Since Parliament approved a long-awaited Condominium Law in January 2016, real estate stakeholders have been hoping to see sales surge, with foreigners now permitted to own property for the first time. Implementing the law is proving problematic, however: unclear regulations regarding criteria for condominiums have left investors uncertain, land classification and allocation remain major challenges, and above all, the law has still not received the presidential approval required for official promulgation.
New Law
After over three years of debate, Myanmar’s Parliament passed the Condominium Law on January 22, 2016. Under the new law, foreigners are permitted ownership of up to 40% of units within a condominium project, provided these are located on or above the sixth floor and the project is built on land covering an area of at least 20,000 sq feet. Although the law was welcomed as one avenue through which to revive the flagging sector, experts were quick to point out gaps and potential arbitrage issues that could prove a hindrance to new sales and investment.
Challenges
According to the Myanmar Real Estate Services Association, many high-profile residential projects have been built by foreign investors on state land. These projects may not qualify for the 40% foreign ownership limit, as state-owned land is ineligible for foreign ownership under the 1987 Transfer of Immoveable Property Restriction Act. This prohibits foreign land ownership unless the buyer has been granted a special exemption, for either foreign diplomatic missions or unspecified organisations and individuals. There are three types of land in Myanmar: freehold land; grant land, which is available on a 10- to 90-year leasehold basis, and is believed to be almost as good as freehold; and government-owned bill-of-transfer land, which can be leased for 50 years, with the possibility of two 10-year renewals.
“It appears that collective ownership permitted under the Condominium Law would not apply to government-owned land, meaning that quite a lot of projects wouldn’t qualify. At the same time, just 3% of the land in Yangon is classified as freehold, which presents further challenges for developers,” Richard Emerson, managing director of Emerson Real Estate, told OBG. The Myanmar Construction Entrepreneurs Association reports there are only 10 condominium buildings eligible for foreign ownership under the new law. Some stakeholders have questioned the minimum land requirements for condo projects.
Delayed Implementation
Perhaps most significantly, however, the law requires presidential approval to be enacted – which as of December 2016 was still pending. In its report on Yangon’s condominium sector for the second half of 2015, real estate consultancy Colliers International wrote that, while the number of pre-sales projects has risen steadily since 2012, the absence of a condominium law contributed to a slowdown during the last half of the year. Buyer caution about purchasing new units, it said, had pushed the sales take-up rate down to 51%, a 17% year-on-year (y-o-y) decline, while the amount of unsold condo inventory simultaneously rose by 85% y-o-y to over 4100 units. In the first half of 2016, the firm reported, the number of units opened in Yangon fell by 36% y-o-y, from more than 2500 to around 1600, while the number of project launches dropped from 20 in the second half of 2014, and 10 in the first half of 2015, to five.
“It is difficult to say whether the delay of the Condominium Law has inhibited sales. However, sales of condos in general slowed down considerably in early 2015/16,” Dan Davies, director of Colliers’ Myanmar operations, told OBG. “The market is eagerly anticipating the issuing of the Condominium Law to allow foreign ownership and encourage foreign sales.”
While questions remain about foreign land ownership and regulatory arbitrage, the law should help the sector regain some traction over the medium term.
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