Emerging only recently as a real estate investment destination, the Myanmar property market has gone through a period of adjustment since 2013. After a lengthy course of isolation, an initial burst of interest in the country from many global companies, governments and non-governmental organisations led to a surge in demand for residential and office accommodation, with supply low and prices consequently high. More recently, the country has witnessed corrections in the market, with a consequent slowdown in demand and falling prices in some segments, and rising demand and prices in others.
At the same time, the relative immaturity of Myanmar as a market – not only in real estate – has meant that the legislative and regulatory frameworks in place are largely insufficient, with a raft of new laws necessary to bring the sector and the wider economy up to par with its regional and international peers. However, there are positive signs that the required regulatory reforms are taking place, with 2018 likely set to see further positive legal changes.
Much future development depends on how the civilian-led government mitigates the political risks the country now faces, as it tries to follow through on major reforms while also ensuring stability. Myanmar thus represents a country with great potential in real estate, as well as considerable challenges.
According to the IMF, Myanmar’s GDP has risen dramatically over the past decade, from some $16.7bn at current prices in 2006 to $64.36bn in 2016. This has been accompanied by a fall in the poverty rate, from 48.2% in 2004 to 32.1% in 2015, according to the latest World Bank figures, signifying wider improvements in purchasing power and living standards. Nonetheless, Myanmar remains a lower-middle income country; in early 2018 the IMF put its GDP per capita at $1400 per annum, lower than neighbouring Laos, where per capita income was $2760, and well below Thailand, where the reported figure was $6740. In common with patterns elsewhere, Myanmar’s urban areas have tended to experience faster economic growth and steeper declines in poverty, with large real estate developments concentrated in the main cities. Among these urban areas, Yangon, the country’s traditional commercial and industrial centre, has undoubtedly benefitted the most.
Myanmar has risen from a lower baseline than many of its neighbours. Despite having twice the landmass of Vietnam or Malaysia, the urban area of Myanmar is less than one-third the size of the urban area of Vietnam and one-fifth of Malaysia’s. In 2010 the country had no large urban areas by Asian standards, according to the World Bank, with just three medium-sized urban conglomerations of between 1m and 5m people, namely Yangon, Mandalay and Naypyitaw. However, the most recent data from the 2014 census shows the pace of urbanisation increasing, with internal migration from the countryside to urban areas accounting for 80% of Yangon’s population growth between 2009 and 2014.
The 2014 census recorded a total population of 51.5m, with an annual average growth rate of 0.89% between 2003 and 2014 – one of the lowest growth rates in Asia. Nevertheless, in 2014 some 65.6% of the population were in the 15-64 age category, up from 57.5% in 1983. This large number of economically active citizens creates potential for real estate investment and growth.
At the same time, only 29.6% of the total population lived in urban areas in 2014, which was the second-lowest rate in South-east Asia, after Cambodia. In 2014, 5.21m people lived in Yangon, 1.22m in Mandalay and 1.16m in the capital Naypyitaw. These three cities thus represented around half the total urban population between them, with some 35% of all urban dwellers living in the Yangon area. This figure and population share is expected to grow dramatically over the coming decade. Meanwhile, political developments in recent years have opened up the country to international investment and expertise. According to the World Bank, foreign direct investment (FDI) accounted for 2.2% of GDP in 2012, rising to 6.8% in 2015, as expectations heightened that the country was about to embrace the global marketplace following free elections. Those predictions have been partially realised, as signified by the removal of the latest US sanctions in 2016. Yet, the process has been slower and more complex than many hoped, with FDI as a share of GDP falling back to 5.2% in 2016.
Myanmar has been impacted by sluggish growth in the global economy and remains particularly vulnerable to any slowdown in China, the country’s main trading partner and source of FDI. According to the IMF, GDP growth stood at 8.4% in 2013, although this moderated to 6.1% in 2016. Nevertheless, this can largely be attributed to international factors and the impact of Cyclone Komen in 2015.
An insufficient supply of higher-end apartments and office space to meet the demand generated by international companies and their employees arriving in Myanmar for the first time kept real estate prices high during the initial period of liberalisation. However, as supply in these segments increased, prices began to fall, while demand from international companies has concurrently softened due to economic and political considerations.
“The real estate market is going through an important period of adjustment,” Richard Emerson, managing director of Emerson Real Estate, told OBG. “Back in FY 2012/13 we had an artificial market with prices being driven by low supply of both office space and residential units. Today, we have the reverse of that situation, with supply outstripping demand. From $70 to $80 per sq metre back in FY 2012/13, today the price per sq metre of office space has dropped to between $30 and $40.”
