Prominent tycoon Khin Shwe, head of Zaykabar Company, recently found himself in a bit of hot water over a huge development at the Mya Yeik Nyo Hotel compound in Bahan Township, at the edge of the exclusive Golden Valley area. Why? His company smashed down at least one colonial-era building that was previously home to the Rangoon mayor. The teak structure had been placed by the Yangon City Development Committee on a heritage protection list. Initially, Khin Shwe said the building had been badly damaged by Cyclone Nargis in 2008 and was not anywhere near original condition. But just last week the army, which owns the land, handed Khin Shwe a public rebuke, informing him that he needs to reconstruct the building.

I have some personal history with that house. A fine example of colonial-era construction, it was one of the first properties that I helped lease when I started my company back in 2012.

Where this really gets interesting is that a friend who previously headed an oil and gas company in Yangon rented the very same house as an office all the way back in the late 1990s when Myanmar experienced its first opening up and consequent boom.

The rent in both cases was the same: US$5000 per month. Both leases also represented near-peaks in the city’s rental market but were separated by about 15 years – plenty of time for the late 1990s boom to evaporate and the curtain to come down, as well as rents.

By the time I arrived in Myanmar in late 2006, the same friend was renting a beautiful colonial-era house in a prime neighbourhood with a huge garden, tennis court and swimming pool for less than $2000 a month. By 2012 that house was going for more than $5000 a month and had climbed into five figures by the very peak of the boom in 2014-15.

These are by no means extreme examples – similar increases can be identified across many parts of the city’s real estate sector: offices, condos (few though they were a decade ago), land and apartments.

In June 2018 we can see a market that is radically different from 2008. Condominiums and offices of many shapes, sizes and quality have proliferated, with many more projects in the pipeline. Where housing options for expatriates were previously centralised because of the city’s woeful roads and power, the improvement of services and a construction boom has resulted in quite high-quality condominiums citywide. This has in turn reduced demand for smaller houses that were popular during the boom period.

In the late 1990s, the boom collapsed amid the Asian Financial Crisis, which saw credit evaporate quickly, as well as the imposition of sanctions by the United States government. Today we have oversupply but this has been driven – mostly– by domestic credit, with much less foreign capital involved.

Consumers now have plentiful options and prices are on their way back down with outstripping demand.

Not everyone has realised this. It’s clear to me that many landlords – especially those with older houses – are still expecting to rent their properties for high prices, despite having made little to no new investment in the past few years.

New clients frequently have the same wish lists: “We are happy to rent an older house but we really want to see new or modern kitchens and bathrooms.” The new condominiums might not have gardens or big balconies but they typically do have modern kitchens and bathrooms, as well as security and hands-free backup power to cover blackouts.

And they generally rent for about the same price as a house. While this is the case for most of the city, there is one area where this comparison isn’t so relevant: Golden Valley in Bahan Township. This neighbourhood has always been the most popular place for expats to live and remains so.

The key reason for Golden Valley’s continued desirability is its convenient location: several of the city’s best international schools are inside the neighbourhood. And many parents are keen to have their children within walking distance of their school. It helps that most of the major office complexes are within a 20-minute drive and one of the city’s best supermarkets is also close by.

Even here, it’s easy to find new condominiums being built and giving renters a lower-maintenance option. But prices of new or well-renovated three-and four-bedroom houses with nice gardens remain firm, bucking a wider trend of decreasing prices.

Citywide it’s clear that new supply continues to hit the market but there are a couple of political factors that are reducing demand. On the one hand, the ruling National League for Democracy government has prioritised peace-building over economic development, with promised economic reforms stalled or moving slowly.

Secondly, tensions between the government, the army and armed ethnic groups are at an all-time high, with conflict raging in the country’s north. Worse yet is the situation in western Rakhine State, where attacks by a militant group led to brutal reprisals by the Myanmar army, spurring the flight of more than 700,000 Rohingya people to refugee camps.

For Western companies, in particular, the unrest in Rakhine State represents an unacceptable investment risk, with doing business in Myanmar unpopular with shareholders, many of whom only see the country through negative media coverage.

Such concerns do not deter Asian investors to the same degree and Japanese companies, in particular, appear to be scaling up operations in Myanmar. During the term of the previous government, from 2011 to 2016, Myanmar encouraged some enormous investments, specifically in the telecoms market, where it auctioned off two national telecommunications licences, eventually to Qatar’s Ooredoo and Telenor, from Norway. Further investment came in the oil and gas industry, where upstream exploration companies took part in onshore and offshore bidding rounds.

This period saw a massive increase in the number of foreign workers on lucrative salary packages seeking accommodation, driving rents to higher levels. Now, oil and gas companies are returning their exploration blocks to the government, with few showing the intention to make further investment. At the same time, the telecoms operators have moved past their initial setup phase and have reduced the number the number of expats on high salary packages that they employ.

The effect of these combined factors is lower prices for expat housing after nearly a decade of steady – and sometimes exorbitant – increases. Rents are returning toward prices similar to 2008-09, although they are not at those levels yet.

For more information phone or email Stuart Deed of Myanmar Real Estate via the contact details listed below.

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