Inside: Construction and infrastructure developments in Myanmar, boom or boom?

http://www.insidecounsel.com/2014/02/03/inside-construction-and-infrastructuredevelopment
The countrys double-digit growth rate is expected to remain steady after decades of stagnation
BY ERIC ROSE, U KYAW HOEFEBRUARY 3, 2014
Myanmars building industry is on the move; its new double-digit growth rate is expected to
remain steady for the foreseeable future after decades of stagnation.
The industry expanded 16 percent in 2012 over the previous year, according to the research
arm of one of Thailands largest banks. Kasikorn Research said the expansion was up from a
rate in the low single digits. Pent-up demand is driving the sector despite major constraints,
which include surging prices of land and premium office and condo rents, the lack of a national
construction law, and a fragmented regulatory environment.
Growth is projected to remain in the double digits for an extended period due to extensive
investments in infrastructure. Plans have been announced already for the construction of new
roads and highways, telecom tower stations, power plants, airports, deep sea ports and railway
upgrades. The IMF is projecting a steady rise in GDP this year to 7.5 percent, substantially
higher than the 6.9 percent projected just a few months ago. Already, Myanmars GDP growth
forecast almost matches Chinas.
Hospitality surge
Although the supply of first-class hotel rooms in Yangon is on track to triple over the next two
years, supply will continue to lag demand by a very wide margin. Yangon had just 9,500 hotel
rooms last year, with only about 1,800 meeting international standards, according to Myanmars
Ministry of Hotels and Tourism. By 2015, another 3,442 new international standard rooms will be
added, but tourist arrivals are climbing rapidly.
Yangons existing airport saw international passenger arrivals soar by 53 percent in 2012 to
more than 550,000, and another 36 percent in the first five months of last year. A new airport
being built in Bago will be able to handle 12 million arrivals a year when it opens in 2017. The
governments goal is to reach 7.5 million tourist arrivals by 2020 (a seven-fold increase from the
current level). These projections indicate that the mismatch between supply and demand will
continue, particularly during the high tourist season (December to May).
Room shortages are also critical outside Yangon, particularly at tourist destinations such as Inle
Lake, Mandalay, Bagan and Ngapali Beach. New areas of the country will also open as a
nationwide ceasefire agreement is nearing. Hopefully, it will be followed by a peace agreement
between the national government and armed ethnic groups.
Construction in remote areas is more difficult due to the lack of adequate roads, supplies of
construction materials, heavy equipment, skilled contractors and manpower. Moreover, there
are few project developers who can access financing for development as local loans are rarely
available. This creates opportunities for foreign investors with capital. According to government
figures, local businesses invested over $800 million in 2013 in hospitality and residential

construction projects, while foreign investors (mainly from China, Thailand, Hong Kong and
South Korea) invested less than $40 million as of June 2013.
Residential boom
Through 2015, it is estimated that some 20 condo projects, each with 200 to 300 units, are
going to be finished in Yangon alone. Still, demand for housing units will continue to vastly
exceed supply as the rate of urbanization accelerates. In Yangon alone, over 20,000 new
apartments will be needed every year for the foreseeable future. Foreign companies have
started to use precast concrete factories for low-cost housing projects. Housing demand is so
high that these normally long-term investments are made profitable even in the short run.
Consider the consequences of the following numbers from the Myanmar Construction
Entrepreneurs Association. In 2000, Myanmar had some 15.5 million urban residents. By 2015,
their number will swell to 23.7 million. As a result, the country is experiencing soaring prices for
land, apartments, condos, retail space, commercial space, office space, etc. Furthermore, once
the new Condominium Law is enacted, which is expected to allow foreigners to buy apartments
in Myanmar, price competition in this sector will increase. Finally, the Myanmar government
recently launched the countrys first construction and housing development bank and has
started a program to build over one million new apartments by 2028.
Yangon Citys transformation
Yangon itself is preparing for a major strategic urban development called Yangon 2040 - A City
of Green and Gold that aims to return the city to its status as a regional capital, complete with
the infrastructure and services such a hub will require. A new Building Code for High-Rise
Buildings is being adopted, and heritage buildings will be restored and transformed into
commercial spaces. Currently, Yangon is estimated to have, in the aggregate, less square
footage of first-class office space than one office tower in Bangkok, a city of similar size. A
number of office tower projects are underway, while businesses seek office space in condos,
converted houses, and other nonconventional solutions. The result is that foreign investors
rents for first class office space can vary from $7sqm to $22sqm per month. In time, these
market discrepancies will level off, but the current chaos provides a substantial investment
opportunity, particularly for mixed-use commercial buildings.
Industrial expansion
Large and small foreign manufacturers have started to announce Greenfield projects in
Myanmar. From Coca Cola to British-American Tobacco to Nissan and Unilever, they cover a
broad spectrum of industries. Some of these projects will be located near major metropolitan
areas, while others will be along major highways which provide stable road access, particularly
during the rainy season. Nevertheless, due to the severe shortages of electric power in
Myanmar, substantial industrial development will likely be delayed until this issue is remedied
(the government has announced a $20 billion plan to increase generating capacity to 16,500MW
by 2022). In time, the lack of quality roadways, a large deficiency in logistics capacity and
shortages of skilled labor will also have to be addressed.
Regulatory considerations
In the past, construction growth was stunted by land price speculation (land prices rose five-fold
between 2002 and 2011, and continue to rise), and the difficulty of establishing title to the land.
In the absence of a nationwide construction law, a developer will normally try to establish the
ownership of the land, and then apply for a building permit. Some municipalities, such as
Yangon, have quite detailed requirements for the issuance of a building permit, as well as a

complex construction code, while other dont. For example, the list of regulations for Yangon
construction includes:
a.
b.
c.
d.
e.

Yangon City Municipal Law (1990)

Yangon City Building Rules
Yangon City Municipal Rules
Yangon City Municipal Committees Notifications
Instructions for Buildings published by the Yangon City Municipal Engineer Department for
Buildings
f. Yangon City Environment and Sanitation Rules (1999)
Environmental Law (2012)
Despite its challenges, which are quite numerous, the construction industry in Myanmar is
forecasted to continue growing at an annual rate of over 10 percent for the foreseeable future,
one of the fastest rates in Asia. There may be significant rewards for those willing to enter this
chaotic, but promising market.