Why property prices in Myanmar are really skyrocketing

Reading Time: 3 minutes

Stacks of Myanmar MoneyProperty prices in Myanmar and especially in the business capital of Yangon have been surging over the past months to the effect that square meter prices of plots in downtown Yangon have reached $8,000, almost three times the price for a similar plot of land at prime locations in Thailand or Malaysia. Subsequently, rents have gone up to $78 per square meter at prime locations, three times what it costs in Jakarta and 30 per cent more than the average rent in Manhattan. The rental price for office space now is no less than $100 per square foot, surpassing downtown Manhattan’s average price at $70 per square foot.

One of the poorest countries in the region has become the most expensive real estate location in just two years after the former military regime launched economic and political reforms. And yes, it is partly driven by foreign investors who, via joint ventures, are trying to cut a slice of the cake, and multinationals that have to deal with limited availability of office spaces whereby some resorted to rent out villas instead. Renting the villas now costs $6,500 a month and by year-end this could rise to $9,500 due to the rising demand, according to local real estate firms.

But not all of that can be explained by the play of demand and supply. There have been reports that a number of “wealthy Myanmar citizens” are behind the price surge as they are “repatriating” cash but have few places to park it in the absence of a stable banking system, stock exchange or bond market. Increasingly, they are turning to real estate, pushing up land prices and thus rentals for foreign companies and expatriates.

The question is where this wealth comes from. In a recent report, a non-profit organisation pointed out that Myanmar’s ex-junta and their cronies have probably parked $11 billion in Singapore bank accounts and some more money at other places such as Dubai. With Myanmar opening and its economy thriving, this money looks for a way back into the local economy and it is mostly used to buy property for the aformentioned reasons.

But how has this money been accumulated? NGOs, the US and others say it has obviously been siphoned off from the country’s oil and gas and gem trade with foreign nations, and there is also a lot of drug money involved.

How this worked? The government traders long benefited from the artificial exchange rate between the kyat and the US dollar. From 2001-2012, the official exchange rate varied between 5.75 and 6.70 kyats per US dollar, but the street rate (black market rate), which more accurately took into account the standing of the national economy, has varied from 750 kyats to 1,335 kyats per US dollar.

When government traders, for example, sold a shipload of gems for $100,000 dollars to Thailand, they booked it at 670,000 kyat in the trading books but actually earned 133,500,000 kyat (when the maximum exchange rates are taken) and pocketed the difference which was never converted but went straight away onto foreign accounts after a few pay-offs here and there, and they also benefited from the fact that the official kyat rate was only available to state-owned companies.

Now, this accumulated hard currency seeks ways back into the Myanmar economy. The kyat, in the meantime, has been floated and currently hovers around 970 kyat to the US dollar. The money is brought back from foreign accounts and invested in property as there are no money source controls for real estate deals in Myanmar. After the property is resold, the money is “clean”.

Some economist noted that such foreign money is also used for domestic investments by Myanmar firms and account for up to 60 per cent of “foreign direct investment” in Myanmar which reached an overall total of $43 billion since records exist.

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Property prices in Myanmar and especially in the business capital of Yangon have been surging over the past months to the effect that square meter prices of plots in downtown Yangon have reached $8,000, almost three times the price for a similar plot of land at prime locations in Thailand or Malaysia. Subsequently, rents have gone up to $78 per square meter at prime locations, three times what it costs in Jakarta and 30 per cent more than the average rent in Manhattan. The rental price for office space now is no less than $100 per square foot, surpassing downtown Manhattan’s...

Reading Time: 3 minutes

Stacks of Myanmar MoneyProperty prices in Myanmar and especially in the business capital of Yangon have been surging over the past months to the effect that square meter prices of plots in downtown Yangon have reached $8,000, almost three times the price for a similar plot of land at prime locations in Thailand or Malaysia. Subsequently, rents have gone up to $78 per square meter at prime locations, three times what it costs in Jakarta and 30 per cent more than the average rent in Manhattan. The rental price for office space now is no less than $100 per square foot, surpassing downtown Manhattan’s average price at $70 per square foot.

One of the poorest countries in the region has become the most expensive real estate location in just two years after the former military regime launched economic and political reforms. And yes, it is partly driven by foreign investors who, via joint ventures, are trying to cut a slice of the cake, and multinationals that have to deal with limited availability of office spaces whereby some resorted to rent out villas instead. Renting the villas now costs $6,500 a month and by year-end this could rise to $9,500 due to the rising demand, according to local real estate firms.

But not all of that can be explained by the play of demand and supply. There have been reports that a number of “wealthy Myanmar citizens” are behind the price surge as they are “repatriating” cash but have few places to park it in the absence of a stable banking system, stock exchange or bond market. Increasingly, they are turning to real estate, pushing up land prices and thus rentals for foreign companies and expatriates.

The question is where this wealth comes from. In a recent report, a non-profit organisation pointed out that Myanmar’s ex-junta and their cronies have probably parked $11 billion in Singapore bank accounts and some more money at other places such as Dubai. With Myanmar opening and its economy thriving, this money looks for a way back into the local economy and it is mostly used to buy property for the aformentioned reasons.

But how has this money been accumulated? NGOs, the US and others say it has obviously been siphoned off from the country’s oil and gas and gem trade with foreign nations, and there is also a lot of drug money involved.

How this worked? The government traders long benefited from the artificial exchange rate between the kyat and the US dollar. From 2001-2012, the official exchange rate varied between 5.75 and 6.70 kyats per US dollar, but the street rate (black market rate), which more accurately took into account the standing of the national economy, has varied from 750 kyats to 1,335 kyats per US dollar.

When government traders, for example, sold a shipload of gems for $100,000 dollars to Thailand, they booked it at 670,000 kyat in the trading books but actually earned 133,500,000 kyat (when the maximum exchange rates are taken) and pocketed the difference which was never converted but went straight away onto foreign accounts after a few pay-offs here and there, and they also benefited from the fact that the official kyat rate was only available to state-owned companies.

Now, this accumulated hard currency seeks ways back into the Myanmar economy. The kyat, in the meantime, has been floated and currently hovers around 970 kyat to the US dollar. The money is brought back from foreign accounts and invested in property as there are no money source controls for real estate deals in Myanmar. After the property is resold, the money is “clean”.

Some economist noted that such foreign money is also used for domestic investments by Myanmar firms and account for up to 60 per cent of “foreign direct investment” in Myanmar which reached an overall total of $43 billion since records exist.

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