It was the development opportunity of a lifetime. At a site just a stone’s throw from Myanmar’s iconic golden Shwedagon Pagoda in Yangon, permission was given by the Myanmar Investment Commission in March 2014 for a 17-acre, $300m (£207m) luxury development.
Marga Landmark, the joint-venture developer behind the scheme – made up of companies from Hong Kong, South Korea and the UK – busily prepared to break ground. Then, everything changed. A year later, the project was temporarily suspended and, in July, cancelled, following lobbying by influential Buddhist monks, who complained about the eight-storey height of the scheme and possible structural damage they feared could be caused to the country’s most significant religious building.
This is, in part, an example of how a huge political shift in Myanmar has affected major real estate schemes. As the country’s first freely elected parliament opened earlier this month following a historic election last November, what can developers and investors eyeing the country as a possible emerging opportunity area expect under the new rule?
Political casualties
Marga Landmark’s derailed scheme is a prime example of the fallout from the political shift. Dagon City 1 was to be the first of five phases to be developed at the large Ministry of Defence site which, at its closest point, was 500m from the pagoda. Hundreds of luxury apartments, shops and offices were planned. The other four planned schemes were also terminated.
But talk of legal action ultimately dissipated and the scheme will now be relocated to another MoD site on the same Kaba Aye Pagoda Road much further away from the pagoda, near Inya Lake to the north of the city.
The relocation will be a boon for the monks, who are part of an ultranationalist movement called Ma Ba Tha, which campaigns to protect “race and religion” and has been accused of anti-Muslim sentiment. The organisation garnered major political significance in the run-up to Myanmar’s national election in November, and even campaigned against Aung San Suu Kyi’s victorious party,
the National League for Democracy.
Frontier market
“It is a frontier market; these things happen,” says Tony Picon, managing director of Colliers International Myanmar. “It’s not a surprise, but it is important that compensation was made.”
But the incident could be seen as a sign of the instability in the Myanmar market that may have deterred overseas investors and developers.
“When that project began, it was in a completely different environment politically, economically and socially,” says an industry insider. “The ground changed beneath them.”
The political landscape in the country has been transformed over the past six months, with a landslide win for Suu Kyi’s NLD ending decades of military-
backed rule. The new government took power this month and although Suu Kyi is barred by the constitution from being president, she says she will adopt a position “above” the president.
While there have undoubtedly been some casualties, such as Dagon City, the new government has plans to open up the Myanmar real estate market for business. In a temporary NLD office (a new HQ is under construction), U Soe Win, a member of the party’s economic committee and secretary of the parliamentary affairs committee, explains through a translator the party’s plans to create a transparent and accountable economy.
Rules and regulations
His stream of Burmese is frequently punctuated by one English phrase, “rules and regulations” – a sign that the party is aware that its dramatic rise to power must now be defined by stability.
To demonstrate efforts to attract foreign investment into the country, Soe Win says: “We will focus on doing business and co-operating in a way that will benefit both sides, but based on certain rules and regulations. At the same time, we will try to release obstacles [to foreign investment] that are in various laws.”
But the main barrier to inbound investment by real estate businesses, according to Soe Win, is that “our real estate prices are much higher than other countries”. High land values contribute to escalating rents, which peaked in 2013 with office rents at $100 per
sq m – higher than some parts of Manhattan.
He says he does not know how long it will take for real estate prices to come down, but says the NLD will implement regulations, such as tighter control over property taxation, to gradually have an effect.
Meanwhile, the other focus for the NLD will be fighting corruption in foreign investment.
“Some of the countries from Europe are much better but due to corruption in the ministries, some countries in Asia get to come here [more easily],” says Soe Win. “We will try to fight that kind of corruption. We want a level playing field.”
First priorities
Another focus will be stabilising the financial sector. “It is one of our first priorities,” says Soe Win. “We hope to have it resolved in one year.”
But one of the main early criticisms levelled at the NLD is that it lacks experience.
And so the party is getting advice from overseas experts, such as Australian economics academic Sean Turnell.
It also plans to tempt Burmese people who left the country and are now experts in various fields – “from petroleum to nuclear physics,” says Soe Win – to return.
“If you are an expat, please help us,” he jokes.
But he is also keen to emphasise that the NLD is not acting in conflict with the previous government. It will continue some of the previous regime’s policies, such as tax exemptions to encourage foreign investment.
And yet the challenges for the NLD – making Myanmar appear less risky and more attractive to foreign investment – are still great.
“Myanmar is not an emerging market,” says Richard Emerson, Myanmar country manager for Savills. “It is barely a frontier market. It is at such an early and fragile stage, with all the issues you would expect to see in a Wild West frontier market.”
Emerson points to a lack of rule of law and legal framework, poor infrastructure (much of Yangon is not connected to the water supply and electricity can be intermittent) and a finance sector in its infancy, with great difficulties in getting money into the market.
That said, international businesses are already coming into Myanmar. KFC opened this summer, Coca-Cola has been operating since 2012, and five days after the election, when the NLD triumph was clear, law firm Berwin Leighton Paisner said it would open an office in the country.
Chris Hughes, poached from rivals Baker & McKenzie to head the office, said the decision was not based on Suu Kyi’s victory.
Successful reform
“We were all very buoyed by the success of the election,” he says. “But the move was in the context of two or three years of successful reform that have already taken place.
“The NLD emphasis will probably be more about transparency and openness of that reform process, consistency and quality of decision-making – a continuation of the economic and social reforms under way.”
BLP will be working across a range of sectors, including real estate, natural resources and, inevitably as new legislative frameworks are placed over the markets, dispute resolution.
Hughes has been involved in compiling part of that new framework, the company law reform process, which is being submitted to parliament.
Among the many measures in that law are changes to the classification of a foreign company – previously, if one share in a firm was owned by a foreign entity, it was classified as “foreign” – but the new law is likely to see that changed to a percentage of shares.
Another clause will give foreign investors and locals the right to acquire long-term leasehold interests. Previously, they needed the permission of the Myanmar Investment Commission.
The company law sits with two other laws making their way through parliament: the banking and financial institutions law, designed to modernise the legal framework that underlies the banking sector, and the Myanmar investment law, which is expected to reduce restrictions on foreign investment.
Hughes says the three laws will provide a “solid and clear regulatory framework” that will give confidence to foreign and local businesses.
“I would really like to see these things being considered and being important early in the life of the new government, as I think that will be a clear message to foreign investors and local businesses that the country is serious about putting in a world-class investment regime,” he says.
Soe Win adds: “Building the economy is one of our first priorities. The citizens know that having a good economy will ensure the sustainability of the political direction. They are dependent on each other.”
