Diamond in the Rough

Myanmar is the new jewel in Southeast Asia’s crown and will be the country to watch for the next five years. 
Myanmar is rapidly climbing the popularity polls with foreign investors. All the signs are here: foreign direct investment (FDI) in the country grew rapidly from USD 1.9 billion in the 2011 to 2012 financial year to USD 2.7 billion in 2012 to 2013. This upward trend looks set to stay with the recent establishment of the ASEAN Economic Community (AEC), which has put forward boosting untapped markets in the region as one of its objectives. 
At the moment, the bulk of FDI in Myanmar is in the energy, garment, information technology, and food and beverage sectors. Real estate has yet to catch up. This is in part due to the heavy restrictions that are imposed on non-citizen property buyers. Currently, foreign investors are only allowed to lease land for a 50-year period and cannot own properties without the help of a Myanmar citizen. Under the 2012 Foreign Investment Law, foreigners are finally allowed to own properties in the country – but only by entering into joint ventures with local businesses and citizens to buy, sell or lease. For those interested in residential properties there is the Build Operate Transfer (BOT) agreement, where the foreign investor provides a Myanmar citizen with financial support to purchase or lease a property. Talks are underway to introduce a new condominium law that will enable developers to sell a certain percentage of developments from the sixth floor and above to foreign buyers, but it has been three years in the making without any success. 
From the point of view of many estate agents in Myanmar, the opening up of the country to foreign investors is the only way the property market can grow, as the purchasing power of the average Myanmar citizen is still rather low. 
The country’s thriving, and rapidly growing tourism sector is expected to benefit the development of the property market. Myanmar’s Ministry of Hotels and Tourism has set the ambitious target of pushing international arrivals from 3.01 million last year to 7.48 million in 2026.
Indeed, Myanmar has been gradually opening itself up to foreigners in recent years. 2013 saw a record influx of foreign companies, which led to an increased demand for rental homes, in particular, detached houses. The luxury office and apartment segments took a little while to respond and supply in these segments are only seeing a spike now. This has, in turn, led to a decrease in demand for detached houses, as expat workers make their preference for purpose-built offices and high rise spaces felt. 
As a result, rental price for detached houses costing USD 5000 and more have fallen by 10 to 25%. The situation is compounded by the strengthening of the US dollar from about MMK 800 to MMK 1300. Even rental properties charged in Kyat are seeing lower demand. Property owners have resorted to furnishing the homes and spending on interior decoration in order to attract tenants when before, even unfurnished homes would see eager customers. 
However, the rental market for smaller detached houses priced between MMK 2 million (about USD 1500) to MMK 3 million (about USD 2900) is still going strong. This price range is comparable to the rental price of condos, and industry observers believe that many foreigners find detached bungalows a much better and more appealing deal for the same price. 
With the opening up of Myanmar’s economy, follows a construction boom. Rapid urbanisation means that Yangon has extended beyond its boundaries and is now home to 10% of the country’s population. The number of residential units in Yangon has increased by about 20,000 per annum, yet only satisfies one third of demand. Well-to-do locals are starting to invest in real estate, not least because the country’s banking sector is still immature and financial investments remain unviable. This surge in local demand, combined with demand from international investors, mean that speculative activity is high and Myanmar’s real estate market could well be heading into a bubble. One acre of land that cost USD 1000 five years ago now costs USD 100,000 – a sure indication of the seriousness of the situation. 
Myanmar is powering on, no matter what. Several large-scale projects have been planned, such as Junction City, situated in a 6.5 acre plot in downtown Yangon. This ambitious mixed-use development will have a built-up area of about 260,000 sqm housing a 25-storey 348-room hotel, a 23-storey office tower, a 5-storey shopping mall, a 28-storey residential tower and Yangon’s largest carpark with 1400 lots. The project is slated for completion in 2017.