Yangon Real Estate Market and Heritage Property Survey

 
Yangon Real Estate Market and Heritage Property Survey

                       Prepared for: Yangon Heritage Trust

                                 By: Spencer Sheehan

                                        29/6/2014

Disclaimer: This publication has been produced with the assistance of the European Union. The
 contents of this publication are the sole responsibility of Mr. Spencer Sheehan in partnership
   with Yangon Heritage Trust (YHT) and can in no way be taken to reflect the views of the
                                        European Union.
Executive Summary

  •   Myanmar is experiencing a period of accelerating economic growth, driven by rapid
      expansion in investment, construction and manufacturing.
  •   Underlying trends such as rapid monetary growth, rising inflation, increased urbanisation
      and infrastructure shortages are challenging the government and the real estate sector.
  •   Supply pipelines across all real estate sectors have burgeoned, with significant increases in
      property supply expected in the coming years.
  •   Office:Yangon’s office market is seeing slightly weaker sentiment due to electoral
      uncertainty, the high costs of leasing and downward pressure on rents from the growing
      supply side. Average rent levels are expected to fall through 2015 as Yangon’s supply side
      expands.
  •   Hotels:Yangon’s hotel market remains relatively small in international terms, but is
      expected to see rapid growth in the coming years as the supply of new locations ramps
      up, which may depress room rates and push lower-end, local hoteliers out of business.
  •   Retail:Demand and occupancy remains high. A lack of developable space, plus logistical
      challenges, is impeding the development of organised retail in the downtown area.
      Developers are raising rents for new projects and average city rents are expected to trend
      upward through 2015.
  •   Residential:Demand has weakened due to electoral uncertainty, higher sales taxes and
      lack of progress on the Condominium Law. Surveyed agents said enquiries and prices
      were down compared with a year ago. Yangon’s growing supply side is depressing price
      growth and very few developments are scheduled for the downtown area.

  •   Looking ahead, Myanmar is expected to see economic growth of 6-7% y-o-y during the
      next five years. For the real estate market in the downtown area, demand for space from
      the business sector will increase, housing demand will become more sophisticated,
      improvements will have to be made to infrastructure and consumers and investors will
      require stronger legal protection and more clearly defined administrative processes.
  •   However, it is quite telling from our research that there is little or no new development or
      investment in either of the four covered real estate sectors in the downtown area and that
      many new developments are emergingoutside of downtown.
  •   While this reflects government policy to develop suburban areas, this also suggests a lack
      of incentives for both occupiers and investors to build in the downtown area.
  •   This reflects many factors, such as a lack of investible stock, a land titling system ill-suited
      to the needs of investors and occupiers, plus poor public services and infrastructure.With
      significant growth expected in the urban population, this will need to be addressed in
      order to upgrade and improve the living and operating environment in the area.
  •   Our interviews with different occupier groups in the city found an appreciation of the
      value of heritage buildings and the unique character of the downtown area, but found a
      lack of interest in paying premium prices for them, due to major disincentives to
      investment that include a lack of government commitment to infrastructure
      improvement, structural flaws with older buildings, land titling problems, scant incentives
      to invest in older, heritage buildings and lack of faith in the enforcement of building
      codes in the city.

                                                                                                    2
1. Myanmar’s Macroeconomy
Summary:

     Economic growth is surging in Myanmar, exceeding average growth in the Asia-Pacific
     region, and is likely to remain relatively high in the coming years. Growth is mainly being
     driven by rapid growth in investment, which is feeding a construction boom. An uptick in
     the manufacturing sector is also supporting the economy following the easing of trade
     sanctions and recent increases in domestic demand.

     Myanmar is facing many near-term challenges. The main challenge includes controlling
     monetary expansion, which is feeding rapid growth in real estate investment, driving higher
     inflation and causing the Kyat to devalue against the US$. Also, increased migration to the
     Yangon region and growth in the urban population is putting pressure on the stock of real
     estate and city infrastructure, both of which remain relatively undeveloped by international
     standards.

     Looking ahead, economic growth of 6-7% is expected between 2015 and 2019. This will
     impact Yangon in many ways but, from the point of view of real estate and the downtown
     area, it will expand investor demand for real estate projects, since the growth outlook implies
     a larger private sector and increased population of urbanized consumers. Government
     challenges in this scenario include improving legal protection for investors and occupiers,
     managing real estate investment so that the supply-side meets the sophisticated and diverse
     needs of the populace, and investing in infrastructure to improve the liveability of the area.

1.1. GDP is Surging and Outperforming Average Growth for the Asia Region
The International Monetary Fund (IMF) estimates that Myanmar’s economy grew 7.7% y-o-y in
2014, compared with 8.3% y-o-y in 2013. Though down slightly in 2014, Myanmar is growing at
an accelerated pace compared with past years and is outperforming average growth in the Asia
region.

Figure 1: Annual GDP Growth (%): Myanmar vs. the Asia Region, 2010-2016(f)
    9
  8.5
    8
  7.5
    7
  6.5
    6
  5.5
    5
           2010        2011        2012      2013      2014     2015(f)      2016(f)
                       Asia: Regional Growth                   Myanmar

Source: IMF Asia-Pacific Outlook, 2012 & 2015

As such, Myanmar’s economy is atrracting investor interest. For real estate investors, Myanmar’s
growth outlook is particularly attractive, especially while global monetary policy remains loose
and yields on core commercial real estate assets have compressed across the region.

                                                                                                    3
1.2.Investment, Construction and Manufacturing
Myanmar’s economy has seen growth across most parts of the economy, but the most influential
growth drivers stem from increased investment, rapid growth in construction and a pick-up in
manufacturing output.

        Rapid Investment Growth

Spurred by loosened trade and investment sanctions and government reforms, investment in the
Myanmar economy has grown rapidly in recent years, registering annual growth of 13.2% in
2012, 14.6% in 2013 and 26.9% in 2014.

Figure 2: YoY Growth in Total Investment, 2012-2015 (f)
 30%

 25%

 20%

 15%

 10%

  5%

  0%
                 2012                   2013                  2014             2015(f)
Source: IMF, 2015

In part, the government is leading investment in the economy, raising its spending from 16.9% of
GDP in 2010 to 28.7% of GDP in 2014, with initiatives focused on improving infrastructure and
public services. Total government investment grew from US$7 billion in 2010 to $17 billion in
2014.

The private sector has also ramped up investment in the economy, with foreign investors
particularly active. Foreign direct investment (FDI) totalled $6.5 billion in 2014 – effectively
doubling y-o-y compared with the US$4.2 bilion registered in 2013.

Figure 3: Total FDI into Myanmar (US$ Millions), 2011-2014
 7.0
 6.0
 5.0
 4.0
 3.0
 2.0
 1.0
 0.0
               2011                   2012                    2013             2014
Source: Directorate of Investment and Company Administration, 2015

                                                                                                   4
For outside investors, Myanmar has an attractive investment case, which breaks down as follows:

    •   Comparatively low wages: as wage rises pick up in China and companies look to
        migrate to lower cost hubs, Myanmar has emerged as an attractive option. Minimum
        wages in Myanmar have recently been set at $3.20 per day, which compares with $10-$12
        per day in Guangdong, China’s main manufacturing hub.

