Myanmar

Overview

Myanmar contains all the key ingredients necessary for prosperity: favourable demographics, a formidable resource endowment and an enviable geoeconomic location.

Yet these drivers have remained impotent over the last half-century, inhibited by the dysfunctional and insular politics of the country’s military backed regime.

These unique conditions have largely trapped the country in time; the once colonial power now boasts a GDP per capita of just USD 1,710 adjusted for PPP in 2013 according to IMF data (Tradingeconomics), significantly below every other major state in the region.

Top down political reform over the last few years appears to have broken the junta’s grip on the country. The now civilian President Thein Sein has enacted a comprehensive reform program that looks set to transform both Myanmar’s political and economic systems. These actions have included removal of international sanctions, the legitimate election of long-term opposition leader Aung San Suu Kyi and the enactment of a clearer Foreign Investment Law designed to encourage substantial international capital over the coming years.

These changes look set to unlock Myanmar’s economic potential. With considerable untapped natural resource endowments, millions of acres of underutilised farmland (between three of Asia’s hungriest nations) and some of the cheapest manufacturing input costs in South East Asia, Myanmar looks set to achieve substantial and diversified growth over the coming years.

Centreville Partners estimates suggest that Myanmar faces consistent real GDP growth rates of between 6.2% and 8.4% between now and 2020, benefiting from these extraordinary opportunities set against an astonishingly low base.

Despite this raw potential Myanmar remains a difficult place to do business, generally requiring sizable amounts of capital, detailed local knowledge and a risk tolerance. With no functioning stock exchange opportunities are limited for smaller investors to identify investable opportunities with reasonable liquidity.

Centreville Partners believes that Yangon’s real estate may represent one such proxy. The industry has boomed over the last decade driven by inflows of foreign capital and continued inflation to the price of the city’s land.

Condominium sales prices across the city as a whole have risen to approximately USD 1,480 per square metre (up over 66% over just two years), with central structures commanding considerably more. Rental rates have appreciated with similar momentum; many expatriates now find themselves paying more for low quality space in Yangon than they would in their native countries.

Commercial

The momentum is just as pronounced in Myanmar's commercial real estate markets. The supply of international standard office space in Yangon is currently spread across three structures, allowing rental rates minus amenties as high as USD 90 per square metre. This dynamic, driven by the significant international interest in Myanmar’s economy over recent years, has famously resulted in Yangon’s office buildings being priced more aggressively on a comparable unit basis than every other major city in South East Asia, as well as Manhattan.

The retail market is moving with similar momentum. As more and more residents (both native and expatriate) find themselves with significant amounts of disposable income, increased consumption is expected to be a sustained trend as Myanmar develops. Yet with just one truly international quality retail complex in the city, Yangon’s retail space market does not yet appear set to capitalise on this change.

Finally, Myanmar’s market for hotel space currently faces a dynamic of chronic undersupply. Occupancy rates in quality international hotels consistently hit 100%, yet prices are typically some of the most expensive in South East Asia despite mediocre levels of service. With just 2,045 high quality rooms in the city as of Q1 2014, the market has not yet adjusted to accommodate Myanmar’s new economic trajectory.

As in any market in such a state of disequilibrium, real estate in Myanmar displays many opportunities with the potential to generate considerable returns for savvy investors.

Reliable data and on the ground insight remain essential to achieving such performance. Yangon is a diverse and heterogeneous city facing a number of trends not immediately apparent to the international observer. Combined with the country’s problematic system of land ownership, structuring investments capable of generating the desired risk adjusted returns can seem like a challenging task.

Centreville Partners aims to assist investors using by using the unique on-the-ground experience of its analysts. By sharing the information used to evaluate a number of opportunities for our own capital, we hope that we can make the process of evaluating Yangon’s market easier for others.