Confusion over a law allowing foreigners to buy condominiums in Myanmar is prolonging a slowdown in its residential property sector, highlighting the challenges of regulatory flux in the frontier market.
The legislation adopted in January 2016 leaves unanswered questions, such as whether it applies to existing apartments, hurting efforts to woo investors. The outlook now depends partly on bylaws the government is working on to clarify the legislation, according to local developer Yoma Strategic Holdings Ltd.
“We expect the bylaws early this year,” Yoma Executive Director Cyrus Pun said in an interview. “It’ll be a big change for the sector. There was a very bullish market from 2011 as the economy opened up and investment came in, but residential property has quietened down quite a lot in the past 18 months.”
The cooling property sector and a dip in Myanmar’s rapid economic expansion have dented some of the earlier investor euphoria for the Southeast Asian nation. The 2016 law permits a 40-percent foreign ownership of a development, but lacks details such as the exact process for a project to qualify as a condominium. Resolving such regulatory uncertainty is one of the tasks for State Counselor Aung San Suu Kyi as she tries to open up the economy. Midtier condominium prices dropped about 41 percent from 2014 to 2016, Colliers International Group Inc. data show, while luxury unit prices slid 22 percent.
The timeline for implementation of the bylaws remains cloudy. While the rules have been drafted, it’s unclear exactly when they will be sent to Cabinet for approval, though officials are working as fast as they can, the Department of Urban and Housing Development said.
In time, the rules allowing foreigners to buy property could be thought of as a game changer, but they’ll have little effect on sales in the short to medium term based on current market conditions, said Joshua de las Alas, an analyst in Yangon for Colliers International.
“Current condominium selling prices in Yangon are still very much higher than anywhere else in Southeast Asia—making it a risky investment in the short run,” De Las Alas said.
Yoma’s Pun said investors can expect residential rental yields of 8 percent to 12 percent, and added there remain untapped opportunities for the longer term.
“The interesting thing about the residential market is that the potential, the hidden demand, is a lot bigger than what we have seen so far,” Pun said. “Everybody that has been building is targeting the top end. There’s nothing targeted at the mass market.”
Tapping the mass-market opportunity depends in part on an expansion of Myanmar’s nascent mortgage industry. Most buyers currently are purchasing upscale apartments in cash.
Chinese buyers?
The clarification of the condominium law should woo buyers from Thailand, Singapore, Hong Kong and China, with the latter likely to be the biggest source of demand, Pun said.
“Some Chinese buyers are already coming in to buy, but through alternative channels,” he said. “They may have structured deals where they are making an investment rather than buying an actual title. The condominium law would open the market to retail buyers.”
In the commercial real-estate market, scaled-back expectations for economic growth are weighing on returns. Prime Yangon office rents are down a third from their peak two years ago, Pun said.
There’s still scope to add office blocks in Yangon gradually, and they can yield 8 percent to 10 percent, he said. That compares with about 4 percent in Singapore and yields ranging from 6 percent to 8 percent in Vietnam, Indonesia and the Philippines, according to estimates from Cushman & Wakefield Inc. Yoma Strategic Holdings, listed in Singapore, has climbed about 10 percent in the past year. The FTSE Strait Times All Share Index is up 8 percent in the same period.