John Barnes, Director of Marga Group, the leading developer in Myanmar, seems to think so. In an interview with Asian Property Review, the Hong Kong-based developer is fully convinced that Myanmar will see a new prosperity in the horizon.
APR: Is now the right time for foreign investors to enter the property market in Myanmar? Or, will it take another 5 – 10 years for the market to mature sufficiently for foreign investors to take a serious view?
JB: The transition of power has proven to be extremely successful, but there is always an adjustment period for a new government. We see that most investors have taken a wait-and-see, cautiously optimistic approach over the last year, but we see a new wave of foreign investments coming in which will help unlock liquidity quickly. With the lifting of sanctions, an integrated ASEAN coupled with Belt and Road Initiatives bodes very well for the short- and long-term prospects of the property market. The Myanmar market can mature quicker with sufficient promotion. For example, leaders of Pakistan, the Philippines and Indonesia recently came to Hong Kong to speak with investors to generate excitement for Belt and Road countries, and these efforts were immensely successful. Myanmar is starting to do the same. In conclusion, there is no better time than now to enter the property market in Myanmar as the entry valuations are still at attractive levels.
APR: There is a consensus that land and property prices are extremely high in relation to its neighbours and the purchasing power of most of its citizens. Most analysts have mentioned that eventually prices will come down to more sustainable levels. What are the factors that will bring down property prices in Myanmar?
JB: We have to discuss land and property markets separately.
Yes, land prices are extremely high, especially freehold, but those are only asking prices – a reflection of buyers’ bias created by a few inflated transactions over the last 4 years coupled with the landowners’ incredible holding power. There are almost no transactions at those prices, so we should not call that the market price. Government leasehold premiums are more reflective of market prices, though the land rent component is still regarded as expensive compared to other countries in the region. We expect land prices to adjust in the medium term.
As for property prices, you have to look at yields. In some segments, the yields have been trending down, partly because of lacklustre performance caused by political uncertainty. Yields for luxury residential and retail segments, however, maintain at higher levels than regional competitors, therefore we think there is still a lot more room to grow. With these two sectors, foreign ownership and mortgage credit will unlock larger economic participation from different income classes as well. We maintain optimistic about property prices as the economy further expands and opens up.
APR: Back in October 2016, a draft law to regulate real estate and property related services in Myanmar was going to be legislated, according to the Myanmar Real Estate Services Association. How is the progress so far? How long more is the estimated waiting time for the new government to put in place a proper legal and financial framework to govern land and property matters?
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JB: From our understanding, the Condominium Law is almost ready and should come into play as early as this year. It is not expected to cover every aspect of real estate and property related services, but it is said to provide better consumer protection, clearer guidelines for developers and greater access for foreign investors. We do hope that it will help unlock the mortgage market to allow more people to gain economic participation into the reviving real estate market, and strike a balance in not overregulating which may deter new players into the market.
Let me emphasize further the importance of the mortgage system. Firstly, it will allow for multiple tiers of income classes to afford buying a home to enhance the stability of the society. Second, it will allow for fixed asset securitization to attract foreign capital to provide liquidity for local banks. In our experiences seeing so many emerging markets open up, a balanced property development sector and opening of the mortgage market will drive economic growth and job creation, allowing a strong multiplying effect for the Myanmar economy.
APR: There is anecdotal evidence that buyers of property are still paying with cash (in the bagsful). Is this a case of the banks not giving out property loans or interest rates are too high?
JB: The banking system has done well to establish credibility and acquiring customers over the last few years. The interest rates stay high because the market feels depreciation pressure for the Myanmar Kyat, and it will only rectify if confidence for the Myanmar currency is built up. If more investments come in and the balance of payment is normalized, the interest rates can further come down. In the interim, however, foreign US Dollar-denominated loans can be considered as an attractive alternative as US interest rates are historically low.
APR: As the acknowledged top developer of luxury real estate in Myanmar, who are your target buyers? Do they buy to stay or rent? Have sales been markedly affected as a result of the oversupply of high end properties (about 3,000 units from over 30 projects expected to come onstream till end 2017)?
