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Is it Time to Buy Now?

I f you have to pinpoint one property market in the world where sellers can ask for prices out of line with the market and a transaction can still happen at these ridiculously high prices, it would be Myanmar. Well, until beginning of last year, at least.

Now the sellers are coming back down to earth. With little or no interest in buying work-inprogress properties, hay days for developers making a killing by just showing nice brochures to buyers are effectively over. Even for completed accommodation, interest is hard to come by. Transaction volumes are dwindling. Cash flow now-a-days does not come easy for most developers cum construction companies. They now crowd in the government project segment, where the certainty of receipt is much clearer once the construction is complete. For a recently advertised government project tender in April 2016, even large construction companies such as Ayer Shwe War (family company of previous Speaker of the Lower House), Htoo Group (company under the control of Tay Za) and Original Group (headed by Myanmar Construction Association Chairman) are submitting bids for construction projects as low as $400,000 in total contract price.

The prices have also fallen. The asking pricing of $400+ psf (per square feet) for condos and apartment above are over. For example, 68 Residence’s (a much advertised condominium project) initial prices were nearly $500 psf. The project that keeps showing the unaudited take up rate percentages, is now trying to sell many remaining units at around $300 psf. Some buyers in projects as such, would rather lose the deposits and down payments, than continuing to put in money into a loss -making venture. Some foreclosure land within the Golden Valley (Shwe Taung Gyar) area are being offered as low as $200 psf. International standard HAGL apartments along Kabaraye Pagoda Road are priced around $290 psf, before discounts.

The question would be ‘The prices have fallen much, have they stabilised and does this represent a buying opportunity for investors?’ My brave answer would be ‘No, not yet’. Here are the reasons:

  1. Myanmar, not being a capitalist economy previously, as not gone through a sharp downturn yet. Previously, the Government can control the economy and capital flows better through restrictions and permits. Now investors, under herd behaviour, will come and exit the markets en mass. The fall will be harder. And, we have not really experienced a hard fall yet.
  2. With the new Condominium Law in limbo, a price uplift from foreign property speculators or buyers would not be in sight, at least not in the near term. Objections included those from competing central and local Government authorities and there are still lobbying by various parties, such as HAGL, for their projects to be included within the confines of the Law.
  3. Potential buyers are even starting to notice how small the group of prospective buyers in Yangon are. We are seeing all familiar faces at the launch of every new condo project. This group of less than 300 or so people, could not possibly be buying all the high end condo units in Yangon.
  4. There is simply not enough demand. The middle class is still poor in Myanmar. Average professional couple in Yangon earns around $1,000 per month. Even if they set aside 40% of their monthly salaries for property payments, it would take 20 years to pay off $100,000 property, assuming the interest expense is offset by their salary increases. And the condos are selling well above $250,000 at present.
  5. The economy is starting to slowdown, because of the lack of significant incoming investments, due to elections and change of Government. Irregular electricity supply now-a-days is not helping the investors’ confidence either. The power cuts are much much worse than the summer of 2015. The slowdown is further evidenced by the number of job applicants to vacancies ratio. There are noticeably more applicants for a vacancy than six months ago. More applicants are also willing to accept reasonable salaries.
  6. The majority of cash rich investors include cronies born out of military administration prior to 2010, where concession rights to cut down forests and mine precious jewels were given in abundance. These no longer exist. Other than drug barons, people with loads of spare cash are a rarity now, depriving the developers of key local source of fund. As such, caution should be exercised, if you must buy. Within the next six to twelve months, the developers may even be unloading their apartments at rock bottom prices just to pay back loans and construction costs, especially those that cannot get their share of government projects. By then, when the economic direction of the new Government is clearer, we could be cherry picking the best of the best properties.