Asian Property Review explores the last frontier in property investment in Asia where the returns can be high but so can the risks. Do you dare to be one of the early birds who will reap the biggest benefits yet endure all the hardships of a market fresh from wars or economic/geographical isolation? Three of the most promising markets come to mind – Sri Lanka, Myanmar and Mongolia.
A nod to the huge potential of Sri Lanka and Myanmar was when both countries were ranked among Asia-Pacific’s top 10 foreign direct investment (FDI) hotspots, according to a study by US-based global information company, IHS Inc.
Judging from recent events, there are only two factors that might derail Sri Lanka’s potential as the next Dubai or Singapore – reversal of favourable policies for foreigners due to a change of government or imposing tough restrictions on foreign investments including property ownership laws. Other than that, if the island state were to follow through with transparent and progressive policies which it seems determined to do so, it would leapfrog over its South Asian neighbours in a matter of months.
In fact, Sri Lanka which has a population of 22 million is already ranked as the most liberalized economy in South Asia. And due to its strategic location, right in the middle of the Maritime Silk Road (part of China’s One Belt, One Road initiative) where an estimated 60,000 ships pass through every year, carrying two-thirds of the world’s oil and half of all container shipments, it is the target of three Asian superpowers hoping to gain a foothold there. Among them – China, Japan and India, China is the one set to emerge the biggest winner – the early bird who will reap massive returns later when more converge to the island nation.[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3,4,5″ ihc_mb_template=”1″ ]
China has made known its plans to build infrastructure along this ancient trade route that extends from China to Africa and on to Europe making Sri Lanka an important stop-over point. Additionally, those wanting to access Asia’s third largest market, India, can use Sri Lanka as a transit point.
After the 26-year civil war ended in 2009, China was the first nation to help with the rebuilding efforts by pouring money and expertise into Sri Lanka’s infrastructure. Among the infrastructure are highways, ports and an airport.
The port in In Hambantota at Sri Lanka’s southern tip, was funded mainly by China’s Export-Import Bank. Another port project, touted to be Sri Lanka’s single largest investment, is the USD1.4 bil port city in Colombo. The project, comprising a marina, malls, golf courses and even a Formula 1 track was however scrapped after a new government was installed. It however revived the project upon realising
Confidence in Sri Lanka by both locals and foreigners has never been so high since the civil war ended. Foreigners including the Chinese, Indians and Pakistanis are moving in in increasing numbers.
How to Buy
The previous 15% tax on buying leases has been removed, so foreigners can now buy up to 99-year leases without tax. For foreigners wishing to buy freehold land outright, exemption to tax is possible on a case by case basis. For investors who invest a minimum of USD250K in an approved project, they can apply for a Sri Lankan Resident Guest Scheme which allows them to stay in the country for up to 5 years (renewable).
Where to Buy
Luxurious furnished houses or flats are available on the tropical coastal belt, in the scenic central highlands and in the main cities such as Colombo, Kandy, Hambantota and Galle which is popular with expatriates. Anecdotal evidence shows the price of land in Galle has gone up 20 times within a span of 13 years.
As is the case with Sri Lanka, Myanmar is counting on foreign investment to develop rapidly, yet there is a discernible difference in the case of property – a debate still rages on in Myanmar even after the approval of the Condominium Law allowing foreigners to buy units not exceeding 40% of a condo building.
Many issues remain – the key contention is what constitutes a condominium, whether foreigners should be allowed to own property at all in Myanmar and whether they could rent out their units. Under the new law, a “condo” is defined as a building with at least six storeys on land measuring 20,000 sq ft (1,858 sqm).
Between 2011 and 2013, a property boom in Yangon has pushed up prices to developed nations’ level. To give an idea, rental of bungalows or villas starts at between USD3,000 and USD4,000 and can go up to USD25,000 per month depending on location, size and quality of furnishing and amenities. Condo units command rental of USD2,000 to USD7,000 per month for areas between 400 sq ft and 2,000 sq ft! The question often asked is why is property so expensive in Myanmar?
The simple answer is that practically all properties are bought using cash due to the distrust of the relatively undeveloped banking system. With nowhere to park their cash, the local rich bought up properties perceiving it as the best investment. As these properties are bought in cash, there is no compelling reason to sell and the sellers can hold out till they are desperate to sell which is not often the case. Also, some purchases were made using drug money and so price wasn’t a consideration.
