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Property developers come under pressure as dollar rises

Property contractors are under pressure from rising costs of building materials as a result of the higher dollar-to-kyat exchange rate.

Building machinery and materials such as steel bars, which are imported from overseas, have become dearer to local developers and contractors on the back of the appreciating dollar, which yesterday hit a new high of K1427, based on the rate set by the Central Bank of Myanmar.

Furthermore, as petrol is also imported, the cost to transport such materials has also risen.

“As basic materials like iron rods and other building materials become more expensive to import, construction costs will rise,” said U Kyaw Kyaw Soe, general secretary of the Myanmar Construction Entrepreneurs Association.

The latest cost pressures have arrived at a time when demand for Myanmar property is still soft, which is bad news for local developers, said U Nay Min Thu, managing director of iMyanmarHouse.com.

“The value of the kyat has declined substantially. Meanwhile, as demand is weak, sales prices for apartments have are not rising to offset this. As a result, some developers are being forced to lower prices by as much as 20 percent compared to four years ago,” he said.

Under pressure

That is likely to drag many developers into the red, particularly on apartments that have already been pre-sold or reserved by buyers before the exchange rate spiked. Before the Condominium Law was enacted, it was common for sellers and buyers to make direct arrangements for property transactions, for example, paying an upfront deposit and the remaining when the property is complete and handed over.

Under such arrangements, developers are likely to come under heavier pressure to fund the ongoing construction of the properties as costs rise, said U Yang Aung, general manager of Asia Construction.

As a whole, developers stand to lose between 5pc and 10pc if the selling price of some properties cannot be renegotiated or readjusted higher, according to U Kyaw Si Thu, property sales director at Success Property Consultant Company.

For developers who have linked up with the banks to sell their units under an installment plan though, things will be more stable, said U Kyaw Kyaw Soe. “Under such arrangements, the banks will pay the developers, which is less risky than dealing directly with the buyers.”

Foreigners gain

On the flipside, it’s a pretty good time for buyers, especially foreigners, to enter the property market. “As the value of the kyat has depreciated, it’s a good time for foreigners to invest in Myanmar property,” said U Nay Min Thu.

Still, U Kyaw Kyaw Soe pointed out that the lack of strong and clear laws and regulations governing the property sector is causing potential investors to hesitate when considering whether to invest in Myanmar or not.

“Foreign investors are more afraid of uncertainty than exchange rate fluctuations,” he said.

Source: Myanmar Times

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