Why Your Cambodia Rental Yield Is Overstated

A gross yield of 8 percent and a net yield below 5 percent can describe the same apartment, in the same building, in the same month. Nothing has to go wrong for that gap to open. It is arithmetic. A Cambodia rental yield quoted in a listing is almost always a gross figure calculated on the headline purchase price, and both halves of that fraction are wrong before a tenant has signed anything.

The correction is not difficult. It is just rarely performed, because gross yield is the number that sells and net yield is the number that gets paid.

The denominator is wrong first

Yield is rent divided by capital. Most quoted figures divide by the purchase price, which is not the capital the buyer actually deployed.

Transfer tax adds 4 percent, applied to the government-assessed value rather than the contract price. Registration and legal work add more. A unit let furnished requires a furniture package, and that package is capital, not decoration. Handover usually brings a sinking fund contribution and a first-year service charge. Buyers using finance add arrangement fees on top.

No single item here is large. Together they routinely lift total capital deployed several percentage points above the price on the contract. A yield calculated on the smaller number overstates itself by the same proportion, permanently, in every year of the hold.

The rule is plain. The denominator is every dollar that left the account before the first rent came in.

Twelve months is a target, not a term

The numerator has its own problem. Gross yield assumes twelve months of rent at the asking figure, collected in full, at no cost of collection.

Real rent is what survives four deductions. Vacancy between tenancies, which in a market with a mobile tenant base is a recurring event rather than a rare one. Incentives, since one month free on a twelve-month lease is an 8.3 percent reduction on the year regardless of what the contract headline says. Management, priced as a percentage of collections. And maintenance, which is trivial in year one and stops being trivial around year four, when air conditioning, water heaters, and finishes start consuming replacement capital rather than repair budget.

An owner who has never carried a replacement line has not been running a yield. They have been running a new building.

What tax does to a Cambodia rental yield

Two tax lines sit between collected rent and deposited rent.

Rental income is subject to withholding at 10 percent where the recipient is a resident taxpayer and 14 percent where the recipient is not. Residency here is a tax status determined by days present, not by passport. That four-point spread applies to gross rent every year for the life of the hold. On a unit producing 12,000 dollars annually it is a 480 dollar difference, which compounds into a visibly different exit picture across a ten-year horizon. Ownership structures that place rental income at the resident rate are not a loophole. They are a design decision made at purchase, and they are awkward to retrofit later.

The second line is the annual tax on immovable property, charged at 0.1 percent. The base is 80 percent of the value set by the property assessment committee, less a threshold of 100 million riel, roughly 25,000 dollars. On most Phnom Penh condominiums the resulting sum is small. It is also annual, and it is one of the items most reliably missing from a gross calculation.

The recalculation, on one line

The honest formula fits in a sentence. Net yield equals collected rent, minus vacancy and incentives, minus management, minus service charge and replacement reserve, minus withholding tax, minus annual property tax, divided by total capital deployed rather than purchase price.

Consider an illustrative unit, used here to show the shape of the arithmetic and not to describe any particular market. Purchase price 120,000 dollars against an assessed value of 100,000. Transfer tax at 4,000, legal and registration at 800, furniture at 4,800, handover contributions at 900. Total capital deployed becomes 130,500. Asking rent is 900 a month, or 10,800 a year, which prints as 9 percent gross on the price. Apply one month of vacancy or incentive and collections fall to 9,900. Management at 10 percent takes 990. Service charge and reserve take 1,150. Withholding at the non-resident rate takes 1,386. Property tax takes 55. Net income lands at 6,319. Divided by 130,500, the net yield is 4.84 percent.

Nine down to under five. No disaster occurred in that paragraph. Every deduction was ordinary.

What the honest number is actually for

The purpose of recalculating is not pessimism. A net figure near 5 percent, on a hard-title asset in a dollarized economy with no estate tax and a foreign ownership framework written into statute, is a defensible outcome. It becomes indefensible only when it was underwritten as 9.

The corrected number does three things the gross number cannot. It makes two buildings comparable, since gross yields differ mostly by how much cost each seller has chosen to omit. It makes property comparable to every other asset competing for the same capital, which is how allocation decisions are actually made. And it produces a break-even occupancy, the single most useful figure an income investor can hold, because it converts a forecast into a threshold.

Gross yield describes a building. Net yield describes an owner.

The overstatement in most yield quotations is not deception, it is convention, and conventions persist because nobody is paid to correct them.

An investor who recalculates before purchase gives up the pleasant number and receives the durable one. That trade looks unnecessary in the first year and obvious in the fifth.

At My First Corner, the net yield model is built before a unit is recommended, not after a client asks why the numbers moved. The conversation is available when it is useful.