Sunday, July 21, 2013

The Irrawaddy Magazine

The Irrawaddy Magazine

Property Boom Fuels Yangon’s Skyward Climb

Posted: 21 Jul 2013 10:10 AM PDT

Yangon's landmark Shwedagon Pagoda can be seen in the distance from a Yadanar Myaing construction site on the Kandawgyi ring road. (Photo: JPaing / The Irrawaddy)

YANGON — The sweltering midday heat and choking cement dust are no hindrance as sandal-clad laborers shoulder bags of cement up five, six, seven flights of stairs, yelling as they go at slower-moving and less-weighed-down colleagues to move aside.

On the way up, they pass half-finished floors where men—and a few women—lay bricks and slap layers of plaster on half-done walls, bantering as lunch hour approaches.

Two years in the making, the 10-storey building will be ready to welcome its first tenants by the end of 2013, says site manager U Naing Win Aung. When completed, the pricy new property—complete with the obligatory gym and pool—will overlook the verdant purlieu of Yangon’s Kandawgyi Lake.

It's a stellar location, just a mile from Shwedagon pagoda, the gilded centerpiece of worship for Myanmar’s majority Buddhists. But for now, the site is still very much a work in progress, as the builder, construction company Yadanar Myaing, works at full speed to complete the latest addition to Yangon's rapidly changing cityscape.

But if the view from the top of the towers is spectacular, the price matches. At US $150 per square foot and with each condo measuring 1,829 square feet, that’s almost $300,000 per unit. "All 60 are sold already," says U Naing Win Aung, his office wall covered in artist impressions of similarly lavish apartment blocks planned for elsewhere in the city.

Such eye-watering prices are fast becoming part of Yangon’s new urban legend—a crumbling old colonial outpost at the center of a gold rush prompting some office space rentals to exceed prices in much more developed "first-world" cities.

In some of Yangon’s few suitable office locations—such as Sakura Tower and Centerpoint—floor space is currently on average around $60-70 per square meter. But across the road from Sakura Tower, construction company Shwe Taung Development is building a rival complex—an annex to the well-known Traders Hotel—that will provide 14 floors of offices by the end of 2015.

The biggest foreign investment project in Myanmar over the past year, however, is the $300 million office, hotel, apartment and shopping complex being built by a Vietnamese-backed group and going up beside the old Sedona Hotel—but that is not likely to be finished before 2017.

While property developers rush to cash in on strong demand and high prices, the dramatic increase in available office space should, in the long run, see prices drop, says property agent Daw May Htet Aung, of Power 7 Real Estate. "Hopefully the cost will come down to $50 [per square foot]or less," she says. "As more construction finishes, there will be more office space."

Meanwhile, the current dearth of space is slowing Myanmar's bid to attract foreign investment and live up to the hype surrounding Asia's latest and least developed emerging market.

"A big pharmaceutical company came to me looking for offices," recalls Daw May Htet Aung. "But when they saw how expensive they said no, and they are postponing their business here because of that!"

That wasn’t just a one-off. "I had the same experience with two or three big companies," she laments.

In a similar vein, Masaki Takahara, head of Japan’s overseas trade office in Yangon, says that despite his country’s newfound big-spender attitude towards Myanmar—Tokyo recently pledged 20 billion yen (around $200 million) to the proposed Thilawa industrial zone and port outside Yangon, for example—Myanmar’s poor infrastructure is holding back investment.

"For now, there is a lack of infrastructure in Myanmar, but we are hoping these issues can be solved," he says.

Japanese lending will not only help bring Thilawa online—it will also aim to boost Myanmar’s flickering electricity supply and improve roads—two key issues that need addressing to reduce costs for investors, and, perhaps, to justify the bank-account-emptying property prices in Yangon.

In the meantime, a new venture in Yangon is trying to offset the lack of office space by providing around 300 square meters of serviced offices for companies to rent.

Marc Rudolf von Rohr of Myanmar Access, a partner company in the enterprise, says that local businesses are asking about the location, citing their perceived need to have a base closer to where prospective foreign partners stay during their reconnaissance visits to Yangon.

"I was surprised at that, at first, but many Myanmar companies have their HQ farther out of the city, and they’re seeing that they need somewhere closer to the hotels and downtown so they can meet easily with foreign businessmen."

He says, however, that he expects most of the interest to come from foreigners. "There’s blue-chip interest from Thailand and Singapore, companies whose names you would know."

Since many foreign businesses are at this stage just looking at opportunities in Myanmar, temporary rented facilities often suit their needs. "People come, they have meetings, they look around, they don’t necessarily start operations so soon," says Mr. von Rohr. "It might be like that for some time yet."

Part of the reason companies are slow to invest in Myanmar, it seems, is not just uncertainty about the supply of essential infrastructure such as electricity, but also the difficulty of dealing with the nitty-gritty of securing even a small office space. "Getting a viable and affordable place here can be an ordeal," says Mr. von Rohr. "You need reliable power, Internet; you need to sort out a lease. Many places are unfinished."

