Written by David Granger – Branch Director, IPS Siem Reap
A Brief History of Property Ownership in Cambodia
When it comes to property ownership for foreigners there is a lot of misinformation out there. Put simply, as foreigners, we are not allowed to own property that is on the ground level in our own name.
Article 44 of the Cambodian Constitution states: “All persons, individually or collectively shall have the right to ownership. Only natural persons or legal entity of Khmer nationality shall have the right to land ownership. Legal private ownership shall be protected by law.” The good news is that the laws are changing and there are a number of exceptions to this law with the main one being foreigners are permitted to own strata title condominiums.
Here is a very brief history of land ownership in Cambodia which helps to understand the evolution of property laws since the end of the Khmer Rouge:
- During the Khmer rouge period of 1975-1979 land ownership was abolished and existing records of that time were destroyed.
- Following the fall of the Khmer Rouge, all property was owned by the state up until the early 90s.
- Private ownership of land only became possible in 1992 when the land law was passed by the Cambodian Government, during this time “soft titles” were issued to residents by the local Sangkat (commune).
- In 2001, the new land law came into effect further strengthening an individual’s right to property ownership. This law saw the introduction of “hard titles” which allowed for the registration of land at the national government level on a centrally-controlled computerized system..
- Cambodia’s new civil code came into effect on the 21st of December 2011 and with it the concept of co-ownership. Co-ownership is defined as ownership of a single thing by multiple owners. In the west it would be known as Strata Title ownership.
- In 2010, the Cambodian National Assembly passed the law of foreign property ownership which effectively allows for foreign ownership if the apartment / condominium is above the ground floor. There has been some confusion on what the law allows foreigners to buy, in brief it allows foreigners to purchase condominiums in co-owned buildings built after 2010, with up to 70% of all the units in the co-owned building allowed to be owned by foreigners.
Forms of Titles in Cambodia
The forms of property ownership in Cambodia have been constantly expanding since the government reinstated individual property ownership laws in the 90s. Overall the changes have been positive as property titles have become more detailed & secure and more recently we have seen allowances for foreign ownership. So what titles are available and what do they actually mean?
Soft Titles
Soft titles have been the most common form of ownership. A soft title is registered at the Sangkat (commune) and Khan (district) levels only and is not registered at the National level. As the administration of these titles are managed by the local authorities, soft titles are transferred quickly (normally less than 10 working days) and at a low cost.
- From 2024, the Cambodian government has started a process to bring all soft title land into the national hard title system. This is a big undertaking, and work has been moving forward at a fast rate. Many owners of soft title land have already registered their lands to receive hard title. Part of this work involves incorporating the lands in the local city plan.
- Ordinarily, this means some soft title lands will become smaller, as part of the lands are given to the State to enlarge the size of the roads that border the land, or to make way for other necessary State infrastructure. Whilst soft-title land owners will lose some land during this process, the value of their (remaining) land will increase.
- Soft-title land owners who have registered their land to receive hard title are issues a ‘hard title receipt’ and can expect to receive their hard title certificate 1 to 2 years later.
Hard Titles (also known as LMAP)
Hard title properties are the strongest form of land ownership in Cambodia. Hard titles are registered at the Ministry of Land Management, Urban Planning and Construction (National level).
Transfer of hard titles are done at the cadastral office and usually takes around 12 weeks to complete. There is a 4% transfer tax (stamp duty) on the “tax department assessed property value”. Assessed property value is calculated according to a schedule of property value used by the Department of Taxation. This schedule assigns a per-metre-value to land according to the suburb it is in, and according to whether it is located on a primary, secondary, or tertiary road. The ‘assessed value’ that is used to calculate government property taxes is always much lower than the actual market value (sales price) of the land.
Co-ownership “Strata Titles”
“Strata titles” are possession rights over property that has been given special approval that allows for co-ownership of a property by Khmer nationals and foreigners. To be granted a co-ownership title the property must meet a number of criteria:
- Only applies to new buildings – 2010 onwards
- Foreign ownership is limited to 70% of the total surface size of all units in the co-owned building
- Can’t be ground floor or underground floor
- Can’t be within 30km of any land border
A co-ownership title is recognised at the Ministry of Land Management, Urban Planning and Construction (National level). The transfer process takes around 12 weeks and the transfer tax cost is a 4% of the property’s “assessed value” which is determined by the department of taxation.
