Who will benefit from Condominium Law?

Daw Min Min Soe only realised there was a problem with her apartment when officials from the bank arrived at her building and put up a notice reading, “If the owner fails to repay the loan and interest we will seize the apartments.

he owner of the land in Pazundaung township had developed the eight-storey, 16-room building with her own money and sold off most of the apartments – including five she had mortgaged to CB Bank.

“We have known that woman for a long time – we’ve been living in the same quarter together for ages,” said Daw Min Min Soe, whose family runs a grocery store. “So we tried to get an agreement with her to resolve the problem. She said she didn’t have any money so couldn’t help.”

The owners of the five apartments had few legal options. When they threatened to sue the woman, she reminded them that it would do little to solve their problem: Without money to repay the loan, she would end up in jail but they would still lose their homes – and have to pay legal expenses.

“She said she can go to jail or we can take her flesh as compensation [because she had nothing else]. What can we do? We knew she was broke and we couldn’t get any money from her,” Daw Min Min Soe said. “Finally, we decided to all contribute and pay the loan and interest to the bank. We had no choice – otherwise we all would have lost everything.”

Ownership disputes and scams such as those endured by the group of residents in Pazundaung are depressingly common because of Myanmar’s complicated and outdated regulations on immovable property rights, including those related to land, apartments and houses. These are compounded by efforts to evade tax, which have left ownership records incomplete or incorrect. Anecdotal evidence suggests a large proportion of civil cases within the legal system are related to property ownership.

With apartments, this is compounded by the lack of strata title; owners instead rely on sales contracts, which can easily be fabricated. As there is no ownership database, it’s virtually impossible to cross-check records to see, for example, who owns an apartment, if its ownership is disputed or if it is mortgaged. Instead, prospective buyers place ads in state-run newspapers announcing their intention to buy and giving claimants to the same property a period of time to come forward.

The first changes are on the way, however. In November 2012 a draft Condominium Law was submitted to the Pyidaungsu Hluttaw, and the draft was published in state media a year later.

Most attention has focused on provisions that would enable foreigners to own apartments above the sixth floor, with up to 40 percent of a single building allowed to be held by foreigners.

However, industry sources say that more significant than this will be the granting of strata title to owners of apartments in registered condominiums, which will not only significantly strengthen ownership rights but potentially open the door to international financing for developers and mortgages for buyers. What remains unclear is who will benefit the most – ordinary apartment owners or high-end developers and buyers.

The law in its current draft form will strengthen ownership by creating a new classification of land. Once projects are completed the land on which they are built will be transferred to a body co-owned by the apartment owners; if there are 100 units in the project, for example, each owner will hold a 1pc interest in the land. Significantly, owners will retain that interest in perpetuity – including if the building is demolished and replaced.

“When you have a strata title, you’re transferring your title. Your part ownership of that land strengthens your connection with that space,” said Tony Picon, managing director of the Myanmar branch of property consulting firm Colliers International.

As The Myanmar Times reported in June, the draft has been sent back to the government because of a range of concerns, including the definition of a condominium and land use requirements. It will be reviewed by relevant ministries before being submitted to parliament again, officials said.

“The condo law should clearly set out minimum ownership standards [for the land] to decide what is a condo,” said Daw Moe Thida, assistant director of the housing department under the Department of Human Settlement and Housing Development (DHSHD). “We will submit the law to responsible departments, who will go through it point by point. There are some weak points compared with other international condominium laws.”

One of the changes could see the definition of a condominium broadened. While the government has discretionary powers to decide which developments qualify, the draft states that condominiums should be built on at least 1 acre of land, which would rule out the majority of existing “condominiums” – let alone walk-up apartments like Daw Min Min Soe’s.

One potential issue in retroactively granting title is that the owner of the land on which the building is developed would have to agree to give up their ownership right and transfer it to a co-owned body – something few would likely be willing to do given the potential to generate further income from the land in the future, such as when apartments are demolished and rebuilt.

Regardless, there appears to be little appetite for changes that would make title attainable for virtually all apartment owners, as it is in other countries in the region. In Thailand, for example, the definition does not set a minimum size for the development, or specify certain facilities, such as an elevator; instead it defines a condominium as a building that can be divided into personal properties, or apartments, but also has collective ownership of land.

One of those arguing for the definition of a condominium to be expanded to take in more multi-storey developments is Serge Pun, chair of First Myanmar Investment (FMI), Serge Pun & Associates and Yoma Strategic Holdings.

He told The Myanmar Times the law should instead be called the strata title act and aim to “address all the needs of strata ownership rather than just concentrate on what percentage foreigners can own”.

“This legislation is supposed to govern how strata properties, meaning how a property whose land is co-owned by multiple owners, is to be governed – their rights as well as their obligations. It should apply to any apartment,” he said.

Mr Picon agreed there were major issues with the Condominium Law – particularly the 1-acre requirement and lack of clarity on how it would be applied – but cautioned against opposing legislation on the grounds that it is not “perfect”.

“Thailand muddled through [strata title] a bit and then eventually it got better,” he said. “I think the fact you have a law creating some form of title is more important to start with … It’s not going to change Myanmar, but it is part of this whole package of getting the country on a par with Thailand and Malaysia.”

Even in its current form, the law will still have an important impact on some sections of the market and will enable land to be used more efficiently. Edwin Vanderbruggen, a partner at legal advisory firm VDB Loi, described it as “manna from heaven” for cash-strapped local developers.

“Until now, you need to get everything done with equity. That means you can only do one-15th of the project you would otherwise be able to do and you’re relying on pre-sales, which you may or may not get,” he said.

“[The law is] investment-oriented, it’s forward-looking, the effect of this on financing of existing projects is significant. Don’t forget that we’re on the verge of an influx of money, of international financing. For the first time in a long time international banks are seriously looking at providing financing for Myanmar projects.”

And while it won’t enable everyone to access title, Mr Vanderbruggen described high-end developments as “not a bad place to start”. “[Land ownership reform] is really too big of a piece to swallow at one time because it’s not just apartments, it’s also … rural land and urban land and houses,” he said. “I wouldn’t know where to start … At least [with the Condominium Law] we’ll have proper title for one thing.”

Public discussion on the Condominium Law has been limited; Daw Min Min Soe said she had no idea about its contents or that it had been submitted to parliament. However, she said she supported any legal changes that would strengthen apartment ownership.

“I don’t know what the condo law is. I just know how bad it is to get cheated. I don’t want it to happen to me again and I don’t want other people to have to go through it either,” she said.

“Buying a house or apartment is not easy for people in Myanmar so we need to have stronger laws for ownership.”

For now, she says, people just need to “be careful” when buying property.

“Don’t trust other people too easily,” she said. “All we can do is to do double- or triple-check the documents before buying.”

Source: Myanmar Times

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