
Provision of housing complexes with adequate sanitation (toilet infrastructure) can help in improving national health indicators by reducing prevalence of communicable diseases and contributing to general well being.
Gender & Marginalisation
Access to affordable housing can have a direct bearing on the degree to which women and children express homelessness, especially when faced with disasters such as floods which Cambodia is prone to.
Provision of financial assistance can enable vulnerable population to purchase adequate housing. Currently, 57% of the 8.8 mn low-income earners are in a position to afford the cost of a house, but lack access to adapted housing micro-loans.
Growing investment in construction sector will help in employment generation, thereby offering improved income for low-income households and migrant workers who are generally seeking jobs in urban areas.
Expected Development Outcome
Improve well-being of low and middle-income families by providing affordable housing solutions.
Develop support infrastructure within housing complexes, including water treatment plants, to reduce the negative impacts of urbanization on the environment.
Promote the development of the banking sector to assist purchasers in buying new homes at affordable interest rates and payment schedule, without adding to their existing financial burdens.
Gender & Marginalisation
Reduce regional disparities by promoting affordable housing projects which support the development of communities and associated services (schools, hospitals and the like).
Reduce the negative impact of migration on vulnerable communities, especially women and children, by ensuring housing with adequate sanitary facilities.
Reduce the level of homelessness and ensure equitable distribution of national resources.
Primary SDGs addressed
1.2.1 Proportion of population living below the national poverty line, by sex and age
17.8 % in 2020 (15)
6% in 2030 (16)
6.1.1 Proportion of population using safely managed drinking water services
Proportion of Cambodian population with access to safely managed and clean water supply services in 2015 was 83.5 % in urban areas and 16 % in rural areas (16)
Proportion of Cambodian population with access to safely managed and clean water supply services in 2030 will be 100 % in urban areas and 50% in rural areas (16)
11.6.1 Proportion of municipal solid waste collected and managed in controlled facilities out of total municipal waste generated, by cities
1.2 tons (2015) (16)
1.5 tons (2030) (16)
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
If the price of housing projects is not commensurate with the appetite of low income households, the initiative will not address the challenge of lack of quality and affordable housing.
In the absence of accessible financing schemes/loans that are serviceable, especially by low income households, the model will remain fragmented, unable to address the affordable housing market gap.
If support infrastructure (schools, health centers and other ancillary services) is not part of the project design, the uptake of such units will be challenging and a poor investment option.
Gender inequality and/or marginalization risk: Absence of regulations to maintain quality of construction will render vulnerable population at the risk of being exploited with poor quality housing.
Impact Risks
Some "affordable housing" projects might miss the initial target of "low to middle income" and reach out rather to "middle income" targets as sales and consequently profits are guaranteed for higher income segments.
The geographical concentration of affordable housing that is not adequately targeted at people and communities that need such services the most, can contribute to gentrification and increase suburban poverty.
Poor planning around expanding affordable housing projects beyond urban areas may result in degeneration of natural resources, such as forests.
Inadequate planning around adding sanitation, sewage and road infrastructure during the development of affordable housing would hamper the quality of life for vulnerable sections of society.
Gender inequality and/or marginalization risk: Absence of well designed housing finance products may hamper access and affordability to quality housing by low income segments.
Impact Classification
What
Affordable housing projects to ensure quality shelter is available for all, especially the vulnerable communities (low income households, migrant workers, women, marginalized communities).
Risk
Although the model is proven, without RGC's strong involvement and commitment, especially to de-risk private sector investments, projects will not attract profit-oriented private investors.
Contribution
~80% of housing construction is focused on low-income market. Houses costing <USD 40,000 per unit are seeing a strong demand, driven by solid economic growth and a young population. (2)
Impact Thesis
Affordable housing solutions to ensure improved well-being, reduced inequalities and urban planning support by expanding projects in city-outskirts.
Enabling Environment
Policy Environment
New Affordable Housing Policy (2017) aims to encourage developers to focus on low-cost housing projects.
National Housing Policy 2014 aims to enable people throughout the country to have access to adequate housing to reside with welfare, peace and dignity, especially low and medium income households and vulnerable groups.
Financial Environment
Financial incentives: Special rates for paying income tax, property tax and VAT (18)
New Stamp duty tax exemption scheme for property worth less than USD 70,000 (valid until Jan 2021 and extended one more year) (19)
Other incentives: RGC provides the facilitation of bureaucratic procedures, such as obtaining construction permits, business licenses and other necessary documents. Investment by RGC in infrastructure around areas where affordable housing projects.
Regulatory Environment
To benefit from incentives, developers need to build at least 100 low-cost housing units priced between USD 15,000 and USD 30,000. Projects must contain green spaces and cooperate with financial institutions to create credit schemes with low interest rates.
