Producers of construction materials are expanding to help meet demand

Growing demand for residential units, the urbanisation of major cities and a national drive to bridge infrastructure shortfalls, should help Myanmar’s construction sector maintain its recent track record of strong growth over the coming years.

The building industry is reaping the rewards of Myanmar’s fast-paced economic expansion, buoyed by growing international investor interest and rising business confidence. The construction sector is expected to expand at an annual rate of at least 8% over the next five years, according to a report produced recently by Yangon-based consultancy New Crossroads Asia, boosted by overall economic growth for FY 2014/15, which has been estimated at 7.8%. The report valued the industry at $3bn, with the residential segment accounting for half of that sum.

Investment looks likely to gain momentum in the medium term, as the government increases its focus on utilities and transport, while pushing forward with its affordable housing programmes. Myanmar plans a raft of major projects to support its economic development, including hydroelectric plants, road and rail networks, and new aviation hubs, all of which will require substantial foreign investment.

A rise in the cost of land, however, together with lengthy approval processes for developments, could slow the pace at which the industry develops.

Upwards Or Outwards

Cities such as the former capital, Yangon – whose skyline has changed comparatively little since Myanmar gained independence from the UK in 1948 and boasts the largest collection of colonial architecture in South-east Asia – now has a population of 5.2m people. By 2040, it is expected to join the ranks of other mega-cities around the world with a population of more than 10m.

The country is also experiencing a surge in residential, commercial and tourism-related construction projects. Demand for residential properties in Myanmar’s cities, combined with government programmes to increase affordable housing stocks, has attracted property speculators, driving up project prices and presenting challenges for investors.

Mark Petrovic, managing director of construction consultancy Archetype Group, believes that building up rather than out – although not ideal – could be the best option going forward. “Vertical planning is the only solution to make profitable projects for developers at this stage due to the high cost of land,” Petrovic told OBG. “High-rise buildings will lead construction growth for residential and office buildings in Yangon, but will need to be done responsibly and following the rules and guidelines.”

Proposals have been put forward to expand the municipal boundaries of key urban centres, such as Yangon, which could counteract the consequences of the speculators and push down land prices. However, with the decision-making process for fresh developments likely to be sluggish, concerns are rising that a move to open up new areas on the outskirts of major cities could spark a land grab. In an effort to make the best use of land, the Yangon government announced in September 2014 that it was suspending plans for a residential and industrial development over a 30, 000-acre area to the west of the city, saying more time was needed to study the proposal and its costs.

Ripple Effects

Beyond urban centres, a new economic zone, the Thilawa Special Economic Zone, is attracting companies that are benefitting from heightened activity in the construction sector. Several businesses linked to the building trade, including pipe manufacturers and wood suppliers, are expected to set up in the zone. An increase in the number of foreign firms entering the materials and services segments of the construction industry should help ease supply bottlenecks, while also lowering costs, which have been pushed up by the rise of the dollar against the kyat. Greater self-sufficiency in building materials will, in part, insulate the industry against currency fluctuations, while keeping more of the sector’s value-added component within the domestic economy.