Still, other kinds of real estate offerings such as retail, hospitality and industrial space have increased in value, as economic development and catch-up continue apace. Therefore, on the one hand, office occupancy rates in Yangon were around 60% in the first half of 2017, with rents averaging 60% lower than in 2014, according to Slade Property Services (SPS). On the other hand, rents in prime and tier-two retail spaces increased by approximately 30% during the same period. This demonstrates the multi-layered nature of the real estate market, with a range of factors impacting prices and growth.
“In many ways, the difficulties Myanmar is facing mirror those experienced by other emerging markets in the region,” Hugo Slade, founder and managing director of SPS, told OBG. “You witness an initial boom period when the market attracts first-mover investors from overseas that have a higher risk tolerance, driving the construction of new properties to meet pent-up demand. The high returns achieved by these investors and the high expectation of future demand attract additional investors. Unfortunately, the development of new supply frequently outweighs the realised demand, and new buildings seldom reach expected rental levels that were set when the market was short on supply and rents were highly inflated. It usually takes a while for rents to stabilise, which we believe to be the case going into 2018. We predict an increase in leasing activity now that rental rates are more affordable for a wider range of businesses.”
In terms of government regulation, there are a wide range of agencies and ministries that have a bearing on the real estate market. The Ministry of Construction (MoC) has responsibility for a range of infrastructure and housing initiatives, such as the ambitious goal to build 1m affordable housing units by 2030. The Ministry of Planning and Finance is set to oversee the initiative as part of the government’s housing development strategy, while contracts are to be offered through the Myanmar Construction Entrepreneurs Association. Mass housing projects also fall under the remit of local authorities. For example, the Yangon City Development Committee is set to implement redevelopment plans for the city, which will include the construction of business, commercial and residential zones, and the upgrade of transport infrastructure (see Construction analysis).
Another key state body is the Myanmar Investment Commission (MIC), which verifies and approves investment proposals for a wide range of sectors, including real estate. The MIC works under the Directorate of Investment and Company Administration (DICA), from whom companies – both domestic and foreign – must obtain licences before undertaking economic activity in the country. The DICA also has a regulatory role, providing oversight of business practices. These powers have enabled the DICA to provide specific incentives to encourage both foreign and local investment in certain sectors, while maintaining restrictions on others.
As part of the country’s ongoing liberalisation process, new by-laws were introduced in April 2017 stipulating obligations for investors. While previously 92 investment activities required investors to form a partnership with a local firm, this number has been reduced to 22. Additionally, a new MIC endorsement process was introduced to provide small-scale investors secure, extended lease terms and tax incentives. In December 2017 a new Companies Law, drafted with the support of the International Finance Corporation, was approved by the president after a prolonged period of formulation and discussion. The new regulations are set to strengthen protection for minority shareholders, as well as streamlining and clarifying the process of establishing and running a company in the country. Nevertheless, enabling by-laws are not expected to be in place until at least August 2018.
The Myanmar Real Estate Services Association, which represents the interests of real estate agents on both a local and national level, is also active in driving new legislation. Currently, the body is liaising with the government’s Commission for Legal Affairs and Special Issues in the drafting of a new Real Estate Services Law, which is intended to establish a sound regulatory framework for the rental market.
Changes and upgrades to the regulations governing the sector have been a feature of recent years, as Myanmar seeks to bring its real estate and construction codes in line with international best practice. While progress has been made, much remains to be done in this area, with 2018 likely to see further legislative efforts.
One key legal reform to take place in the country was the passing of Law No. 24 of 2016, known as the Condominium Law, which was enacted on January 29 of that year. The law sought to both update and clarify the legal framework governing condominium properties. Accompanying Condominium Rules were published by the MoC on December 7, 2017 to further illustrate how the law would be applied in practice. The rules clarify, among other things, that foreigners and international investors are now able to own up to 40% of the total floor space of condominium blocks, regardless of the number of floors in the building. Furthermore, foreigners face no residency or employment requirements to purchase property under the Condominium Law. However, the needed administrative processes are not yet in place, meaning that while a foreigner can purchase a condo in theory, it may be late 2018 or early 2019 before he or she can secure true ownership (see analysis).
One of the legacies of military rule has been ambiguity over land ownership. During this period, both common private ownership and foreign ownership of a structure were not covered by law. The Condominium Law tries to rectify some of these problems, but requires condo projects to be built on land commonly owned by the owners of the units, without clearly specifying what type of land is available for this purpose. With much land currently owned by the government and leased to developers, concerns remain over whether the new law is workable over the long term.
