In May 2013, a choice residential property on Pyay Road in Yangon’s Golden Valley sold for US$972 per square foot (psf). Today, two months later, the owner has divided the property in half—and the asking price for one half of the bifurcated property is US$1,228 psf.
In Yangon today, stories like this are becoming commonplace. The recent political and economic reforms that have transformed Myanmar from a hermit nation to the new jewel of Asia have had an especially profound impact on the real estate market. As recently as 18 months ago, there was virtually no leasing market, even in downtown Yangon. With foreigners barred from owning or leasing property in the country, and the junta’s stranglehold on power making investment unattractive, there was simply not enough demand to support a market.
Since last year, however, the real estate market has grown red hot, with prices skyrocketing and foreign firms jostling for the best commercial space. According to Brett David Miller, managing director of Scipio Services, a real estate advisory and consulting firm in Yangon, properties that were available for US$2,000 per month last year now regularly
lease for US$8,000 per month—with some prices as high as US$30,000 per month.
Earlier this year, Scipio Services released a report analyzing the Myanmar property market. According to their research:
“The few commercial office spaces available in business towers were filled quickly, commanding rates of US$4 psf (mid-2011), rising up to US$8 by May 2013 psf. These spaces were unfinished, unfurnished, and excluded maintenance fees and utilities. Despite this, leasing of the spaces as the rates increased was nearly 100%.”
The rapid growth of the real estate market is due in large part to the sudden influx of foreign firms into Myanmar. Though foreigners are still restricted to year-to-year rentals, it is not uncommon for foreign firms to partner with local partners to identify and acquire prime space in downtown Yangon.
Chevalier Group, an international company based in Hong Kong, is one such firm; they are currently in talks to begin property development projects with local Myanmar partners. Horace Ma Chi Wing, executive director of Chevalier Group, spoke to Mizzima Business Weekly about how high real estate prices are a drawback for foreign companies.
“The rates really scare us, it is too high. Not so many small and medium enterprises can afford such a high rate for commercial space,” he says.
He added that local partners would cooperate with foreign firms by contributing the land, and in return, Chevalier Group would invest capital in construction costs. However, at this point, the dialogue has ground to a halt because of the exorbitant prices.
“We are not sure whether we can come into consensus of the price of land. If we are unable to, the project may collapse,” Ma says.
A Surging Market
This rush of new entrants into Myanmar is just the first wave, says Miller. Firms are dipping their toes into Myanmar to test the market before making more sizable investments—and if the country proves a stable and profitable place to do business, even more firms will follow. Though price increases will slow as the city’s tenant threshold is reached, prices will continue to climb in line with surging demand.
In prime areas, however, buying and selling has already nearly topped out, and land for high-rise development is being swallowed up as soon as it hits the market. Managing Director of Myanmar Real Estate Deals Ma Pho Phyua, who has been in the real estate business for over two decades, say prices have been increasing gradually in these areas since 2006 up until the government change in 2010. Afterwards, prices have leaped to new heights. According to Ma Pho Phyua, Pyay Road in Golden Valley, land worth roughly US$600 psf in 2011 now commands prices as high $1,228 psf. If these pressures continue, tenants will be forced to seek alternative options, or adopt a wait-and-see approach and hope prices fall, she says.
Already, some businesses are leasing residences and renovating the property to meet their needs, because grade A commercial space is prohibitively expensive. Less expensive mixeduse buildings are also sprouting up all over the city, and price increases will cool as such properties become overabundant. Top-end prices will continue to rise, though, says Miller, due to the scarcity of high-quality properties.
Olivier Danan, managing director of Heritage Capital Investment, however, believes that high real estate prices are reasonable for what they will be worth.
“People are thinking that the prices are high for a third world country that has been closed off for so long, but people aren’t coming here to farm, they are reasonable prices for the potential it has for future businesses,” he says.
A Valuable link to Yangon’s Past
While many landowners are hoping to capitalize on building skyscrapers, Danan finds heritage buildings to be a much more valuable investment. The Yangon Heritage Trust estimates that Yangon is home to almost two hundred heritage buildings, like the massive Yangon Secretariat building downtown. All heritage buildings were originally constructed during the British colonial era in the late 19th century.
“They’re really going to be the real face of Yangon, everybody can build sky-rises, and everybody can make Yangon look like Singapore or Hong Kong. If we’re able to really preserve these buildings and find a commercial vehicle for them and juxtapose them with the sky-rise, then you’ll get a real identity to Yangon and its charm,” he says.
According to Danan, the land under a heritage building in Yangon can be worth up to US$50 million. Meanwhile, heritage residences—smaller and less conspicuous than the towering heritage buildings, but no less regal and stylish—can cost up to US$6 million.
