Open for business?

In Yangon these days, there’s one word that often crops up when discussing the state of the property market: crazy. Prices in some parts of the city – and in pockets around the country – have been soaring, attracting the attention of both domestic and international investors, as the long-time pariah state turns poster child of reform.

Certainly the story is a seductive one. Following decades of isolation in which the country’s leadership had effectively turned its back on the modern world, Myanmar is buzzing with a sense of opportunity.

Last year, the government, led by President Thein Sein, chose to embark on what appears to be a voluntary revolution, with concrete steps towards democracy, and the freeing of opposition leader Aung San Suu Kyi from years of house arrest. Most of the crippling economic sanctions in place for much of the past 20 years have been lifted or suspended by western governments, making investment in the country a very immediate prospect.

Tony Picon, a research analyst at commercial real estate agency Colliers International, isn’t just optimistic about Myanmar’s property market. “I’m bullish to the point of being scared,” he says. Since Hillary Clinton’s visit to the country late last year, interest from around the world has exploded.

“It was a bit like Nixon in China. Though largely symbolic, it was a message that said ‘we’re back in business.’” Now Picon has too many inquiries to handle. “The flirting is over. We’re about to enter reality.”

A housing block in downtown Yangon, Myanmar

The boom is not merely a democratic dividend. Prices here began rising as early as the mid-1990s, when a series of ceasefire agreements with rebel groups on the country’s borders brought a wave of money, much of it from the drug trade, into the cities.

Since then, prices for prime lots have continued rising. Chinese money has been a factor – with gem and jade traders among those using profits to buy land and houses in both Yangon and Mandalay. In the month following big jade trade fairs, held two or three times a year in the capital, Naypyidaw, property transactions can double, said one local agent.

The limited investment options for those with savings are also a major factor. With no stock or bond markets, and with little faith in the banking system, only four avenues remain: gems, gold, cars and property, explains Aung Thura, who runs Thura Swiss, a business consultancy in Yangon.

And if a warning from history was needed, the car market offers one. Around 15 years ago, car prices took off. With tight restrictions on imports, ageing foreign cars could fetch a huge premium. House and car prices moved in tandem – with one often being exchanged for the other. But following government moves to open up the car market to more imports, prices tumbled. At the peak, a second-hand Japanese four-wheel drive truck could fetch up to $400,000. After the bust, the same car was worth just $40,000.

Expectation on the ground is that a tidal wave of foreign investment will give property prices the next big push, as international manufacturers, carmakers and consumer goods companies flock to set up offices. NGOs and foreign governments are also coming back or ramping up their presence in the country, putting severe pressure on the rental market.

A ‘sold’ sign at Pun Hlaing golf estate west of Yangon

All this has helped fuel rampant speculation by a small band of locals with enough money to play the market, leaving prices in some parts of the city sky high – higher, even, than in some parts of Bangkok, a city decades ahead in terms of development.

In the past two years, says Daw Su Su, a property broker, prices have roughly doubled in many parts of the city. In the prime locations, some plots have doubled in just two to three months. Her biggest deal to date was for a plot of land that sold for around $10m along Inya Road – where the terracotta roof tiles of the Spanish-style villas peek out through the lush greenery and over the high security walls. A friend of hers recently sold a 0.6-acre plot in the same area for twice that. Aung San Suu Kyi’s house and its one acre of land, currently the subject of a family legal dispute, could be worth a similar amount, estimates Daw Su Su.

Sure enough, some would-be foreign investors have balked at the current valuations, says Picon. But while a small community of wealthy locals bid prime spots higher and higher, the market likely to interest foreigners, both office and residential space, is just getting going. That market, he says, is “another planet”.

The outdoor pool at Malikha Residence in Yangon, designed by SPINE Architects

In Yangon, the gold rush has yet to be realised. Though the cityscape is punctuated by the odd cube of blue netting and bamboo scaffolding, there are no cranes on the horizon.

Amelie Chai, co-founder of SPINE Architects, says that business has been growing steadily for a number of years. “The skyline of the city reflects the price of land,” and right now investors are put off because land prices are too high.

“People talk about a boom here,” says Chai, but even though there is a shortage of all types of construction, “I don’t see foreign investment piling in – not yet. There’s a lot that hasn’t been worked out, like the investment laws and the banking system.”