JB: Thank you for the accolades. Our target clientele are local families and expat families for investment and self-use purpose. Those who invest are looking to later lease the units to expats. As the market opens up, expats will look for luxury apartments that match the standards of living of their home countries, and our products fit those requirements.
Market supply has little effect on our performance as we have one of the best products in the market in terms of quality, price and location. Moreover, many other projects face delays due to various reasons and we do not foresee an oversupply problem in the short term. If you look at current yields for the quality apartments expats are living in, you would know that the high yields indicate that there is a lack of supply rather than oversupply.
APR: Moving forward, with rentals coming down, and an “onerous” regulation which stipulates condo developments must provide space for 1.2 cars per condo unit, etc, what is your opinion on the outlook for high-end condos?
JB: With strict requirements and adjustment of rates, we see that the market has naturally filtered out those who don’t have the commitment and credentials to develop a successful project. The tough carpark requirement has certainly taken a toll on developers, and we foresee the government taking other measures to improve traffic conditions to relax this. We are also looking to introduce newer technologies into the market to increase building efficiency and reduce development costs such as mechanical carpark systems widely adopted in the West now. We maintain an extremely optimistic outlook about the market for high-end condos as a new wave of investment interests come to life in Myanmar.
APR: There is a lot of uncertainty in the market right now which is the cause of the slowdown in the property sector in the past one year. How soon do you think these uncertainties can be resolved?
JB: The uncertainties are already resolving, and this period of cautious optimism is rapidly turning into a new wave of excitement for Myanmar as a market. In other sectors such as Industrial and Tourism, we are witnessing strong activity in investment and interest from foreign companies particularly in logistics. This is a good indicator that the country is moving forward and the GDP will continue to grow but in a more sustainable manner bringing much needed foreign money into Myanmar.
We see that those who are constructing now are truly committed to Myanmar gaining a good reputation in the market. They will provide greater confidence in the market and will be ahead of the curve when the market opens up further in Q4 2017 / Q1 2018.
APR: What types of property are experiencing an oversupply now and what types are undersupplied?
JB: Office and Hotel supplies are generally on the high side, considering the relatively low occupancy rates as compared to the peak when the market first opened up a few years ago. We see Residential and Retail types to continue to boom as urbanization and economic growth increase its pace.
APR: In terms of the quality of the property being built, how does it rate against other countries such as Thailand, Vietnam or Singapore?
JB: There are a couple of new developments that can be considered top class developments in the region. We expect The Central project to join them as a world class project in Myanmar. Overall, the general standards are still lagging behind our neighbours considering Myanmar opened up much later than them, but Myanmar’s pace of growth and improvement is much faster than when its neighbours opened up, and we expect Myanmar to catch up in the medium term.
APR: Within Yangon, which areas are most sought after?
JB: The downtown is considered too congested and the government is regulating against overbuilding in the area. Therefore, the property hotspot is near the Inya Lake area. The surrounding townships of the Inya Lake enjoy the highest yields, such as the Golden Valley, as well as the Yankin and Hlaing townships. We foresee Yankin and Hlaing townships to continue to blossom as the new CBDs of Yangon as more international projects come onstream in the area.
APR: Who are the biggest foreign investors in real estate in Myanmar?
JB: There are few large foreign developers in Myanmar at the moment, and the most notable ones come from Singapore and Korea. At present, Marga Group is the largest managed by Hong Kong financial and development professionals with shareholders from the United Kingdom, Australia, Korea and Hong Kong.
Once projects like The Central is successfully built, we are confident that many more notable developers from those areas will follow suit. One fact particularly worth mentioning is that Hong Kong is becoming the most important wealth management and Foreign Direct Investment centre of the world. It is beneficial for Myanmar to conduct more marketing and PR activities in Hong Kong like other new developing economies.
APR: What are your new projects in the pipeline in Myanmar and what are their unique characteristics?
JB: Marga Group’s strength is in developing topend residential and commercial developments. We have two more mixed-use projects in the pipeline with some interesting themes. We are also involved in telecommunications in Myanmar, and we expect our operations to come online this year.
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