Myanmar’s failed property boom: what really happened

Yangon downtown

“If I could put all my money into Myanmar, I would,” veteran U.S. investor Jim Rogers declared in 2012. Rogers, who co-founded the Quantum Fund with hedge fund billionaire George Soros, has lived in Asia for many years and knows a bargain when he sees one.

When Myanmar opened up to the world after decades of military rule, hopes were high that democracy would be restored and the economy invigorated. From tourism to telecoms, business opportunities abound as industries that had long languished in the absence of private competition were roused out of their slumber.

Local consumption soared amid a thriving economy, with the Burmese now plugged into global trade, wearing Nike, drinking Coke and surfing smartphones and — along with a growing expat community — spurring demand for higher-end real estate.

There have been many economic success stories since the early days of the country’s re-opening for business, and the economy has experienced brisk growth, but for players in the country’s property sector the deflating realization that they may have jumped the gun is setting in as a painful glut emerges.

Yangon’s condominium stock totalled more than 6,600 units at the end of the third quarter of 2017, reported real estate services firm Colliers International. The new supply for last year was expected to reach around 1,200 units—a similar level to 2015—but the industry has been plagued by construction delays caused by flagging sales, and will likely get worse with more than 10,000 units in the pipeline.

Yangon downtown

Colliers said it expects most projects to be pushed at least a year behind schedule, with new sales launches to remain subdued at least in the near term. And even as last year saw “a slight uptick in demand following extensive pricing promotions for many projects… Colliers sees the performance as temporary, and the strategy as financially unsustainable. We advise developers to look long term instead.”

It is expected that by the end of this year there will be 45 condominium projects, nearly half of which will be situated in the Inner City Zone. Some of the big developments slated for completion in the first half of this year include The Atrium, a 13-storey building with a swimming pool and dance studio, by Yadanar Mying Construction Co. Ltd.; and Red Hill, a 16-storey luxury tower by Naing Group Construction Co., Ltd. that was due to be completed by 2015. The tower will combine office and residential space, and will include penthouse apartments at the top, along with an infinity pool.

Such luxury developments come at a challenging time for the industry, which property experts say the market is not ready to receive. Many of these developments either in the pipeline or launching were conceived in those heady days when property was expected to boom.

Richard Emerson, managing director of independent international property advisory firm Emerson Real Estate, says that Myanmar went “from a market where there was basically no built stock five years ago to a market wherein suddenly all those projects conceived in the day when everybody thought Myanmar was on a massive upward trend and was going to go on a boom, all those projects are being delivered into a market which is basically failing on several different levels.”

Myanmar property law

Cyrus Pun, head of real estate at investment group Yoma Strategic Holdings, affirms this, saying the mid- to high-end markets have slowed significantly in the last 12 months or more as the excitement that had filled investors is subsiding.

Pun says much of the evidence of weak sentiment towards residential real estate doesn’t take into account the many smaller condominium projects that have been quietly canned by developers. “People are much more inclined to invest in cheap units in the hope their value appreciates,” he says, adding that “on the higher end properties for the last 12 months or so, things have really quietened down… In some isolated areas there is a lot of activity going on. There seems to be a lot of low-cost development being planned and sold. And that seems to be gaining a lot of traction.”

Pun says he has sold a few houses recently priced above USD1 million, suggesting there is a lot of cash floating around, but it is being hoarded.

Strangling demand further is the absence of foreign buyers in the market. In early 2016 the Myanmar Parliament passed the hotly anticipated Condominium Law, which allows foreigners to buy up to 40 percent of condominium apartments in any given block, provided the apartments are on the sixth floor or above.

With Asian investment, particularly Chinese, pouring into numerous real estate markets across Asia, investors are hopeful that, once enacted, the law would draw some of the money into Myanmar. Yangon parliamentarian U Khin Shwe has said the new law could cut Myanmar’s trade deficit by up to one-quarter, pulling in at least USD1 billion for the government.

Myanmar yangon city view

An analysis at the end of last year by Lincoln Legal Services (Myanmar) Ltd. pointed out the sketchy status of buying and owning property presents numerous hurdles to securing finance. Contrary to land, apartments presently cannot be registered so there is no certain way of checking who owns an apartment. “Potential buyers risk purchasing from a fraudulent owner, losing the apartment when the real owner turns up. In the same vein, it is risky for a lender to accept an apartment as security for a loan,” the law firm points out. “Private lenders might accept an apartment as security, but banks are reluctant as they find it hard to check the title. Consequently, even legitimate apartment owners find it difficult to use the apartment to raise money.”

The Condominium Law could provide much needed clarity and security to such property-related investments. But many are skeptical it will happen soon since the government decided to amend these rules following the bill’s passage. Says Emerson, “The problem in Myanmar is how long is soon, because this has been on the table as far as the government is concerned for the last three years or more. It got signed off by Parliament in 2016 and you still can’t apply the law that’s been taken through Parliament.”

Myanmar rarely makes it into the news for positive reasons these days, as its Rohingya crisis rages. More than 700,000 have fled persecution and the destruction of their homes in the northern Rakhine province neighbouring Bangladesh.

The horrifying scenes may be miles away from Yangon and other key cities, but it carries a severe reputational risk for Western companies, along with deterring many tourists and other visitors to the country.

“The tourism market has gone backwards considerably since 2013 and ’14 when it was growing every year. You’ve now got a lot of people not coming to Myanmar because of the Rakhine problem,” reports Emerson, adding that hotel room rates have plummeted following a wave of big hotel launches.

While not specifically mentioning any political turmoil, the World Bank states in a recent report that based on data from the first 11 months of 2017/18, approved FDI declined compared to the year prior, which was already well below previous years’ levels.

However, real estate is still doing relatively well—just not the residential sector. Approved FDI in real estate activities reached USD1.1 billion in 2017/18, an increase of 21 percent compared to the growth of 10 percent in the previous year.

“Demand for existing office and retail space in modern shopping centers in major cities is rising, but new projects face slower growth in demand for pre-sales, and there are concerns about potential excess capacity, particularly for condominiums. There is anecdotal evidence that private investors are holding back investment in high-rise building projects, shifting instead toward small and affordable housing projects.”

Unless Myanmar’s economy improves and continues to be deprived of the vast cash that’s been hoarded, and foreigners are given the official green light to invest, the industry is reluctant to put a brave face on its problems. Defiantly forging ahead with their projects, however, are the big developers. Whether their courage pays off or they become the next victims of their own ambition, only time will tell.


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