In January 2019 the Central Bank of Myanmar (CBM) gave the green light for banks to raise the share of home loans in their portfolios to 5% of the total and to extend debt instrument maturities beyond the previous limit of three years. The move saw credit extended to the real estate sector surge by 200% in the first quarter, albeit from a small base, in the process enfranchising thousands of would-be homeowners with the financial flexibility to purchase their own property.
According to the CBM, housing loans extended by private banks almost doubled between the fourth quarter of 2018 and the first quarter of 2019, to reach MMK314bn ($204.7m). At the same time, the government put into practice a new law regulating the development and administration of condominiums. This introduced a strata title law system that allows owners of condominium units built on leased land to obtain ownership titles, and in turn pledge this with financial institutions as collateral for mortgage loans.
The dual moves from the CBM are intended to encourage the development of a healthy mortgage finance market. However, the building blocks are not yet fully in place to effectively manage the country’s high demand for housing.
As of 2019 take-up of the opportunity to offer mortgages among private commercial banks was limited. This is in part because interest rates are fixed at a maximum secured lending rate of 13% and a minimum deposit rate of 8%, and do not account for inflation. This may prove challenging, as the Asian Development Bank (ADB) forecasts Myanmar’s inflation rate will be the highest in South-east Asia in 2020, at 7.5%.
Maung Maung Than, director at real estate company Phoenix Land, told OBG that the maximum tenor banks are prepared to tolerate on mortgages is five years, and most will demand deposits of half the property’s value. This allows banks to keep a handle on how inflation depreciates the underlying mortgage, and dissolve the arrangement if the buyer has trouble meeting payments. Many lenders are reluctant to enter the market because they are restricted from offering differentiated interest rates. Given that they cannot adjust rates accordingly, there is little incentive for them to offer longer mortgages. This lack of flexibility hinders the development of competition and innovation in the market. As such, private banks that have engaged with the mortgage market tend to be focused on high-income clientele, particularly as risk-assessment mechanisms remain somewhat underdeveloped in the banking sector.
Consequently, approval percentages are low, and are likely to remain so until banks gain more experience. “The demand for qualified valuers is also high in Myanmar,” Hugo Slade, managing director of Slade Property Services, told OBG. “Many banks previously chose to do this in-house, but to increase the accuracy of valuations many are opting for third-party services.”
In August 2019 the Yangon government signed a memorandum of understanding with analytics information provider LexisNexis South-east Asia to establish a housing and real estate information system for the city. The move is expected to help the government implement real estate taxes, forecast market movements and conduct urban planning. It will also help banks develop mortgage finance models.
Those seeking assistance to buy an affordable home can look to the Construction, Housing and Infrastructure Development Bank’s home ownership product. This option allows people with lower incomes to purchase a MMK1m ($651) family unit on a 10-year instalment plan, after they deposit at least 20-30% of the total price of the home at the bank.
Looking ahead, the ADB has recommended that Myanmar invest in greater technical assistance for banks, thereby enabling them to offer more mortgages to low-income consumers. This could help to extend the length of mortgages on offer and likely encourage microfinance lenders to offer home-related products.
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