Construction booms but clouds gather

The apparent boom in Yangon construction conceals increasing complexity, as stricter regulation combines with aggressive speculative practices to create a difficult environment for contractors and would-be homeowners alike, industry sources say.

Unquestionably, the number of apartments has grown considerably in the past two years. But U Nay Win, deputy director of the Department of Engineering (Building) of Yangon City Development Committee, predicted yesterday that both construction and sales were likely to slow.

“We expect demand to fall because of the number of new apartments coming onto the market. Most buyers are not people looking for a place to live, but speculators who will hold the apartments empty until they can sell for a profit,” he said, adding that this practice tended to inflate the price of apartments.

“Contractors won’t wait to sell to would-be homeowners. So by the time investors have cornered the market, ordinary buyers can no longer afford the apartments,” he said.

Developers operate a pre-sale system under which buyers pay for incomplete apartments by instalment. Sometimes these buyers sell the property on to others before completing payment.

“When profit is high, they invest in buying up more units. Contractors will continue to build as long as the demand is there. This increases supply, but reduces the number of would-be buyers,” said U Nay Win.
According to YCDC, more than 100 permits have been issued in the past year for buildings of 12 storeys and above.

However, said U Nay Win, prices are unlikely to fall when the bubble bursts. “Because land in Yangon is so expensive, contractors have to invest not only in construction, but also in the underlying land. Sometime developers have to pay landowners when they set up a joint venture,” he said. This makes them unwilling to sell at a loss.

Real estate experts agree that the construction market has slowed considerably since the end of last year. U Aung Min, director of Myat Min Construction, said, “The main reason is additional new YCDC regulation. Added to that, investors have adopted a wait-and-see attitude.”

The new regulation is a reaction to the scramble to build that ensued after the onset of economic and political reforms of 2012, when many developers, eager to cash in on the boom that accompanied soaring land values, built without permits.

“Before, contractors could apply for a YCDC permit with a prepaid licence fee. But now they have to provide evidence of the contractor’s biography, education level and previous work. YCDC will not issue a licence if they see a weakness in the application. They have also raised the price of the licence fee from about K200,000 to K3-4 million, and have established a blacklist. Contractors can have their licence withdrawn,” said U Aung Min.

The threat of licence withdrawal hangs over not only the individual construction site found to be in violation, but to all other sites operated by that contractor and the engineers involved, he said. These measures have deterred many contractors and engineers.

U Yan Aung, manager of Asia Builders Construction, said, “Speculators are no longer interested in investing in apartments, so sales have fallen – which means construction will fall too.”

Tighter regulation would have the same effect, he said. “In the past, we could get a residence permit [to allow occupation of a newly completed building] once the engineering department had completed its testing. Now, all six departments concerned, like the electricity metering, fire, water and the others, have to complete tests before a permit can be issued. This all makes things very difficult and time-consuming,” said U Yan Aung.

U Aung Min, of Myat Min Construction, said, “Regulation is important, but with so many new rules, contractors have a great deal more to handle than they used to.”

Source: Myanmar Times

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