Further, in 2012, the Farmland Act was enacted which allowed farmers to legally sell their land. It resulted in many farmers selling land for real estate developments which led to a market surplus.
Around the same time, after the US, Europe and Japan partially lifted sanctions on Myanmar, investors were rushing in and many were prepared to pay a lot just to get a foothold in the country with a population of 51.5 mil. Developers saw the opportunity and started building more to the point that there is an oversupply since 2014. Transactions are fewer now and the property markets in both Yangon and Mandalay are in the doldrums.
Only for the brave?
So, should one wait it out until the laws are tweaked to better protect foreign purchasers? That would depend on your risk appetite. As a newspaper headline says: “Investing in Myanmar is only for the brave”.
Regardless, China has forged ahead to pour investments into Myanmar which it sees as a strategic ‘partner’ in terms of mining resources, cheap labour and its strategic location as the hub of the Asian Highway and Trans Asian Railway. In particular, it has helped build the Special Economic Zone (SEZ) at Kyaukpyu, partly as an answer to its “Malacca Dilemma” – so as to facilitate the flow of oil direct from the Middle East to China via oil pipelines which will effectively bypass the Malacca Strait.
Experts share the view that developing such SEZs is the way forward with its tax and talent pool advantages. However, more needs to be done to develop infrastructure leading to and away from these zones as they are usually built a distance away from the capital city.
In the meantime, the industry is still awaiting more details on the Condominium Law and the new National League for Democracy (NLD) government’s policy on foreign purchasers.
How to buy
When buying existing property, buyers will usually pay between 5% and 10% deposit upon agreeing the price, up to 50% of the agreed amount within 2 weeks; and the remaining 50% within two months to hand over the keys and close the deal.
When buying new property at launch (off plan), the buyer has to pay a booking fee (fixed amount or up to 5% of the value), pay another 5% within 10 days, another 10% one month later, next 60% is spread over 24 months and the final 20% upon getting the keys.
Where to buy?
Yangon consists of more than 30 townships with two strategic lakes, Inya Lake and Kandawgyi Lake. The prime locations are: Pyay Road, areas around Inya Lake, Kamaryut Township – Heldan Junction Area, Bahan Township Golden Valley, areas around Kandawgyi Lake and Yangon Downtown (CBD).
Mining has made a number of Mongolians rich in the last few years – since 2012, the World Bank has upgraded it to a middle-income country from low-income. Many foreigners have also gone there to take advantage of a booming economy.
In 2014, Mongolia grew 7.8% though growth fell to 3.2% in 2015 attributed mainly to the slowdown in China. However, taking a longer-term view, the World Bank and IMF are predicting that Mongolia will grow at double digits again from 2018 onwards. One of the main reasons for this growth is the fact that Oyu Tolgoi’s 2nd phase of the underground copper and gold mine has started operations in 2016 and is expected to reach full capacity by 2022, contributing more than 30% of Mongolia’s GDP.
As a result of the increasing foreign population, rentals have increased along with property values. Rentals range between USD600 – USD10,000 per month depending on the type, distance to the CBD, configuration, quality, age and furnishings. Prices of the residential market are currently valued at about USD1,270 per sqm but are expected to rise to USD1,300 – USD1,740 per sqm in the coming years if boom conditions return.
Finally, a happy piece of news for investors – the tax system of Mongolia is the lowest in Asia, with zero capital gains tax.
How to buy
Buying property in Ulaanbaatar is quite a straightforward process especially if it’s a cash purchase. Once a deal is agreed, the whole process can be completed in 2 or 3 days. After the seller proves that the property is mortgage-free, both seller and buyer will sign the contract after which the buyer submits the relevant documents to the Land Office. The Certificate of Title will be issued within 3 days.
Where to buy
Half the Mongolian population i.e. 1.5 mil out of 3 mil stay in Ulaanbaatar. The central business district is located in Sukhbaatar district around the Chinggis Khaan Square and the National Amusement Park. The Stadium, Embassy, Zaisan, Asa circus area and 40 myangat and 50 myangat areas are also popular.