Fri 18 Apr 2014
Filed under: Business / Trade,Interviews
Yangon is a city abuzz with economic activity, as the world rediscovers one of the region’s most promising frontier markets after decades of isolation. With this, however, comes a growing housing crisis, as the city seeks to accommodate its rapidly expanding labor force.
Government plans to build 30,000 new low-cost public housing units next year may bring some relief, but the real answer, argues Taw Win Family Construction Chairman U Ko Ko Htwe, is private-sector investment. In this interview with The Irrawaddy’s Kyaw Hsu Mon, one of the country’s top property developers outlines the challenges facing his industry, and discusses how the government could make it easier to turn Yangon into a city of homeowners.
Question: What are the most pressing problems for the construction sector in Yangon right now?
Answer: The biggest one is that we lack the latest technology, although that is improving. Still, we can’t compare with what foreign investors have at their disposal. Besides this, we face a shortage of human resources. In the past, a lot of technicians left the country because they could make more money overseas, and even now that the country is opening up, they’re in no hurry to come back. Because the demand for skilled workers outstrips the supply, the cost of labor is more than we can afford.
The price of land is also a huge problem. Prices here are almost the same as Singapore, but very few people can afford to pay them. Building materials are also expensive here, so we can’t use the best quality.
Finally, I would say that there is a great deal of inefficiency here, due to the way the economy is run. We end up wasting time, wasting money and wasting materials because of this. Interest rates are also too high—I believe Myanmar’s rates are the highest among the Asean countries.
Q: Why do you think interest rates are so high?
A: The problem is with the thinking of key people at the Central Bank. Even though the president has made the bank independent of the Ministry of Finance, it still has the same governor. Because he doesn’t really understand the nature of business or the financial system, nothing has really changed.
Q: Local businesses have recently called on the Central Bank to reduce interest rates from their current level [13 percent] within a year. How did the bank respond?
A: We—local businessmen—made that proposal at a meeting with the president on Feb. 22. It’s not just the construction sector that wants this to happen, it’s almost everyone. Foreign banks are starting to come to Myanmar, and they can offer loans at much lower rates, and charge smaller transaction fees. But it’s up to the Central Bank to control the country’s financial situation. Unless it does, the economy will suffer.
It’s important to get the country’s capital in circulation. Unless the financial system is working properly, that won’t happen. The Central Bank also has to manage the floating exchange rate. If the bank isn’t able to do these things, and can’t make flexible interest rates for us, we don’t dare make a move, even though the country is opening up.
Q: Yangon’s population is growing fast. How many new residential units need to be built to keep up with this growth?
A: We won’t really know the population until the census is completed, and in terms of demand, these days we are seeing some people who are buying two or more properties. That makes it difficult to calculate how many new units we can build. Generally, the supply of condominiums and the demand are balanced. The problem is that while there are some people out there who can buy, there are lots of others who can’t. People on lower incomes are struggling just to pay rent. That’s why developers need to build more low-cost housing, as a kind of poverty reduction. I’m sure that if we built 100,000 low-cost units, we could easily sell them all.
Q: How can you be sure that they would be bought by their intended market, and not by speculators?
A: Well, last year, we sold out more than 3,000 low-cost units for 16.5 million kyats [US$16,500] each, and now they’re selling for 70 million kyats [$70,000]. The trouble is we can’t control the prices once we’ve sold the properties. Sometimes it’s the consumers themselves who are playing the market. If we could build a lot more of these units, that wouldn’t happen. But that would take a lot of developers building affordable housing, not just me. If the government gave us access to some of the available land—there’s lots of it—we could build enough housing for 10 million people.
Q: Which areas do you have in mind?
A: You don’t even have to go as far as North or South Dagon or Hlaing Tharyar to find suitable land. Within Mingaladon, Insein, Mayangone, South and North Okkalapa, Thaketa, Bahan, Hlaing and Kamaryut townships, there’s lots of space left in Yangon.
Q: So you’re saying that there is still a lot of space for developers to work in, within the area administered by the Yangon City Development Committee?
A: Yes, even if we work within this area, we could build enough housing for 10 million people. All we need is better city planning.
Q: Why haven’t other developers shown much interest in low-cost housing? Is it because it doesn’t make much of a profit?
A: With better management, the right technical resources and goodwill, it would work. If the government asked me to build 20,000 units right now, I could do it, because I already have a system for building low-cost housing. With five more people like me, we could create a lively market.
Q: So what would the government have to do to make it happen?
A: Well, the government controls a lot of vacant land, including land owned by the regional government and the army. If it freed up that land, it would benefit everyone. Even if the profit was just 300,000 kyats [$300] per unit, with 20,000 units, that would come to 6 billion kyats [$6 million]. Of that amount, about 1.5 billion kyats [$1.5 million] would go back to the government in taxes.
Q: How many units have you already built in Yangon?
A: We built 1,600 units at the first Mudita housing project in Thamine and 1,700 in Insein Township, so a total of 3,300 units. We’re not sure about starting a third project, because we need a big space to build a low-cost housing project, about 30 or 40 acres. That would include a hospital, school and other facilities, too.
If the government made the land available, we could pay the normal price. We wouldn’t expect to get it for nothing. I would build nine-story buildings with elevators. Each unit would be 600 square feet, with two rooms.
Q: What about the issue of squatters in Yangon? How do you think this problem can be solved?
A: As I said before, if the government gave developers access to land, we could create very low-cost housing for them. They could buy new homes on installment plans, which they could pay off in five to 10 years. We could sell them for 4.4 million kyats [$4,400] per unit. If the government offered subsidies, it could be theirs in five years if they pay just 50,000 kyats [$50] a month. If not, they can have their own home in Yangon after just 10 years.