RANGOON — Rangoon’s construction market faced its hardest year in 2016, as a result of changing government policies during a market cooldown, say critical industry observers.
During the best development years, 2005 to 2014, high-end condominiums and low-cost apartments sprung up around Rangoon, construction and real estate observers said. As the market neared its peak in 2013, real estate prices skyrocketed in six downtown commercial areas—Lanmadaw, Latha, Pazundaung, Kyauktada, Pabedan and Botahtaung townships.
In the downtown area, the maximum land price reached US$1,500-2,000 per square foot, according to real estate agents.
Outside downtown Rangoon, land prices also shot up in areas like Dagon, Sanchaung, Tamwe, Kamayut, Mayangone, Yankin, and Bahan.
But the construction market began to cool off in late 2014, as people’s spending power declined. In the election year, investors took a wait-and-see attitude toward real estate as they awaited the general election results. Consequently, apartment sales across Rangoon declined 15 to 20 percent in 2015, according to the Myanmar Real Estate Services Association.
In 2016, that trend has gotten worse, as prices have dropped 25 to 30 percent on the year and new apartment sales have nearly halted, said Daw Moe Moe Aung, secretary of the Myanmar Real Estate Services Association.
“For example, an apartment once worth 50 million kyats has now dropped to 35 million kyats in Yangon’s major townships,” she said.
“Condominium prices are also falling, from 200,000 kyats to 150,000 kyats per square foot in the major areas,” she added.
Once the new government assumed power, the real estate market hit another speed bump. In May, the Rangoon divisional government implemented new policies for reviewing construction sites, and the government suspended more than 200 high-rise construction projects because they did not meet urban planning standards.
Over the next two months, government inspections brought the construction market to a standstill.
Once inspections were completed in July, the 200-plus projects were permitted to continue. But the divisional government ordered that the intended heights of 12 buildings be reduced, that parking facilities be upgraded, and that safety standards be improved.
Developers have faced a lot of challenges since May when the review process started, said U Thant Sin Hein, managing director of Nay Kabar Construction.
“Now that development polices are back to normal, we all have to start over from the beginning,” he said. “We have to organize our laborers, our money, everything. The market won’t bounce back instantly.”
In Rangoon, conflicts between land owners and building contractors are another reason for the drop in apartment sales. In many cases, when a property is developed, the land owner and building contractor enter into an agreement where each control a share of the completed building. However, recently many contractors have failed to complete their construction work by the due date.
“Contractors have no money right now, so they can’t finish their job sites on time,” said U Thant Sin Hein. “So then they’re having disagreements with the land owners. Some contractors won’t take responsibility. Plus demand from buyers is so low. The government should seriously look at taking action on this problem.”
Rangoon Region Chief Minister U Phyo Min Thein recently asked industrial developers to not take so many risks while the construction sector works out these problems. He urged developers not to construct new apartments based on sharing agreements with the property owners, especially while the government is planning to implement new low-cost housing projects.
“I understand what he means for this industry,” said U Thant Sin Hein. “But on the other hand, that could harm the whole construction sector.”
U Myo Myint, the chairman of MKT Construction, thinks stable policies in the construction sector will be a key to strengthening the industry.
“If policies are unstable, the market situation will only get worse and worse,” he said. “We know that we will have to take risks. But if the government has no better policies, it’s really hard to stand.”
It will take another two years for the construction sector to develop, he added.
“Small contractors will be seriously hurt by this situation,” said U Myo Myint.
However, total investment in real estate and construction—US$8.2 billion in 2015—is expected to increase to US$13.5 billion by 2020, according to U Kyi Lwin of the Myanmar Engineering Society, citing a report from September.