    •   Attractive demographics: Myanmar has a relatively young population. According to
        UN estimates, the percentage of the population of working age (16-59) will hover at
        around 67% of the population from now until 2020, compared to 41% in China and 43%
        in Korea. With population growth of 1.2% y-o-y expected during the next five years,
        IMA Asia estimates that the labour force will expand by 200,000 new workers per year.

Figure 4: Myanmar: Population Distribution by Age Group (%), 2010-2020(F)
                9                            10                             12
                15                           17                             18           60+
                24                           24                                          45-59
                                                                            24
                27                                                                       30-44
                                             26                             24
                                                                                         15-29
                25                           23                             22           0-14
               2010                       2015 (F)                    2020 (F)
Source: UNESCAP, 2014

    •   Natural resources: Myanmar has a solid base of extractable natural resources, including
        gas, oil, wood, tin, zinc, copper and coal.

    •   Rapidly urbanising populace: Yangon’s population is estimated at 5.1 million, which is
        expected to grow 10 million by 2030. Among other impacts, this is expected to increase
        demand for property across all asset classes.

    •   Proximity to China and India: with the build-out of transport links, connectivity and
        trade flows are expected to increase, putting Myanmar in a good strategic location to
        serve both markets.

    •   Strong potential for growth in tourism: the total number of tourists visiting Myanmar
        reached 3 million in 2014, with 47.1% growth expected in 2015, taking total number of
        visitors up to 4.1 million.

With these factors in mind, the top five FDI recipients by sector include manufacturing, oil &
gas, transport, real estate and hotels and tourism.

Table 1: FDI by Sector (US$ Billions)
Sector                      2012                  2013               2014        % of Total FDI
Oil & Gas                    0.3                    0                 3.2            37.8%
Transport                     0                    1.2                1.7            19.7%
Manufacturing                0.4                   1.8                1.5            17.6%
Real Estate                   0                    0.4                0.8             9.2%
Hotels/Tourism               0.3                   0.4                3.6             4.2%
Source: Directorate of Investment and Company Administration, 2015

                                                                                                  5
2. Booming Construction

Fundamental factors - rapid urbanisation, lack of real estate stock and weak infrastructure -
together with increased investment flows have driven a construction boom in recent years.

Annual growth in construction has increased from 4.6% in 2012, to 8.5% in 2013 and 12.0% in
2014. This is significant because the construction industry accounts for approximately 15% of
Myanmar’s total GDP.

Figure 5: Annual Growth (%) in the Construction Sector, 2012-2019(f)
 14%
 12%
 10%
  8%
  6%
  4%
  2%
  0%
                   2012                 2013               2014                2015-2019(f)
Source: CEIC, 2015

This factor, supported by the rapid acceleration in investment in the economy, is manifesting
itself in many ways but, most notably, a boom in real estate development.

The Yangon City Development Committee has recently released data showing that building
permit issuance has increased rapidly in recent years, illustrating the ongoing construction boom
in the city and the wider economy.

Figure 6: Building Permit Issuance in Yangon, 2008-2014
4,000
3,500
3,000
2,500
2,000
1,500
1,000
  500
    0
            2008          2009         2010       2011        2012          2013          2014
                           Less than 4 floors                 More than 4 floors
Source: Yangon City Development Committee, 2015

                                                                                                    6
3. Manufacturing has Rebounded

The acceleration in domestic economic growth, together with the reversal of export sanctions,
has driven a rebound in Myanmar’s manufacturing sector. Annual growth has picked up from 1%
y-o-y in 2012, to 8% in 2013 and declined slightly in 2014 to 7% y-o-y growth. IMF forecasts
expect 7-8% growth in the coming four years.

Figure 7: Annual Growth (%) in Manufacturing Output, 2012-2019(f)
  9%
  8%
  7%
  6%
  5%
  4%
  3%
  2%
  1%
  0%
                    2012              2013                  2014               2015-2019(f)

Source: IMF, 2015

Expansion in the manufacturing sector will impact the economy by driving rural-to-urban
migration and increasing employment in the economy. These dynamics will generate more stable
incomes, but more pressure on the housing stock as migration to cities increases. This will be felt
particularly keenly in Yangon, where the government is promoting new industrial hubs in special
economic zones around the city.

1.3. Current Challenges
Myanmar is not only undergoing a transition from low-to-higher growth but also one from a
state-led, totalitarian system to one that is both increasingly run on market principles and more
open to outside investment.

The challenges currently being faced within such a transition are numerous but, from the
perspective of Myanmar’s real estate sector, stem from rapid monetary growth, an increasingly
urbanised populace and greater pressure on infrastructure.

Rapid Monetary Growth

Increased investment, the influence of the ‘shadow’ economy and a lack of management capacity
within Myanmar’s monetary system has seen a major increase in the supply of money within the
economy.

Broad money (M2), an indicator of the total amount of money in the economy, has grown rapidly
in recent years and has exceeded actual economic growth, indicating excessive liquidity in the
economy.

                                                                                                    7
Figure 8: M2 Growth & GDP (YoY Growth/%), 2011-2015(f)
   50                                                                                           20
   45
   40                                                                                           15
   35
   30                                                                                           10
   25
   20                                                                                           5
   15
   10                                                                                           0
              2011            2012             2013            2014          2015(f)
                     M2 Growth (% YoY-LHS)                     GDP Growth (YoY-LHS)
Source: IMF, 2015

Rapid M2 growth in excess of the pace of economic expansion affects the economy in a number
of ways but, most importantly, it contributes to inflation. High monetary puts pressure on the
supply-side by raising demand for goods and services, which the economy may not be able to
produce at current price levels, thus fast growth in the money supply can be inflationary.

It is no surprise then that consumer price inflation (CPI) has increased rapidly at the same time as
M2 growth has picked up. CPI has increased to between 6-7% annually in 2013 and 2014.

Figure 9: M2 & CPI Growth (YoY/%), 2011-2016(f)
   50                                                                                       7
                                                                                            6
   40
                                                                                            5
   30                                                                                       4
   20                                                                                       3
                                                                                            2
   10
                                                                                            1
    0                                                                                       0
            2011         2012        2013             2014        2015(f)     2016(f)
                      M2 Growth (% YoY-LHS)                        CPI (YoY-RHS)
Source: IMF, 2015

Rapid monetary growth and consequent inflation is a huge challenge for the government. From
the point of view of Myanmar’s real estate sector, the impacts are as follows:

    •   Increased investment in real estate as a store of value: in a undeveloped economy
        with few investment options to hedge against inflation, investors have channeled capital
        into the real estate sector. This has had the effect of driving up the value and price of real
        estate assets, most notably residential housing, and seen an increase in capital being
        allocated to real estate development projects.

    •   Devaluation of the Kyat vs. US$: with inflation speeding up, demand for protection has
        increased with an uptick in dollar holdings, which has subsequently caused Myanmar’s
        currency to devalue sharply against the US$. By the end of June, the Kyat was down
        28%compared with the prevailing exchange rate at the end of 2012.

                                                                                                     8
Figure 10: Myanmar Kyat vs. USD, 2012-Jun 26,2015
 1,150
 1,100
 1,050
 1,000
  950
  900
  850
  800
                 2012                  2013                   2014                 Jun-15
Source: Google Finance, June 26

   •     Increased construction costs for real estate developers: developers are, to a large
         extent, dependent on imported construction materials; therefore the recent devaluation in
         the kyat is putting significant upward pressure on construction costs. Furthermore, higher
         inflation will put additional pressure on wage and other input costs.

