Building from scratch

Yangon’s rental prices finally stagnate

Conservationists fight to keep architectural relics alive

Q&A with Savills’ Richard Emerson

Condo and mixed-use projects are giving developers something to do

Issue 3 / August 2015

myAnmAr: All That matters

Moving Forward

diSCLaiMEr The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that

nCra delivers will be based on information gathered in good faith from both primary and secondary sources, the accuracy of which nCra is not always in a position to guarantee. nCra will accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect.

dear Members and Friends,

i would like to personally thank all stakeholders in Myanmar’s burgeoning business community for continuing to make this country a flourishing destination for foreign investment.

we at the Union of Myanmar Federation of Chambers of Commerce and industry (UMFCCi) work tirelessly to keep all businesses here well informed of economic and business developments that are taking place in order for you to better position your companies in a manner that allows you and our country to continuously evolve and prosper.

as we continue to focus on Myanmar’s economic development, we are delighted to bring our members the country’s first all-encompassing suite of business publications and industry analyses: Myanmar Market intelligence – a family of reports that comes to you at no cost, starting with the inaugural flagship product, the quarterly UMFCCi Myanmar Market intelligence report.

By making these products available to our members and global investors, we hope that its content generates a more transparent view of the ever-evolving business environment in Myanmar, as well as acts as a catalyst for greater business-to-business collaboration both domestically and across borders.

as Myanmar continues to modernize and take a leadership role in the region, there will be many challenges ahead; however, we stand firm in our resolve to assist our members and to promote this country as an emerging market brimming with opportunity.

in closing, we would once again like to thank our members for their continued support, and to thank new Crossroads asia (nCra) for producing this range of publications that provide an informative and actionable overview of Myanmar’s economic re-emergence.

Sincerely,

U win aungChairman of UMFCCi

Chairman of UMFCCI

in conjunction with:

Presented by:

Con

tent

sPublisher NCRA

Editor-In-Chief Philip Heijmans

Senior Staff Writer Shine Zaw Aung

Design & Production Jason T Quirk

The Pulse4

News in Brief5

Tourism hotspots still see rising property prices15

Polling Myanmar20

Construction by the numbers14

Four years later, Yangon’s rental prices finally stagnate6

For Yangon’s burgeoning business scene, an office to match18

Old spaces for new places12

In the Spotlight with Savills’ Richard Emerson 24

Preserving history in Yangon22

Event Calendar28

The Peanut Gallery: Low cost housing strategy27

New Crossroads Asia20B Thitsar Garden, Kanbe Road, South Okkalapa, Yangonwww.NewCrossroadsAsia.com | Information@newcrossroadsasia.com

UMFCCI29 Min Ye Kyaw Swar Street, Minglartaungnyunt, Yangonwww.umfcci.net

nEwS in BriEF

Myanmar’s property sector in 2015 remains positive, with a wealth

of new projects in the pipeline that will start filling out increasing demand for high-end, modern units.

in Yangon, vietnam’s Hoang anh gia Lai group is nearing completion on the first phase of its $440 million mixed-use project on Kabar aye road, while Shangri-La group has recently launched the Sule Square Mall and office tower, a high-end commercial complex.

outside of Myanmar’s commercial hub, developers have taken profound interest in second-tier locations, with a number of projects sprouting around the country since late 2014. This includes groups like Yoma, which has a condominium project in naypyitaw in collaboration with Krislite, a lighting appliance company. This project will include two ten story towers, with 114 units, and will cost only $24 million to construct – a fraction of the cost in Yangon.

nann Htike Shwe Sin Company, meanwhile, has launched a project to build the first high-rise building in Shan State’s capital Taunggyi. The 16-storey condominium will have 48 units, and each unit sells for around $150 to $200 per square foot – around half the price in Yangon.

Hong Kong-based H&Co launched a $200 million development project in the delta town of Pathein in May 2015, containing 410 condominium units, 26 villas, hotels and retail malls.

