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How/When should we invest in Myanmar?

Downtown Yangon – capital of Myanmar

Since the military junta stepped down in March 2011, the new Myanmar president has conducted a series of reforms toward liberal democracy and a more open economy. Besides releasing the political prisoner, Aung San Suu Kyi, and welcoming Hillary Clinton in December 2011, the government also drafted a new foreign investment law. Foreigners will no longer require a local partner to start a business in the country and will be able to legally lease (but not own) property.

Developed countries have seen this as a golden opportunity to expand their investment portfolios. Some private-equity funds have already gathered cash to invest in the country, especially in the real estate business. Global hotel chains including Marriott and Starwood have expressed interest, while Shangri-La is working on a pair of 21-story residential towers for serviced apartments set to open in mid-2013. Star City, which is in development, will have an 18-hole golf course and at least 20 residential towers—some as high as 16 stories tall. Many other developers have already planned or proposed large-scale real estate investments in Myanmar.

The developers are lured by one of the most under-supplied property markets in Asia: Yangon [former English name Rangoon] has only about 1,850 high-end hotel rooms, according to Colliers International, and 740 serviced apartments, even as the country is on track to attract around a million visitors this year. There are only about 680,000 square feet of office space—less than some single office towers in New York. Most of Yangon is made up of crumbling colonial buildings and mildewing shop houses, with little of note built since the late 1990s.

However, the real estate boom in Myanmar has drawn attention to some key issues.

First, it has inflated the market price for real estate assets. The average residential property price in Yangon shot up 39% in the first nine months of the year, while hotel room rates increased 65%—among the fastest increases in the world. Office rates have more than doubled since 2011. Meanwhile, land prices are climbing so quickly that it could make it impossible for international firms to manage development deals.

Second, while multinational firms such as General Electric and Pepsi are looking for opportunities in Myanmar, many others have focused on selling products rather than investing capital to build factories or other assets. Local banks still don’t have lending systems in place to finance many major corporate expansions. In addition, the inflation in real estate prices will make it hard for firms to build factories here.

Finally, many businesses do not believe it is the right time to invest in Myanmar. Ming Lu, regional leader for KKR in Southeast Asia said “A lot of people are rushing into Myanmar. We don’t think that market’s ready.” At the same time, John Van Oost from Yishan Capital Partners said “I assure you that all the projects now in Myanmar will fail. Land prices already are too inflated there, he said, and it isn’t yet clear which local partners are reliable.”

Meanwhile, there are other optimistic signals. In 2012, the Asian Development Bank formally began re-engaging with the country, to finance infrastructure and development projects in the country. The United States, Japan and EU countries have also begun to reduce or eliminate economic sanctions to allow foreign direct investment.

So, the 2 main questions are:

  1. Is it the right time to jump into Myanmar and invest in the market?
  2. How should we invest in this market? Should we follow the real estate boom, try to sell more products in the market (like Coca Cola and Pepsi) or invest in both human and physical capital (building factories, establish training programs…) to create jobs and improve the economic conditions?


Clara Tran

One Comment

  1. You describe a “wild west” mindset reminiscent of the early days of China’s opening. Part of the problem of analyzing the situation with the information provided by these articles is that we aren’t told the starting level for property prices. If there wasn’t much buying & selling under the military government, then prices may not have reflected location and other standard determinants of value, and the rapid rise is merely a reassurtion of such factors in influencing prices. Similarly, the absolute level (relative to incomes) may be low, or the absolute level (given exchanges rates faced by foreign investors) may also be low.
    Most important is the macroeconomic context. Is there inflation, where real estate prices are merely one symptom thereof, or is this an increase relative to other prices? Implicit in the article is that this is not a case of inflation. It would though be nice to have data.
    Of course even if there isn’t inflation now, there may be little capacity in the construction sector for undertaking a large number of simultaneous projects. Overall Myanmar has a population of about 60 million people, so this may still be small relative to the amount of construction equipment and associated skills. I’ve not however taken the time to peruse relevant materials: the IMF has just completed its Staff Mission and the related reports ought to be available sometime soon, while there are also Asian Development Bank resources on Myanmar.

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