THANLYIN TOWNSHIP, Myanmar—A possible scene from the future of Myanmar, one
of the world's poorest countries, is taking shape on a bluff here overlooking a
muddy stretch of the Bago River.
When finished, the Star City development will have an 18-hole golf course, at
least 20 residential towers—some as high as 16 stories tall—24-hour security and
waterfront restaurants. The million-dollar sales center has model condominium
units with amenities rare in impoverished Myanmar, like walk-in closets and
flat-screen TVs. More than 80% of the first 850 units under construction are
sold.
"We're inventing the market" in Myanmar, says Soe Thiha Hlaing, director of
sales at Star City, a project of local developer Serge Pun & Associates and
its Singapore-based affiliate company, Yoma Strategic
Holdings Ltd.
As Myanmar escapes from years of sanctions that largely locked it out of the
global economy, the country's real-estate market is among the first sectors to
attract serious investor attention. Global hotel chains including Marriott
International Inc. and Starwood Hotels &
Resorts Worldwide Inc. have expressed interest, while Hong
Kong-based luxury chain Shangri-La Hotels and Resorts is working on a pair of
21-story residential towers for serviced apartments set to open in mid-2013.
Yoma Strategic Holdings, whose backers include U.S.-based investment
management firm Capital Group, said Monday it was planning a two-million
square-foot, mixed-use development in downtown Yangon with two grade-A office
towers, a five-star hotel and condominium, a mall, and other properties. The
project, with an estimated cost of $330 million to $350 million, is designed to
incorporate a Victorian-era red-brick railway headquarters built in 1877 but now
disintegrating after years of neglect.
Local and foreign developers have proposed at least three other towers in
Yangon, including a $60 million, 34-story apartment building and a $100 million
38-story office building. The president of one of Myanmar's largest local banks
recently unveiled plans for a mixed-use satellite city outside of Mandalay,
Myanmar's second-largest city, that could cost as much as $2 billion if
completed, according to local media reports. Private-equity funds are kicking in
millions of dollars to finish real-estate investments that started but never
finished during a short-lived economic opening in the 1990s.
The developers are lured by one of the most undersupplied property markets in
Asia, if not the world, which is now seeing its first surge in demand in years.
Yangon has only about 1,850 high-end hotel rooms, according to Colliers
International, and 740 serviced apartments, even as the country is on track to
attract around a million visitors this year. There are only about 680,000 square
feet of office space—less than some single office towers in New York. Most of
Yangon is made up of crumbling colonial buildings and mildewing shop houses with
little of note built since the late 1990s, when Western governments slapped
sanctions on the then-military regime.
A new, nominally civilian government took over last year and began freeing
political prisoners and loosening constraints on the media, among other steps,
which in turn has fueled renewed interest in the country of 60 million people
from multinationals such as General Electric Co.
and PepsiCo Inc. Myanmar leaders are
considering passing a law to allow foreigners to purchase condominiums as early
as early next year, which could further juice the market.
The average residential property price in Yangon shot up 39% in the first
nine months of the year, according to Silk Road Management, a local investment
management firm, while hotel room rates increased 65%—among the fastest
increases in the world. Office rates have more than doubled since 2011 to as
much as $75 a square meter (11 square feet) and will likely rise beyond $110 a
square meter in the next two years, Colliers International says. In central
Tokyo, office rents average between $60 and $65.
Several big issues stand in the way of a full-fledged real-estate boom.
Myanmar's antiquated financial sector and primitive networks for moving money in
and out will make it hard for international firms to manage development deals.
Meanwhile, land prices are climbing so quickly that it could make many potential
deals uneconomical.
"There are a lot of barriers to entry that are going to slow things down,"
says Matthew Fry, senior vice president of acquisitions and development in
Asia-Pacific for Starwood. Even so, "there's definitely a first-mover advantage"
for international firms that can overcome the hurdles most quickly, he says,
just as there was for some companies like Starwood that launched hotels in
Vietnam soon after its opening to foreign investors in the 1990s. Starwood has
fielded about 20 inquiries from developers who want to launch Starwood-branded
properties in Myanmar, Mr. Fry says, though it hasn't yet made a decision on how
to proceed.
Land costs may present the biggest hurdle. Private-equity investors say they
are seeing deals with land priced at $5,000 to $7,000 a square meter. At such
high prices, many projects such as new industrial developments are unfeasible,
says Serge Pun, whose Star City project is being built on land his company
acquired many years ago at a time prices weren't as high.
Myanmar's government has responded by raising taxes on property transactions
and calling on hotel owners to temporarily cap rates. It also is working on
plans to build more low-cost housing and is considering creating a committee to
craft further policies to control prices.
Meanwhile, first-mover projects are pressing forward, including Star City.
The project, which was launched last December and whose total cost hasn't yet
been finalized, is targeted at Myanmar's upper-middle class, which the
developers believe will keep growing as Myanmar's economy opens. Spread across
420 acres about 20 minutes outside of Yangon, it is the kind of suburban enclave
that is still uncommon in Myanmar, with plans for 9,000 housing units and a
population of 25,000 people, as well as a water park, shops and restaurants.
Because credit is hard to obtain in Myanmar, the development has counting rooms
where buyers can hand over giant stacks of Myanmar kyat currency.
Buyers have included a few local pop stars as well as Myanmar residents
living overseas who are becoming more optimistic about their home country. One
of them is Htay Htay Yi, a 57-year-old single woman who works in a Singapore
hospital performing ultrasound procedures, and wants to retire in Myanmar
someday. She bought two units—a one-bedroom unit for about $47,000 and a
two-bedroom one for $70,000—which she intends to rent out as investment
properties for now.
"There are a lot of people who can afford this," she says.
source: WSJ
http://online.wsj.com/article/SB10001424127887324784404578145042685642924.html
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