Cambodia Legal Alert: Prakas 089 on Real Estate Development Business Replaced by New Prakas No. 047

To implement Sub-Decree No. 50 dated 2 March 2023 on the Management of Real Estate Development Business, the Non-Bank Financial Services Authority (“FSA”) issued Prakas No. 047 on 26 September 2023. This Prakas outlines the rules and procedures for issuing real estate development business licenses/permits; and it replaces Prakas No. 089 dated 20 January 2020 on the Management of Real Estate Development Business.

Prakas No. 047 aims to enhance the effective management of real estate development businesses and introduces two types of licenses or permits for different types of real estate development activities:

  • Residential development or co-owned building development business licenses/permits; and
  • Land parcel development business licenses/permits.

For residential development or co-owned building development, projects ranging from 3 to 30 houses, villas, or units require a prior permit from the relevant Capital-Provincial Department of Economy and Finance (“DEF”). A development project with a size exceeding 30 houses, villas, or units must obtain a prior license from the Real Estate Business and Pawnshop Regulator (“RPR”) of the FSA, which is the current competent authority replacing the Ministry of Economy and Finance, entrusted in the previous Prakas 089.

Land parcel development projects with a total area below 10,000 square meters must obtain a prior permit from the DEF, while projects exceeding 10,000 square meters size require a prior license from the RPR.

Developers wishing to conduct housing or co-owned building development must fulfill conditions outlined in Article 9 of Prakas No. 047, including meeting capital equivalent to 100% of the construction cost for developer license 1, and a minimum of 20% of construction costs for developer license 2.

For the developer license 2, it is required to have a letter of business security guarantee, as part of the required application dossier for submission to the RPR. Article 20 provides that the developer who applies for the license must make a deposit of 2% of the total construction cost/phase-by-phase construction cost in the account of the RPR; or a confirmation letter of business security guarantee issued by a licensed bank in Cambodia.

For land parcel development, developers must meet conditions in Article 17 of Prakas No. 047 and have a minimum capital of 40% of total infrastructure costs. For this license, it requires a letter of business security guarantee as part of the supporting documents during the application process with the RPR. Article 21 also provides that the developers who apply for the license must make a deposit of 5% of the total land investment cost/phase-by-phase land investment cost in the account of RPR; or a letter of business security guarantee issued by a licensed bank in Cambodia.

Failure to fulfill obligations under sale and purchase or lease agreements by a developer may result in freezing of the business security guarantees by RPR/DEF.

The detail conditions and requirements to obtain the licenses or permits are prescribed under Articles 10 and 18 of Prakas No. 047. To obtain the licenses/permits, the developers need to pay the public service fees and administrative fees. The additional fees also cover the store or office space in the co-owned building was not mentioned in the former Prakas 089. In addition, under this new Prakas 047, the developers also need to pay the real estate and pawnshop development fund on top of the afore mentioned fees.

The RPR/DEF has the right to issue or reject a license/permit application within 30 working days, from the date of receipt of all required documents. The RPR/DEF also has the right to suspend a license or permit validity for a pending business and revoke a license or permit for a closing business.

Besides, Prakas No. 047 specifies serious monetary fines on certain cases, for instance operating a project without a developer license/permit or without a valid license/permit. The monetary fines range from minimum of KHR 500,000 (approximately USD 125) to maximum of KHR 500,000,000 (approximately USD 125,000).

Existing licenses/permits issued before the issuance date of Prakas No. 047 remain valid until their expiry date.