Following a bizarre freeze in high-rise construction in Yangon, Myanmar’s economic capital, it’s hard to imagine why any developer would want to try their luck in the city.

What is sure is that a broad cross-section of people, from lowly paid labourers and tradespeople to super rich businesspeople and developers were hurt, with the pain felt most keep by the former.

But beyond the known is a whole sea of unknowns and questions. Why for instance had many projects been instructed to stop, while others, some of which are highly visible and occupy huge land plots, have been allowed to continue?

The Yangon Region government and Yangon City Development Committee, which oversees the city, did not help matters through some vague policy direction and lack of backbone in dealing with developers.

Freeze timeline

In May this year YCDC issued an instruction that 200 or so projects halt work while the projects were inspected and the construction permits reviewed, with the results to be announced in June. A report on the first 12 of 64 projects, all of which had final construction permits issued by the previous government, was issued in June, a handful of weeks after the 13-member inspection team was formed.

None of the 12 sites escaped unscathed and the scale of the changes demanded by the report was huge: nearly all were forced cut storeys from the structure and/or allocate additional parking spaces. One developer was told to resubmit its application in entirety, even though work on the site is advanced – the expensive foundations are already in place.

The reaction from the developers was predictable – they pledged to complain to the head of the National League for Democracy, Daw Aung San Suu Kyi. Meanwhile, the review committee defended its actions, telling the Myanmar Times newspaper that the changes had been demanded for a reasons including insufficient parking spaces (critical in a city facing the clogging traffic Yangon has experienced since 2011), as well as zoning restrictions (which have already seen one foreign-backed development project sensationally scrapped due to proximity to Shwedagon Pagoda) and violations of plot vs building ratios.

Some of the projects, which I’m not planning to name here, had it coming and really should never have been granted permission to build to the height planned given their location. One of these is taller than 20 storeys but is on a tiny laneway where two cars can barely squeeze past each other – an emergency evacuation would almost certainly have ended in disaster.

It is also worth noting that the construction permits were given by a government that had faced more than its fair share of corruption allegations.

I would applaud the YCDC for its actions but for two reasons: a) some projects were allowed to continue, which is not fair – every project ought to have been subjected to the same scrutiny. And b) the YCDC promptly backed down, issuing an announcement on August 21 that all changes demanded on the 12 sites had been dropped. Confused? I sure am.

Why bother to go to the trouble of announcing the reviews only to scrap the recommendations at the hint of protest from the developers? This is particularly galling considering that the most heavily affected by the freeze – the labourers and contractors actually building the sites – lost months of income. It’s a wonder they haven’t launched legal action of their own to recover lost wages.

But the now-ended freeze has given scope to consider a few other key issues facing the construction sector.

Condominium Law at last?

Much of the press about the Condominium Law focused on one tiny aspect – that it would allow foreigners to own property in Myanmar. In fact, the key component of the law that should have been spoken about is that it would have finally enabled condominiums to be used as collateral to apply for funding from banks, instead of only landed properties, as the case remains.

There was also a lot of heated conjecture about the vague wording of the law: would foreigners only be allowed to own a maximum of 40% of buildings? Could only new projects be deemed to fall under the definition of “condominium”?

Would only sites larger than 1 acre in size be considered to fall under the definition? If so, there are precious few sites that meet that requirement.

And what of the requirement that foreigners could only own above the 6th floor? This last point looks like a deliberate attempt to keep Yangon’s colonial era apartments out of foreign hands, since all are less than 6 storeys high but it would be a disaster for Star City, a large development to the city’s southeast, which is a low-rise project.

However, all of this discussion is moot – the bylaws that would govern the law have not been passed and I’d recommend anyone keen to buy a unit in Myanmar not to hold their breath; the condominium law was only passed by parliament in January 2016, the first draft was tabled in November 2012.

The end of off-plan buying?

Sorry, I was kidding, off-plan buying is a way of life in Myanmar and it’s not dying anytime soon. Why? Finance, or more precisely, the lack thereof. In the quite recent past if you wanted to buy, sell or rent a property you needed cold, hard cash, either USD or Myanmar Kyat. The reasons behind this were simple enough – a nasty banking crisis in 2002-03 totally undermined any faith that people had in banks. Only recent has that faith returned and transfers for rental payments or sales are relatively popular.
But finance remains problematic: if you have landed collateral to borrow against you can get finance but it’ll cost you 12% per annum and you can only get about 30% of the project’s funding this way.

Developers then rely on off-plan sales to generate the cashflow to fund projects. This is fine in happy days when the market is buoyant and it’s not hard to sell most units – at least the 20-30% deposits needed as first payments – before you break ground. But the market is cold at present and from all reports off-plan sales are not generating the necessary capital for some projects, which raises the ugly spectre of ugly spectres – tall, unfinished but partly sold projects littering the city. This is by no means a Yangon-specific problem and Bangkok, for one, has many vast projects that never reached handover.

Unravelling the payments and repayments, broken promises and broken leases, well that’s a job for the lawyers. Sadly, it’s going to happen in Yangon, again, even though the city still bears the scars of the last boom gone bust in the late 1990s.

It seems the only way to stop this from happening again would be to ensure that projects have bank-backed financing for most of their funding programs but that is never going to happen with 12% interest rates.

What happens next?

Despite the freeze detailed above, there are a handful of large projects that are nearing completion or will hit the market soon.

Of these, the closest to market is the Sule Square project, directly alongside the Sule Shangri-La hotel. This 23-storey project was temporarily halted by YCDC after it discovered that the developers had added two additional floors of space to the building from the approved designs, although the overall height remained the same.

YCDC granted the all-important Building Completion Certificate after the developer paid a fine of about US$1.6 million, a total of 15,000 Myanmar Kyat for every additional square foot of space added. City officials said the fine per square foot would be used as a benchmark measure for future cases should they arise.

Another major project nearing completion is Shwe Taung Development’s Junction City project, on Bogyoke Aung San Road and only a few blocks from Sule Square. This large, mixed-use project is scheduled for completion in mid-2017 and has been curiously absent from discussions regarding the construction freeze.

For now work has restarted on many of the previously frozen projects but it’s hard to escape the feeling that developers, once bitten, might be shy about investing again in future.

It is also clear that some of today’s stalled projects, especially residential condominiums, might end up as scars of a fizzled boom.