Sherpa Hossainy's Blog

Foreign investment rules in practice in Myanmar (Part 1)

Posted in Investment, Legal, Myanmar, Real estate and property, Yangon by Sherpa Hossainy on July 27, 2013

Part 1: Real estate and property

Published in Myanmar Business Today (Vol 1, Issue 24) on May 9, 2013


Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. Myanmar Business Today will publish a sector wise analysis based on the briefing, starting with real estate and property.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Notification 1/2013 sets out the permitted activities for foreign investors and the activities which require a joint venture (JV), and notification 11/2013 introduces various regulations on applying for an investment licence or MIC Permit, the use of land, transfer of shares, remittance of foreign exchange and the taking of security on land and buildings.

By and large, investment with 100 percent foreign ownership is permitted for the vast majority of business activities, including telecommunications, power generation, services, infrastructure projects, agriculture, hospitality and non-food manufacturing.

Retail and wholesale activities have been opened to foreign investment as well, subject to certain conditions. A relatively limited number of activities require a local partner, such as food production, beverage production, plastics and certain chemical industries, mining and real estate development. However, even for those restricted sectors, foreign investors may hold up to 80 percent of the shares.

Notification 11/2013 strengthens the land use rights by foreign-invested companies, including the possibility to lease land from anyone, and to take security on land and buildings. It also, in conjunction with other measures in Myanmar and abroad (such as the general licence issued by the US Treasury easing sanctions with respect to four Myanmar banks), made it easier to remit foreign currency overseas.

“Myanmar is a country where there are often significant differences between the theory and the practice. In our overview of how foreign invested projects work in Myanmar, we base ourselves not just on the laws and the new regulations, but on our on-the-ground experience with getting projects from inception to completion,” said Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices all over Southeast Asia.

Calling upon on-the-ground experience with ongoing investment projects and financing transactions, we tried to clarify how power projects are licensed, which approvals are granted in practice to distribution and retail, and how the authorities allow foreign investment in real estate, Edwin said. Joint venture requirement for foods manufacturing, beverages and mining and the new possibilities for taking security on land and buildings were also elaborated in the report.

Real estate development

“In practice, the ownership structure of a foreign-invested property project will very much depend on the land rights for the project in question,” Edwin said.

In Myanmar, freehold, granted land and government leased land are in practice the most relevant types of land when it comes to foreign investment.

For land that is privately owned, which has been granted to a local partner, or where the local partner holds a government lease, a JV is required for development of most types of property, including buildings, condominiums, apartments, offices, commercial space, houses in industrial zones and low-cost housing, the briefing note said.

In this case, the local partner will receive shares in the JV in return for transferring the land rights to the company, it added.

The report said a JV is also required for the construction and development of new townships, golf courses, recreational areas, factories and mills, bridges, highways, underground railroads and construction related to transportation.

“If the land is directly leased by the government to the project company, such projects are usually conducted under build, operate, transfer (BOT) basis and foreign investors may hold 100 percent of the project company,” Edwin said.

If a legacy building is involved, then a conservation management plan is also required. Large scale property projects require an Environmental Impact Assessment (EIA), the report said.

The provision of architecture services, construction consultancy services, production of construction materials supporting the urban housing sector, prefabrication of construction materials, construction of disaster-proof buildings, and the fixing and commissioning of machines and their parts are subject to a Mutual Recognition Arrangement (MRA) and must follow the Myanmar National Building Code’s rules and regulations, the note added.

Use of land by foreign investors

Foreign investors cannot actually purchase land, according to Transfer of Immoveable Property Restriction Act of 1987, but they can lease land from the government or from private parties (since this year) with the permission of the MIC.

“In practice, when the project involves the use of land, foreign investors need to agree to a draft lease agreement with the (public or private) land owner before submitting their investment proposal to the MIC,” Edwin explained.

The government can lease land directly to the foreign-invested company (often in the context of a BOT agreement), but it is more common that a local partner who has already obtained the government lease contributes the land rights to a JV company in return for shares, he added.

Taking security

Until recently, there was largely no regulation in Myanmar on taking security over land and buildings. Notification 11/2013 now specifically allows creditors to take security over land and buildings.

“The taking of security on bank accounts, receivables and movable goods is in theory possible, but it remains virtually untested and very uncommon in practice,” Edwin explained.

Every type of security, mortgage or charge taken by a company in Myanmar must be registered with the Deed Registration Office within 21 days of creation.


Booming Southeast Asian real estate markets to support AEC by 2015

Posted in ASEAN, Myanmar, Real estate and property, Yangon by Sherpa Hossainy on July 10, 2013

Jones Lang LaSalle ties increased real estate transparency and investment interest to economic growth

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013


Real estate trends and opportunities in emerging markets across Southeast Asia will support the establishment of the ASEAN Economic Community (AEC) by 2015, according a leading global real estate advisory firm Jones Lang LaSalle.

