Partnering up: Foreign investors collaborate with local players

Long a restricted area, Myanmar’s real estate sector is opening up to foreign investment. Two major legal changes – a new Foreign Investment Law adopted in late 2012, and a new Condominium Law expected to be adopted in early 2014 – are set to dramatically expand opportunities for foreigners to invest in Myanmar property. At the smaller end of the investment scale, foreigners who want to own their own apartments and foreign companies and organisations that wish to own office space in condominium buildings will be allowed to do that by the Condominium Law. At the larger end of the scale, foreign developers looking to build and hold 100% control of property in Myanmar can do so with a build-operate-transfer lease of up to 70 years, thanks to the new Foreign Investment Law.

International Interest

The first example of a 100% foreign-controlled real estate project in Myanmar is the $440m mixed-use development by Hoang Anh Gia Lai Group (HAGL), a major Vietnamese developer-builder. The project was tendered in late 2012, and a build-operate-transfer (BOT) lease agreement was signed with HAGL weeks after the new law was adopted. Previously, foreigners could only invest in Myanmar real estate through joint ventures with domestic partners. More large international tenders are expected, including at a site in Yangon’s northern Mayangon district, near the Yangon airport. The city government has designated the site as a future satellite business and commercial centre. Four more such satellite commercial centres are planned in the years ahead. U Thet Naing Shein, architect at Marvel Architects, told OBG, “The government has a lot of land that it will be leasing out for BOT projects. A lot of it is high-value land in prime areas, near Inya Lake or downtown, including colonial heritage buildings that need to be refurbished. There will be many big projects coming out.” Although so far only larger tenders are being offered to foreign developers, the law itself sets no minimum size. It also allows foreigners to assume existing BOT leases for the remainder of their terms. However, whether signing a new lease or assuming an old one, all foreign investors in real estate must receive approval from the Myanmar Investment Commission. The application process is rigorous and the commission decides on each case individually at its discretion. Freehold land, which is uncommon, remains off limits to foreigners, as are the more common perpetually renewable leases of government land, which are traded among citizens and treated as close equivalents to freehold land. Those restrictions effectively shut foreigners out of owning buildings, including houses and villas.

Houses and villas play an important role in Yangon’s real estate market. Due to the extreme scarcity of quality office buildings, many villas are converted to office use. Larger and more luxurious villas rent for tens of thousands of dollars a month, and with rent typically paid a year in advance, villas quickly repay investment costs. However, U Thet Naing Shen, who specialises in designing houses and villas, told OBG, “I’ve never met a foreigner building a house in Myanmar.”

Condo Growth

By allowing foreigners to own condominiums, the Condominium Law is expected to make it easier to finance higher-end projects that are aimed largely at the foreign population moving to Yangon. Since condominium developers rely on selling units off plan to finance construction, a ban on selling to foreigners would have forced developers to rely on the relatively small number of Myanmar citizens who could afford to invest in buy-to-rent properties. Most of the high-end condominium projects announced in 2012-13 were already anticipating that the new Condominium Law would be passed. Despite the legal change, most foreign investors are likely to continue to invest through joint ventures with local partners. Established foreign investors are likely to stick with their current partners, while new entrants to the market are also expected to seek the experience and contacts provided by domestic partners. The Foreign Investment Law also liberalised rules on investments by joint ventures in real estate, reducing the minimum domestic stake to 20%.