The real estate sector in Myanmar is riding high, and there is strong demand for quality space in Yangon in particular. With office rents in prime buildings rivalling those in Singapore and land prices also soaring, those with land are enjoying a windfall, while newcomers face a high cost of entry. Developers are focused on high-end projects in Yangon (formerly known as Rangoon), where quality offices, apartments, hotels and retail spaces are all in short supply. Development has greatly accelerated with the lifting of sanctions, with the number of permitted high-rise projects in Yangon proliferating in mid-2013. But developers have a long way to go to catch up with demand, and the pace of development is still restrained by the limited availability of prime land and domestic financing. Many of the business setting up in Yangon are in substandard spaces.
A Relocating Population
There are also major projects under way or planned to expand Yangon and accommodate an expected wave of urbanisation (see analysis). A huge industrial zone is being planned with Japanese support in Thilawa, to Yangon’s south-east, which is expected to form the core of an entirely new outer district of the city. The Yangon City Development Committee (YCDC) has produced an ambitious urban plan that anticipates a near doubling of Yangon’s population to 10m by 2040. Myanmar’s second city of Mandalay is also seeing a renaissance thanks mainly to its strength as a tourist destination and a growing number of international flights. The newly built capital city of Naypyidaw, which dominated development during the last decade, also continues to see work on new housing, hotels and government buildings.
Foreign citizens are not allowed to own land in Myanmar, and in any case privately owned freehold land is scarce, as most land is owned by the government and leased to building owners. However, Myanmar is increasing access to its real estate market with two important legal changes (see analysis). A new Condominium Law that was expected to be adopted in early 2014 will allow foreigners to own condominium units, which in the local market is taken to mean apartment units in elevator buildings. And after a 2012 revision to the Foreign Investment Law, foreigners can invest in real estate development in two ways: through a joint venture, in which Myanmar citizens must own at least 20% of the equity, or with up to 100% ownership through a build-operate-transfer (BOT) lease agreement with the government, which are limited to 70 years. Foreigners can also get permission to take over BOT leases from locals.
Some foreigners get around restrictions on land ownership by investing through trusts or nominees, according to Scipio Services, a Yangon-based real estate consultancy. The firm also warns clients that private leases of more than a year are unsupported by current law and untested in Myanmar courts. Landlords typically demand a full year of rent in advance.
In addition, the maximum height of buildings in Yangon is set at 127 metres above sea level, which prevents skyscrapers from topping the sacred Shwedagon Pagoda. Within a 1.6-km radius of the pagoda, buildings are limited to six storeys.
Offices In The City Centre
Central Yangon has only three class-A office towers: the Sakura Tower, the FMI Centre and tower one of the Centrepoint Towers.
Space in them was already tight before sanctions were lifted, and since then it has become so competitive that by mid-2013 rates had reached around $1075 per sq metre per year, higher than the average in Singapore. Even deep-pocketed multinationals are being turned away by the high rents and the lack of available space. Quoted rents do not include utilities and various fees, which add another $65 to $183 per sq metre per year, or interior construction costs, which run $590 to $970 per sq metre, according to Scipio Services.
The next addition to city centre class-A office space will come from the Shwe Taung International Commercial Centre, with 7150 sq metres of office space and 1850 sq metres of retail space, the finishing touches for which were still being completed as of early 2014. According to Shwe Taung, a major developer-builder, 70% of the building was already leased as of late 2012.
Next up is Traders Square, a $100m, 20-storey tower with 58,000 sq metres of total space set to open in 2015. The developers, led by the Hong Kong-based Shangri-La group, were able to move quickly because the project was planned and allocated land in the mid1990s, when the neighbouring Traders Hotel was built, but mothballed due to the Asian financial crisis of 1997. Traders Square broke ground in late 2012.
Three other city centre projects were awaiting approval in August 2013. The most advanced was a mixed-used project on a 4-ha site called the Landmark Developments. The project is financed by Yoma Strategic Holdings, the Singapore-listed affiliate of Serge Pun & Associates, a Myanmar developer. The group owns First Myanmar Investment (FMI), developer of the FMI Centre, which neighbours the site.
The $350m Landmark project includes a total of 65,000 sq metres of office space in two towers, two hotels, a condominium, serviced apartments and a mall. Yoma raised $82.5m in November 2012 to finance the project but was still negotiating a crucial extension of an existing BOT lease on the site from its remaining 15 years to the maximum of 70 years allowed by law.
Two other major city centre office projects were still in early discussion stages. The December Construction Company received permission to build a 120-metre-plus tower on a site it owns that is currently occupied by two cinemas. In July 2013 the firm solicited expressions of interest to design, build, finance and operate the project, called the Shwe Gon Tower. Also, Shwe Taung was reported in early 2013 to be in discussions with city authorities to build a 34-storey tower by the Bogyoke Market. Both buildings would be built just under the legal maximum height.
