The country’s first civilian government kept hopes high for real estate but the last 12 months have been testing
By Fiona MacGregor
At Bogyoke Market in the centre of Yangon, commerce proceeds very much as it has since the times of British colonialism. Across the road, Junction City Mall is home to designer brands including Hugo Boss and Versace while its giant Cineplex shows the latest Hollywood hits.
But if retail is thriving – and evolving – it is a very different situation when it comes to residential developments. In the little more than 12 months since Myanmar’s first civilian government in five decades finally took up the reins of parliament, the initial rays of promise for the residential market have been obscured by clouds of uncertainty and disillusionment.
The current situation is “challenging” at best, according to Richard Emerson, managing director of Yangon-based property consultancy Emerson Real Estate. “Things are difficult,” he says. “The residential market is effectively at a standstill because of a range of fundamental issues.”
These include economic uncertainty, unclear legislation, over-supply of high-end properties, a lack of mortgage provision, high land prices and property sales tax which can hit 30 percent at the top level.
According to a Colliers International snapshot report in February on the condominium market in Yangon, 2016 saw a total of just five new projects amounting to 1,673 units – a “significant” 41 percent year-on-year decline.
When former US president Barack Obama signed an order in October 2016 lifting almost all sanctions against Myanmar, after two decades of restrictions, and did away with the Specially Designated Nationals List (SDN) – a register of around 100 individuals and companies with whom anyone in the US were barred from doing business with – it was expected foreign investment would increase significantly.
Yet such optimism appears to have been premature.
State Counsellor Aung San Suu Kyi keeps a tight rein over the ministries under her control, and her intense focus on the beleaguered peace process in the country appears to have allowed other issues to slip. A year into power and her government has still to produce a detailed economic policy for the nation.
“Real estate does not react well when there is any degree of uncertainty,” Emerson adds. “If there is negative news people hold off making decisions.”
Among those has been a glut of high-end properties which now sit either unfinished or empty as the envisioned influx of wealthy foreigners expected to rent them has failed to materialise due to ongoing concerns about the wider economy and a lack of effective investment legislation.
The Colliers report notes that the total completed condominium stock is estimated to have exceeded 6,000 units at the end of 2016 with more than 10,000 units in the pipeline.
However, the report warns that “inadequate sales take-up along with the rising number of defaults from buyers could mean delays in completion or even the possibility of project cancellation”.
Ben Hickson, a consultant with South Asia Law, says the biggest barrier to widespread provision of housing finance is that there is no mortgage register, which means there is little security if borrowers default. He adds that colonial era laws and the 2012 Foreign Investment laws both have provisions relating to mortgages, so, in theory, it should be possible for international investors to get a mortgage. In practice, however, concerns about security mean that is not happening.
“It is not so much an inadequacy in the legislation that is the problem, but the fact there isn’t the infrastructure to support that legislation,” Hickson says.
A significant blow to investor faith occurred in May 2016, just one month after the new government took over. In what was apparently a well-intentioned bid to tackle head on the corruption that was running rife in the sector, a halt was ordered on the construction of more than 200 high-rise buildings in Yangon to ensure they were compliant with regulations and urban development plans.
After months of negotiations, almost all projects were given permission to restart work, but by that time the market had already considerably cooled down.
Moreover, the Colliers report states that there were no new condominium launches in the second half of 2016 sending “some developers back to the drawing board”.
Despite stalled developments, slow sales, and a drop in rental incomes for those who have already invested, hope remains that 2017 will bring some positive legislative changes to boost the sector.
“Although there are no new launches, a number of significant projects [in Yangon]such as Golden City and GEMS Garden have completed their first phases and now handing over to the owners and being occupied,” Dan Davies, managing director of Colliers International Myanmar, says. “This has provided a spark of optimism in the market and both projects are busy with leasing activity.
“What the lull in the market last year has exposed is those developers who have cash and those who are relying solely on sales to fund the build.”
Yet even if international investors were to overcome their nerves about the fickle climate, the legislation to allow foreigners to invest in residential real estate is still not fully established.
The much-heralded condominium law has been approved by parliament, but the Ministry for Construction has not implemented necessary by-laws for it to be introduced.
“The reality is that Myanmar requires foreign investment on all fronts – including real estate – in order to get the economy going again,” adds Davies.
According to Emerson, “not one foreign investor” has been able to find an affordable housing project suitable for investment, due to a combination of high land prices and low sales rates, with units set to retail at between USD8,000 and USD25,000.
The reduction in rental fees will bring long-term benefits to the city and help drive down the cost of living, making it a more attractive base for foreign residents, according to David Ney, managing partner at York Road Realty in Yangon.
“If you have more inexpensive property on the market, more international companies will see opportunities because they can get more for their dollar and as more open up the overall the cost of living will go down, and that is good,” he says, adding that high-end rents have fallen by around a third. “Properties that were renting for USD5,000 per month are now going for USD3,000 or even USD2,000.”
In the long term the sector does hold promise. Analysts say that the slow progression of laws should mean that legislation is effective and useful rather than rushed through laws which could cause problems in future.
“Overall, you are looking at units under construction or sold and the total is just 23,000,” Emerson says. “In a city of 7 million people that is not a lot. In the grand scheme of things there is a long way to go in terms of potential.”
Potential has long been a word that is juxtaposed with Myanmar. If basic factors including booming prices, a virgin market and a giant supply gap that needs filled sound attractive to real estate developers and investors, that’s because they are. Many will therefore be hoping that the coming period is as fluid as the last 12 months have been stagnant.
Myanmar may not be renowned as a beach destination, but the country boasts miles of undeveloped coastline and pristine white sands, which are beginning to draw interest from investors. New projects include residential units as well as hotels.
According to Dan Davies, managing director of Colliers International, Ngapali beach in southern Rakhine State and Ngwe Saung, a five-hour drive from Yangon, top the lists for coastal development projects. Recently there has been more speculation for investment in the country’s south, which is only beginning to develop a tourism sector, particularly in Dawei and Myeik on the Andaman Ocean.
Foreigners wishing to invest in seaside properties face many of the same issues as those looking at urban developments. However, the promise of unspoiled beaches mean those looking for a buy to let investment in an emerging beach tourism market will be keeping a close eye on suitable development opportunities.
Mall or nothing
If any development encapsulates Myanmar’s rapid modernisation and opening to foreign investment it’s the opening of shiny new malls in Yangon. Traditionalists may bemoan a certain loss of atmosphere and character to the city, but local shoppers clearly appreciate a shopping experience which offers air-conditioning, shelter during the long rainy season, clean toilet facilities and often many food options in a small space. The latest and slickest on the block is Junction City, which is located opposite the historic Bogyoke (formerly Scott) Market in the centre of downtown. The new mall, a development by Shwe Taung Group, is home to more than 240 fashion, beauty, technology, food and lifestyle outlets, with designer names including Versace and Moschino. It also boasts the largest food court and Cineplex in Myanmar.