In the past few weeks, the press has been full of ‘doom and gloom’ stories about the Myanmar residential market. High-profile project cancellations, dishonest developers, and the prospect of upcoming default of forward-funded developments have come together to create a climate of fear, with particular suspicion reserved for projects located on land with Build-Operate-Transfer (BOT) titles.
The situation is not as bleak or as risky as it is being portrayed, however. Each development is different, and some still represent excellent investments. Investors can ensure that they choose the right project and mimimise risk by asking the following six questions:
1. WHERE IS THE PROJECT LOCATED?
The recent high-profile cancellations were located close to a number of important religious and cultural landmarks and so provoked a great deal of opposition. By choosing a development which is not close to religious sites and which is in an area not covered by height restrictions for preserving sightlines (such as around the Palace in Mandalay or the Shwedagon Pagoda in Yangon), investors can minimise the risk of public protest or official interference hampering development.
2. HAS THE PROJECT GAINED APPROVAL FROM ALL LEVELS OF GOVERNMENT?
We are told that the cancelled projects had received national-level approval, but had not needed to gain YCDC approval as they were located on former Ministry of Defense land. To ensure maximum peace of mind, choose a project like the Lake Suites at HAGL’s Myanmar Centre. This project, like many others in Yangon, is built on land owned by a Government Ministry – the Ministry of Hotels and Tourism – which falls under the jurisdiction of YCDC. You can be assured that the developers have applied for and received both MIC and YCDC approvals, making later objections less likely.
3. HAS CONSTRUCTION ALREADY BEGUN?
The further along a project is, the less likely it is to be cancelled. This is because more money will have been invested in the project by the developers, so more compensation will be due from the Government upon cancellation. Projects such as HAGL, which has almost completed Phase One, present investors with a physical indication that the development will be completed and that sufficient money has been raised in advance of the construction process from investors and financial partners.
4. IS THE PROJECT FULLY-FINANCED OR FUNDED BY PRE-SALES?
Many residential projects begin selling units as soon as the site is cleared, relying on money received from pre-sales to fund the construction of the development. Many projects are not selling sufficient numbers of units so it is likely that a good number of projects will never commence construction. There is currently little protection within Myanmar law for pre-sale purchasers, meaning those who have invested in units may lose their money if a project defaults. Therefore, it is advisable to invest in units in projects which are already fully-financed, with HAGL being a perfect example. This project has already raised all the money needed to complete the Lake Suites. Regardless of pre-completion take-up rates, projects such as HAGL will still go ahead.
5. IS THE DEVELOPER HONEST ABOUT WHAT YOU’RE PURCHASING?
One of the reasons developments on BOT land have received bad press is that unscrupulous developers have failed to inform investors that they are purchasing an investment of 50+10+10 years (i.e. a long leasehold), rather than freehold and perpetual ownership of a unit. This has left investors feeling short-changed or tricked, and has dampened confidence in BOT schemes as a whole. However, as long as developers and agents are honest and accurate in their marketing, there is no reason why BOT projects should be feared. HAGL, for example, consulted by SPS, have been very open in the marketing of the Lake Suites as long leasehold investments, and the units have been priced realistically to reflect the fact that they are not freehold investments. If the idea of a rental income for at least 50 years is attractive to you as an investor, then a project on BOT land could still be an excellent proposition. Many locations around the world, such as in the United Kingdom and Singapore, commonly use a long leasehold system of home-ownership by selling units on 99 year leaseholds that are called “effective freeholds”.
6. HAS THE PRODUCT BEEN DESIGNED TO MAXIMIZE RETURNS AND HOLD ITS VALUE?
In the face of an uncertain and increasingly oversupplied market, the best investment is one which is likely to continue to bring in good rental returns and maintain its value. HAGL’s Lake Suites, for example, is designed specifically to appeal to the emerging professional class and expatriate market within Yangon, a market which is set to increase in size year-on-year. Demand from potential tenants is also likely to remain high thanks to the good variety of other facilities on-site, including a large amount of office space, attracting the large number of business occupiers to the nearby residential units.
In conclusion, the Myanmar residential market can still represent an attractive product for investors. With careful selection of which project to invest in, and the right real estate advice from real estate professionals such as Slade Property Services, investors can expect good returns for many years to come.