New Draft PPP Law (2021) replace the Law on concessions and aims to enhance the management of PPP mechanisms in the design of public infrastructure projects.
Marketplace Participants
Private Sector
Corporates: Worldbridge Homes Co Ltd (WHC), Arakawa Co. Ltd., BUN CHES Group, Sokha Residence, Ly Brothers, First Finance Investors: Straits Construction Singapore Pte. Ltd
Government
Ministry of Land Management, Urban Planning and Construction (MLMUPC), Council for Development of Cambodia (CDC) for PPP projects
Multilaterals
World Bank, Asian Development Bank, United Nations Development Programme, United Nations Office for Project Services, United Nations habitat
Non-Profit
Habitat For Humanity, Global Green Growth Institute, Planete Enfants et Development, Cambodian Children’s Fund, World Housing, People In Need
Public-Private Partnership
Land and Housing Rights Network
Target Locations
Cambodia: Phnom Penh
References
- (1) Sachs et al. (2021). The Decade of Action for Sustainable Development Goals. Sustainable Development Reprot 2021. Cambridge: Cambridge University Press. https://dashboards.sdgindex.org/profiles/cambodia
- (2) Hin, P. (2018). Rising Demand for Cheap Housing. https://www.phnompenhpost.com/post-property/rising-demand-cheap-housing
- (3) World Bank. (2018). Urban Population--Cambodia. https://data.worldbank.org/indicator/SP.URB.TOTL?locations=KH
- (4) Business and Sustainable Development Commission. (2017). Better Business, Better World. https://sustainabledevelopment.un.org/content/documents/2399BetterBusinessBetterWorld.pdf
- (5) Benson, E. (2020). 4 Facts about Housing and Homelessness in Cambodia. https://borgenproject.org/homelessness-in-cambodia/
- (6) Mendez, W. (2020). 10 Facts about Housing Poverty in Cambodia. https://borgenproject.org/housing-poverty-in-cambodia/
- (7) Asian Development Bank. (2014). Country Partnership Strategy. https://www.adb.org/sites/default/files/institutional-document/150147/cps-cam-2014-2018.pdf
- (8) Hin, P. (2021). Affordable Housing Project to be Completed by End of 2021. https://www.phnompenhpost.com/post-property/affordable-housing-project-be-completed-end-2021
- (9) Whitehead, J. (2016). More Affordable Housing Projects Underway in Phnom Penh, Says Worldbridge and Natural Lucky. https://www.linkedin.com/pulse/more-affordable-housing-projects-underway-phnom-penh-says-whitehead/
- (10) Worldbridge. (2021). Worldbridge Homes. https://www.worldbridge.com.kh/portfolio/worldbridge-homes/#:~:text=Encompassing%20almost%2024%20out%20of,clinic%2C%20a%20kindergarten%20school%2C%20and
- (11) Construction Property. (2018). World Bridge Homes Adjusts Low-Cost Housing Project Payment Policy. https://construction-property.com/world-bridge-homes-adjusts-low-cost-housing-project-payment-policy/
- (12) Hin, P. (2021). Low Cost Homes 'Ready 2022'. The Phnom Penh Post. https://www.phnompenhpost.com/post-property/low-cost-homes-ready-2022
- (13) Sekai Property. (2022). Arakawa Residence. https://en.sekaiproperty.com/projects/350837/arakawa-residence-phnom-penh
- (14) World Bank. (2017). Quality of overal infrastructure. https://tcdata360.worldbank.org/indicators/h2cf9f9f8?country=KHM&indicator=536&viz=line_chart&years=2007,2017
- (15) MOP 2021
- (16) Royal Government of Cambodia. (2018). Cambodia Sustainable Development Goals (CSDGs) Framework (2016-2030). https://data.opendevelopmentmekong.net/dataset/3aacd312-3b1e-429c-ac1e-33b90949607d/resource/d340c835-e705-40a4-8fb3-66f957670072/download/csdg_framework_2016-2030_english_last_final-1.pdf
- (17) United Nations Environment Programme. (2021). 5 Ways to Make Buildings Climate Change Resilient. https://www.unep.org/news-and-stories/story/5-ways-make-buildings-climate-change-resilient
- (18) Buttmann, V. (2017). The Clash of Rural-Urban Migrants and Real Estate Investors on Phnom Penh's Housing Market--Prospects for Garment Workers.https://www.ipe-berlin.org/fileadmin/institut-ipe/Dokumente/Working_Papers/IPE_WP_91.pdf
- (19) GGGI. (n.a.) Sustainable Affordable Housing in Phnom Penh. https://gggi.org/affordable-housing-series/?fbclid=IwAR0ncTswi9LmZ_oeDqdp9t2Xgfc83nube7pfdgNoOICFU8hLT7jgiC9yEmg