Removing Risk – The Importance of Due Diligence
No matter where you are, buying property always carries an element of risk and in Cambodia this risk is somewhat increased due to the relatively loose rules and regulations. You will often hear the phrase “make sure you do your due diligence” before you buy a property. But what does due diligence really mean? And how do you go about it?
When it comes to real estate in Cambodia a basic due diligence refers to an investigation of a property to ensure that the presented facts are correct and there is nothing that will prevent the transfer of the property title. In Cambodia, the typical sale process will usually involve the buyer paying 50% or more of the purchase price before the new titles are processed so it’s critical to ensure that there are no obstacles that will prevent the title transfer and leave you chasing the seller to get your money back. This sounds scary, but it’s easily avoided and it’s why doing your due diligence before you buy the property so important. A basic due diligence should check the following items:
- Verifying the owner of the property.
- Verifying the details of the property (address, title type, size, boundaries etc.) Checking for restrictions on the property.
- Checking any encumbrances against the property: mortgages, legal disputes. Checking any disputes against the property: complaints from neighbours.
- Measuring the property border that is registered with the government to make sure your neighbour has not built on your land (or you, on theirs).
- Checking with the tax department to make sure the seller does not have tax debts on this property, or any other property/business in their name, which would prevent the transfer of the property you are purchasing.
This information is acquired by firstly obtaining a copy of the property title and then conducting interviews with the village chief, commune chief, the cadastral office, and the tax department. All the above items need to be checked to ensure a smooth transition of title transfer and mitigate the risk of any nasty surprises. If you use a professional, the process is fast and affordable, taking around 3 days to conduct the interviews and compile the report. The report will cost around $650 including VAT which, given the amount of even a small property purchase, is great value for money.
At IPS Cambodia, we recommend that all our clients conduct DD before going ahead with the purchase of both hard and soft titled property. The cost is small and the peace of mind it buys you is invaluable.
Methods for Foreigners to Secure their Rights when Purchasing Property
In Cambodia, foreigners cannot own land or houses in their own name, except for the purchase of strata-title condos Foreigners do purchase property in Cambodia though, and there are 4 ways that this can be done.
1. Nominee Structure
The vast majority of properties purchased by foreigners in Cambodia use what’s known as a “nominee structure”. At IPS Cambodia, approximately 90% of all our foreign clients choose this structure as it’s cheap, secure and fast, especially when compared to alternative options such as a land holding company. Often we have clients who have a Khmer partner or colleague who they put forward as a nominee, however if they don’t, IPS can source a nominee for the property for the duration of your ownership.
Having a nominee by itself definitely carries some risk which is why we highly recommend using “nominee security agreements” in order to mitigate the risk of having your property held in a third party’s name. These security agreements are directly between the foreign buyer and the nominee and as a general rule, there are 4 types of security agreements available:
- Mortgage Agreement – This document is registered at the local commune and essentially makes the buyer “the bank” as in a traditional mortgage with a bank back in your home country. Once these documents are in place the nominee can’t sell, transfer, move, or do anything with the title without the buyer’s permission
- Loan Agreement – The nominee takes out “paper loan” (no money actually exchanges hands) from the foreign buyer in the amount of the purchase price with the loan attracting interest throughout the life of the contract. This loan can be called in and enforced in the event the nominee tries to sell the property
- Lease Agreement – This gives the buyer permission to live in the property, or sublease the property on a long term basis
- Security Agreement – This agreement sets out the rights and obligations of the buyer and the nominee, clearly stating what each party can/can’t do.
When purchasing a property using a nominee structure the process works as follows:
- A property is purchased by the foreign client and the property title is transferred into the Nominees name.
- When the new titles are received a mortgage and/or lease is registered at the commune office and at the national level (Ministry of Land Management). The remaining nominee security documents are also signed in Khmer and English.
- The foreign buyer holds the original property title.
- When set up properly, this structure is a very strong and inexpensive form of property security for foreign owners.
2. Land Holding Company
The second way is to use a registered company, also known as a “land holding company”, which holds the property as an asset of the company. To create this company you still need to use a nominee. The nominee will hold 51% shares of the company, the buyer will own 49% of shares, and a lawyer will create a power of attorney to give the buyer controlling rights over the 51% of shares held by the nominee (ensuring you have full control of the company and its assets (ie. the property).
This type of method has high annual maintenance costs and incurs additional tax expense when selling the property. A holding company is most often used by large investors who are purchasing multiple properties and are not bothered by the holding and tax costs.
