Construction market slumped in 2015 but property prices remain high

More investment companies are coming to Myanmar to answer the demand for luxury housing and office space. But although the sales prices for property remain high, the market cooled considerably in 2015, according to real estate experts.

The property market dropped faster in 2015 than it has done in any of the previous five years, said U Yan Aung, general manager of Asia Construction. The general price of houses and apartments fell by over 10 percent, and in some locations by even more, he said.

“Not only has the sales market fallen but so too has the construction market,” he said. This is despite the start of several complex high-end construction projects in the last year. “The construction market had been strong since 2000, but also slowed in 2015. Although the sales and rental prices for contracted buildings are still high,” U Yan Aung added.

The presale market, another area of real estate that has thrived in recent years, was also hit hard in 2015. “That market almost stopped in 2015,” said U Yan Aung. “Speculators lost interest in investing in the property market, and the only purchases were from people looking to live in the apartment or house.”

Presale markets are not popular in many other countries, but have been a sound investment in Myanmar and popular with investors for that reason, said U Aung Min, director of Myat Min Construction Company.

“Speculators could buy a K20 million apartment before construction and sell it for K4 or K5 million more when it was finished,” he said. “But this year that market stopped. The presale market remains a [potential] source of profit. But speculators stopped trusting contractors because of untrustworthy builders that pre-sold apartments and failed to complete on time. This has caused many problems between contractors, land owners and buyers. So now the buyers prefer apartments where construction has almost finished.”

But U Aung Min noted that although the market had cooled, the drop in prices was not severe.

“Prices are down and investors are less interested,” he said. “But prices aren’t down by one half or a by one third. The fall is only 10pc.”

It was possible some contractors had not sold their apartments at a lower price because there was no market for them, and others had offered apartments at a 20pc discount, he added. But this was not the case across the wider market.

Last year was a difficult one for contractors, said several people in that industry. Yangon City Development Committee instituted many rules for contractors and increased the required deposit for a licence.

“Some contractors stopped work because of YCDC’s many rules, which they couldn’t obey,” said U Aung Min. “Although the construction sector needs rules, they enacted many laws and rules at the same time after not enacting any in the past. The deposit for a contractor license increased from K5 million to K20 million for small contractors, and from K20 million to K50 million for those engaged in large-scale construction. Some ended up facing financial difficulties as a result.”

The lack of bank financing for real estate construction has also sapped strength from the property market, he added.

“In the past, contractors sold apartments on the presale market and that funded construction,” he said. “But now that the presale market has stopped, they don’t have the cash to build the buildings. As contractors, they cannot borrow money from banks, so in many cases contractors faced delays in their constructions.”

Contractors said that in order to support the construction of new housing, they should be able to borrow from banks. Potential buyers should also have the ability to borrow long term from banks to finance purchases, the contractors said.

“As in other countries, people need to be able to borrow money long term from banks to buy houses. We need to enact that regulation quickly,” said one.

Source: Myanmar Times

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