Increasing urbanisation

Yangon’s urban population was estimated at 5.14 million at the end of 2014, representing growth
of 900,000 new urban residents compared with the last estimate of 4.21 million in 2005.

Based on these estimates, Yangon’s urban population has grown by approximately 2.1% per year,
far exceeding growth in Myanmar’s total popualtion which was estimated to have grown 0.9%
per year during the same time period. This means the following:

   •     Increased labor forces: migration to Yangon will increase the available labor force
         which, as the economy grows, will need to be accomodated in work premises, putting
         upward pressure on demand for commercial real estate.

   •     Increased pressure on housing stock: there will be more demand for housing, putting
         pressure on the supply side of residential housing development.

   •     Demand for housing improvements and greater efficiency: landlords and occupiers
         will demand better living conditions and housing. Also, new markets will emerge for new
         classes of property.

Increased Pressure on Infrastructure

Myanmar already has a low infrastructure base, but the rapid growth in the economy, increased
urban populations and investment boom is putting this under pressure.

This has ramifications across many aspects of life. One of the most important from Yangon’s
point of view is from traffic. The growing economy and increased consumer base has fired
strong growth in car ownership, which has made the problem much worse.

                                                                                                 9
Figure 11: Number of Registered Road Motor Vehicles (1,000s)
 5,000
 4,500
 4,000
 3,500
 3,000
 2,500
 2,000
 1,500
 1,000
   500
     0
             2009             2010         2011             2012             2013             2014

Source: IMA, 2015

Traffic is emerging as a major issue in Yangon, contributing to congestion, increasing journey
times and worsening pollution in the main downtown areas. These factors also put increased
pressures on business too through higher logistics costs and supply chain interruptions.

Furthemore, increased urbanisation puts pressure on public services, ranging from health and
public utilities. These are particular concerns for residents in the downtown area.

1.4. Outlook and Impacts
Future Prospects

Forecasts for Myanmar’s economy vary. Optimistic assessments, incorporating continued reform
and liberalization, expect growth of 8.2% y-o-y between 2015 and 2019. In contrast, less
optimistic views, based on uneven policy progress, expect growth of 5.6% y-o-y during the same
time period.

Figure 12: GDP Forecasts (Billion Kyat), High, Medium and Low, 2014-2019(f)
  80

  75

  70

  65

  60

  55

  50

  45

  40
          2014           2015(f)     2016(f)      2017(f)          2018(f)          2019(f)
                    HI                   Medium                       Low

Source: IMF, ADB, Trading Economics and CEIC

                                                                                                     10
Future growth is largely expected on the basis of further reforms. While there are currently
approximately 200 bills under consideration by the government, the following areas are policy are
vital to Myanmar’s future growth outlook and are included in growth forecasts:

   •   Continued liberalization of the services sector: reforms to open up a whole range of
       sectors, including financial, legal, technology, telecommunications, logistics, are absolutely
       vital to encourage investment in the economy, promote efficiency, expand the range of
       available services, increase employment and provide incentives to the labor force.

   •   Increased openness to foreign investment: as well as services reform, it is anticipated
       that Myanmar will become more investor friendly, by removing bureaucratic processes,
       clarifying investment rules, opening special economic zones for investors and
       encouraging smoother trade and investment procedures.

   •   Establishment of the rule of law: the government will need to establish both a robust
       land titling system and clear guidelines for foreign ownership of property classes, such as
       condominiums. Expanded and better-protected leasing practices, alowing longer than the
       current 1 year standard, is a necessity to allow companies to make longer-term
       commitments to their operations in Yangon.

The outlook for the economy, and expected policy progress within the forecasts, will have a
number of impacts. From the specific point of view of Yangon’s real estate sector and the
conservation area, the overarching macro-level developments implicit in the outlook break down
as follows:

   •   Growth of the private sector: liberalization and reform will expand the role of the
       private sector in the economy. This will have many impacts, most notably a increase in
       demand for commercial real estate space across all sectors, including office, retail, hotels
       and industrial.

   •   Growth in formal employment and increased consumer demand: workers will
       increasibly find employment in formal companies, in contrast to casual, unregistered
       work, as the needs of the private sector expand. This will have many impacts, most
       notably higher incomes, stronger purchasing power and increased demand for services.

   •   Greater pressure on infrastructure: at the macro-level, a larger economy will put
       greater demands on public transport, roads, electricity and water services.

These factors will have the following impacts on Yangon’s real estate market and the
conservation area.

   •   Demand for space from the business and resident population will expand. This will
       have positive demand ramifications for both commercial and residential property sectors
       and act as an incentive for developer investment.

   •   Housing demand will become more sophisticated. The consumer base will diversify,
       spurring demand for better living standards and quality of accomodation. Consumers will
       look for better living standards, better facilities and choice of housing to meet their
       aspirations.

   •   Solutions and improvements will have to be found for infrastructure services.
       Increasing urban populations will put more pressure on infrastructure services, including

                                                                                                  11
basic utilities, public transport, roads, public hygiene services, and this trend will require
    greater attention from the government.

•   Occupiers and investors will require stronger legal protection and more clearly
    defined administrative processes. Clearer land titles, well-defined leases,
    straightforward processes for renovations and investment will have to be delivered to
    meet the needs of occupiers and investors.

                                                                                                 12
2.1. Yangon: Office Market
Summary

Leasing has weakened slightly in recent months, stemming from electoral uncertainty, high costs
associated with leasing at current market levels and downward pressure on rents from the
growing supply side. As such, rents have weakened slightly compared with their peak in late 2013.
Yangon’s office market is growing outward, with new supplies of space scheduled for suburban
areas and emerging business centres. The downtown market will evolve to be highly concentrated
in the area surrounding the Shangri-La hotel, with little or no new major developments scheduled
in the wider downtown area. Average rent levels are expected to fall through 2015 as Yangon’s
supply side expands.

Current Market Conditions

Occupancy remains high in some of the more estabished office spaces in Yangon, but our
channel checks have revealed that, while there remains a lot of interest in taking on office space
in the Yangon market, many businesses are holidng off on making leasing decisions.

Table 2: Rents & Occupancy in Selected Office Locations, June 2015
Building                     Rent($/sq.ft./p.m.)           Occupancy (Q1 2015)
Centerpoint                         60-75                        65-70%
FMI Centre                           48                          90-95%
UBC Centre                           60                          90-95%

The uncertainty in the market stems from the following key factors:

   •   Current high prices of office space: Despite being a relatively new market, its office
       space ranks as one of the most expensive in the world, considerably higher than other
       locations in the Asia-Pacific region. This is particularly hard to swallow for companies,
       particularly because many are in ‘market-entry’ phase and are not yet making money in
       the country, making it hard to justify a singificant outlay on rent.

Figure 13: Grade A Office Rents Compared, Q1 2015
    180
    160
    140
    120
    100
     80
     60
     40
     20
      0

Source: Knight Frank & Frontier Research, Q1 2015

                                                                                                   13
•   Potential decrease in the price of office rents: Yangon has a burgeoning supply of
          office space in the pipeline, which has led many occupiers to believe that prices will come
          down in the near future, enforcing the aforementioned caution about making a significant
          commitment to a rental lease.