Such projects represent an improved outlook toward the countries alternative locations. Prior to 2013 there were no high-rises nor condominiums outside

of Yangon. it was in that year when Mandalay became the first to receive one with Mann Myanmar Construction’s condominium project.

now, new Star Light Construction is planning “self-contained cities within a city” for both Mandalay and in Muse – i.e., development projects which will

New FDI Permissions Granted

Source: DICA

include condominiums, shop-houses, hotels and retail malls. its $120-million Mingalar Mandalay project, located on 73rd road, will include two hotels, one by MCdC (the local municipality) and one by Pullman, and 125 units of shop-houses.

aside from those prospects, another development for the sector half way

through 2015 has been prices. Property prices in Myanmar have finally begun to drop after four years of exponential increases that has made cities like Yangon among the most expensive places to live in the world.

according to experts, the upcoming general elections, slated for november,

have had a predictable impact on the market with land transactions slowing to a crawl. as a result, both land and rental prices have begun to come down a bit to the tune of 20% after four years of growth that saw prices spike some 600%.investors are also closely monitoring the passage of the highly anticipated condominium law which would finally give foreigners some level of ownership in property.

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authorities call for bids to develop railway station in Yangonrailway authorities have invited local and foreign firms to bid for a project to develop Kyimyindine railway station into a retail and commercial center, according to international media. The project comes after a similar bid in april to develop the Pazundaung township railway station. The tender calls for multi-storied commercial and office buildings, hotels and service apartments on a 6.48 acre land plot to be built on the complex.

indonesia’s Lippo group inaugurates Yangon hospital in first stage of $1 billion investmentLippo group, one of indonesia’s largest conglomerates, launched its first hospital in Myanmar, as part of the group’s plan to spend $1 billion to build 20 hospitals in the country over the next three to five years. Last year, Lippo entered a partnership with Serge Pun & associates (SPa) group, a hospital developer controlled by Myanmar businessman Serge Pun. Pun Hlaing Siloam Hospital is located in Pun Hlaing golf Estate in Yangon, and has a capacity of 174 beds.

ayeyarwady’s ngwe Saung to get luxury development Hong Kong’s H&Co real Estate Holdings and locally based Mya Bay development Company have partnered up in Karaweik Coast, a luxury mixed-use development project in ayeyarwady region’s ngwe Saung village, according to local media. The first site will contain 1,265 acres of hotel space along 8km of beach, while the second phase of the project will include 3,000 acres south of Mya Bay for a mini city, jetty, golf course, hotels, restaurants, a private hospital and a playground. The ngwe Saung project represents the latest of several development projects by H&Co, which includes a US$200 million luxury housing project in Pathein.

Melia Hotels international to operate vietnamese hotel projectSpanish chain Melia Hotels international has opted in to operate vietnamese conglomerate Hoang anh gia Lai’s (HagL) 439-room hotel at the bank of inya Lake, according to HagL. The massive project is part of the first phase of a development said to be worth $550 million. it will include a number of mixed-use units such as office space, retail outlets and condominiums.

Prior to 2013 there were no high-rises nor condominiums outside of Yangon. It was in that year when Mandalay became the first to receive one with Mann Myanmar Construction’s condominium project.

5 | Myanmar: All That Matters4

Text & Photos: Jessica Mudditt

Yangon’s sky-high real estate prices have begun to taper off in recent months; however pundits claim that a positive post-election scenario could reignite an

over-valued market.

The economic and political reforms launched by Myanmar’s quasi-civilian government in 2011 resulted in a rocketing of land values in the commercial capital of Yangon. rental prices in coveted commercial spots such as Sule Pagoda road, Pyay rd and Kabar aye Pagoda rd doubled between 2012 and 2014, with the most lucrative areas fetching US$6.80 to $9.70 per square foot per month.

according to robin aung Saw naing, the managing director of Pronto Services, which is one of Yangon’s leading real estate agencies for expats, rental prices have dropped by as much as 20% since the beginning of the year. He attributes this to a boost in supply following the completion of large condominium projects such as Shwe Hintha Towers.

according to the US department of State’s doing Business in Burma guide of 2014, the annual demand for housing in Yangon is forecast at 200,000 units per year. robin aung Saw naing said that construction is catching up, with 60,000 units expected to be completed by the end of 2015.

Four years later, Yangon’s rental prices

finally stagnate | Myanmar: All That Matters 7 6

other significant developments include a greater willingness among landlords to accept payment via international bank transfer, which negates the time-consuming process of ensuring that dollar bills are in mint condition, as well as accepting payments of three or six month installments.

in the past, a minimum payment of 12 months was required – with some landlords even insisting on two, three or even five year payments, robin aung Saw naing said.