In terms of market inhibitors, another key barrier is the requirement for condominiums to provide 1.2 parking units per condo, regardless of the size of the property. This therefore incentivises developers to build large apartments in order to maximise the proportions of the built space on a given plot. However, in so doing they undersupply the market for smaller apartments, for which there is a high level of demand by expatriate employees of international firms. This combination of factors can make a condominium an unprofitable, unbankable development, yet such structures are also key to the expansion of the residential market, making the provision of further regulatory reform a necessity for the segment to continue moving forward.
A further challenge for the real estate market is that of financing. The country has one of the least developed financial sectors in the region, with the transition from being a command economy still in progress. Lending to the private sector is therefore low, with the mortgage market still highly underdeveloped. In general, some 80% of all business financing is acquired through personal savings and loans, according to research undertaken by international development agency GIZ. Bank loans also tend to be only issued against physical collateral, shutting many out of the market.
While low-cost housing is sometimes available on an eight-year instalment plan, expanding this system would require closer cooperation between developers and banks, with longer repayment periods allowed. Developments in this area may well take place in 2018, as demand for affordable housing rises further and pressure for financial sector reforms begin to mount (see Banking chapter). The results of the 2014 census, released in September 2017, showed the country lacked some 3.82m units, with around 1m people officially homeless – around 2% of the population. While in some areas homelessness was related to conflict, in others it was due to a shortage of decent, affordable units.
The high-end segment is also at a nascent stage, with there still being a lack of experience with such units among developers, contractors and financiers. Furthermore, lingering ambiguities regarding ownership rules for condominiums have meant that developers operating in this area of the market have tended to opt for serviced apartments, a type of residential unit that has enjoyed high occupancies and rental rates.
Indeed, of the eight apartment projects monitored by SPS, all but two had an occupancy rate of over 80% in the first half of 2017, with three having an occupancy rate of 100%. Furthermore, average rental rates have been climbing steadily despite a drop between the second quarter of 2015 and 2016, with the biggest price growth in larger units. Rental rates were generally high in the second quarter of 2017, with studios monitored by SPS renting for around $2500 per month and four-bedroom serviced apartments costing around $8500 per month.
According to the same report, 1500 new serviced apartment units were added to the Yangon market in 2016. The stock of serviced apartments increased by 19% between the third quarter of 2016 and 2017 in Yangon, reaching record highs. This was largely driven by the opening of Lotte Hotel and Serviced Apartments on September 1, 2017, according to real estate consultancy Colliers International. While SPS estimates that 4500 more serviced apartments are set to be constructed over the 2016-20 period, supply is still set to be vastly outweighed by demand. Higher demand for larger apartments in the middle-income range can be expected as families join expatriate employees. “The potential is in single-owner studios and one- and two-bedroom apartment complexes,” Tony Picon, founder and director of Colliers International Myanmar, told OBG. “Good-quality, 25 to 45-sq-metre units of these types, with lower prices and decent facilities like a pool and a gym – that is the sweet spot.”
Developments are also in the pipeline outside Yangon’s traditional high-end residential districts. Mayangone township, to the north of the city, has been chosen for lakeside villa and bungalow developments, as well as the city’s new, second business district. Likewise, the downtown area adjacent to the Yangon River, between Strand Road and Bo Gyoke Road, continues to attract interest, as does the triangle between Yankin, Tamwe and Bahan. One constraint here is transport, with lengthy journeys a characteristic of travel throughout these areas. Therefore, the future development of a mass transportation system would provide considerable support for the expansion of the real estate sector.
Despite challenges, the condominium segment continues to expand, with the total stock in Yangon standing at over 6600 as of the third quarter of 2017, following the completion of Swae Daw City Towers A and B. An additional 10,000 units are under development, according to Colliers International. While prices in the segment have experienced a downward correction since 2014, they remain buoyant – ranging from $147,700 for a mid-market condo in Yangon to $699,500 for a luxury unit. “In comparison to previous years’ growth in the residential segment, you can understand the disappointment of the business community,” Dan Davies, managing director of Colliers International’s Myanmar operations, told OBG. “However, if you take a closer look at projects such as Thilawa special economic zone (SEZ), you can appreciate the progress being made within the industrial segment.”
Outside the country’s largest and most significant commercial centre, eight condominium projects have been launched in Mandalay since 2013. According to figures published in the third quarter of 2017, the number of units in the city stands at around 900, which is three times higher than that in 2014. Nevertheless, the market for these condos remains limited, with lower overall demand from expatriates in the city, when compared to Yangon.
Another area that possesses long-term growth prospects is the market for detached properties and villas with controlled entrances. As downtown Yangon becomes more congested, gated communities further away from the centre – where land is much cheaper – may see a take off.
As of the second quarter of 2017, there were 10 major gated communities in Yangon containing over 3400 units and 189 recently built detached properties, with the number of new projects increasing slowly. Sale prices for such villas typically range between $400,000 and $1.1m, with the average size of a plot ranging from 335 to 500 sq metres.