Figure 14: Office Stock Annual New Supply (sq.m.), 2012-2018(F)
 200,000
 180,000
 160,000
 140,000
 120,000
 100,000
  80,000
  60,000
  40,000
  20,000
       0
               2011     2012      2013     2014     2015(f)   2016(f)   2017(f)   2018(f)   2019(f)

Source: Colliers & Frontier Research, Q4 2014

      •   Political uncertainty: uncertainty about the outcome of the election and fears of a
          derailment to the the recently introduced reform and opening up policy is compounding
          concerns about high costs and the potential for cheaper rents in the future and is causing
          many MNcs to hold off on making a decision.

As such, rental growth has flattened considerably compared with previous years. Rents for
higher-end, international standard office space were around $67 per sq.m. per month in Q1 2015,
down slightly from their peak of $70.2 per sqer month reached in Q4 2013.

This reflects the factors previously mentioned, but it also reflects the changing structure of office
stock in Yangon. Most new developments released during the past year have come in out-of-
downtown locations, and often carry lower rents than in the downtown area.

Figure 15: Rents for International Standard Office Space in Yangon, Q1 2010-Q1 2015
 80

 70

 60

 50

 40

 30

 20

Source: Frontier Research, Q1 2015

Office rents for local businesses

                                                                                                      14
For local businesses, traditional options remain a more cost effective option but don’t offer
perhaps the same kinds of faciltiies as the more modern, international buildings.

Figure 16: Rents Compared Across Townships (US$ per sq.m.)
     80
     70
     60
     50
     40
     30
     20
     10
      0

                                       Average Rent per Sqm Per Mth (US$)

Source: Yangon Heritage Trust, June 2015

Yangon’s Office Market: Structural Issues

Massive Supply Increase Expected

Independent estimates foresee a significant increase in new supply of office space from the
75,500 sq.m. recorded at the end of 2014 to a total of 850,500 sq.m. expected by the end of 2019.

Figure 17: Total Office Stock (sq.m.), 2014 vs. 2019(f)
 900,000

 800,000

 700,000

 600,000

 500,000

 400,000

 300,000

 200,000

 100,000

       0
                                2014                                          2019(f)

Source: Frontier Research, Q1 2015

Ex-Downtown Areas to Take a Larger Share of the Office Market

                                                                                                15
Of the 625,000 sq.m of new office supply expected to be added from 2015 to 2018, Dagon and
Bahan townships are expected to account for about half of new releases, followed by the
downtown area.

Figure 18; Distribution of New Office Stock by Township, 2015-2018
                     3% 2% 2%
                    3%                                                   Dagon
               4%                                                        Bahan
                                      24%                                Downtown
                 5%
                                                                         Kamaryut
               6%
                                                                         Yankin
               9%                                                        Mingalar Taung Nyunt
                                       24%                               Mayangone
                       18%                                               Tamwe
                                                                         Sanchaung

Source: Yangon Heritage Trust, June 2015

From having a dominant position share (c.90%) of the market, the downtown area will account
for a much smaller share of Yangon’s office market in future years.

Locations such as Dagon and Bahan will emerge as major office centres and other outlying
townships will emerge with their own space options. Rents in these emerging areas are priced
lower than the core downtown area (see tablexxxx); as such, it is likely that the average rent for
office space in the city will come down as the new pipeline comes to market.

Figure 19: Projected Distribution of Office Space in Yangon, 2019
                             Sanchaung, 2.7%     Hlaing, 1.8%                  Ahlone,
                          Tamwe, 2.7%                                           1.8%
                        Mayangone, 3.6%
                    Mingalar Taung
                     Nyunt, 4.5%

                      Yankin, 5.4%                         Dagon, 23.1%

                                     Kamaryut,
                                       8.0%
                                                                Bahan, 21.5%

                                        Downtown, 25.1%

Source: Frontier Research, Q1 2015

Downtown Market To Become Concentrated

                                                                                                     16
New developments in the downtown area are concentrated in the region of the exisitng Shangri-
La building on Sule Pagoda Road. Notable projects such as Sule Square (28,800 sq.m.), Landmark
(68,000 sq.m.), Junction City (33,400 sq.m.) and Emotion (10,564 sq.m.) will add a significant
amount of space, and create a hub of commercial offices. This reflects many factors but,
importantly, it is based around favorable infrastructure connections, since the area is supplied by
two main roads.

Height Limits Impacting Office Stock Growth in Wider Downtown Area

Also, there are heightened regulatory risks for developers. Office developers are looking for scale
and height and currently there are height limits imposed on new developments in the downtown
area and the threat and possibility of extra government legislation coming in the future.

Table 3: Office Project Pipeline, 2015-2018
Project                         Size      Delivery Date          Rent (US$          Township
                              (Sq.m)                             per sq.m)
AWBA Office                     5410          2015                 45-55            Mayangone
HAGL Myanmar Centre           170,000         2015                 55-85              Bahan
Knight Morgan                   3,800         2015                 16-32           North Okkala
Novotel Yangon                  1,200         2015                 55-70             Kamaryut
Pyay Garden                     4,038         2015                   80             Sanchuang
Union Financial Centre          7,150         2015                 70-80            Bothataung
Vantage Tower                   9,200         2015                 TBC               Kamaryut
KBZ Tower                       6,835         2016                 29-32            Sanchuang
Junction City                  33,400         2016                 TBC               Pabedan
Naing Tower                     2,230         2016                 43-45            Kyauktada
SanYeik Nyein                   3,187         2016                 TBC               Kamaryut
Sule Square                    28,880         2016                85-110             Pabedan
Times City                     44,000         2016                 27-29            Sanchuang
Junction Square                13,450         2017                33.5-41            Kamaryut
Kantharyar Centre              24,989         2017                   35             Mingaladon
Manawhiri Complex              56,300         2017                 TBC                Dagon
Merchant Luxury                 2,550         2017                36-40.5           Bothataung
Pyay Tower                     22,193         2017                 64-76            Mayangone
Shwe Gone Emotion              10,564         2017                 36-38            Kyauktada
Capital City                   15,000         2018                 55-65              Hlaing
Golden City                    26,950         2018                 TBC                Yankin
Landmark                       68,000         2018                 TBC               Pabedan
The Century                     2,322         2018                  44.6              Hlaing
Union City                     57,640         TBC                  TBC                Hlaing
Dagon City 1                   42,000         TBC                  TBC                Dagon
Dagon City 2                   14,000         TBC                  TBC                Dagon
Source: Yangon Heritage Trust, June 2015

Outlook for 2015

                                                                                                17
•   Occupier caution may impact leasing: political uncertainty, high rents prevailing in the
    market and the prospect of new supplies and choices may weigh on leasing activity in
    2015.

•   Office stock will double within 2015: a total of 122,000 sq.m. is expected to come onto
    the market, which will double Yangon’s office stock within one year.

•   Supply ramp-up will likely dampen rents: numbers alone will put pressure on the
    market, but also, looking at the supply pipeline, lots of space is coming on the market out
    of town, with cheaper prices, which will alter the supply mix in the market and dampen
    overall rents in the city.

•   Ex-downtown regions will emerge as rival business centers: land availability,
    cheaper rents, proximity to emerging industrial and commercial areas and escape from
    congestion, infrastructure issues, and high costs in downtown will drive a shift out of the
    downtown area.

