Land in downtown Yangon, Myanmar’s financial center, has continued to skyrocket in price and can cost up to $800 per square foot, now that the government has permitted three-year leases to owners.
Sustaining a trend of urgent demand for office space as foreign investors pour into the country, buyers are now speculating on land in the former capital's central business district in order to build high-grade condominium buildings, said Khin Maung Aye, an executive with the Myanmar Real Estate Brokers’ Association Information Department, according to Mizzima , an India-based Myanmar news outlet.
“There are no offices in high-grade buildings left when foreigners arrive here to look, so investors are now buying up the plots left downtown,” Khin said.
At the current prices, a standard condo – 100 by 100 feet – will cost a buyer about $8 million, according to an agent at Shwe Kan Myay Real Estate. This, in a long-isolated and undeveloped Third World country, matches real estate prices in major cities across the globe.
“Top-notch office buildings in Yangon are renting for more than comparable spaces in New York City,” said Jacob Frydman, CEO of United Realty, a commercial real estate investment and advisory company based in New York. “In addition, because Myanmar lacks a sophisticated banking system, annual rents are generally required to be paid in cash for the entire year in advance.”
The most recent spike in land prices came with the government’s extension of the term of leases from one year to three years last month.
Khin said that previously he only had phone inquiries, but recently he sold two of the five plots he showed to potential buyers in the downtown area, as the government extension gives more opportunities to buyers, Mizzima reported.
Yangon’s office space is limited as demand continues to outstrip supply, with foreign organizations occupying premier blocks including Sakura Tower and Sule Business Center, according to Mizzima.
The overwhelming demand does not mean that prices can keep rising, however. Well-off landowners in prime real estate areas are holding out for higher prices in a market they know will only go up, but many buyers have reached their limit, according to the Bangkok Post .
In many ways, this trend in Myanmar’s real estate market has been seen before.
“[The trend] has occurred in places such as Vietnam and other emerging nations with huge disparities between rich and poor,” said Frydman.
But the situation is likely change once financing becomes available in the marketplace, according to Frydman. The current Western investor craze will likely die down because it is difficult to generate emerging-market returns if land and development costs are as high as they are in Myanmar. In addition, the property bubble affects every sector of the economy, and hinders foreign investment.
As the system stabilizes, real estate pricing will, too. This is good news for foreign investors.
“Foreign investors should expect a normalization of pricing as the country develops a banking system and provides the ability for purchasers to finance real estate,” said Frydman.