Interview: Stephen Suen
How would you evaluate the current supply-anddemand ratio of residential real estate in Yangon?
STEPHEN SUEN: Yangon’s residential supply, like Bangkok’s and Shanghai’s in the past, is inflated by a large number of defective units. Many have a faulty design, are unprofessionally built, have illegal structures, are in bad locations, or are in unacceptable living environments. To assess true residential demand, such defective units need to be excluded from the available supply denominator. In doing so, it appears that Yangon’s current demand and supply are balanced.
The expansion of Yangon’s market is evidenced by price growth, though slow, and the high rental yield. Today, Yangon property investment can offer up to double-digit yields. There are queues outside high-end serviced apartments. A large portion of this demand is driven by economic growth and foreign investment. This is a positive sign because a market in which yield can be higher than cost of funding indicates there is room for further price growth. Sector expansion can also be supported by continued foreign investment and foreign multinational influx into Myanmar.
What is the relationship between the banking and real estate sectors in Myanmar?
SUEN: In mature markets there is a very strong positive relationship between real estate demand and mortgage finance availability. However, in Yangon – and Myanmar in general – that relationship is not salient because an efficient and healthy mortgage finance market is yet to be established. These dynamics will change as Myanmar continues to improve its banking and capital markets sectors. As banks become increasingly ready to provide high-value mortgage finance, property demand and prices will grow in a healthy fashion.
Nevertheless, much work needs to be done before we see healthy levels of supply and demand for the lower end of the market. In most countries, this segment is handicapped by limited access to funding, unfavourable mortgage ratios and high borrowing costs. Cheaper finance aside, these systemic issues could be improved by mechanisms that remove or ease costly initial instalment requirements for property finance. Solutions include government subsidies or mortgage guarantee schemes similar to the ones in Hong Kong and Australia.
In what ways has land acquisition improved in Yangon, and how might it be enhanced further?
SUEN: In the past land acquisition processes in Yangon were not transparent. Today, most public lands are acquired through transparent and fair auction processes. We have been pleased to see these auctions develop to match modern standards very quickly over the past two years. Transparency has improved significantly in the Myanmar Investment Commission (MIC) approval procedure in particular. This is complemented by an increase in digitisation and frequency of meetings That being said, the length of time it takes to acquire the land is still too long – generally two years. More recently, however, there has been a noticeable reduction of processing time by the MIC. For example, for the land we acquired from the Ministry of Construction through public tender, the time between the award of tender and the signing of the agreement was less than eight months, which is comparable with any developed country. In addition, the Swiss Challenge auction methodology, introduced by the Yangon regional government for the New Yangon City Development, fits Myanmar well because it increases investor initiative.
The biggest handicap to the development of infrastructure in Myanmar is the availability of capital. There is significant appetite from foreign investors for projects that are in the pipeline, but many are also pending the resolution of various legal and financial barriers. Lack of sovereign guarantees, for example, is a major concern from the perspective of a foreign investor. For Myanmar, foreign investment is of critical importance given the small size of the country’s capital markets.
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