•   Downtown area will lose its dominance of the Yangon office market, a concentrated
    cluster of top-quality office space will emerge around the Sule Pagoda/Bogyoke Aung
    San Rd crossroads, but there will be very little in the way of major developments in the
    downtown area.

•   New builds will be favored as opposed to renovations. Developers are interested in
    building scale and the downtown area is not really suited to that, due to a mixture of
    height restrictions, the challenge of developing and renovating older buildings and
    ensuring build efficiency. While there are some cases of renovation, these remain limited
    and small in scale, since regulations and the practicalities of renovation in a weak
    institutional environment.

                                                                                             18
3.1. Yangon: Hotel Market
Summary

Yangon’s hotel market remains relatively small in international terms, but is expected to see rapid
growth in the coming years as the supply of new locations ramps up.The hotel stock in the
downtown area is skewed toward the lower end and, aside from a few major high-end
developments, will likely remain so in the coming years. There is very little in the supply pipeline
in the downtown zone.

Room rates are expected to fall in the coming months and year, which may make it more difficult
for local operators, many of whom are focused on the low-end and have little in the way of
density.The majority of major new developments are occuring outside of the downtown
conservation zone, reflecting the challenges - land availability, difficulties in building scale - for
developers and investors in the downtown area.

Supply Side

Yangon currently has 146 hotels spread across the city with a total room stock of 8,981 rooms.
While precise data on new supplies added over the years is absent, it is estimated that this has
risen by 15-20 per cent between January 2014 and June 2015.

Compared with other cities in the region, Yangon still has a relatively small supply of hotels,
particularly of international standard. Looking solely at total registered hotels, the number of 146
compares starkly with the 1,713 hotels of all levels registered in Bangkok. This disparity in supply
is also reflected when compared with the total amount of hotel rooms in different cities across
the region.

Figure 20: Total Stock of 3-5 Star Hotel Rooms, Asia-Pacific Comparison
70,000
          61,000
60,000

50,000                 47,000

40,000
                                    33,750
30,000                                          28,000

20,000
                                                             12,000      11,500        9,500
10,000                                                                                             7,186

     0
         Hong Kong     Phuket       Kuala        Macau       Ho Chi       Hanoi       Manila       Yangon
                                   Lumpur                   Minh City

                                       Total Hotel Rooms (3-5 Star)

Source: Savills Market Briefing, Yangon Heritage Trust, June 2015

                                                                                                   19
Distribution of Hotels

Looking at the distribution of hotels by star across the city, the stock of hotel rooms is weighted
towards the middle-market, i.e. 3 to 4 star hotels. This reflects many different factors, namely, the
relative undevelopment of the high-end and the skew of the hotel stock toward facilities for the
local market.

Figure 21: Yangon: Room Stock Distribution by Hotel Star Rating, June 2015
4,000
3,500
3,000
2,500
2,000
1,500
1,000
  500
      0
              1 Star              2 Star               3 Star              4 Star              5 Star
Source: Yangon Heritage Trust

Bahan stands out as having the most hotels of townships surveyed in Yangon. This reflects the
density of the township – it is one of the largest townships in Yangon - and its proximity to
major tourist sites, such as the Shwedagon Pagoda and Kandawgyi Lake.

Figure 22: Total Hotels by Township, June 2015
 25

 20

 15

 10

  5

  0

Source: Yangon Heritage Trust, June 2015

                                                                                                  20
Figure 23: Distribution of Hotels by Township & Star Rating, June 2015
 30

 25

 20
                                                                                          5 Star
 15
                                                                                          4 Star
 10                                                                                       3 Star
                                                                                          2 Star
  5
                                                                                          1 Star
  0

Source: Yangon Heritage Trust, June 2015

Downtown in Focus

Looking solely at the downtown area, we have identified 43 hotels (30% of the 143 total hotels
tracked in Yangon), with a total room stock of 2,611, 28% of the total 8,961 rooms tracked in the
city.

Dagon accounts for the largest share of hotel rooms, followed by Kyauktada, Lanmadaw, Bahan
and Bothataung. Dagon’s primacy as a hotel destimation stems from its comparatively larger
share of higher star hotel rooms. It has the largest amount of four star hotels compared with
other townships either in or bordering the conservation area.

In contrast, Kyauktada has a more even distribution across the hotel classes, with a stronger
weighting toward the middle-end, plus a large amount of five star hotels. Locations in the
downtown area, such as Latha, Lanmadaw and Pabedan are more heavily weighted toward the
lower end. Which reflects a number of different factors, including a lack of investment in high-
end, the difficulty of acquiring land for major developments and the difficulty of building
sufficient scale in tight space conditions.

                                                                                                   21
Fig 24: Distribution of Hotel Room Stock by Township & Room Rates, June 2015
1600                                                                                     140           5 Star

1400                                                                                     120
                                                                                                       4 Star
1200
                                                                                         100
1000
                                                                                         80            3 Star
 800
                                                                                         60
 600                                                                                                   2 Star
                                                                                         40
 400
                                                                                                       1 Star
 200                                                                                     20

       0                                                                                 0
                                                                                                       Average
                                                                                                       Room
                                                                                                       Rate
                                                                                                       (US$)

Source: Yangon Heritage Trust
Note: Room rate refers to the price of a standard double room for a one night stay.

Average room rates in Dagon and Kyauktada, $131 and $94 per night for a double room,
respectively, reflect the skew in the hotel distribution toward the higher end.

In contrast, average rates in townships such as Latha, Lanmadaw, Bothataung and Pabedan are
much lower, reflecting the prominence of lower-end hotels in these township markets.

Table 4: Average Room Rates by Star & Township, June 2015
Star       Ahlone   Bahan   Latha   Bothataung   Dagon    Kyauktada   Lanmadaw        Pabedan   Pazandaung
1             -      49.3    37.0      32.0         -        37.5        33.3           36.3        32.3
2           43.0     63.9    50.0        -         26.0      51.5        45.3           49.5        27.5
3             -      71.2    65.7      65.3        84.5      70.4        65.3           67.5        55.0
4           85.0    148.0     -          -        138.5     124.0        90.0            -           -
5             -       -       -          -        275.0     189.0         -              -           -
Ave         64.0     83.1    50.9      48.6       131.0      94.5        58.5           51.1        38.3
Source: Yangon Heritage Trust, June 2015

                                                                                                       22
Occupancy in the Downtown Area

Our measures of occupancy taken in mid-June 2015 show solid occupancy in the higher-end
bracket, with lower occupancy toward the lower end.

Figure 25: Occupancy in the Downtown Area by Hotel Star Rating, June 20-27 2015
 100%

  90%

  80%

  70%

  60%

  50%

  40%

  30%

  20%

  10%

   0%
                1                  2                 3                  4                  5

Source: Yangon Heritage Trust, June 2015

This reflects the lack of space in the higher-end, particularly in the downtown area. Also, the lack
of popularity of lower-end hotels, which are mainly located in places far away from the main
tourist sites. Seasonal factors may also be playing a part, since June to August is considered a low
season, particularly for domestic tourism.

