Melvyn Pun, CEO, Yoma Strategic Holdings: Interview

Interview: Melvyn Pun

Where do you see the biggest risks related to property development in Myanmar, and how can those risks be mitigated by new arrivals?

MELVYN PUN: It’s not an easy market for new developers. As with all businesses in Myanmar, bureaucracy is not always well understood – the number of permits you need, the criteria, etc. It’s still somewhat a work in progress. There are also some unwritten rules that are easy to breach. One example is the project that was shelved near the Shwedagon. Issues of height, proximity and depth were possibly overlooked or not made clear enough in advance.

Construction financing options are still fairly limited, so a lot of real estate developers use pre-sales, but when you strip the process down, you need a very good reputation for buyers to trust you. You are also impacted by other developers who need to deliver the same assurance. I predict that a lot of projects that have been pre-sold may not actually come through in the next few years. Many buildings have not been fully constructed, so people have not been able to move in. When you have big projects, you have the same problems. People start to doubt whether they should buy a pre-sell. Due to limited regulations it is hard to know where the money is being used.

I think the developers that have come in have underestimated the difficulties. You also have a lot of local developers who are actually land owners, not developers. They own the land and see the property as being a quick win, so they enter the picture with little expertise and speculate against the market. Adding to that, construction costs are much higher than in other markets. Costs are in US dollars but sell in kyats, which can leave developers short-changed. If local developers are not able to pre-sell, then it’s a possibility they may run into financing issues.

Another issue hindering the market is the delay of the condominium law. I believe the supply will be quite limited in the next few years and less than what people expect. I don’t think there is a bubble per se, but having said that, prices are elevated. I think having a more transparent and efficient market would help. More regulation regarding pre-sales and permitting procedure would stabilise the market. There is also a lot of potential for mortgage financing from banks, but that is dependent on central bank regulations which are not yet in place.

What should the priorities be in terms of developing Myanmar’s soft infrastructure?

PUN: The development of people and generational development in particular, is extremely important. You can conduct vocational training, which will immediately improve skills, but there are certain skills – critical thinking, decision-making, leadership, and so on – that take a whole generation to develop. Actually, there’s quite a lot of focus on the education sector, but we have to accept that this is going to take 20 years to develop. In the meantime, repatriation of skilled labour back into the country, more vocational training and more international firms investing in locals can be used to bridge the skills gap.

How has the recent election impacted enthusiasm in foreign investment?

PUN: I feel that it’s reasonable that some foreign investors would stay on the sidelines and watch until after the election, but the good thing is that the big foreign names here are not slowing down. They didn’t see the election as a risk they needed to worry about. I also believe it’s good for the enthusiasm to dampen a little bit, as there was too much hype two years ago. But not all the hype was justified. This is our last bit of breathing space to build our businesses, to develop and to generate human capital. I think the caution is actually a good thing for the country as it filters out some of the speculators. Discussions with foreign partners or potential partners are more constructive.