3. Trust Deed
Following the Cambodia 2019 Trust Law, there are 16 banks who can assist buyers to hold property under trust. There is a government Trust Regulator that regulates this entire industry. The method is similar to the nominee system above, but instead of the nominee holding the property title in your name, the bank owns the property title, and they issue you a Trust Deed certificate for that property.
The main differences between a trust deed and nominee are;
- If the buyer sells the property to another foreigner, the trust deed ownership is transferred to the new buyer. Because the title ownership is not being transferred (it remains with the bank), there are no transfer taxes or transfer fees applied. If the buyer sells to a Cambodian the trust is dissolved and a normal transfer of title is followed.
- When a trust deed is established, the buyer can set up multiple beneficiaries to the property. If the buyer passes away, ownership of the trust deed passes to another beneficiary. This means no will and testament is required and clear ownership of heirs is established within the trust when it is established.
- In addition to fees required to set up a trust, there are additional annual fees paid to both the the bank that holds the property title and the government trust regulator.
4. Perpetual Lease
Perpetual leases are a common form of ‘acquisition’ of real estate by foreigners and are widely used. These grant the lessee immovable property rights, which can be assigned for valuable consideration or transferred by way of succession. A perpetual lease is one entered into for a minimum term of 15 years up to a maximum of 50 years. The term of the lease can be automatically extended for consecutive periods of 50 years, therefore its description as a ‘perpetual lease’.
A perpetual lease can be registered against the freehold title to the land being leased to help enforceability against third parties. Once registered, the relevant Land Office will issue a Perpetual Lease Certificate to the lessee. The lease gives the lessee all the necessary rights to develop the land. It can also be freely assigned, sold or transferred.
Benefits of a perpetual lease are:
- It still provides strong ownership rights to the Investor to secure its tenure over the property. The leased land will be under a separate title, which will be subject to the Perpetual Lease.
- It will allow the Investor to grant security over the Perpetual Lease.
- No restrictions on foreign ownership. The Perpetual Lease can be entered into by a foreign investor or by its local subsidiary.
IPS is able to give buyer more detailed information and advice on which is the best method suited their own situation.
Property Sale Process
The property sale process differs from country to country and here in Cambodia the process from the deposit right through to settlement is more than likely different to your home country. Whilst payment terms are usually negotiable, they need to be fair and equitable to both the buyer and the seller. Over the 7 years of conducting property transactions in Cambodia we have come to recommend a 3 step payment process which takes into account the needs of all parties involved.
- Our recommended transaction process works as follows:
- 10% deposit payment on signing of the Sale and Purchase Agreement;
- 40% interim payment on submission of title transfer papers to the Commune/Cadastral office;
- 50% balance payment on receiving the new title;
When the above payment process is proposed a common question from buyers is “why not a 10% deposit and 90% balance payment?” The answer is simple, this 3-step payment is a compromise between the buyer and the seller. The interim payment is needed because when the seller signs the title transfer papers and hands over the title to the Commune/Cadastral office the property is effectively not theirs anymore. As such it’s fair that they receive a payment at this stage. On the flip side, in the past Khmer sellers would often request for 100% payment upon signing of the title transfer documents. This is grossly unfair to the buyer and there aren’t too many buyers willing to pay 100% up front before receiving the new titles.
The 3-step payment process is our standard recommended payment terms, it’s simple, logical and works for both parties.
Cambodia: Discovering the Nation
• Introduction to Cambodia
» Introduction to Phnom Penh
» Introduction to Siem Reap
» Monarchy & Government
• Tourism & Residency
» Thriving Tourism Industry
» Visas in Cambodia
• Healthcare & Education
» Healthcare in Cambodia
» Education in Cambodia
» International Schools in Cambodia
• Technology
» The Rise of Technology in Cambodia
Investing in Cambodia Real Estate
• Why invest in property in Cambodia?
• Why Invest in Condominiums?
» Condo Ownership Journey in Cambodia
• Why Phnom Penh is SEA’s New Real Estate Hotspot
• Cambodian Property Tax Guide
» Navigating Rental Property Taxes in Cambodia
• Can Foreigners Own Land in Cambodia?
• Understanding Cambodian Property Titles
» Strata Title: Background, Benefits, Legal Value
• Understanding Perpetual Leases in Cambodia
• The IPS Cambodia Advantage
» Why Choose IPS?
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