Table 4: Occupancy by Star & Location (No. of Hotels in Brackets), June 20-27, 2015
                      1            2              3              4               5
Ahlone                                        98.3% (1)
Bothataung        68.6% (1)                   84.7% (2)
Pabedan           50.0% (3)    64.7%(2)       64.7%(2)
Kyauktada         66.1% (3)    84.9%(2)       84.9%(5)       100%(1)         89.4%(2)
Pazandaung        56.3% (2)
Latha             81.3% (3)    74.4% (2)      92.0% (3)
Lanmadaw          66.7% (2)    70.3% (2)      82.5% (2)      100%(1)
Source: YHT, June 2015

City-wide Occupancy

Research by Colliers dated at the end of 2014 puts average hotel occupancy at higher end
locations (3-5 star hotels) across the whole city, rather than just the downtown area, at
approximately 72%, reflecting increased build-out in the city and increased price competition.

                                                                                                 23
Fig. 25: Average Occupancy at 3-5 Star Hotels in Yangon, Q4 2012-Q4 2015
 82%

 80%

 78%

 76%

 74%

 72%

 70%

 68%

 66%

 64%
               Q4 2012                Q4 2013               Q4 2014                 Q4 2015

Source: Colliers Q4 2014 Yangon Hotel Report

Looking longer-term, Colliers expects that city-wide occupancy will fall to 70% in Q4 2015 from
the 81% recorded in Q4 2012, driven by increased build-out of hotels in the city and price
competition.

2015 Outlook

   •   Another Strong Year for Tourist Arrivals: Total tourists coming to Myanmar are
       expected to reach 4.5 million in 2015, up 47.1% y-o-y. This follows 50% y-o-y growth in
       2013, and supports the supply-side case for increased investment in the hotel sector in
       Yangon.

   •   Hotel Supplies to Keep On Growing: Official statistics reveal a significant pick-up in
       foreign direct investment in the hotel and tourism sector. In three years, cumulative
       investment in the sector has grown from virtually zero to US$1.1 billion, reflecting high
       investor interest and Myanmar’s persuasive fundamentals.

Fig. 26: FDI in the Hotels & Tourism Sector (Annual & Cumulative), 2011-2014
   1,200

   1,000

    800

    600

    400

    200

       0
                    2011                   2012                   2013                    2014
               FDI: Hotels & Tourism (US$, Millions)            Cumulative FDI (US$ Millions)

                                                                                                 24
Source: Directorate of Investment & Company Administration, 2015

         Colliers estimates that investment in the hotel sector will drive a rapid build out in hotel
         stock, with an estimated 2,700 extra rooms to be added to the existing stock of 2,200 by
         the end of 2017. This amounts to a doubling of the stock within three years.

Fig. 27: Hotel Stock (Total Rooms in International Standard Hotels), 2012-2017(f)
 6,000

 5,000

 4,000

 3,000

 2,000

 1,000

     0
               2012              2013             2014            2015 (f)          2016(f)             2017(f)

Source: Colliers, Q4 2014 Hotels Report

   •     Outward growth in hotel development: Not much in the pipeline in the downtown
         area. Looking at the 21 new hotel licenses issued so far in 2015, not one of the newly
         licensed locations is in the downtown area. Also, looking at the higher-end market, there
         are 3 main projects in the downtown area, with the rest increasingly out of the city centre.

Table 5: Major 5 Star Hotel Projects
Project                         Size     Completion(Year)                        Location
                             (Rooms)
Sedona Hotel                    420         2015(H2)                            Inya Wing
Centrepoint Towers              300         2015(H2)                           Peoples Park
Accor & Myat Min                300         2015(H2)                         Yangon Myat Min
HAGL Myanmar                    429         2015(H2)                            Inya Lake
Centre
Rangoon Excelsior                50           2016                            Bo Sun Pat St
Daewoo Amara                    667           2016                              Pyay Road
State House Hotel               240           2016                      Strand Rd/Sule Pagoda Rd
Peninsula Hotel                  80           2017                          Burma Railway HQ
Sheraton Yangon                 375           2017                           Kandagwi Lake
Golden City Hotel               200           2018                              Yankin Rd
Source: Yangon Heritage Trust, June 2015

   •     Some pressure on room rates as supply increases: As with many aspects of Yangon’s
         real estate industry, the burgeoning supply pipeline will put pressure on room rates. While
         high-end hotels funded by international groups are in expansion mode, there is also a lot
         of activity from local developers and smaller-scale operators.

                                                                                                    25
•   Tougher competition for downtown hotels: There is not much to recommend around
        the downtown area, and it may well be the case that many go out of business in the area.

Yangon: Retail Real Estate Market

Summary

Demand and occupancy remain high, putting pressure on rents, which is being keenly felt by
local retailers. Demand for retail space is diversifying, with occupiers from the financial sector
increasingly prominent. New supply of retail space will tick up in the coming years, but this is
increasingly being developed out of the downtown area. A lack of developable space, plus
logistical challenges are impeding the development of organised retail in the downtown area.
Developers are charging high rents for new projects, which will put upward pressure on average
rents in Yangon through the next 1-2 years as the supply side expands.

Solid Demand, High Occupancy

Our channel checks indicate that leasing in the commercial retail sector has remained firm in
recent months. New spaces, such as the retail element at the Union Financial Centre in
Bothataung released in Q1 2015, saw strong demand with a major local bank taking up the
available space.

This trend followed on from solid activity in the retail sector during 2014, which saw city-wide
occupancy in commercial retail space reach a solid level of 98% across the city, according to
Colliers.

Demand for retail space in downtown locations has remained firm but, increasingly, retailers are
looking outside of central areas for space, with projects in suburban areas outside of downtown
seeing strong demand recently.

Tight Markets Downtown, Retail Migration

Our checks with local brokers yield insight into the tightness in the market and support our views
on occupancy. We found very few spaces available across both international standard properties
and more local properties. In total, we found 14,000 sq.m. of space up for lease, with nothing in
the downtown area and with most available space being low-end, targeted at local businesses.

These conditions support recent anecdotal reports that local retailers in the downtown area are
facing significant rent increases, which is raising pressure on business costs and squeezing profits.
As a result, many local retailers are looking outside of the downtown area for retail space.

With strong demand and high occupancy, average rents for the best quality retail space in
Yangon ranged between US$25-30 per sq.m., up approximately 15-20% y-o-y. Colliers has
predicted that rents in all areas of the market will grow through 2015 as new and modern retail
facilities are introduced.

                                                                                                   26
Fig. 28: Yangon: Retail Rents (US$ per sq.m. per month), 2011-2014
 27

 25

 23

 21

 19

 17

 15
          2011       2012        2013      Q1 2014     Q2 2014     Q3 2014      Q4 2014

Source: Colliers, Yangon Retail Market Report

New Supplies In The Pipeline, Out-of-Downtown Focus

Colliers estimates that total retail stock reached 150,000 sq.m. by the end of 2014, having seen an
increase of 24% y-o-y with an addition of 28,000 sq.m. during the year. New developments such
as the AKK Shopping Centre (Outer City), Ocean Super Centre and Myanmar Culture Valley
(Inner City Areas) in Tamwe and Dagon townships, respectively, mainly constituted the 2014
stock increase.

Increasingly, new projects are coming in the outer city area as developers plug into previously
untapped markets. New retail centres will be strongly evident in the area going forward on the
back of strengthening commercial development, supported by the availability of developable
land.

Very little supply coming to the downtown area between 2015 and 2017, a factor that will put
additional pressure on rents in the region, and push retailers out into areas of the city where
space is more abundant.

