Apartment Projects Dance Around Regulations

Apartment building development has become a major market for the local real estate industry after Myanmar began to open up in 2011. However, construction has been slowing and seeing more disputes between land owners, contractors and buyers due to quality-control and funding problems.

Many disputes have arisen from contractors’ failure to complete construction in the agreed time period as per an agreement with land owners, which often leads to suspended construction projects.

In some areas of Myanmar, a unique system of construction has sprung up, in which construction companies tear down a landowner’s house, replace it with an apartment building, and divide ownership of the rooms between the landowner and the constructor.

“We received K10 million from the contractors for relocation when they started building on our 20×60 feet land. After construction, if the building is five-storey high, we can choose to own either the top floor and the ground floor or the three stories in-between,” Ma Than Than Aye, a land owner in North Dagon township who entered into a deal with a contractor, told Myanmar Business Today. The remaining apartment units belong to the contractor who often sell the units before construction finishes.

Contractors usually sell the flats to fund the project, but problems such as delays and suspensions arise when they don’t invest any capital from their own funds and cannot attract enough buyers to fund the project.

Although the current exchange of land and flats is mutually beneficial for both land owners and contractors, land owners are usually unaware of the regulations of the construction industry and are vulnerable to low-quality delivery and rule-breaking activities of contractor companies.

“If land owners submit complaints to us, we look through them and take necessary action. If we find a construction without required permission form the government, we prosecute the owner first and then the contractor. The charges carry a fine from K10,000 to K500,000 or a one year prison term,” said U Thant Zin Myat, assistant director at the Engineering Division (Construction) under Yangon City Development Committee.

Construction companies are listed under two categories under which small companies are limited to build only up to four-storey buildings and have to deposit K20 million and declare assets worth K60 million for permission to start a construction.

Larger companies are not subject to any storey limits and must deposit K50 million and declare assets worth K150 million.

Land owners need to check if the construction companies they are dealing with have valid licences and report to authorities if the contractors fail to meet the construction deadline or comply with other agreements.

“The value of deposits and asset declaration required to get construction permissions is very high and this is the cause for the low number of authorised companies and the high number of un-authorised construction projects. This situation hurts confidence in the industry,” said U San Yu, site manager at the Toe Pauk Construction Company.

Although YCDC claims to deal strictly with illegal construction, many such projects are going on normally, one analyst told Myanmar Business Today. YCDC currently engages in approving building designs and issuing construction permits without following up on those projects on the ground to see whether they actually meet regulations.

“Illegal constructors can survive because of the lack of action form authorities and loopholes in regulations. Sometimes projects are approved only out of self-interest. The public is not well-informed of the rules and regulations of the construction industry so public awareness raising activities on such issues should be carried out,” said U Tin Than Oo, an attorney practicing business law.

The number of illegal constructions without proper documents are about five times higher than that of official constructions with proper permits and therefore land owners need to be on alert and carefully vet the contractors they want to work with.

YCDC has been tightening their regulations on the industry with the number of sued illegal constructions reaching 2,154 in 2014-15 from 1,492 in 2013-14. As of June in 2015-16, 2,227 illegal construction cases have been brought to the court. The number of approved construction projects in 2014-15 was 451.

After repeated warnings were issued in 2014, regulators have demolished 47 buildings for failing to meet regulations or exceeding the limits approved in their permits.

Meanwhile, to help solve the funding problems faced by many contractors, Construction And Housing Development Bank in cooperation with Myanmar Construction Association have issued over K50 billion worth of loans to around 60 construction companies.

Constructions through land owner-contractor agreements occur mostly in outer areas of urban Yangon, specifically in Mayangone, Thingyangyun, South Okkalapa, North Okkalapa, North Dagon and Bagan townships.

Source: Myanmar Business Today

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