The gated community segment is also present in Mandalay, where land is more readily available and prices are generally lower than in Yangon. Landed residential units have benefitted from the ambiguities regarding condos and the traditional preference of many consumers for detached family houses.
Some 65,000 sq metres of office space was added in Yangon in 2017. This brought the city’s total stock of leasable office space to 356,000 sq metres, a 22% increase. While demand remains healthy, the market is somewhat oversupplied. Indeed, the occupancy rate for offices stood at 66.7% at the end of 2017 and is set to decline by between 2% and 4% as a result of upcoming stock. However, occupancy rates of newly completed developments remain stable at 40%.
New projects completed in the city in 2017 include Pyi Nyein Thu, developed by Pyi Nyein Thu Construction; Golden City Business Centre by Golden Land Real Estate Development of Singapore; Crystal Tower by Shwe Taung Development; and The Regency, developed by Ever Best Hotel and Resorts.
Significantly, all of these projects are located outside of Downtown Yangon, the traditional site of office stock. The Downtown area is only likely to see new stock with the completion of Yoma Central – a $400m joint venture between France’s Bouygues Construction and Japan’s Taisei Corporation – in 2021. With this increase in supply, rental rates fell markedly, dropping 6.8% in 2017. Some headline rates decreased by as much as 25%, according to Colliers International. Nevertheless, the fall should be seen primarily as a market correction from oversupply rather than symptomatic of a long-term trend.
However, the market is still undersupplied by regional standards, with one of the smallest stocks of total office space in South-east Asia. The future development of the segment therefore appears positive, given that rising demand can be expected as more investors and international companies establish or expand operations in Myanmar. For example, the reform of the country’s Insurance Law may well attract international insurers, boosting demand for office space not only in Yangon, but also in Mandalay and Naypyidaw (see Insurance chapter).
One area that has been exhibiting strong growth is real estate for industrial purposes, particularly industrial parks. This is a direct result of Myanmar’s increasing openness to the global economy, with international firms seeking premises and the government keen to offer sites that provide the necessary infrastructure and special SEZ privileges. For example, the $1.5bn, 2400-ha Thilawa SEZ, a joint venture by Myanmar and Japan located in the Thanlyin township of Yangon, has attracted significant interest. As of late 2017, 87 companies from 17 countries had signed contracts to begin operations, with the zone set to expand by a further 101 ha by the middle of 2018. Other significant industrial sites include Mandalay’s Myotha Industrial Park, which links to a new port on the Ayeyarwady River, and the Mandalay Industrial Trade Centre, with easy connections to the Mandalay-Yangon expressway.
Research by SPS states that industrial property currently provides returns of 15-20% per year, with demand particularly acute when it comes to well-equipped facilities with good climate-controlled warehouses. Indeed, warehousing is an area in which companies are often entering into deals with landlords to expand and improve existing facilities, given a general lack of space suitable for modern transportation and logistics services.
Another segment experiencing significant supply expansion is hotels, particularly at the higher end. As of the third quarter of 2017 the total stock of rooms exceeded 4200 in Yangon, 9% more than in the previous year, with this expected to double by 2020, according to Colliers International. While the range of offerings is expanding dramatically among upper-scale developments, expansion of low- and mid-price accommodation has so far been more muted, despite strong potential demand.
The ongoing rise in supply has stimulated a substantial decrease in prices, with high-end average daily rates falling 7% y-o-y in mid-2017 to around $111 per night. Meanwhile, in the third quarter of 2017 the occupancy rate rose for the first time since 2014, increasing five percentage points to 46%. However, this remained considerably below the 2012 average of 70-80%. This is likely to make the high-end segment extremely competitive in the period ahead, with hotels offering unique packages while further reducing rates. The market continues to concentrate in the main business and tourist areas of Yangon, which may change in the longer term with more travel to other cities and destinations, although this will likely depend greatly on the political and security situation in the years to come.
With the residential and office markets cooling, but the industrial and retail segments remaining buoyant and exhibiting significant long-term growth potential, the period ahead poses both challenges and opportunities. Establishing a clear regulatory framework is set to play a significant role in the broader market’s development. While the publication of the Condominium Rules has provided clarity over certain issues regarding collective and foreign ownership, administrative processes must be developed in 2018 for buyers to truly benefit. At the same time, reform of the banking sector could also have a major impact, opening up financing channels and boosting overall liquidity. Both of these issues will be vital in addressing the needs of middle-income buyers and renters, who will likely become the mainstay in the coming years.
However, for all its challenges, the market continues to offer enormous investment potential. Myanmar is still in the early stages of its economic transition, with opportunities to learn from the experiences of its South-east Asian neighbours.
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