Hopes are high that a move in recent weeks to clarify regulations governing the sale and development of condominiums in Myanmar will boost demand for real estate in 2018.
The Condominium Rules, published by the Ministry of Construction in mid-December, ease restrictions on foreign ownership, clarify aspects of the law and provide greater safeguards for buyers.
Their implementation is expected to boost sales activity, draining off some of the excess supply in the marketplace, particularly in the mid- to high end of the residential market. They may also serve to encourage new projects in Yangon, where the majority of foreign property investment is focused.
Under the new rules, overseas buyers can now acquire up to 40% of the total floor area of a condominium building, rather than only 40% of units located above the sixth floor of a complex, as previously stipulated.
The amendment not only greatly increases the area that can be held by foreign buyers, but also allows prospective buyers to take up residence in lower-rise buildings.
Additionally, foreign investors and entities are now able to become joint developers of a condominium, although several requirements must first be met, including obtaining a permit or endorsement from the Myanmar Investment Commission, gaining approval from the relevant management committee and being in possession of a formal agreement with the developer.
In addition to expanding purchasing rights for foreign investors, the new rules also provide greater safeguards for property buyers.
The regulations place a number of restrictions on developers by codifying terms for off-plan sales. Central to these is a requirement that developers can only pre-sell units after 30% of the foundation has been completed, a measure aimed at providing increased protection to unit purchasers, while also allowing builders to generate the cash flow needed to finance ongoing projects.
Further safeguards include a requirement that 20% of the total investment cost be deposited by the developer before titles for a unit are issued. Additionally, the regulations satisfy an uncertainty in the original legislation by stipulating that existing buildings, as well as those currently under development, are covered by the rules.
Key issues are also clarified for developers in the amendments, such as the documentation applicants need to apply for a permit to develop a condominium and the screening procedures that the authorities will apply when deciding whether or not to approve a licence.
While the condominium segment is expecting an increase in demand thanks to the new regulations, the broader market should also be buoyed by rising calls for units in the mid-range bracket.
According to a recent report by international property consultancy Colliers, the turnover of lower-tier apartments is likely to improve in 2018, on the back of increased buyer interest and confidence in basic but modern developments that are smaller in size and reasonably priced.
This segment of the market is currently underserved due to a limited supply of studio and one-bedroom units, providing opportunities for developers to expand into an area of strong and rising interest.
Greater demand for smaller and less costly residential units reflects the needs of much of the domestic market, according to Melvyn Pun, CEO of Yoma Strategic Holdings, an investment and development company.
“Myanmar is a challenging market and developers need to understand consumers,” Pun told OBG. “Basically, three-quarters of demand is in the low-end market and affordable housing segment. Market development must be driven by end users’ needs.”
According to Pun, the number of lower-tier residential properties is expected to increase in the coming years in line with the growing availability of mortgages, still a nascent industry in Myanmar. This, coupled with the rollout of the new condominium rules, will support sector growth, he said.
While prospects for the condominium and broader real estate sector are brighter this year, the decision by the government to delay implementing the new Companies Law until August, following its approval by the president in December 2017, could weigh on the property market’s performance in the next few months.
The new legislation eases several restrictions on foreign companies seeking to operate in Myanmar, including stipulations relating to the holding of shares by international entities in domestic firms. In addition, foreigners looking to purchase shares in a local company will no longer have to obtain prior approval from the regulator.
Increasing foreign investment is a key aim of the legislation, with the property market among the areas of the economy seen as ripe for expansion.
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