The economies of the ASEAN markets continue to outpace the rest of the world by a significant margin. While Singapore remains the commercial and financial hub, emerging markets like Myanmar are making headway across Southeast Asia. Despite a slight slowdown during the first quarter of 2013 in some Southeast Asian markets, such as Indonesia and Thailand, economies across the region anticipate growth for the remainder of the year. “As the continued global economic recovery and growth in the region increase liquidity and reduce debt, growth prospects in real estate assets across the region will attract global investors,” Jones Lang LaSalle said.

While Myanmar is touted by Asian Development Bank and International Monetary Fund to grow more than 6 percent, other Southeast Asian countries are also expected to see similar growth. Supported by strong investor demand and consumer spending, Indonesia’s economy is forecast to grow 6.1 percent in 2013, while the Philippines is expected to grow 5.7 percent this year, driven by investor interest in the country’s upgrades to sovereign credit ratings and low interest. Thailand, Malaysia and Vietnam are also expected to grow between 4.5 and 5.5 percent driven by strong domestic demand.

Chris Fossick, managing director, Singapore and Southeast Asia at Jones Lang LaSalle, who attended the World Economic Forum on East Asia in Nay Pyi Taw, said, “This growth translates to robust domestic investment into commercial property, driving demand for office and logistics space.”

Fossick added that increased consumer spending will boost demand for expanded retail formats, which in turn will support the developments of retail malls and the subsequent accompanying infrastructure in emerging markets. “We are now starting to see increased transparency in the real estate markets of these economies which will ultimately spur regional growth encouraging investment.”

“The real estate industry is in a unique position to influence and be involved in many key aspects of development in the Southeast Asia region, both economic and social. There is a role for the industry in areas such as infrastructure, housing, education, healthcare, tourism and industry and trade which are all inextricably linked. This is both an opportunity and a challenge for our industry and we need to work closely with both private and public enterprise to ensure real estate adds full value,” Fossick said.

2012 ASEAN Real Estate Market Transparency Rankings

ASEAN Ranking Global Ranking Market Composite Score Change on 2010
1 13 Singapore 1.85 1.73
2 23 Malaysia 2.32 2.30
3 35 The Philippines 2.86 3.15
4 38 Indonesia 2.92 3.46
5 39 Thailand 2.94 3.02
6 68 Vietnam 3.76 4.25

Source: Jones Lang LaSalle 2012 Global Real Estate Transparency Index

While economic growth drives corporate activity across Southeast Asia, businesses are making changes to accommodate growing workforces and modernised office spaces in new, emerging markets. As existing companies seek space to accommodate expansion and new businesses and industries demand a share in the markets, demand for offices will spike and vacancy levels are forecasted to reach historic lows by 2014.

Demonstrating this growth is Jakarta, where office demand has increased by nearly 150 percent in four years, growing 7.4 percent the last quarter alone. The Philippines, often overlooked by investors, witnessed record levels in demand for office space, sparking new developments in previously unexplored submarkets and a 3 percent rise in rents from the same period 2012. Backed by increased domestic demand, office market rents and capital values, Thailand’s real estate market has demonstrated recovery since the end of 2012, rising 15.2 percent year over year in the first quarter of 2013. Meanwhile increases of 1 to 4 percent in office rents were seen in some other emerging Southeast Asian markets, such as Kuala Lumpur and Bangkok.

Owing to improvements in SEA economies and international trade, ASEAN industrial and logistics markets have reached historic highs and show no signs of slowing, as trade volumes are predicted to increase by 130 percent over the next 10 years.

“Real estate will have a critical role in driving trade and industrial growth across SEA markets. Many have already experienced rates increase as a result of improved foreign investment and a tighter supply base. As foreign investment continues and more borders once blocking global trade open, the most developers will seek new markets in the SEA region that will boost competitiveness and emerging markets’ growth,” Fossick said.

In retail markets sector, Jakarta leads the regional field in the retail market, supported by a large domestic population. As rising disposable income and a changing demographic drives consumer confidence, retail rents have accelerated by 4.9 percent year over year in Q1 2013. In Thailand, the local retail market also enjoyed renewed interest from international retail brands looking to capitalize on resilient domestic demand and overall rising affluence in Asia. Leasing activity was strong, largely driven by newcomers and expansions by international brands with retail rents in Bangkok growing 4.1 percent year over year and capital values rising by 3.4 percent year over year in 1Q13.

By incorporating sustainability in real estate development, markets in SEA can capitalise on and maintain growth, enhance corporate productivity and efficiency, and improve transparency for prospective investors. Jones Lang LaSalle’s 2012 Global Real Estate Transparency Index revealed that transparency in real estate markets is also improving as investors and corporate occupiers extend deeper into these geographies.

