With rising supply in the real estate market, property owners are finding themselves up against new competition which is causing the property bubble in Myanmar to deflate and more owners are looking to mortgage their land due to the lack of buyers.
Starting from 2000, trade in the real estate market started to develop and prices reached their highest rates in early 2014. Due to extreme costs, buyers could not enter the market which helped contribute to a market decline late in 2014.
“Yangon’s real estate market is still dull, there is no demand. Owners are cutting down prices as much as 30 percent but struggling to find buyers. Many entrepreneurs bought a number of plots for the purpose of investment, now, there is no buyer when they need capital to sell those lands,” Daw Maw Maw Tun, owner of Aung Myay Real Estate Co Ltd, said.
Registered real estate companies are able to run mortgage businesses, but unregistered brokers in the market also operate in the industry. If an issue were to occur with a tenant who used an unregistered broker, a legal solution would be difficult for them, U Tin Maung Thein, a specialising in real estate services, said.
“To sign a mortgage agreement, registered companies would be reliable and safe. But very few companies accept mortgages. To be a registered business in real estate market, bureaucratic processes create a barrier by having to go through the court. People don’t want to go the court or may be afraid of going to the court. It is a long process for documentation and money is an urgent requirement. So, they solve the urgent money requirement through a mutual understanding between receivers and givers by non-legal means by signing mortgage agreements,” U Tin Maung Thein said.
Borrowers who mortgage property receive rates based on how developed the property is. A borrower who owns land without building will be eligible for a mortgage that is 33 percent of the market price. If a borrower has property with a building on it, they will be eligible for up to 50 percent of the market price. Both scenarios come with an interest rate between five and seven percent.
Despite an increase in activity in the developing mortgage sector, it hasn’t reached expected targets.
“The market is not stable. Land owners offer contractors to build a building on their land for a mutual venture, but no contractors are interested in investing.
“Land owners often get rid of their properties by exchanging land for land in variable rates for different properties. Even if they reduce the price a lot during a sale, nobody wants to buy, even with the mortgage system,” U Myat Thu Win, owner of Shwe Min Thar Real Estate, said.
According to the Union Tax Law, which came into effect on April 1, the property buyers must pay 15 percent tax for property that is K30 million and less, 20 percent tax for between K30 million and K100 million and 30 percent tax for any price above K100. The new tax law is the main obstacle in developing real estate market, according to local companies.
Source: Myanmar Business Today
