Construction boom not a bubble

Attracting $2.5 billion of foreign investment during the first half of this year alone, Cambodias construction sector has been repeatedly flagged as the next growth engine for the Kingdoms economy.

However the boom has fuelled fears of a construction bubble and investment volatility. Thierry Loustau is the managing director of construction firm LBL International. With 250 projects completed over the past 22 years, Loustau is well aware of the challenges facing the sector.

Is construction Cambodias next big engine for growth? It is definitely true. We have seen, after 22 years, all the ups and downs that have happened in this country. Over the past five or six years, however, construction has really boomed and I do not see any reason that it wont continue for at least a couple more years. Mainly, this growth is clearly seen in Phnom Penh. This city is growing in a vertical way, and I cannot decide whether this is good or not, but it is certainly the trend.

What then is your ideal vision for Phnom Penh? I guess it would be to keep the historical parts of Phnom Penh I really think it is a jewel of Asia. Equally, I think the infrastructure has not yet been done to support this kind of high-rise development. I would prefer that the historical parts stay the way they are and new developments, instead, sit just outside of the central area.

In Bangkok, for example, the financial district has been built outside of the historical parts of the city. And that was really pushed forward by the citys development of infrastructure and public transport. I think that would be a nice solution for Phnom Penh instead of this congested historical centre.

Do you fear a bubble is looming for Cambodias construction industry? I dont foresee any bubble. What Phnom Penh is seeing is a normal trend for any Asian city and we are so, so late to start moving on construction that there will be room for more development for a while to come. We have talked about this bubble for a very long time years even. I remember several years ago when many people were building Chinese-style townhouses everywhere, people were saying, Oh this will cause a bubble. Who will be living in all these places? But today we discover everything is full.

Today, yes, sure, we can see some projects are struggling as everything builds up. But I must say that if something is done well, it will do well. It is like the restaurant industry if it is a good restaurant, it will survive.

Where is all the money for this construction coming from? In the beginning we were working mainly with foreign investors. After 1998-2000 there were a lot more local developers. But today, I would say conservatively that we work with an equal share of both local and foreign developers. The majority of foreign developers are regional players of course, we are in Southeast Asia so it is quite normal that most of the investment comes from China, Korea, Japan, Malaysia and Singapore.

It is important to have good, reliable companies coming in. Investors today, compared to six years ago, are big, publicly-listed and experienced firms like Oxley, Hong Kong Land or Parkson. These are serious people who are here for the long term.

Is there a shortage of skilled workers in construction? There are two elements to this discussion; the engineers and architects, and then the wider labour force. I must say that at the level of engineers and architects, I have never had a problem finding qualified staff here in Cambodia.

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Construction boom not a bubble