Ever since Myanmar opened up to the world and denounced its military dictatorship, the country has benefited from increased trade with along with an exponential increase in foreign direct investment. This is true for all sectors and property in Yangon, the nation’s largest city, is no exception.
The value of real estate in the former capital city of Myanmar has skyrocketed as demand has outstripped supply by a large margin. As the country opens up, more and more foreign companies are setting up shop which boosted demand for quality office spaces.
However, property developers did not see this coming. A shortage of quality office space has since led to a huge surge in prices, to the point of making prime offices in Yangon some of the most expensive per square meter in the world.
Attractive pricing drew in many property developers and financing for high-rise offices. Because of this, so many units were built over the past few years that a market equilibrium for quality office space has nearly been achieved. With supply meeting and overtaking demand, the once bright future for Yangon’s property market is not as hopeful.
Why is Yangon Real Estate Underperforming?
While current investors in real estate are all happy with their decision to come into Myanmar a few years ago, potential investors are thinking twice before they enter the “golden land”. There are many reasons, but these can be boiled down to two – an unpredictable real estate market from the lack of political stability, and a large number of people who feel discouraged to make property purchases.
Politics played an important role in the real estate market, which led to a halt in the property boom last year. All the players in the market are cautiously watching what the government led by the Nobel peace prize winner, Aung San Suu Kyi, will be like.
With that said, the managing director of Colliers International in Myanmar has said that he is still optimistic about the property market. According to him, the effect from the nation’s politics has played out as predicted and did not really come as a surprise to anyone.
Not only has the political situation led to a less stable real estate environment, the willingness to buy property has decreased overall. This can be further attributed to two main reasons.
First, the living standards in Myanmar are still not great – arguably quite poor. This becomes a hindrance to the property market especially when senior foreigners rank living standards as the most important thing when looking for a new country to start a post-retirement life. These expats are a large part of the target customers for new units.
Not only are there still many laws and regulations preventing easy ownership of property, there is also a distinct lack of modern infrastructure that would make living easier. Yangon is operating on the infrastructure that the British left – roads, railway tracks, power and water supply that dates back 50 years.
Lastly, buyers can never be sure of their purchases. This applies especially to ongoing and future projects. Due to an outdated public perception of the banking system, Myanmar banks are heavily undercapitalized which makes them unable to give loans to property developers. This has led to some property developers financing their construction with the advance they received from unit sales.
The danger from this is that, in some cases, construction had to be halted because they failed to meet their sales target. These developments are then stalled or cancelled.
Even though Myanmar has opened up, a move that has benefited the nation greatly, Myanmar still must do many things to bring its real estate sector up to regional standards.