However, she adds that the projects her company is working on are getting larger in size, and increasingly being designed to cater to both local and international needs.

Malikha Residence in Yangon, designed by SPINE Architects

For foreigners, direct property ownership is still not officially sanctioned, with international participation in the market restricted to leases, explains James Finch, partner at law firm DFDL. Those who have invested already have likely done so through proxies, a system of signing a contract with a local citizen or business, who purchases the land or property on their behalf, and then promises to deliver any profits from its sale to the investor. However, such deals leave the investor at the mercy of their local partner, who would retain legal ownership of the land or property under Burmese law. Some investors have signed contracts with offshore holding companies to reduce the risk, but this system remains legally untested.

“Many have ‘bought’ in Myanmar using nominal Burmese parties. This is illegal,” says Finch.

Though the government is working on a whole raft of legislation to encourage foreign investment, no major changes are expected to the property situation in the short-term, although a mooted condominium law may allow foreigners to buy into some new-build residences.

A teak house surrounded by palm trees in central Yangon

Those with experience of dealing in frontier markets may well be accustomed to similar arrangements, but investors need to keep their wits about them. Myanmar is not just one of the poorest, least developed countries in the world; it is also among the most corrupt. In Transparency International’s 2011 survey, Myanmar and Afghanistan tied for second-to-last place.

Aung Thura’s advice is simply not to get caught up in the speculation game, be patient, and to consider long-term leases, which can now stretch up to 70 years.

“Lots of areas are still cheap and still available. It’s short-sighted to worry about them being out of town or inaccessible – the bridges are going to be built,” says Thura, a half-Swiss, half-Burmese former banker. “People have to take a long-term view. Over the next 10, 20 years, I think it will be a very good story.”

Josh Noble is the FT’s Asia emerging markets editor

A new course for the country: Suburban Florida meets south-east Asia

When Mark Tippetts begins his real estate presentation, entitled “Bridge to the Golden Land”, he starts with a map showing Asia’s gas pipelines and shipping lanes. Although his sales pitch is for a spot on a golf resort in the Pun Hlaing development – situated a bumpy hour’s drive from Yangon city – he is also selling Myanmar’s new economic dream.

Workers leave the Pun Hlaing golf estate

“This really will be a bread basket,” he says, pointing not to plans of the 18-hole golf course, but to a map of the country’s rice-growing areas and teak forests.

Pun Hlaing feels more like Florida than far-flung south-east Asia, only the drive through miles of rice paddy and around the occasional wandering water buffalo give the game away. But once through the guarded entrance to the estate, visitors are immediately transported to an all-American vision of suburbia.

One show home near the golf course includes a series of koi carp ponds, an array of Burmese antiques, and specially commissioned art by one of the country’s top painters. The windows and doors are, of course, all Burmese teak, while the enormous hollowed out basement is designed with wine storage in mind.

All the available plots on this 637-acre site have already been snapped up, says Tippetts, and many “sold” signs are proudly on display in the long grass.

Some have been developed into vast family homes – the larger ones coming with five or six bedrooms, servants’ quarters, and an infinity pool overlooking the river, where fishermen and rice boats quietly sail past at regular intervals. The Shwedagon pagoda, Myanmar’s most famous landmark, is even visible on the horizon.

New-build luxury villas on the Pun Hlaing estate

The estate is currently home to about 130 families but the master plan includes designs for 800 separate plots. While the majority of occupants are Burmese, some foreign embassy staff and business people are also moving in. And the prices guarantee a certain level of exclusivity. A three-bedroom house on a quarter-acre of land here will cost around $650,000. The standard plots are half an acre, while the most generous offer one and a half. For those on a tighter budget, three apartment blocks, soon to be five, offer accommodation from around $330,000, although all the units made available so far have already gone.

Despite the difficult journey to and from the city, which can take well over an hour in traffic, Tippetts has no doubt that the estate will be a huge success. “There is enormous wealth in this country,” he says, and with downtown prices now rocketing, “Prices here [in Pun Hlaing] are still very low.” That is partly the reason why land speculation has become a problem here too, and why Tippetts is shifting focus to building a community – and building houses – rather than selling more plots.

In preparation, the developer is already planning to build a second bridge – twice the width of the existing one – and a flyover to speed the journey into town.

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