As the political situation stabilises, there are golden pickings for early birds willing to brave the new Myanmar.
A historic moment was marked on 16 March 2016 as U Htin Kyaw was elected as the President of Myanmar. Though widely regarded as a proxy for Daw Aung San Suu Kyi, the more important message to the business community is that the National League for Democracy is pursuing a conciliatory stance to work with the military to move the country forward. Political appointments of Chief Ministers, reshaping of the various ministries and legislations are next on the list for the Government.
A clearer and stable political environment should instil greater confidence in the business community to bring forward investment commitments which has been growing since the peaceful election in November 2015. On 15 January 2016, the Directorate of Investment and Company Administration (DICA) announced that it has approved nine foreign investments, three local investments and five joint-venture investments, including two housing projects, one private hospital, 10 garment factories, one heavy machinery rental service and two wood-product factories. On 11 February 2016, it was reported that the Australian PanAust Group has been granted exploration licences for three mining blocks. PanAust Group is the first foreign firm to receive the licence after a new mining law was passed last December. Further, Nissan announced the opening of a factory to assemble cars with a view to start a full production facility in the near future.
UNLOCKING CAPITAL AND ATTRACTING FOREIGNERS
Reforms in its financial services sector have gained some momentum, with the opening of the stock exchange in November. This has set the stage for more liquidity to be injected into the economy. The Yangon Stock Exchange could benefit from the difficulties that Myanmar companies face in accessing capital. The process of listing could also force businesses to improve governance and other standards. Other key legislative reforms like the Condominium Law, was passed in early 2016. On paper, this will allow foreigners to purchase condominiums in Yangon. However as with all emerging countries, administrative rules and policies are slow to follow. As a result, earlier expectations of a flood of foreign investors to purchase condominiums have failed to materialise. In our opinion, these are short-term hiccups which will set the stage for earlier entrants to reap their rewards for the risks undertaken. Taken as a whole, the ongoing legislative reforms in many forms are likely to attract more capital and foreigners into the country to fill in the skills gap.[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3,4,5″ ihc_mb_template=”1″ ]
Moving into the medium term, no corporates will want to or can afford to ignore the potential of a country with more than 50 million population and is expected to be amongst the fastest growing economy in Asia. Based on an International Monetary Fund (IMF) report in October 2015, Myanmar’s economy registered impressive growth with an average of 8.5% per annum for the past 3 years, making it the fastest growing economy in Southeast Asia. This trend is expected to persist with Myanmar’s economic growth expected to outperform its peers.
FLIGHT TO QUALITY REAL ESTATE
The real estate market in Yangon, particularly the hospitality and office sector, has gone on a roller-coaster ride for investors over the past 4 years. At its peak in 2013, Yangon office rent reached an asking rental level of almost USD13 psf per month, comparable to that of many developed cities at that time. While demand has eased somewhat in 2014-2015 due to the pending elections, the limited stock of quality real estate bodes well for the early investors who secured the better quality real estate assets that can now support the expected influx of foreigners as the political situation stabilises.
SHORTAGE OF SERVICED
The potential increase in demand can be observed from the increase in the total number of registered companies. As at March 2015, the number of registered companies reached 58,789, this suggests that 8,309 new companies were formed within the year, a year-on-year increase of 16%. On average, 7,096 new companies were formed per year in the last four years. Based on the assumption that an average of 7,000 new companies are being formed each year and 20% of the new companies hire 2 foreigners, this will translate into an annual demand for 2,800 better quality homes or serviced apartments.
The shortage is particularly acute in the better quality serviced apartment sector, where there is an estimated 979 units of serviced apartments in the market as at the end of 1Q2016. Many of the serviced apartments are operating at near full capacity. This could be due to the low number of completed serviced apartments and good quality condominiums.
Based on our regular survey, the average monthly rental for a 3-bedroom serviced apartment commands a rent of USD5,900 in 1Q2013, a relatively high rental level for a developing country. Average rent has reached USD6,870 as at end of 4Q2014. Arguably, the rent for the serviced apartment sector has proven to be more resilient than either the average hotel room rates or the office rent in the slowdown in 2014-2015
(see Figure 3).
The strong demand for quality serviced apartments is perhaps best demonstrated by the full occupancy at Shangri-la Serviced Apartments, almost since the day it opened. We expect this segment to continue to remain under-served as more and larger corporations begin investing into Myanmar. In particular, serviced apartments or higher quality accommodation suitable for longer term stays that are part of an integrated retail and office complex should fare exceedingly well in the coming years.[/ihc-hide-content]