Myanmar’s residential property sector has thwarted concerns over slowed sales and investment last year, yet recovery has taken time to gain traction.
Although an oversupply of high-end properties and limited access to finance have underpinned the market’s slow bounce back, prospects are looking up for the second half of the year.
With Myanmar’s economy forecasted to expand by 8.4% this year, according to projections from the Asian Development Bank, property demand could also be further supported by political stability.
In its most recent report on the Myanmar market, real estate services firm Jones Lang Lasalle (JLL) said this year should see a stabilisation in the real estate sector after falls in pricing and rental returns in 2015.
While the first half of this year was expected to be somewhat muted, JLL noted that once the new National League for Democracy (NLD) government was settled in, the real estate sector could look to a stronger performance through to the end of the year.
Similarly, in June local conglomerate First Myanmar Investments (FMI) said a downturn in returns from its real estate arm had caused the group’s profits to dip.
This fall was a result of what FMI’s annual report describes as a stagnant real estate sector due to weaker market sentiment for the 12 months ending March 31.
At least some of the stagnation in the property sector in the 2015/16 FY was due to market uncertainty ahead of last year’s general election, FMI noted, with the company confident a rebound would mark FY 2016/17, which started in June.
Though November’s election did dampen activity in the property sector, the resulting cooling in residential sales should not be a long-term issue, according to Richard Emerson, founder of Emerson Real Estate, a local real estate company.
“It was as if someone turned the tap off leading up to the election as investors and buyers became hesitant towards the market, with the property market seeing a marked decline in demand,” Emerson told OBG.
Unbalanced supply and demand
While demand is set to be buoyed amidst a smooth power transfer, supply is spread unevenly across Myanmar’s real estate segments.
Developers’ focus on delivering lucrative luxury units over the past few years has led to an overstock at the top end of the market, with a shortage of low-cost and mid-range residential accommodations, in a country where 25.6% of the population live below the poverty line.
At the beginning of this year, there were more than 6650 vacant high-end residential units, more than double the total figure for 2014, according to Colliers International.
There are hopes that this glut may be cleared as a result of legislation that came into effect in the first quarter of the year that allows foreigners to purchase real estate in Myanmar. Under the new Condominium Law, foreigners may now buy up to 40% of a building.
Though there has been some take-up of properties as a result of relaxed ownership regulations, the liberalisation has yet to have the desired effect of draining the excess at the high end of the market.
Another proposal put forth to reinvigorate sales and spur new projects across the spectrum is the creation of a mortgage market, with increasing calls from realtors and developers to set the terms and conditions for mortgage finance.
Reforms to financial regulations as well as an opening up of key business sectors are fundamental to broadening the base of demand in Myanmar’s property market, according to Emerson.
“The future of the commercial real estate segment now depends greatly on future government policy as well the deregulation of key industries such as the financial and insurance sectors,” he told OBG. “For a mortgage market to be created, the government needs to substantially modernise the financial and legal systems.”
Though the government has yet to move on easing access to finance, officials in Yangon have acted to tighten regulatory control over the construction and property market.
In mid-May the newly installed Yangon regional administration ordered all work on high-rise buildings over nine storeys to be halted for inspection, affecting more than 200 projects.
This move marks a positive step in highlighting Myanmar’s commitment to professionalism, according to U Han Thein Lwin, managing director of High Tech Concrete, a Myanmar-based building materials company.
“The adoption of the review on high-rises shows that the new government has good intentions to employ policies that meet international standards and benefit the economy in the long run, although in the short run it may suffer a bit,” he told OBG.
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