Emerging Opportunities in Myanmar’s Construction Sector
Myanmar’s economy is expected to register a 6.9 percent growth in 2019, following a previous slow down due to political reasons. The country borders the two most populated countries in the world – China and India – its membership in the Association of Southeast Asian Nations (ASEAN) economic bloc makes it an increasingly interesting investment destination, including for those looking to invest in real estate and infrastructure construction projects.
With manufacturers considering alternative options to relocate due to the ongoing China-US trade war and the rising wages in China, Myanmar offers a promising economic environment for construction and real estate investors. The country’s construction sector is only expected to grow in the coming years.
The Myanmar Construction Sector
After growth rates of more than 10 percent in recent years, the Myanmar construction sector is ready for large investments. In 2018, the construction industry had a value of more than US$ 9.5 billion. This is a share of around 16.5 percent of the country’s GDP and a major driver of the economy in 2019.
Both of the major economic centers of the country, Yangon and Mandalay, have a strong demand for middle-class condominiums. The demand in Mandalay is especially high for property worth around US$ 300,000. Yangon’s population is estimated to grow by 3 million within the next ten years requiring massive housing investments.
The infrastructure sector displays another major investment opportunity for foreign businesses.The Asian Development Bank (ADB) estimates the infrastructure gap between now and 2030 to be worth US$ 120 billion. All infrastructure sectors like roads, railways, harbors and airports require massive investments where international developers can get involved with joint venture operations or as a supplier.
With more foreign businesses eyeing the local market, industrial area development is a major driver of construction. Three Special Economic Zones close to Yangon, Kyauk Phyu and Dawei are currently being developed. Further, several industrial parks are planned in the country while in Yangon industrial parks are already under construction.
The New Condominium Law
The recently enacted Condominium Law and Rules have eased involvement in condo construction. A condominium is defined as part of a building with six floors or more on collectively owned land. Foreign individuals can own up to 40 percent of the total floor area of a condominium, however no individual may own more than 25 percent of the units. The status of company purchases is not clarified. This may fire up the condo market as currently a large share of the local population has no financial means to purchase a condominium.
Developers must deposit at least 20 percent of the total amount of the project in a bank account and can only sell units after 30 percent of the project has been completed. Under the law, a business license valid for five years may be purchased by the developer for around US$ 6,600. The registration of condominiums is subject to a fee and stamp duty applies as stated in the updated Stamp Act of 2014.
International companies can only become co-developer in condominium projects. Consequently, setting up a joint venture with a foreign share of maximum 35 percent is the most common way to get involved as a developer with full rights under the law. The land where the project is developed must be registered as collectively owned land, where the owner of the units directly owns a share of the land.
Additionally, the Myanmar Central Bank has recently opened up the lending opportunities for foreign banks operating in Myanmar. Since 2018 they are allowed to lend money to foreign companies and joint venture operations in Myanmar opening up the possibilities for businesses to get loans for construction projects.
At the present time, a new Apartment Law is being drafted and is expected to be enacted in the coming year. This will cover the remaining units that are not considered as condominiums. A Real Estate Service Law is planned to be enacted in the middle of 2019. The law will meet the ASEAN standards and ease the use of real estate agents for foreigners.
New Opportunities in 2019
With the recently signed Gambling Act, the opportunities for investors to attract gambling tourists grow. The act allows the establishment of casinos for foreigners and permits locals to work in them, however, not to gamble. It will attract gambling tourists from Thailand and China in particular as it is prohibited in those countries. The government plans to attract more Asian and over 1 million Chinese tourists, fostering this development.
Especially, infrastructure related projects are pushed by the government. The newly introduced project bank for infrastructure projects shall easily combine government initiatives with the private sector. During the Invest Myanmar Summit 2019, several projects for international investors were introduced.
Since 2018, the availability of private loans to purchase property has supported the positive outlook of the construction sector. Several banks offer loan possibilities offering interest rates of around 13 percent. With the easing the banking sector and stamp duties, the number of loans issued and people that can afford to buy housing would increase quickly.
Further, the New Yangon City Project presents a major opportunity for companies to get involved. It addresses the city’s rising population and business needs. On 20,000 acres of land and with costs of US$ 1.5 billion, the project will create accommodation for 3 million and jobs for 2 million people.
One major issue that has not been addressed by the government so far is finding suitable and undisputed freehold or grant land.Three types of construction-suitable lands are available – freehold, grant and BOT land. Freehold land can be owned and sold free of any constraints. Grant land represents long-term leases where the user pays the government a fee. Freehold and grant land can only be confiscated by the government with adequate compensation and a public purpose of the confiscation. BOT land is also a lease with the government, but it is automatically transferred to the government when the lease expires.
Further, in conflict with the new Condominium Law, there is still the Transfer of Immovable Property Restriction Act of 1987 in place. It prohibits foreigners from acquiring immovable property. As officially announced, individuals will be allowed to purchase the condominiums, but the issue shall be resolved for clearing-up the legal status.
Better access to loans for developers, easier credits for tenants and expansions in tourism will facilitate fast growth in 2019 and beyond. The efforts by the government to clarify the law and to make investments easier shows success. In 2019, major laws like the real estate service law and the apartment law are expected as well as further clarification of the property issues for foreigners.