May 19, 2013

“Work for more than 100 years to buy a house”

For investors who witnessed the skyrocketing of the housing market in Hong Kong, they are excused for being jealous of the return on Myanmar’s real estate industry. Local cash, money from China and speculation from Japan, Taiwan, Malaysia and Singapore are the causes behind the inflation of Myanmar’s real estate industry.

The price in Yangon, Myanmar’s old capital, is impossible to catch up with. An average citizen would have to work for more than 100 years to buy an apartment in Yangon. In fact, it is now impossible for average workers to buy a property in Yangon, a city of 6 million people. This is because since 10 years ago, when bad debts severely damaged Myanmar’s banking system, banks have been forbidden from providing mortgages. Only two types of people could afford a house in Yangon: super rich locals who have a large amount of cash or foreign speculators.

Senior investment manager of Yoma Strategic Holdings Ltd, Ivan Pun said:” The banks could not provide enough options for investment, and rich people could only invest in either real estate or cars.” Yoma Strategic was founded by Chinese businessman Serge Pun, and is one of the largest real estate developers in Myanmar. Ivan said that in the best locations in Yangon, a 5,000 square feet condo costs around 10 million USD currently.

“Willing to invest everything in Myanmar”

Famous American investment banker Jim Rogers who led many bankers into China stated last year at a Singapore conference that, if possible, he is willing to invest everything he owns in Myanmar. Rogers has published two books “Adventure Capitalists” and “A Bull in China”. He believes that Myanmar is highly similar to China in early 1979 when Deng Xiaoping adopted economic reform.

Since the adoption of political reform by the military government two years ago, housing prices in Yangon have kept rising. One real estate agent in Yangon commented that the price in Yangon is 20 times what it was three years ago. A small piece of land adjacent to a main road is as high as 100 million kyat (about 115,600 USD).

Investors hope Myanmar’s economy will catch up with its Southeast Asian neighbors. In the past ten years, the country was busy dealing with U.S. and EU sanctions , as well as internal ethnic conflicts, and its economy has lagged behind. The IMF estimated that the country’s GDP was 45 billion USD in fiscal year 2010-2011, less than 1% of China’s GDP and 20% of that of Malaysia.

Since the reformist NLD led by Aung San Suu Kyi was allowed to return to politics and won parliament seats in 2012, the EU canceled its sanctions on Myanmar last June. Observers generally believe that the U.S. would do the same thing, especially after President Obama’s visit of Yangon before the end of last year.

The first group of investors returning to Myanmar includes the Japanese. Last November, corporations led by Suzuki agreed to form joint ventures with the Yangon municipal government to invest 12.3 billion USD to develop a special economic zone near Yangon.

Hotels are in short supply, while the price of cars is shocking

The influx of foreign investors has led to a chronic shortage of hotels in Yangon. The city has about 8000 hotel rooms, only 2000 of which meet international standards. A room at the 5-star Park Royal hotel in Yangon costs $260 per night, compared to $75 and $35 in 2011 and 2007. Vice Chair of the Myanmar Tourism Association, Maung Maung Swe disclosed that “the occupancy rate of Yangon hotels is close to 100%.”

Last year, more than 1 million tourists visited Myanmar, and the number is expected to rise this year. Maung Maung Swe commented that the number of tourists has risen 45% in the first two months of this year. He said “We will add 1500 hotel rooms before the end of year. But by 2014, we are still short by 2500 rooms.”

Car prices in Myanmar are also very high. In Yangon, almost all vehicles, including taxis and buses are second hand cars from Japan and South Korea. New cars are extremely rare, because the import tax and other duties for cars are 165% to 200% of the price of cars.

Because of the high mobility of the Myanmar population, second hand cars are extremely popular even though their prices are several times higher than similar goods in developed countries. Since the opening of the second hand car market by the government two years ago, there are more and more second hand car dealers in Yangon. Recently, the price of cars dropped slightly because the government decided to reduce the duty on imported cars, leading to a rise in the supply of second hand cars. However, an 11- year old, 76,000 km old Nissan xtrail made in Japan still costs a shocking 250,000 dollars.

Source: Xinhua