Due to the lack of available land and increasing traffic congestion in the city centre, class-A office space is likely to be increasingly built outside the core central business district. In what city officials and real estate professionals say is a more fitting route for Yangon to develop, multiple business centres are beginning to emerge around the city. All these centres have the advantage of being closer to elite residential neighbourhoods and to the airport. One such outer centre is the east side of Inya Lake, north of the city centre on a road leading to Yangon airport. Here a single but very large project is under construction by Hoang Anh Gia Lai Group (HAGL), a major Vietnamese developer-builder with experience in other South-east Asian countries. HAGL plans to invest $440m in a mixed-use complex of high rises after securing a 70-year BOT lease for a 6.5-ha site in December 2012 in a first-of-its-kind international tender. Ground was broken in June 2013. HAGL’s two-phase project includes a 27-storey office and retail tower with 158,000 sq metres of total space to be completed in 2014, and a second office tower with 68,000 sq metres to be completed in 2016. The complex will also include a hotel and serviced apartments. The location neighbours the Sedona Hotel, a business favourite.
Another emerging centre is on the west side of Inya Lake, also on a convenient route to the airport. This area has developed as a centre for oil and gas firms, many of which have converted villas and other buildings not originally designed as office space – a popular alternative in the city. In its first major foray into real estate, the oil and gas services company Myint & Associates is developing a 17-storey office tower on Pyay Road. The tower was still under construction as of early 2014, with the car park and landscaping expected to follow afterwards. There is one high-end office building already in the area, the low-rise International Business Centre, and a large Novotel hotel is under construction. A third centre rings Kandawgyi Lake, north of the city centre. Shwe Taung completed its Union Business Centre, a low-rise complex with 5300 sq metres of offices on a site on the lake’s northern side, in mid- to late 2013. Further north in the Golden Valley neighbourhood, the Aye family is developing a 27-storey mixed-use tower, Diamond Valley Rises. The area is home to high-end hotels and embassies. The fourth emerging centre is Junction Square, on Pyay Road closer into town than Inya Lake. There Shwe Taung is expanding a popular high-end retail mall with a 19-storey office tower and 21-storey condominium, called the Crystal Tower and Crystal Residences, to be completed by 2015. Finally, the Mayangon township north of Inya Lake is being targeted by the YCDC as the first of several new commercial and business centres identified in the Yangon 2040 urban expansion plan (see analysis). Also in the neighbourhood, Living Square, making its foray into real estate, is developing a 27-storey mixed-use office and residential tower called the Kabar Aye Executive Residence.
The many international firms and expatriate investors moving to Yangon are driving demand for serviced apartments, which have become one of the hottest market segments. Rates as of summer 2013 began at around $125 a night or $2500 a month for the smallest apartments in the cheapest complexes, with asking rates north of $10,000 a month for three or more bedrooms in the better buildings. Most buildings are full and have waiting lists.
The biggest planned development is part of HAGL’s $440m mixed-use project on the east side of Inya Lake, which will include four towers with 1800 serviced apartments. The buildings are part of the project’s second phase, due to be completed in 2016. The existing Marina Residence and MiCasa serviced apartments are also in this area. The project closest to completion was the Shangri-La Towers, a two-tower, 240-unit serviced apartment complex in the Kandawgyi Lake area, which is being developed by the Shangri-La group. It was scheduled for completion in late 2013, although one of the towers was still under construction as of early 2014. In the city centre area, Yoma’s $300m mixed-use Landmark Developments projects will see the vacated Grand Mee Yee Htah serviced apartments torn down and replaced with a new tower of serviced apartments.
The elite residential neighbourhoods between Kandawgyi Lake and Inya Lake, including the Golden Valley and the Yangon University neighbourhood, are another favoured area for serviced apartments. The Sakura Residence, a 115-apartment complex affiliated with the Sakura Tower, and the Golden Hill Tower, a two-tower, 215-apartment complex, are in this area.
Yangon’s condominium market is also very tight, but is expected to get a big boost from a new Condominium Law that was expected to be ratified by early 2014. The law would allow foreign citizens, who cannot own land, to own condominium units. Condominiums are defined in Myanmar as apartment units in elevator buildings. Allowing foreigners to buy condominiums would enable developers to finance construction by selling off plan, the traditional method in Myanmar of funding large residential construction.