“There’s a greater flexibility because renters have more options than they did in the past,” he said.

Office unit prices remain high

according to Colliers international, in august 2014 Yangon had the highest average monthly rent for prime office space in Southeast asia, with an average rent of $87 per square meter. That’s about $8 per square foot and was 21% higher than the average prime office rent in Singapore.

Fortunately, while Yangon’s office market remains overpriced, it is at least beginning to plateau. according to the managing director of Colliers international Myanmar, Tony Picon, office rentals prices started to level off 12 months ago.

“The office rental market tends to reflect a country’s economy. when an economy is doing well, demand goes up, supply can’t keep up and prices rise. Multinationals entering Myanmar will of course take out office space, but because so many sectors are being held back by regulatory uncertainties, their presence is limited.

The insurance industry is one such example. while Prudential has its own tower offices in cities such as Jakarta, Bangkok and Manila, in Yangon it occupies a 100 square foot office,” he said.

However Mr. Picon said that Colliers remains “bullish” about Yangon’s prospects because he considers the office market to be distorted.

“at this point in time, foreign interest in investing in Myanmar does not necessarily translate into a higher demand for office space. it’s dependent on a reform process that would see sectors opening up in stages.”

“if the government were to say tomorrow that every sector will be liberalized, it would be game on. There’d be pandemonium. we saw this after the telecoms licenses were awarded to ooredoo and Telenor, who expanded their presence very rapidly,” Mr Picon said.

He also said that Colliers is seeing an uptake in activity among investors ahead of november’s elections.

“when Hillary Clinton came to Yangon [in 2011] it generated a huge amount of interest among the international community. Should this year’s election be considered a success in terms of it being free and fair, everyone will come to town,” said Mr Picon.

“Landlords would again have queues of people lining up on their front door. This would be bad for market prices, which is why a lot of investors are setting up a presence now.”

Quality apartments and offices are now available in Yangon, although prices are at least double or even triple that of neighboring Bangkok, according to Colliers. However, Mr. Picon said that poor value for money fails to deter a certain category of investor.

“what choice do investors have? Let me put it this way: a bank or an oil and gas company which is faced with paying $10,000 for a 150 square meter office isn’t going to say ‘we’re not coming to Myanmar because we refuse to pay that amount.’”

a bigger deterrent for many was the

sudden suspension of dagon City 1 high-rise project along with four others in late January due to their proximity to the city’s most important religious landmark, Shwedagon Pagoda.

Construction on the $300 million project, which is a joint venture between the international Marga group syndicate and local partners Thu Kha Yadanar, is yet to begin and the suspension was extended in March by the Myanmar investment Commission (MiC) to allow further reviews by the Myanmar Engineers Society.

aung naing oo, director of the MiC, told The Irrawaddy in February that the review had been ordered to determine whether the projects would have an impact on the nearby architectural heritage.

“it sends a message to investors that Myanmar isn’t a mature market,” robin aung Saw naing said.

Foreign ownership rules still absent

while Myanmar’s laws prohibit foreigners from owning land, a draft condominium law would allow foreigners to purchase condos – however the draft legislation has lain dormant for several years now.

while some pundits claim that stringent laws on land ownership are a hurdle for

foreign firms looking to enter Myanmar’s property market, others dismiss the issue as a sideshow when compared to establishing a robust legal framework.

“almost anywhere in the world, the predominant buyers are local. it’s very common for a market to be locally driven – look at Jakarta, Manila and Bangkok. in Bangkok, only around 10 percent of owners are foreigners,” said Mr. Picon.

He added that frontier markets such as Myanmar tend to lack appeal among

foreign buyers, citing Cambodia as another example.

robin aung Saw naing from Pronto Services said that of late, an increasing number of foreigners are attempting to purchase property in Yangon via a local proxy.

“Even a large development company approached me to ask if i’d be interested in this. i said no because it’s against the law. i’m not interested; not even if it made me a millionaire,” he said.

In August 2014 Yangon had the highest average monthly rent for prime office space in Southeast Asia, with an average rent of $87 per square meter. That’s about $8 per square foot and was 21% higher than the average prime office rent in Singapore.

| Myanmar: All That Matters 9 8

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