An interview with Karlo Pobre of Colliers International, reflecting on the property market in 2018 and the investment opportunities and challenges he expects to see in the coming year.
What were the trends in the property market in Myanmar for 2018?
Newer office buildings are now offering lower rates, which in turn have exerted pressure on older and lower quality developments. The same goes with the serviced apartment market. The shifting business climate will continue to lead to tenants trading down to the mid-range of the market. This key trend will steer demand towards smaller suite designs typically found in standard and boutique serviced apartments.
Recent policies and reforms focused on tourism and retail trading are also seen to further enable growth in the retail and business hotel industries. The reforms introduced by the Ministry of Commerce for foreign trading in Myanmar have already resulted in a high level of interest from major retailers across Asia. Matched with the leniency in visa requirements for several of Myanmar’s major trading partners such as Japan and South Korea, this is also expected to spur growth in Yangon’s business tourism.
As for the condominium sector, we are hoping to see more improvements in the market. The introduction of more low to mid-tier projects is expected to facilitate growth in sales as these developments translate to a relatively more reasonable unit price. It is also advisable for developers to reposition projects to more marketable products such as apartments for lease.
What are the key challenges in the market?
The low to mid-market segment across all sectors remains underserved. Affordability or offerings of justifiable prices, whether commercial or residential, continues to be a concern especially with the existing level of development quality. The amount of business revenue generated by many companies remains relatively modest, which leads to certain firms having a rather cautious budget in terms of commercial lease or staff accommodation.
On the other hand, investors are left hampered by high land prices and construction cost. Also, carpark regulation for condominiums remains onerous, making it costly for developers to build smaller-sized units that could otherwise have been offered at competitive prices.
Although recently passed legislations and revised regulations are slowly materialising, more needs to be done to further streamline and reinforce the economic and legal framework.
Are developers building better quality office space?
Movements to proper dedicated office buildings from informal office spaces such as villas and residential buildings are now becoming more evident, given overall improvements in building quality along with the correction in rental levels. There are notable upgrades in building designs across the city; modern projects like Sule Square and Junction City are good examples.
The inclusion of curtain wall systems, high floor-to-ceiling heights, expansive lobbies, as well as efficient floor plates and flexible layouts are becoming more common. While the pipeline for premium and high-quality projects is increasing, we also see a strong need for mid-tier but international standard, quality office space.
What type of residential property can middle to high-income Myanmar families afford?
One of the main concerns we see is affordability. With a majority of the pre-sales condominium projects coming from the higher end of the market, they are unaffordable to the vast majority, and we see little evidence of a rising middle income. Although we still see some demand for upscale projects, the inventory is considerably outpacing demand.
Many affluent buyers still opt for landed residences, especially detached villas, over high-rise developments, as the latter remains a nascent concept in Myanmar. If Myanmar buyers purchase a condominium unit, it is predominantly for investment; although a secondary market for condominium units does not yet appear to have developed. Key aspects that would support the sale of high-end condominium projects such as financing are limited, while a national housing savings programme is currently non-existent.
How would you rate the quality of new developments?
We have seen some projects that were completed in recent years but showing signs of wear and tear. Imperfections like chipped paint and cracked walls are surfacing, and it is obvious that the quality of construction materials is not what was promised. In fact, there are condominiums marketed as high-end that have turned out to be of lower quality instead.
While regulations centred on safety and general welfare for occupants are in place, design and quality control is inadequate, which is we are calling for quality project management control.
What are the investment opportunities outside Yangon?
We do a lot of consultancy work in Mandalay for both standalone and large scale developments, where the medium to long-term opportunities are promising. The city’s long-standing trading ties to China’s Yunnan province are beneficial, with more local partnership deals inked in recent years.
We see robust growth in landed residences, retail and shophouse complexes as well township sized and mixed-use developments. Mandalay’s growing agro-industrial business is located at a strategic crossroad between India and China, which means promising potential for industrial and logistics businesses. That said, infrastructure and utility constraints must be addressed.
Coastal destinations are also very promising. We see strong opportunities in Ngapali in Rakhine State, Ngwe Saung in Ayeyarwady Region and Myeik in Tanintharyi Region. Chinese tourists are still driving demand, despite the drop in numbers from European and American tourists.
Photo: Theint Mon Soe | Frontier