Yangon faces growing pains in real estate

Bangkok

MYANMAR has experienced dramatic changes economically and politically over the past few years. As foreign investors rush to set up shop in the newly opened market, office space in the country's commercial capital is among the most expensive in the world.

In a country where most people earn about two dollars a day, annual rents in Yangon climbed to as much as US$100 per square metre per month in 2013 - more expensive than downtown Manhattan and about four times the going rate for the best business addresses in Bangkok.

But last year the property boom came to a halt, office rents slid and residential sales paused. Businesses and consumers alike adopted a wait-and-see approach in the run-up to the Nov 8 elections, and many are still waiting for a clear picture of what a government led by Aung San Suu Kyi will look like.

Antony Picon, managing director of Colliers International in Myanmar, told Bangkok Post's Asia Focus from Yangon that the slowdown was expected given the election and political restructuring that has followed.

"It wasn't a surprise for us," he said, adding that he was seeing the return of positive upward trend for the market this year.

"People who are already here, both local and foreign investors, are still very active and confident," he said. "They are very bullish and the market is very upbeat. We are very busy with existing investors expanding their projects."

However, those who are not yet in the market are cautious and are still waiting for the post-election dust to settle, he added. "If one is not yet on the ground, he or she tends to be more concerned and that is natural."

Andrew Tan, managing director of Yangon-based Consult-Myanmar Co Ltd, said some sectors were approaching equilibrium after a lot of speculative investments over the past three years.

"The real estate market will see a consolidation this year, especially in the condominium sector and high-quality retail space rents," he said, adding that some properties would be sold at a loss in the short term. Many of these are apartments priced above US$500,000 each - way above the ability of the local market to absorb.

In the office market, supply has started to catch up with demand with the completion of new developments, resulting in a doubling in the amount of available space in the past two years. As a result, the market is now reaching equilibrium.

"We will see greater demand for prime quality offices and tenants will have higher bargaining power," said Mr Tan. "Prices are expected to remain stable, if not lower, but the competition in the high-quality office segment will rise."

The outlook is not as sunny for many completed residential projects in Yangon, a lot of them luxury developments targeting cash-rich local residents and foreign expatriates, a relatively small market. However, the combination of a weak legal structure, expensive land, lack of liquidity and an undercapitalised banking system has discouraged purchase and ownership. BANGKOK POST