Table 6: Retail Project Pipeline, 2015-2018
Project                     Size(sq.m)            Location           Release     Township
                                                                      Date
HAGL Myanmar Centre            38,364       Kabaraye Pagoda Rd      2015 (Q3)      Bahan
Riverview Point                2,657           Thit Taw St          2015 (H2)     Ahlone
Golden Link                    4,500            Link Lane           2015 (H2)      Bahan
Sule Square                    3,300            Shangri-La          2016 (Q1)     Pabedan
Shwe Moe Kaung                 6,050              Mk Rd               2016         Yankin
Junction City                 6 Storey     Bogyoke Aung San Rd        2016        Pabedan
Time City                      53,000         Kyun Taw Rd           2016 (H2)    Sanchuang
KK San                         1,023           KK San Rd              2017        Tamwe
Capital City                  6 Storey          Insein Rd             2017         Hlaing
Golden City                    8,083            Yankin Rd             2017         Yankin
Union City                     8,241             Pyay Rd              2018         Hlaing
Landmark                       37,000      Bogyoke Aung San Rd        2018        Pabedan
Pyay Tower                     7,476             Pyay Rd              2018       Mayangone
Dagon City 1                   8,600       Kabar Aye Pagoda Rd        2018         Dagon
Source: Yangon Heritage Trust

                                                                                                  27
2015 Outlook

   •   Solid demand. Major Western brands, such as KFC and Pizza Hut, are entering the
       Yangon market, supplementing strong demand from local retailers.

   •   Retail demand will stem from a broader range of sectors. As well as traditional retail
       tenants, banks are emerging as a major occupier of retail space and with recent
       liberalization in the financial services sector, we can expect occupiers in this sector to
       remain prominent.

   •   Dispersal of demand. Yangon’s retail sector is growing outwardly, pushed out by high
       rents and logistical dificulties and scarce space in the downtown area, to areas where
       supply is coming on stream and where new sources of consumer demand are emerging.

   •   Upward growth in rents. The market remains undersupplied, with the expansion of
       new, higher quality retail space coming into the market, we can expect rents to grow.
       According to Colliers research, rental rates in both Downtown and the Inner City zone
       are to trend strongly as new developments emerge, many of which are priced at US$50-60
       per sq.m. per month, approximately double the current level in the market.

                                                                                               28
Yangon: Residential Market

Summary:

Demand has weakened compared with previous years, due to electoral uncertainty, higher taxes
and lack of progress on the Condominium Law. Surveyed agents said that enquiry levels are
down significantly compared with a year ago, with prices down between 5 to 10% compared with
the same period in 2014. Yangon’s burgeoning supply of high-end residences and condos is
depressing prices. Very few developments are scheduled for the downtown area.

Current Market Conditions

Recent market trends indicate a slowdown in demand and sales. Following significant interest in
residential property in 2012 and 2014, levels of enquiry and transactions have slowed across all
classes of residential property, including standard and higher-end residential units.

We surveyed 15 agents affiliiated with the Myanmar Real Estate Services Association and they
told us that the current level of new enquiries for properties in Yangon, particularly the
downtown area, remain weak and are down approximately 10-20% compared with June 2014.

Weak levels of enquiry are feeding into lower transaction volumes, which more than half of
respondents said are down more than 20% y-o-y. As such, the momentum that built up in the
market during 2013 & 2014 has not continued so far into 2015. These trends can largely be
explained by the the following factors:

   •   Elections/political uncertainty: There are fears that the upcoming elections and
       possible instability will derail the process of economic reform and liberalisation that has
       supported the recent uptick in economic growth.

   •   Policy changes: The Myanmar government has raised stamp duties payable by buyers
       and sellers, which has eaten into the profits from real estate transactions.

   •   Lack of progress on the Condominium Law: the proposed law remains unapproved,
       thus curtailing demand and sales. The Condominium Law was enacted by parliament in
       December 2013 and was expected to pave the way for foreigners to buy condominium
       units.

   •   Fears of a correction in house prices: After increasing rapidly during 2012 and 2013,
       buyers are exercising caution because significant new supplies of property are due to
       enter the market in the coming two years, which may push down prices.

Pricing

Weakness in demand and the prospect of a burgeoning supply pipeline has softened price growth
in recent months. Agents told us that prices of standard residential units in both downtown
Yangon and the wider city have declined between 5-15% compared with the same period last
year.

This softening in price growth has also extended as far as the higher-end condominium property
market, with average asking prices falling slightly from their peak in Q3 2014.

                                                                                                 29
Fig. 30 Asking Prices at Condominium Projects, 2009-Q1 2015
 250

 200

 150

 100

  50

   0
             2009      2010      2011          2012     2013    Q3 2014    Q4 2014   Q1 2015

Source: Frontier Research, Q1 2015

Supply: Burgeoning Pipeline, But Slippages Likely

Approximately 20,000 high-end residential properties are expected to be released onto the market
between 2015 and 2019. Assuming all are released, this supply increase will almost triple the stock
of these assets within 4 years.

Fig. 31 Stock of Hi-End Apartments in Yangon, 2009-2019 (f)
 35,000
 30,000
 25,000
 20,000
 15,000
 10,000
  5,000
        0
              2009    2010    2011      2012     2013   2014   2015(f) 2016(f) 2017(f) 2018(f)
Source: Colliers, Q4 2014

This outlook is taking away some of the vim behind recent price appreciation in previous years.
Markets overshoot and there is a case that prices are at ridiculous levels.

However, it seems likely that there will be development slippages, for reasons that break down as
follows:

    •       Regulatory uncertainty: some projects have been shelved for regualtory reasons due to
            planning and conservation issues.

                                                                                                 30
•   Rising cost bases: the recent devaluation in the kyat – 28% against the dollar – will raise
        costs for developers, most of whom are dependent on imported construction materials.
        Also inflation is running at an official rate of 6%, which likely understates the real rate.

    •   Lack of productive base: Myanmar is under huge pressure to develop but it lacks the
        building blocks to get it going: skilled workforce, reliable infrastructure and power
        supplies.

Downtown Supply: Few Developments in the Pipeline

The downtown area will see little in the way of new residential developments, with an estimated
4% of new-build properties planned between 2015 and 2019 being located in the area.

Table 7: DCA Pipeline Projects, June 2015
Project                       Company                 Location                   Size
Junction City                Shwe Taung           Bogyoke Aung San            28 Serviced
                                                        Rd                    Apartments
Landmark                   Yoma Strategic         Bogyoke Aung San             90 Units
                                                        Rd
Mahar Nawarat             Myan Golden King          Merchant Rd/            46 Condos/140
Condo                                             Mahabandoola Rd           apartment units
Merchant Luxury                Moon Sun                50th St                  51 units
Condo
Merchant Suite              Naing Group          49th St/Merchant Rd            37 units

Naing Group Tower          Naing Group              Sule Pagoda Rd              90 Units
II
Source: Yangon Heritage Trust, June 2015

Suburban areas and townships away from the downtown area are seeing the majority of new
building activity. This largely reflects land availability and cheaper pricing, as well as heightened
regulatory risk around building scale in the downtown area.

