Quarterly Business Magazine

In Current Real Estate Market, Buyers Must Be Careful with Pre-Sale Units, Warn Market Experts

Posted :
Tuesday, October 7, 2014

Yangon – The construction sector in Yangon has reached its peak, and those who invest in real estate through pre-sale apartments need to be careful with the market, say real estate professionals.

With investors from all other sectors racing into the construction industry, apartment projects have been mushrooming in downtown Yangon and Condos are rising alongside major streets and at city hot spots, according to U Hla Maung, an economist.

The highest number of apartments constructed in 1997, and Yangon City Development Committee estimates that a record-breaking number of construction permits would also be given in 2014.

In the Financial Year 2013-2014, a total of 4,085 construction permits were given. Compared with previous year, 2,091 construction permits have been given in the first quarter of the Financial Year 2014-2015 alone.

Thus, the Committee expects that the total number of construction permits at the end of this financial year would break the all-time record. The construction sector has been drawing investors from other industries such as energy and oil companies, car showrooms, gold and metal mining businesses, etc.

“Some contractors are building their apartments without even an engineer. So there is no guarantee on the quality of these apartments,” says U Ko Ko Htwe, Chairman of Taw Win Construction.

Most of the Condo projects in strategic locations in downtown Yangon adopt the pre-sale system, and a total of around 7,000 to 8,000 Condo rooms will become available within a few years, estimate the owners of Mya Myint Mo Construction and Trading Enterprise.

Since a sizable number of Condo apartments will enter the market in a few years, the market price is likely to fall, a real estate investor predicts.

“If people have just one and a half acre of freehold land in the city, they are already building Condos on that land,” says the above investor.

Although the entry of strong businesses into the real estate can be positive, buyers need to be careful about buying pre-sale units.

“Even if the whole project is cancelled for the lack of official permit from the Committee, the contractors and the landowners have nothing to lose. Only the buyers of these pre-sale units will be affected,” says U Ko Ko Htwe.

Last week, the government announced that taxes would be imposed on all pre-sale units at the time of transaction. Should both parties in transaction choose to pay taxes at a later time, market prices of the units will apply. This news has alarmed investors of pre-sale units, according to Sai Khun Naung Real Estate Agency.

“Because big construction companies are registered with the government, they are somewhat reliable for buyers. But individual contractors usually don’t have a company and are working with local brokers and landowners so only buyers will be harmed if something bad happens,” said U Ko Ko Lay from Three Friends Construction.

According to a representative in the Yangon Regional Hluttaw who is also a construction company owner, the rise of unpermitted construction projects are due to the poor management of Yangon City Development Committee. According to him, the situation must be regulated because most of the pre-sale unit buyers are land speculators rather than actual residents.

Currently, most Condo apartments in Yangon are sold as pre-sale units and are in the hands of speculators who would resell them later. The news that the upcoming Condo Law would permit foreign ownership further encourages the pre-sale model.

“Right now, foreigners can’t buy apartments so some of them have bought them in proxy,” said the owner of a construction business.

Some of Myanmar businesspeople are acting as proxies for buyers particularly from China, Macao, and Singapore.

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