Serge Pun: The Bubble Will Definitely Burst

The Yoma Strategic Holdings conglomerate has cultivated an enormous portfolio of real estate, agriculture, tourism, banking, automotive and retail businesses in Myanmar over the last two decades. As of December this year, the company’s market capitalization was US$692 million, and it ranks in the top five percent of Singapore Exchange-listed companies on the 2014 Governance and Transparency Index. Yoma recently secured a $100 million loan from the Asian Development Bank (ADB) for infrastructure development projects in Myanmar.

Serge Pun, executive chairman of Yoma Strategic Holdings, spoke to The Irrawaddy on Tuesday to discuss the recent ADB loan, the resumption of full services at Yoma Bank, and the need to balance the rights of landowners and the needs of developers in an overheated property market which is also seeing an increasing number of land disputes.

Question: How were you able to secure a loan from the ADB for your business projects?

Answer: The ADB has aimed to support Myanmar’s development projects before. They required us to satisfy criteria before granting us a loan, including corporate governance, social responsibility, and measures to avoid corruption and money laundering. We’re satisfied to be working with them.

Q: Why did Yoma Bank resume banking services after an 11-year suspension? Is it true that the International Finance Corporation is now assisting Yoma Bank with the provision of banking services?

A: As you would know, after the bankruptcy in 2003 [which occurred during Myanmar’s banking crisis], we halted banking services and only offered money transfers across the nation because the government revoked our banking license. Our license was restored in the middle of this year. We have assistance from the International Finance Corporation now. But we’re 10 years behind [our competitors] so we’re trying to catch up now.

Q: You have significant real estate investments in Myanmar. Do you believe that current land laws in Myanmar are suitable for both landowners and developers?

A: There are many land issues, and there will be definitely many conflicts between landowners and developers while the problems are solved. Other countries are also facing similar problems; the main thing is how to find a solution. It would be good to see a land rights bill passed by the Parliament. It’s the right time.

Many farmers who have worked the same paddy fields for decades do not have ownership records, so they can’t mortgage their properties and get financial assistance from other organizations. In the [current Farmlands Act], farmers can get ownership records and do more than they could in the past. It’s a good law but it should not be used to force developers to pay unfair compensation to landowners.

There are many things to do to further the country’s development. For example, connectivity: if the highway system doesn’t improve, it will take more time for trade to flow from one place to another.

While some people will benefit from development, there are risks for some people. We will have to decide that these people will be treated fairly by the law. We will have to see how to solve the problem posed when some people want their land to remain unaffected by development—by law, if they are motivated by individual interest, they will have to make a sacrifice.

Q: Have you ever had these kinds of issues before or are you currently working through such problems?

A: I’ve seen a lot of land issues before. Landowners [subject to seizures] said they want the “current market price”—but what is the current market price? Where does it come from? For example, there is a project underway in Dala Township, and people have been making significant purchases of land there. They will inflate the market, selling to each other. What did these people do to help develop Dala Township before? They did nothing but they’re likely to get a profit because of market speculation.

Farmers who say they want market prices…is it possible to give them these amounts? If we pay this amount, no one will be able to buy an apartment on the land later. When we started working on real estate in Hlaing Tharyar Township 20 years ago, it only cost three million kyats (US$2,910). Right now, the market value is 600 million kyats ($582,000), so nobody will come to invest in the industrial zone.

The government needs to know and be made aware of the needs of business people. If we’re implementing a project, we have to fairly compensate farmers. There should be a body formed to decide appropriate compensation amounts.

Q: Do you think the real estate market in Myanmar is currently experiencing a bubble?

A: The definition of a bubble is fake demand in a market. It’s not a real market, it’s a speculative market. We have a very strong labor-intensive industry but we don’t have the infrastructure for high tech industry. Low cost labor-intensive industries can’t support expensive land plots. [So] the bubble will definitely burst.

There is some demand in residential areas, but if developers build apartments on expensive land, following standard building codes, will that stay affordable for buyers? Who will buy them? As long as buyers can pay, it will continue, but when they can’t buy, the bubble will burst.

Q: Are people still paying exorbitant amounts for land in Myanmar?

A: Yes, some people are still able to afford to pay these amounts in residential areas. For example, at my Star City housing project in Thanlyin Township, the land prices are about 150,000 kyats ($145) per square foot. In our experience, this is about the maximum [that property buyers can afford].

Office rental costs are another issue; rental prices in Yangon today are higher than in Singapore. It has stayed this high because of low supply and high demand. The rental price downtown is nine dollars per square foot. Some people can afford to pay, but most can’t.

Source: The Irrawaddy

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