An ordeal might also be an apt way to describe what would-be renters looking for a place to call home in Yangon sometimes endure.

Emmanuel Jaquet, a Canadian who has live in Yangon for 10 months, says that "it took around 15 visits to different places" before he and his girlfriend found a worthwhile apartment within their budget.

"We wanted to share at $1,000 a month," he says. "But my girlfriend saw so many places that were just not finished, were dirty, had no facilities, but people were charging these crazy prices."

The couple’s house-hunting adventures involved some encounters with some unorthodox interior design. "We saw one place that had a shower in the kitchen," says Mr. Jaquet.

After finally finding a suitable place, Jaquet says the couple’s troubles continued. "The landlord was happy to take our year’s rent upfront, but when something needed fixing, we had to wait for weeks. In the end, we just decided to get it fixed ourselves and sent the landlord the bill."

Such stories are legion among foreign tenants coming to Yangon, the numbers of whom have "picked up a lot" over the past year, according to Daw May Htet Aung.

It is standard practice in Yangon for landlords to want a full year’s rent upfront, with little chance of refund if for whatever reason if the person has to leave the country. "Foreigners are not used to the Myanmar way," says Daw May Htet Aung.

As for the owners, she sighs that for the most part "they are not interested in the business of being a landlord—they just want all the money only."

Her company plans a sort of clear-the-air event sometime this summer, "to try to bring the owner and the tenant together." She doesn’t know if this will lead to landlords adopting the more standard practice of charging month-by-month and requiring just one month’s notice of termination, but she acknowledges that "we need to improve how the market works in our country."

For now, catering to the needs of foreigners, under whatever terms, is lucrative for those in the right place. The average apartment rental for foreigners coming to Yangon, says Daw May Htet Aung, is between $2,000 and $4,000 per month. However, she adds, some places go for as much as $20,000 per month.

That’s right—$20,000, to rent an apartment. "Yes, big company, petrol company, they can pay this for their staff," says Daw May Htet Aung.

While it is still far from certain whether an increase in the number of available spaces will see such prices fall, what is clear is that Yangon badly needs more office space and more accommodation—both apartments for those staying for several months or longer, and hotel rooms for the growing number of tourists visiting the country.

But the drive to develop Yangon—which officials say could become a "mega city" of 10 million people or more by mid-century—threatens to undermine the unique atmosphere of a city that still has a sense of history, in a region where most big cities have succumbed to poor urban planning and the replacement of older, architecturally significant buildings by glassy malls and ugly high-rises.

The Yangon Heritage Trust (YHT) is at the forefront of efforts to save as many of the city’s moldering old colonial edifices as possible.

YHT Director Daw Moe Moe Lwin says that her group does not want to impede much-needed construction of new housing and business complexes, but fears that Yangon could "lose its soul" if the drive to develop leads to destruction of the array of Victorian and Edwardian neoclassical buildings from which Britain ran this corner of its South Asian empire.

Dismissing contentions that the buildings should be destroyed due to their colonial baggage, she says "in that case, we should just have Mon buildings here, as this place was colonized by the Burmans before."

"They were places where our history took place," U Moe Moe Lwin, an architect, says of the British-built behemoths such as the City Hall, which now serves as the headquarters of Yangon’s city administration, and the old Secretariat, where Myanmar independence icon Aung San was assassinated in 1947.

The trust hopes to persuade city authorities "to set up a multilevel review body for development projects in the city," to try balance the need for new housing and offices and hotels with the YHT’s push to save its heritage.

One controversial project that is going ahead, however, is a new three-storey shopping mall being built in the Peace Park, the red steel frame of which already juts across the view of the nearby Shwedagon Pagoda, to the chagrin of some.

"That land in the park should be for the people, not for a private company," says U Moe Moe Lwin.

At sundown in the Peace Park, a scattered few couples nuzzle under bushes, half-hidden in the twilight, and here and there, a few kids play football under the eyes of watchful, sometime scolding mothers. To one side, the buzz of angle grinders drowns out the chirping of birds and workmen, minus protective glasses, light up the darkening evening with the spark of welding torches at the new building site.

Ko Kyaw Zin Min, a Yangon resident out for an evening stroll with his girlfriend, says he’s not sure whether the new mall is suitably located.

It is "too close to such a precious monument," he says, referring to Shwedagon. Then, after a thoughtful pause, he adds: "But we need development for our economy as well."

That’s the balance, perhaps, that Yangon needs to find, as new buildings go up and heritage devotees hope there’s a way found to preserve the city’s sepia-tinged downtown.

Looking again at the shopping mall going up across the road from Shwedagon, Ko Kyaw Zin Min thinks aloud: "If it's not too high, maybe it will be OK," he says.

This story first appeared in the July 2013 print issue of The Irrawaddy magazine.
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