Strand Mansion, located in downtown Yangon behind the British Embassy, is one such heritage residence. Heritage Capital Investment has been able to refurnish and renovate the building for both commercial and residential use, charging at least US$3-$4 psf per month. Although parts of Strand Mansion are still undergoing renovation, inside the property boasts six meter high ceilings, with steel beams imported from Scotland. “It’ll put Yangon on the map as one of the most beautiful cities in the world, and I really believe that if it’s done properly, the country has so much natural resources, it can really go in the direction of Dubai, or the United Arab Emirates.”
However, Danan says there are problems with landowners who remain stubborn and refuse to see the real value of heritage buildings. By law, landowners are not allowed to tear down the building unless it is deemed to be structurally unsound by the Yangon City Development Committee (YCDC).
According to Danan, there are private landowners in possession of heritage buildings who are waiting for the structure to rot away. Once the building is condemned by the YCDC, the building can be torn down, and the landowner can build a skyrise in its place. This practice has proven especially dangerous—and effective—thanks to the damage caused during Yangon’s heavy monsoon season.
As a result, Danan and other buyers of heritage buildings have had to circumvent stubborn landowners. “Instead of buying the land, we just bought every individual apartment inside the building. So when we owned 60 percent of the building, we earned enough to justify restoring the building into a good state,” he says.
Currently, the YCDC lists 189 heritage buildings, but protective measures to maintain them are not bound by law.
“The government really needs to put laws into place so these buildings can be protected. Locals haven’t wrapped their heads around the idea. There is power and beauty in the old. It’s a niche market, a lot of big companies want the penthouse in a sky-rise building, but something like this reflects power and confidence. Even with the current prices,
these apartments are gold mines, and renovation doesn’t even cost a lot,” he says.
A Growing City
The ferocious growth in the market can be seen even beyond the traditional boundaries of Yangon, with its soaring highrises and classic heritage buildings. Ma Pho Phyua said that in prime, undeveloped paddy fields of Dala, just south of the Yangon River, land that sold for US$700 per acre one year ago now sells for US$70,000 per acre. Speculation is rampant in these areas, and more locals are looking to profit by buying and developing land themselves.
Frenzied real estate speculation in Dala has been driven by frequent rumors that the government plans to build a bridge connecting the area to downtown Yangon. Prices skyrocketed when this rumor first circulated, in 2009 and 2010, then fell when nothing came of it; but now, prices are rising again on the heels of news that the government is indeed planning to build a bridge. As a result, farmers, the primary landowners in Dala, have found themselves inundated with bids—and, for those who have chosen to sell, flush with sudden wealth.
Alongside surging foreign investment, explosive growth in several industries is driving price increases: telecoms, oil and gas, and services. Along with these new companies come the secondary service providers who support them—law firms, investment banks, investment funds—as well as embassies and trade offices representing nations seeking to do business in Myanmar.
The sudden popularity of land investment in Myanmar is due, in part, to the lack of other options for investment. Money is surging into the country, but there is currently no stock market in which to invest, and with the value of the currency in constant fluctuation, putting money in banks is considered risky.
The government has also helped to promote interest in the Yangon real estate market as part of a long-term urban development strategy. According to the YCDC, the city’s population is expected to increase 100 percent by 2040, and foreign investment in land and building development will be crucial in expanding the city to accommodate up to 10 million residents.
The government has set aside special economic and industrial zones in pockets throughout Yangon, and according to Miller, multinational firms entering the Myanmar are looking at these areas with particular interest. With reliable power and other infrastructure still lacking in much of the country, the government’s commitment to developing economic zones in Yangon provides confidence for foreign firms.
The Future Yangon
Ma, the executive director of Chevalier Group, agrees that the government should take a more proactive and flexible stance in helping to develop Yangon. He likens the situation to cities like Dongguan, located in one of China’s most important economic hubs, the Pearl River Delta, 20 to 30 years ago.
“Then, Dongguan did not even have roads, electricity supply or proper drainage system. The government was able to grant land to developers for free, and they would build infrastructure at their own cost. In exchange, after a few years, developers would be able to keep one third of the land to themselves,” he says.
There is no doubt that the demand to invest in Yangon is increasing, but at the same time, supply is severely restricted. Ma believes that if the government is able to make lands available to the market by granting them to developers, the price would immediately drop to a more reasonable level.
“It’s very common in China. When the government does not have much cash on hand, the developers can take care of it, and you could immediately open some new regions,” he adds.
Ma expects the pace of development in Myanmar will be even faster than in China, as the country will be able to adopt best practices from other countries. Myanmar’s sizable population of close to 60 million also gives it a natural edge.
“We are cautions, but optimistic about Myanmar’s future. In two to three years, if it proves that political stability can be maintained, more foreign firms will be more willing to come in,” he says.
What will Yangon’s rapid growth and development bring? “Look at the Bangkok skyline, and then look at the skyline here in Myanmar, I think you can see the excitement we see in the industry,” says Miller. In a city where a real estate market was barely existent even 18 months ago, that possibility is tempting investors and residents alike.