Myanmar’s landscape is changing rapidly and the skyline of city like yangon, which one glittered with gold tips of pagodas, now has fast up- coming high rise buildings. Old houses and sprawling mansions are being reconstruct- ed and renovated, new 4-5 storeyed apart- ment buildings are lining roads, and the miles long empty lands are seeing boundary walls coming up, for new construction.
The wave of urbanization in Myanmar has seen Yangon extend beyond its boundaries, and is now home to 10% of the country’s population. The spurt in prices, witnessed in nearly all parts of the country, is far more conspicuous in Yangon, which takes the lead. This is not unusual for a developing country, where property is the ideal investment and one out of less than a handful of investment options. This is because the financial ser- vices sector is still in its nascent stages, and the banking sector has only recently, opened up, making it difficult for residents to con- sider other investment channels.
Property has proved its value now, yielding phenomenal returns as prices hit the roof in Yangon in the last five years. With limited supply for the present, and demand remain-
ing high, upward movement of price levels is only to be expected, and speculative ac- tivities just push prices further. The surge in demand can be attributed to the interna- tional investments coming in, and albeit an increasing number of developers have float- ed construction projects, it will take at least another twelve months before a significant number are completed, to make an impact and bring prices down, as the gap between demand and supply reduces.
Has the property market cooled down?
Property prices remain upbeat, and experts in the field, are optimistic about growth. But in the last four months, prices have been steady. Realtors feel the market has cooled down, with no big deals being signed, and property owners preferring to wait and watch till after the elections. The buyers, on the other hand, find prices too high, actu- ally at their peak, and expect them to come down, in the near future. Thus genuine buyers and sellers seem to be missing, both playing the waiting game.
According to the Irrawady, a property mar- ket slowdown is expected in 2015. Phenom- enally high land costs continue to adversely impact the rental market. The rent levels are becoming burdensome for foreigners as well, pushing up costs for foreign investors, and this may actually prove to be a deterrent, with investors locating to more financially affordable places. The middle level foreign- ers are also affected, being forced cut other expenses, to pay for apartments. A time may come when the levels become unaffordable, and an exodus may be the next step.
The price levels are actually reason for con- cern. Consult Myanmar quotes a price of USD 259 for 1 square foot of land in down- town Yangon. Apartment rates stand at USD 78 per square meter, as against USD 49 in downtown Manhattan, as per the Wall Street Journal. Property brokers say that 1 acre of land that was just USD 1000 five years ago, is now USD 100,000. In the rent- al segment, Colliers International expects premium properties to command a rent of USD 100 per square meter. A number of new mixed developments are approaching completion, between 2015 and 2016. These include Royal Maylikha, Sule Center, HAGL Myanmar Center, Golden City and others. The impact of this increased supply on rent- al values remains to be seen.
The rationale behind housing prices
Housing markets are local in nature. Fun- damentals of house pricing are governed by a set of macroeconomic variables, like the stage of economic development, inflation levels, and specific market forces like de- mand and supply.
Economists draw parallels between Myan- mar and other countries going through a similar stage of economic development and facing similar escalation in housing prices. It is perhaps more pronounced due to the rapid pace of change here in the last three years. A relatively sudden spurt in demand due to the influx of foreigners winning con- tracts for developing infrastructure and tele- communications networks has pushed pric- es upwards. Speculative activity has picked
up and has only made prices soar higher. However, these price levels are a short term phenomenon, when prices deviate from their fundamental value driven by some unique characteristics and supply lags. It is clear that properties are overvalued, far above their fundamental, intrinsic worth. Overvaluations reveal imperfections in the property market due to factors like supply lags and credit market frictions, besides a set of local factors. If and when prices are driven upwards by future price movement expectations, it is termed as a property ‘bub- ble’. Bubbles always reflect overvaluation that is unsustainable in the long run.
Will the bubble burst
The property bubble can be attributed to a series of factors unique to Myanmar. The country opened up three years ago, but property laws remain the same. New de- velopments are coming up, but as of now supply is unable to keep pace with demand, which pushes occupancy rates to the maxi- mum and prices high in the short term.
The common man is convinced that this is the worst time to consider property pur- chase. The frenzy seen in the property mar- ket in 2013, both for purchase and renting, has slowed down and property agents feel it is down to a trickle at present, indicating a slowdown in the market.
While the market may have cooled, prices continue at the same level, and one forgets the average Myanmar local, and how these prices are affecting them. For those hav- ing access to ancestral or parental proper- ty, there is an asset that can be encashed through a sale at any time. For those start- ing out in life, even educated couples, may have a household income of $1000-1500 per month. With the newly opened Construction and Housing Development Bank giving out loans at 13% p.a, the monthly installment is difficult to afford. The monthly installment
will leave them with little to survive on, not to mention the down payment, for which they do not have sufficient savings. The add- ed disadvantage of short term loans makes repayment difficult. The option of borrow- ing from family or friends, is not open to all. The middle class has yet to emerge in suf- ficient numbers, and for the present, one sees a vast gap between the lower and upper strata. The number of people seen living in shacks is constantly increasing, since proper housing is becoming even more unafford- able, primarily because their low income does not permit better housing.
Thus, the only recourse for them is to move to the periphery of the city, and look at the low-cost housing options in North Dagon like Bobahtoo with 400 units, and Bomin- yaung, which involve participation from private construction companies as well. In Hliang Thar Yar township, the Shwelinban project is coming up with 24 buildings that will have 576 units. More developments in the same range are on the cards.
In the absence of a highly competitive mar- ket, everything sells and gets taken as rental property, according to levels of affordabili- ty. However, in the last six months, quali- ty has become a determinant of house and apartment sales and rentals, as per Colliers reports, with low quality losing out to its su- perior counterparts.
This is reason for concern even for the gov- ernment, and property laws will have to be changed, to bring down prices which reign at levels far above their fundamental value. The role of middle men, namely property brokers and real estate agents, in pushing up prices can hardly be exaggerated. Land owners also, have an over-optimistic per- ception of the value of their property, and therefore refuse to sell at lower prices, even when there is a genuine buyer with a firm offer. Speculation further pushes prices
Property Facts
- Land prices in Myanmar are the high- est in Asia.
- The property market prices skyrocket- ed in 2013, and continue at that level.
- Property remains beyond the reach of the common man in Myanmar.
- There is an incessant shortage of office space, residential apartments, hotel rooms and retail outlets, despite small projects getting completed.
- Yangon rents average at $ 88 per square meter, as compared to $25 in neighboring Bangkok, and $75 in Singapore.
- Growth in the building industry is likely to remain modest for most of 2015, till the elections.
- Myanmar is in the early stages of an expansion cycle with new mixed use development projects still underway, and likely to be completed in 2016.
- The Business Monitor International predicts a real growth rate of an av- erage 10.8%, between 2016 – 2023, in the property sector.