Myanmar citizens, who have few other domestic investment opportunities besides real estate, are also investing in condominium units as rental income properties. Apartments in elite complexes such as the Pearl, in the Golden Valley, and Shwe Hintha, on Pyay Road west of Inya Lake, are rented for rates that approach serviced apartments. The largest high-end condominium project under way is the $60m, 34-storey Diamond Inya Palace being built by Mandalay Golden Wings Construction and scheduled for completion in 2015. It will be the highest building in Myanmar, just under the legal limit. But due to the slightly higher elevation of its location, in the Mayangon township north of Inya Lake, it is likely to be topped in ground-to-tip height by city centre office towers. The L-shaped building will include 406 apartments. Other high-end projects include a $50m, 250-unit group of towers planned by a joint venture of Singapore’s Soilbuild Group and Myanmar’s Ayeyar Hinthar Group on the east side of Inya Lake, and Shwe Taung’s Crystal Residence, a 21-storey condominium at Junction Square, due for completion in 2015. Much of the unmet demand for higher-end residential space is being forced into mid-range condominiums with lower service levels and less desirable locations.
The Serge Pun group, including its affiliates Yoma and FMI, dominates the development of large residential communities in Yangon’s outer districts. Two projects, FMI City and Pun Hlaing Golf Estate, are located on a combined total of more than 445 ha of land in the Hlaing Thar Yar township in the north-west outskirts of Yangon, across the Hlaing river from the Pyay Road and Mayangon neighbourhoods. FMI City, launched in 1995 and nearing completion, has more than 2000 single-family, villa-style houses, while the higher-end Pun Hlaing Golf Estate, launched in 2000, had sold more than 330 homes out of up to 800 planned. Pun Hlaing features an international school and private hospital, and many of its homes are rental properties catering to expatriate executives. On the opposite end of town, in the Thanlyin district, across the Bago river on Yangon’s south-eastern outskirts, the group is developing Thanlyin Star City, a community of mid-rise condominiums planned to include 9000 apartments.
The rapid growth of tourism has made hotels another top focus for developers (see Tourism chapter). Projects delayed due to the 1997 Asian financial crisis and international sanctions have been revived and are heading for completion in 2013-14, including the 300-room Hilton Yangon, part of the Centrepoint Towers, the 315-room Emerald Rose Garden Hotel and the 366-room Novotel Yangon. Shangri-La was also reviving an old project for completion in 2017, while HAGL’s mixed-use project includes a 412-room hotel and Yoma’s Landmark Developments includes two: a tower and a renovation of the colonial railway building.
Most recent and planned retail development is within mixed-use projects. HAGL’s and Yoma’s large mixed-use projects both include retail malls, and many smaller projects feature retail space on lower floors. For example, Singapore’s Parkson opened a four-floor department store in the lower levels of the FMI Centre in central Yangon in May 2013. Among stand-alone malls, the most successful has been Junction Square, a 28,000-sq-metre mall that Shwe Taung is expanding into a mixed-use site. Myanmar’s dominant grocery store chain, City Mart, has expanded into real estate as well, developing mini-malls attached to its markets.
After dominating the real estate sector for most of the previous decade, development in the new capital city of Naypyidaw, which was built from scratch starting in 2002, is slowing down and playing second fiddle to the much hotter market in Yangon. However, government offices are still in the process of relocating from Yangon, driving demand for residential real estate. Hotels are also a major focus of development in Naypyidaw and the tourist destinations of Mandalay, Bagan, Inle Lake, Ngapali and Ngwe Saung. Mandalay, although larger than Naypyidaw, has a smaller upper class and a quieter real estate market. Its economy is being boosted by increasing tourism and a growing number of direct international flights. The most notable projects there are the 280-room Novotel Mandalay Mingalar hotel, scheduled to open in 2015, and a 17,000-sq-metre mall, the Yadanarpon Super Centre and Yadanarpon Diamond Centre, built in 2010 by Mandalay Golden Wings.
As Brett Miller, managing director of Scipio Services, told OBG, “There are two main events that will drastically effect FDI within the construction sector: the condominium law expected in 2014 and the election in 2015. Many foreign developers we speak with are waiting for the condominium law so they’re able to own and pre-sell units to fund the construction of projects, and still others are planning to wait and see the results of the 2015 election.” Further out, the market will remain hot for the foreseeable future, especially if the large amount of oil and gas exploration under way yields results. Although the number of high-end projects being permitted accelerated in mid-2013, relatively few high-end buildings were slated for completion by 2016, and it is likely that some will arrive behind schedule. Judging from the experience of Vietnam, which went through a somewhat comparable transition from isolation to welcoming foreign investment beginning in the 1990s, Myanmar is likely to enjoy a catch-up period of intensive real estate investment.
The greatest challenge for the market will be obtaining financing. The domestic financial system is too weak to support all the development the country needs, and restrictions on foreign ownership make it difficult for investors to utilise Myanmar’s existing real estate assets as collateral against foreign bank loans. U Win Khaing, president of the Myanmar Engineering Society, told OBG one of the most important reforms needed was to allow foreign banks to conduct banking operations in Myanmar. “We have dozens of foreign banks lining up to open representative offices, but the central bank still is not ready to issue them banking licences,” he said.
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