Ownership to co-owned buildings defined as a building or construction in which several owners reside, consisting of some parts that are the exclusive ownership of each co-owner (private units) and some other parts that are common spaces for the common use of co-owners (common areas).
The majority of ‘old’ Phnom Penh operates on a soft title basis and is very popular with the more Westernised clients who like the feel, history and character of these apartments, while regional Asian investors increasingly lean towards the modern strata title properties for perceived capital return.
There are a number of myths in the real estate market, especially associated with soft titles. The most common is the ownership of property on the first floor and above for soft titles. Put simply, it is illegal for foreign nationals to own a property under soft title, however, due to misinterpretation of the Law on Foreign Ownership at the local level, some sangkats (local councils) are allowing foreigners to purchase property in their own names.
This myth is also perpetuated by some agents and brokers whose lack of integrity allows them to misadvise their foreign clients. Not all sangkats allow this. For example sangkats in the southern part of the city including the popular Boeung Keng Kang sangkats will not allow a foreigner to be represented on a soft title.
Another point to be made is that sangkat officers are publicly elected officials who stand for election every five years. Where a foreigner owns property under a soft title in their own name, there is significant risk that any change in officials may result in the correct interpretation of the law – and as such, their ownership is jeopardised.
There are tried and proven structures that enable inexpensive foreign ownership of soft and hard titles. To purchase something in your own name as a foreigner where the local official has misinterpreted
Due diligence is important for doing business anywhere in the world, whether it is in advanced or emerging economies. But in the countries of Southeast Asia, it is of particular significance, as many of the most dynamic economies are also the newest, and due diligence is typically more difficult.
Due diligence is defined as the investigation or verification of information about a person or company with whom there is a prospect for doing business. It relates to a standard of care taken before entering into a business relationship. The actual business relationship contemplated could be any number of things – a joint venture, a merger or acquisition, sub-contracting, agency or simply trading. But a prudent businessman always needs to know with whom he or she is dealing.
In more advanced economies, due diligence is made easier with the existence of public records, annual reports, newspapers and credit agencies, etc. However, in emerging economies, many of these potential sources of information are inadequate or, in some cases, non-existent. This situation, plus the relatively weak judicial system that exists in many emerging markets, make due diligence at the front end of a transaction all the more imperative.
The kind of public records that should be researched include commerce ministry (for company registration information), tax department, property or cadastral office, court records (to determine if there are current or past cases that could influence your business decision), the investment board, and, in the case where a specific license is required, various ministries that give licenses (such as mining and telecommunications). But the problem remains – sometimes the records are not easy to access, other times they are not publicly available so information provided by the potential business partner is not easy to verify.
Annual reports are a great source of information, particularly if done by an accredited accounting firm. But in many emerging economies, there is no requirement for such a record. In some countries, the only companies for which an annual report is required is a bank or insurance company. And for those countries that have a stock exchange, an annual report typically is a requirement for company listing. However, there are a large number of corporate entities beyond publicly listed companies that will have no such requirement.
In more advanced economies, newspapers also are a useful source of information. However, in many emerging markets, the quality and veracity of newspapers vary widely. Even in this digital age, the ability to research the public press can prove to be impossible. Of course, even if information is gleaned from the public press, it needs to be verified, as what is reported can be incomplete or inaccurate.
Given the level of difficulty of due diligence in the new economies, what should you do when contemplating a business relationship? First, various means listed above should be explored, to the extent that they can provide useful information. Second, the prospective person or company should be able to provide information which, in turn, can be verified. Third, other agents can be hired to find out information. Typically these could be private investigators, former journalists, law firms or others with investigative skills and longevity in the marketplace. Finally, other long-standing members in the business community can be asked for anecdotal information about the prospective party.
The old adage that an ounce of prevention is worth a pound of cure is certainly applicable to due diligence in the emerging economies of the region. An added measure of care at the beginning of business dealings can save you a great deal of pain later.
Bretton Sciaroni is Senior Partner at Sciaroni & Associates, a leading legal and investment advisory firm serving Southeast Asia since 1993 with offices in Phnom Penh, Vientiane and Yangon. He is the Chairman of American Chamber of Commerce in Cambodia and International Business Chamber, Cambodia.