The construction sector will be glad to see the back of 2016 – a year in which a political transition, a high-rise review and a volatile currency conspired to leave many developers battered and bitter. But there were also signs of a fragile recovery in the real estate market, and new laws set to appear in 2017 could mean both industries are heading for better times.
The reasons for the year-end gloom among construction industry operators include the lingering after-effects of the political transition, a lack of financing, a clampdown on high-rise construction in Yangon imposed by the new regional government and a slowing economy.
“This has been a very bad year, especially following a slow 2015,” said U Myo Myint, chair and CEO of MKT Construction. “The arrival of the new government caused investors to wait and see what would happen.”
The depth of the slowdown was intensified by the heights to which the construction industry had soared – literally and financially – after the country was first opened up to foreign investment in 2011. That move transformed Yangon, as hundreds of new buildings sprang up, making 2012-2014 a very busy and lucrative period for the construction sector.
The election in November 2015 of the National League for Democracy (NLD) under Daw Aung San Suu Kyi was supposed to proclaim that Myanmar was now completely open for business, but for the construction industry the reality was more complicated.
Under the military regime, and the Union Solidarity and Development Party government that followed it, the majority of the country’s economy was controlled by cronies who made real estate and construction projects their main investment vehicle, said U Yan Aung, general manager of the Asia Construction company. When the NLD was elected, the cronies moved their money elsewhere, hoping for quicker returns. “That meant a slowdown of funds in real estate and construction,” he said.
Then there was the great high-rise shutdown. Last May, shortly after its inauguration, the Yangon Region government ordered a halt to high-rise construction in the city that was not lifted until November. The freeze affected all building projects of nine storeys or more that had received a permit in principle from the Yangon City Development Committee, and extended even to buildings that had received a full permit and legally begun construction. Developers were forced to lay off staff, including foreign experts, until the government declared its review complete, leading to huge losses and a storm of criticism directed at the regional government. The clampdown also had a chilling effect on banks’ willingness to lend for major construction projects.
U Yan Aung said this had resulted in the number of new construction projects falling by half in 2016.
As if this was not enough, May also marked the start of what became seven months of progressive weakening for the Myanmar kyat, which left it near-record lows against the US dollar. This was another blow to the construction industry, which relies heavily in dollar-denominated imports of materials and equipment.
The damage was severe for projects conceived and begun when the kyat was worth more, and especially in the case of high-rise condos financed in part by pre-sales of apartments yet to be built, a common practice.
There were signs of stress in the state-funded housing sector too. Work on Yangon’s Ayeyarwon and Yadanar affordable housing projects – contracted out to private firms – was suspended for lack of government funds. Urban and Housing Development department director general U Min Htein told The Myanmar Times on December 6 that the government lacked the money to complete the projects, in Dagon Myothit Seikkan township, according to schedule, because it was prioritising low-cost housing.
The dire effects of 2016 are likely to overshadow the coming year as well, developers fear. They are more in need of financing than ever to restart halted projects and rehire workers.
“We need investment to finance projects. That would require the banks both to lend to builders at low interest, and to offer home buyers long-term mortgages,” said U Yan Aung. But banks have become increasingly wary of lending to developers given the huge uncertainty created by the high-rise review and a sluggish real estate market.
On the real estate front, however, there are signs of light. Sai Khon Naung real estate agency chair U Sai Khon Naung said that although demand remains low, real-estate transactions started picking up towards the end of the year. Other agencies agreed, saying that although prices were well below their previous highs there were clearly more sales happening, particularly in the townships on the outskirts of Yangon.
“Things appeared to perk up a little toward the end of the year. I hope for continuing improvement in 2017,” said U Sai Khon Naung.
Both the construction and real-estate industries are pinning hopes partly on new legislation expected to appear next year. The long-awaited Condominium Law was passed in January after years of parliamentary deliberation, although as December ends the rules and regulations that will allow the law to come into force are yet to appear.
U Sai Thet Naing Moe, director of the Ministry of Construction’s Urban and Housing Development department, told The Myanmar Times the final amendments to the regulations are being made and the final draft would be sent to the Attorney General’s office before December 31.
U Shein Win, deputy chair of the Myanmar Construction Entrepreneurs Association – which was asked for feedback on the draft rules – believes that the law has the potential to change the real estate market when the rules are published in January.
The law will allow foreigners to purchase apartments that qualify as condominiums – so long as they are above the sixth floor. The law also provides a framework for foreign and local buyers to legally own their condo apartments. With legal ownership, people should be able to use their apartments as collateral and find it easier to take out mortgages.
However, the Condominium Law only applies to apartments that qualify as condos, which means anyone owning an ordinary apartment will continue to have only an informal contract with the ultimate land-owner rather than their own title deed.
“Some investors don’t want to buy flats because they can’t get a bank loan on the basis of the contract of sale, which is their only legal document,” said U Myat Min, director of Myat Min Construction. “But a landowner can put up his land as collateral when he applies for a loan.”
Real-estate and construction firms want to see a unified apartment law drawn up that create a clear legal framework for ownership and tax responsibilities.
They will have to wait, however, as U Sai Thet Naing Noe, director of DUHD, told The Myanmar Times there was no such being prepared as yet.
There is, however, a new zoning law in the works, which will make it clear which types of buildings can be built where and for what use. Developers say that a clear zoning plan would avoid issues like the high-rise review, where confusion reigned over whether the Yangon Region government was judging high-rise projects based on zoning rules that were not law and had not been made public.
“If the zoning law is published people can construct buildings without any issues in accordance with the law,” said U Kyaw Kyaw Soe from System Engineering and Construction Company. “But this law must be a law which can be accepted by everyone.”
But, as is often the case with Myanmar legislation, progress has been slow. Yangon City Development Committee officials have repeatedly said that the draft zoning rules would be made public this year, although as of December 23 this had yet to happen.
Translation by San Layy, Win Thaw Tar, Emoon and Zar Zar Soe