© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
October 23, 2013 4:26 pm
A combination of an influx of people from overseas and persistent land and building shortages has pushed rates for prime office space towards $100 per square metre – significantly higher than costs than in much more developed countries in the region such as Singapore, business people and others say.
As a high-profile European investment mission prepares to visit Myanmar in November, the price surge has prompted calls for the government to make more property available to entice potential investors already worried by drawbacks such as a lack of legal certainty, infrastructure and trained staff.
Part of the problem is that land and property held by the military junta during its half-century rule still lies unused and has not been released into the market, despite the transition to quasi-civilian government, diplomats and business people say.
One foreigner in Myanmar who has long contacts with overseas companies said many of those staying on the sidelines had reviewed opportunities in the country but gone through a process of “look, listen, learn, laugh and leave” – the laugh being at property costs.
“Everything is so overpriced,” she said. “Especially if you are looking at anything with a significant land footprint.”
While rents in Yangon have been climbing in the three years or so since it became clear the ruling generals were preparing to allow the country to open up significantly, business people and others in Yangon say prices have exploded in the past year.
Roger Gifford, Lord Mayor of London, said the concern had come up repeatedly in meetings his delegation of executives – including from international financial and education companies – held during a visit to Myanmar this month.
One Yangon-based executive with regional business interests said space in some of the small number of purpose built office complexes in the city now cost as much as $95 per square metre, roughly three times the price in Bangkok and five times that in Phnom Penh, Cambodia’s capital.
Research from Colliers International Myanmar, the estate agency, said Yangon had passed Singapore’s office rental rates of $74 a square metre by the first quarter of this year.
“When I was first here 18 months ago it was $26 and I was thinking that was a little too high,” the Yangon-based executive said. “Prices are going up every few months.”
As in other fast-growing emerging markets where anticipation of a boom has sent property prices rocketing, the biggest companies from China, Japan and – to a lesser degree – western countries are paying whatever is needed to tap into an economy that McKinsey, the consultancy, has estimated could more than quadruple in size to $200bn in 20 years.
But the cost of sending expatriates to Yangon is becoming increasingly forbidding for other companies – especially the kind of small and medium-sized businesses due to arrive on the EU investment mission.
One estate agent who deals with property in Yangon said a chronic shortage of serviced apartments had pushed prices of a three-bedroom property aimed at expatriate families to about $6,500 a month – up from between $2,000 and $2,500 a month two or three years ago. That is about twice the price of property in Bangkok, little more than an hour’s flight away.
Tony Picon, managing director of Colliers International Myanmar, said some companies were now employing “half-pats” – as opposed to expatriates – who lived in Bangkok but commuted to Yangon on one of the budget airlines linking the two cities during the week and stayed in “lower-grade” hotels.
“Prices will deter investment up to a point,” he said. “But companies become flexible.”
Business people and diplomats in Yangon say the property price rises are fuelled in part by people buying acreage in the city speculatively and holding on to it while prices rise, since there is no penalty for not developing it.
Another difficulty is that some land, offices and apartments acquired or built by the military during its rule have not been released by the administration of Thein Sein, the president, since it took power with the generals’ blessing in 2011.
Diplomats say Myanmar government officials are sympathetic to the property price concerns but have taken little action – or are unable to do so because of the delicate balance of power under the country’s new government.
The finance ministry announced in August that the government was considering new taxes to curb speculation and steady the market. Levies on property sales have also been raised – but, said one foreign government official, “that’s not really the issue: it’s people sitting on land and not selling it”.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in