February 4, 2017 4:00 pm JST

Transparency not what Yangon's property market ordered

Building permit suspensions have created townscapes of exposed steel

A building under construction in Yangon

The real estate market is stagnating here in Yangon, dragged down by market saturation and a government that got temporarily stingy with building permits.

The Yankin Township, north of Yangon, is one of the country's most developed areas. In 2015, a Vietnamese company opened Myanmar's largest commercial complex there. Walking down the streets, one sees a number of unfinished high-rises, their steel exposed because construction has been suspended.

In Myanmar, contractors usually get started on a housing development, sell the units in already-completed buildings, then use the proceeds to finish the project.

One local real estate agent said Yankin is not alone, that there are other neighborhoods in which multiple-tower projects begin only to be halted as condos in the first building go unsold.

The number of luxury condos in Yangon has jumped to about 6,000, up from 1,000 or so immediately after the transition to civilian rule began in 2011. The closing rate for new condos has fallen to 50%, from 80% in 2013. Profits for developers are growing increasingly elusive.

Local authorities' holding back on building permits is partially to blame for all the exposed steel. After Aung San Suu Kyi's National League for Democracy came to power last March, the Yangon municipal government announced it would re-examine the legality of development procedures. Construction permits for more than 200 high-rises approved by the former administration were abruptly rescinded.

Myanmar's real estate sector is notorious for illegal buildings and murky transactions. Builders that have close government ties are thought to receive preferential treatment when state-held real estate goes up for sale.

The permit suspensions comply with the wishes of Suu Kyi, who emphasizes the rule of law and economic transparency.

Since fall, construction has been resuming at some sites. However, the government is offering no compensation.

Meanwhile, the re-examinations have found some contractual irregularities, and work on these projects remains suspended.

Builders are growing frustrated. A representative of one conglomerate said the government suddenly changed the rules without notice, giving his employer pause about starting any new projects.

In recent years, developers have been driving Myanmar's economy; there are few other domestic industries.

The permit situation could significantly affect the Dagon group and other major conglomerates that play in the real estate sector.

In January, the World Bank estimated Myanmar's 2016 economic growth at 6.5%. This is down 1.3 points from the institution's previous estimate. Blame for the fall was placed on the slumping real estate sector.

The new government's transparency goal should be valued, but making policy in haste could weigh on already sluggish private investment.

(Nikkei)

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