Out of Reach

business, real estate, inflation, Yangon, Rangoon

The Centerpoint Towers in downtown Yangon, where the price of land can now reach $1,500 per square foot, despite recent measures to dampen the market. (Photo: Steve Tickner / The Irrawaddy)

For most people living in Myanmar’s largest city, starting a business or buying a home is becoming an increasingly unattainable dream, as strong demand—and a crony stranglehold on the local real estate market—continue to drive property prices ever higher.

In some parts of the city, the cost of buying land has increased tenfold over the past five years. In downtown Yangon, for instance, prices reach as high as US$1,500 per square foot on Sule Pagoda Road in Kyauktada Township. Property values in residential areas along Inya Lake have also spiked.

Even before 2011, when Myanmar introduced economic and political reforms that ushered in an influx of foreign investment, Yangon’s property values were on an upward trend. In 2007, property taxes were cut from 50 to 15 percent, spurring the first surge in demand. (In 2012, they were raised again to 37 percent in a bid to cool off an overheated market, but to no avail.)

But even as properties were changing hands, little in the way of development was taking place in the country’s largest city. When the then ruling military regime moved the capital to Naypyitaw in 2005, most of the largest developers followed, leaving Yangon to languish in neglect.

“Developers close to the previous government got a lot of new construction projects in Naypyitaw, so they moved there,” said U Khun Htoo, a spokesperson for the Naing Group Construction Co, Ltd. “Many projects were left unfinished, some of which still haven’t been completed.”

The smaller companies that did stay behind managed to increase their market share, but faced renewed pressure from the big-time players after 2010, when the regime started privatizing public assets. In a frenzy of deals that took place behind closed doors, government-owned buildings and factories were sold off to close business associates of the ruling generals—few of whom, according to U Khun Htoo, had any interest in developing them.

“In this privatization process, the winners were not real property developers,” he said, giving the example of the Padonma Theater in Sanchaung Township, which was sold for 15 billion kyat (US$15 million) to a consortium of five investors, including Dr Ko Ko Gyi, the chairman of Capital Diamond Star Group, whose real estate development portfolio is currently limited to two shopping centers, one in Yangon and another in Naypyitaw.

“The location of the old Padonma Theater is very good, and if it had been sold to a developer, it could have been used to build residential properties or office towers to meet market demand,” said U Khun Htoo.

“All the best locations ended up in the hands of cronies, who are holding onto the land because they know it will increase in value as time passes,” he added.

In recent years, the number of new residential units has increased by a mere 20,000 per year—roughly a third of the number needed to accommodate the city’s growing population. The primary reason for the slow pace of growth, say developers, is the excessive cost of purchasing land.

“The actual construction costs involved in building a condominium are about 40-50,000 kyat per square foot,” said a director of the Shine Construction Co., Ltd., who asked not to be identified. “At that rate, condos should sell for around 150,000 kyat per square foot. But because of the cost of land, the price is more like 500,000 kyat per square foot.”

This is bad news for would-be homebuyers, many of whom say they’ve given up on the idea of buying a place of their own.

“I can’t even imagine owning a condo in Yangon,” said U Ko Ko Zaw, who works for a car rental agency in the city. He said he couldn’t even afford a modest downtown apartment selling for 70 million to 200 million kyat ($70-200,000), much less a luxury unit going for 800 million kyat.

Under the current circumstances—rapidly rising property prices and stagnant wages—developers remain reluctant to begin work on new projects until consumers’ purchasing power catches up with their ownership ambitions.

“Some developers are only advertising properties, but haven’t even begun construction. There are a lot of sites like this around Yangon, because they’re waiting for property prices to increase,” said the Shine director, adding that that wouldn’t happen until basic salaries began to rise.

“Even if a household saves 100,000 kyat a month, how can they buy an apartment? That’s why the government should set higher wages,” he said.

There are also other things the government could do to make it easier for the private sector to develop the city, he added, such as improve public transportation and infrastructure so that people would be more willing to move to the outskirts of the city, and allow banks to offer mortgages.

On Oct. 1 of last year, the government of Yangon Division stepped in to stem rising property prices by setting fixed values based on location—a measure that curtailed sales, but did little to address the problem of the gap between supply and demand.

“The real estate sector is now stagnant, but prices haven’t started to fall yet,” said a senior manager at the Yangon-based realtor Unity. “But everything depends on the country’s situation, so let’s wait and see what happens.”

One Response to Out of Reach

  1. Of course,out of reach hard to seize.just for a place to live.All the property owners seem to sense the rising demand in real estate since the country has opened up.They are right.Now the demand is outstripping the supply.The developers seem to have difficult times to get capital money to expand their business even though they see opportunities to make a potential profit.The banks’interest rate is 8% ,I am sure housing loan would be more than 8%.Payment term would be shorter,so tough times for first time home buyers.Regular income is another thing to consider,if we dont calculate properly,everything will be screwed up.
    And also the quality of the home or apartment is another question.Using shoddy construction materials and too much theft during construction period made the building harder to meet criterion ,the result is that our hands and feet get cold when we are at higher storied floor.Feel like building is shaking when the wind blows.
    I am sure this asset bubble will burst.Like Mr.U Ko Ko Zaw who is dreaming to own a condo.,will surely feel relief if he knows the facts that Germans are not interested in buying houses,American houses are underwater ..now less worth than outstanding mortgage,for Japanese, life time achievement to own a small lot of land.
    Mr.Shorfi, who first made the genius idea to make money as developer some decades ago in Rangoon,might be happy to see his idea spreading everywhere.

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