Developers of luxury real estate projects in Yangon have reported slowdowns in sales of off-plan residential units in the final quarter of 2014, a research revealed.
As a result, some developers chose to lower their prices in Q4 by around $20-$30 per sq ft compared to Q3, suggesting that greater competition and a limited buyer pool is having an impact on the market, according to the latest research by Frontier Myanmar.
The trend is one of several key findings in the Q4 2014 Yangon Real Estate Review, the third edition of a quarterly report published by Frontier Myanmar Research.
Some speculative investors, who account for a large proportion of off-plan sales of high-end residential units, are now in ‘watch-and-wait’ mode, following a combination of anti-corruption reforms and reforms on tax legislation, the report finds.
As a result, pricing at the top end may remain flat until the market opens to other potential buyer groups.
The market is unlikely to expand until the long-expected Condominium Law potentially allows foreigners to buy under certain conditions, and a better-developed mortgage market boosts demand from local non-cash buyers, Frontier said.
Despite the slowdown in luxury residential sales, several new projects were announced throughout the quarter, with new international developers and contractors continuing to enter the market.
The largest project to be launched in Q4 was the Polo Club Residence, which will add 375,000 sq m of residential and commercial space, according to the report.
According to the report, competition across the market continues to increase, with developers aiming to complete more than 10,000 high-end apartments in purpose built towers or mixed use projects in Yangon before the end of 2017. If developers’ targets are met, Grade A office space will jump more than eightfold by the end of 2018, according to Frontier research.
To add to the pressure, contractors will likely continue to face higher construction costs than elsewhere in the region. While sales price rises may have so far outstripped inflation in construction costs, the increase in property supply may mean that situation cannot continue indefinitely.
The report adds that currency depreciation is also having an effect, with the Myanmar kyat falling from K980 to K1,030 to the USD in the fourth quarter of last year.
Many local firms now face higher costs, as there are few hedging options available and contractors remain reliant on foreign-currency denominated imports for many building materials.
A combination of these factors is likely to slow the completion of future supply, and Frontier said it envisages delays and even cancellations on some projects that were announced in the second half of 2014.
Nonetheless, many of the underlying fundamentals for the Yangon property market remain strong, with demographic growth, a broadly positive business environment, and more foreign companies and expatriates arriving in the city.
Meanwhile, the government has increasingly sought to monetise centrally-located land in Yangon, and continues to look to private-sector partners to build projects.
In particular the Department of Human Settlement and Housing Development (DHSHD) and the Yangon City Development Committee (YCDC) are tendering build, operate, transfer (BOT) and public private partnership (PPP) contracts, and may continue to do so throughout 2015, the report says.
Projects currently under development on DHSHD land that was formerly used for government housing include Golden Link Condo in Bahan Township, a condominium on 51st Street in Botahtaung Township, Sky Suites condominium in Yankin Township and a high rise project in Thuwanna Township.
In addition, the government is increasingly focusing on the development of affordable housing and has plans to spend K100 billion ($97 million) on 10 low-cost housing projects across lower Myanmar in fiscal year 2015-16, eight of which will be in the Yangon region.
Tenders for several of the projects have already been issued, and the remainder will be tendered to private companies over the next few months.