After a flurry of activity in Yangon’s real estate market over the last several years, 2015 proved to be fairly quiet. As the market cooled in the run up to November’s elections, office rents continued their downward slide, residential sales slowed to a halt and the torrent of foreign investment dried up, at least momentarily. With details surrounding the composition of the new government not being finalised until March and a large legislative backlog, including a number of regulations relevant to real estate markets, what can we expect to see in Yangon in 2016?

Yangon’s Office Market

After peaking near USD 100 per sqm per month in mid-2013, Grade A office rents have tumbled by 35-40% as new supply has entered the market. Despite the decline in rents, occupancy has fallen, most noticeably in existing projects. While some tenants have left the market, most have sought less expensive accommodations in newer non-prime buildings and other alternatives such as villas, hotels, and retail centres.

Based on feedback from our clients in the country, many occupiers are still in the wait-and-see mode adopted before the election.

We believe the first half of 2016 will be relatively quiet before activity picks up in the second half when the new administration is in control. With new supply completing this year, we expect Grade A rents to stabilise at or slightly below current level.

Yangon’s Residential Market

In recent years, most investment has focused on the higher end condominium segment, targeting cash rich local buyers. While early projects achieved some success, many projects launching in 2014 and 2015 have run into a trifecta of barriers negatively impacting sales:

1. There are no laws on strata-title ownership. Sales in mid- and high-rise units are effectively private contracts between the two parties. The weak legal structure and lack of legal redress have created much uncertainty for buyers.
2. Foreigners cannot own freehold real estate and this has restricted investment activity.
3. The banking system is undercapitalised and does not have an effective mortgage system. The maximum legal loan term is one year and with interest rates in the double digits, it is impossible for a regular resident to buy.

While new regulations concerning the first two issues are likely to be passed into law in 2016, the banking system remains a major stumbling block in the residential market. Thus we expect the sector to remain fairly quiet in 2016.

Part two of our coverage on the outlook for Yangon picks up next week, so stay tuned for insight on Yangon’s retail sector and foreign investment activity, as well as our overall outlook for 2016.

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