Fig. 32 Distribution of New Residential Units, 2015-2019
                             Mingalartaungny           Thingungyun, 2%
           Kamaryut, 3%
                                 unt, 2%
                 Sanchuang, 3%
                  Ahlone, 4%

           Downtown, 4%                           Thanlyin, 17%

        Mayangone, 6%

                                                           Hlaing, 12%
                        Bahan, 6%

                         Mingalardon,                    Dagon, 11%
                             9%

                                 Tamwe, 10%
                                               Yankin, 11%

                                                                                                    31
Source: Yangon Heritage Trust, June 2015

Focus: Downtown and The Yangon Conservation Area

Table 8: Residential Sales Prices (Upper & Lower, US$ per sq.ft), June 2015
Township                      Lower            Average               Upper
Ahlone                          36.9            128.6                 163.9
Bothataung                       39             142.1                 240.0
Kyauktada                        60             138.1                 360.0
Lanmadaw                        19.9            139.7                 225.0
Latha                           19.6            161.0                 267.2
Pabedan                          60             173.4                 600.0
Pazandaung                      75.3            133.9                 264.7
Source: Yangon Heritage Trust, June 2015

Townships close to the core business areas – Pabedan and Kyautada – carry the highest average
residential sales prices.

This is justified by the location of the township close to the city centre with access to the main
transport links, exit roads, shopping centres, markets and government buildings.

More dispersed properties in Latha, Lanmadaw and Pazandaung carry lower values, reflecting
their distance from the centre of the region, and relative underdevelopment of housing stock.

This is also reflected in rents, with the same, central regions attracting higher rental rates from
occupiers.

Table 9: Rental Rates (US$ per sq.ft.) in Downtown Townships
Township                      Lower             Average                        Upper
Ahlone                          0.76              0.99                          1.64
Bothataung                      0.24              0.98                          5.4
Kyauktada                       0.24              1.19                          12.5
Lanmadaw                        0.23              1.16                          2.68
Latha                           0.29              0.88                          2.8
Pabedan                         0.48              1.28                          2.88
Pazandaung                      0.41              0.65                          1.2
Source: Yangon Heritage Trust, June 2015

Land Prices & Link With Proximity to Roads

The more expensive properties reflect their proximity to major roads. For example, standard land
prices assessed by the Yangon City Development show higher rates close to major roads, such as
Bogyoke Road and Maharbandoola Road, with lower rates in numbered streets, such as 28th and
29th Street.

                                                                                                      32
Table 10: Pabedan Township: Standard Land Prices
Location                                       Land Price (Kyat per Sq.ft)
Bogyoke Road                                            300,000
Anawyahtar Road                                         300,000
Maharbandoola Road                                      300,000
Merchant Road                                           300,000
Strand Road                                             300,000
Sule Pagoda Road                                        300,000
Shwedagon Pagoda Road                                   250,000
Shwebonthar Road                                        250,000
Bosoonpet Road                                          250,000
Konzaydan Street                                        250,000
Numbered Streets                                        175,000
Source: Yangon City Development Commission, June 2015

Floors & Prices

One aspect ignored by our research includes the floor of the property in question. Higher floors
have lower prices. Government schedules for property tax assessment and land prices detail the
difference in valuations according to floor.

Table 11: Standard Prices of Apartments in Lanmadaw, Latha, Pabedan, Kyauktadar ,
Botahtaung, Dagon Townships, June 2015

                                     Standard Price ( Kyats / sq. ft )
        Floor
                           Streets           Roads                Main Roads

    Ground floor            67000            82000                    101500

       1st floor            52000            63000                    77000

       2nd floor            44000            55000                    66000

       3rd floor            37000            49000                    58000

       4th floor            32000            42000                    50000

       5th floor            28000            36000                    44000

       6th floor            24000            33000                    38000

       7th floor            19000            25000                    31000

Outlook 2015:

   •    Weak year for sales expected: with political uncertainty rife in thr market, it is likely
        that the general level of sales transactions for residential properties in Yangon will fall
        year-on-year. Rough estimates from agents that we have spoken to highlight an expected
        drop of 10-15% y-o-y.

                                                                                                 33
We see this as a city-wide phenomenon also extending into the downtown area. Pricing is
    a concern and alternative locations are emerging in suburban areas in Yangon which offer
    a more attractive option, in terms of pricing and standard of living, than the downtown
    area.

•   Supply-side expansion: supplies of new properties will grow during the coming year
    from the private sector and also from housing projects being pushed by the local
    government. This is a necessary step given the pressure on Yangon’s relatively low
    housing stock.

•   Residential development will largely ignore the downtown area. Looking at current
    developments, the majority of new residential property will be developed outside of the
    downtown area. Of the 20,000 residential units currently being built approximately 7%
    are located in the downtown area

•   Downward Pressure on Prices: with a slowdown in speculative capital active in the
    market, lower demand and the prospect of a jump in supply of residential properties,
    prices are under downward pressure. Agents in them market are reporting that sales
    prices and asking levels are down 5-10% compared with the same time last year.

•   Risks are weighed on the downside: it is unlikely that the election will be a swift result,
    with political inertia making decisive policy action unlikely in the wake of the
    election.However, the introduction of the Condominium Law may give the market a
    boost but this is unlikely at the minute.

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3. Anecdotal Views on Heritage Properties
During the course of the research into Yangon’s real estate market and the downtown area, I
spoke to many different people, including executives at local and international real estate
development firms, local agents, researchers, local residents and government officials.

Regarding the question of ‘Are occupiers willing to pay a premium for heritage buildings
and, if yes, under which conditions?’ I have the following general findings which summarize
the responses that I received during the course of my research.

In principle, the attractions of heritage buildings and their unique values that might justify a
premium price were well-understood by the people I interviewed and they can be summarised as
follows:

   •   Heritage buildings have aesthetic value. Compared with recent standards of
       development in Yangon, the older, heritage buildings have a completely different look
       and design that makes them unique.

   •   Heritage buildings are increasingly scarce and therefore have rarity value that
       modern properties do not have. For investors, this is an important factor that can
       create value and justify a premium price.

   •   The fact that heritage buildings have history lends them prestige. For example, one
       prospective occupier was attracted by the old colonial history of apartments and buildings
       in what he would regard as a heritage property.

   •   Heritage buildings largely exist in established neighbourhoods. This is a direct
       contrast to new areas under development in the Yangon area. Because many heritage
       buildings are in established areas, they are surrounded by amenities, public services and a
       well established, functioning community. This is a particular draw for residential
       occupiers, though would also likely apply to investors and developers.

However, there was a general consensus that, under current market and development conditions,
it is difficult, in practice, to justify paying a premium for a heritage property in Yangon. The
reasons for this can be broken down as follows:

   •   Modern properties are comparatively better living spaces. Many would-be occupiers
       desire robust buildings with modern facilities, something which can’t always be found in
       heritage properties. Furthermore, the opportunity cost of furnishing, renovating and
       improving older, heritage buildings can be so large that the effort might not make
       financial sense, particularly for, but not necessarily limited to, residential investors.

   •   The current state of land titling and registration in Yangon makes heritage
       buildings difficult to invest in. Exchanging land title and asserting ownership on an
       asset is a fundamental part of occupying and/or taking ownership of a real estate asset.
       The current situation in Yangon makes it very difficult to ascertain clear land titles and
       ownership. The processes involved with clarifying land title are apparently onerous in the
       extreme and, often, don’t yield any result. As such, this is a major disincentive for
       investors.

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