“A higher transparency ranking in these markets will support ASEAN economic integration by leading developers to explore opportunities for real estate growth which, in turn, encourages other investors who will recognise the growing development cycle,” Fossick said.


A bid to save Yangon’s historic architectures

Posted in Myanmar, Real estate and property, Renewable energy, Tourism, Yangon by Sherpa Hossainy on July 10, 2013

Published in Myanmar Business Today (Vol 1, Issue 19) on June 13, 2013


Yangon Heritage Trust, a local non government organisation, has joined hands with Netherlands-based electronics giant Philips to protect Yangon’s old architectures and cultural heritage sites.

The partnership aims to help conserve and beautify Yangon’s many cultural heritage sites. It will support research and curation of historical sites and installation of blue plaques, which will provide relevant information and detailed history of key sites.

The partnership was announced on the sidelines of the World Economic Forum on East Asia on June 5 in Nay Pyi Taw.

YHT Philips

Dr Thant Myint-U (R), founder and chairman of the Yangon Heritage Trust (YHT), and Harjit Gill, chief executive officer of Philips ASEAN and Pacific, display a blue plaque. Some 200 blue plaques detailing the history of Yangon’s heritage sites will be installed this year. Sherpa Hossainy

Philips contributed $75,000 for the Yangon blue plaques initiative to highlight cultural heritage sites throughout Yangon, Myanmar’s commercial and cultural hub. A total of 200 blue plaques will be installed to share the historical relevance and background of the heritage sites across the city. Most of the plaques will be installed by this year.

“We are in a time of change, and many things will change dramatically. But it is important to remind people and the government that we have to protect what is beautiful in our city,” said Dr Thant Myint-U, founder and chairman of the Yangon Heritage Trust (YHT), founded a year ago targeting to preserve Yangon’s heritage.

YHT is currently working with the government to list heritage buildings in Yangon and take measures to protect them. “We are receiving tremendous support and enthusiasm from the government. We had meetings with top ministers at the national level and also with Yangon’s Mayor – they all assured us of their support,” Dr Thant told Myanmar Business Today. Government and public support, and collaboration with private entities are essential if YHT has to succeed, he added.

“Old Yangon has an area that is only 10 percent of the new city and we only want to preserve that part. There’s enough space for modernisation and to build shopping malls and business centres in other parts of the city. We can’t let Shwedagon Pagoda get covered by skyscrapers,” Dr Thant said.

“If we can protect the views of the Shwedagon and other heritage sites, Yangon has the potential to become the most beautiful city in Asia. Yangon is the only place in Asia where you have 19th and 20th century landscape left. They are priceless assets – if we can protect them, they will become more valuable than natural gas, oil or jade.”

Tourism is going to boom in Myanmar and Yangon’s downtown area can be presented as a package for tourists if the cultural sites can be saved, Dr Thant said. “Downtown Yangon is where modern Myanmar came to be, where our greatest writers, politicians and thinkers were born. Within only one square mile you can see tremendous diversity – there’s Buddhist, Hindu and Chinese temples, there’s mosques and a synagogue. You don’t see that everywhere.”

“In five to 10 years we will probably become a developing country, and then in 20 years a middle-income country. If we have a modern and beautiful city, we would be able to generate and attract talent, and be able to compete with other major cities in the region such as Delhi, Chennai and Shanghai,” he added.

Dr Thant, also a historian and author, said this initiative is not only about buildings, but also about people living in downtown, especially poor people living there. “They should understand that saving our heritage will bring in more investments and create jobs for them.”

A British colonial era building in Yangon. WMC

A British colonial era building in Yangon. WMC

However, he said there’s no immediate plan to expand YHT’s work in other major regions in Myanmar such as Mandalay and Rakhine state. “Currently we only want to focus on Yangon. We don’t have enough manpower and finance to expand to other regions,” he told Myanmar Business Today.

“We are pleased that Philips is supporting us in our initiative. These plaques will provide information and help identify historic buildings. Sometimes people don’t understand the history behind those buildings – we can achieve that through the plaques.

“We must remember, conserve and celebrate our heritage. The blue plaque system will play a big role in doing just that, by marking buildings and other places of historical, cultural, and religious importance, not only for tourists but for the Myanmar people themselves. It will be linked to other efforts to revitalise downtown Yangon and set the stage for sustainable growth. Our partnership with Philips is part of realising our mission to safeguard and promote Yangon’s priceless heritage as part of this great city’s future.”

Philips recently conducted a lighting audit of heritage zones in collaboration with both YHT and the Mayor’s office. Philips said in a statement that it aims to ensure lighting plays an important role in the Yangon Master Plan, so that energy efficient LED lighting technology can help further conservation, beautification, and sustainability.

“We want to help Myanmar grow in a sustainable way. We want the old architectures to last in a beautiful way amid all the development process,” said Harjit Gill, chief executive officer of Philips ASEAN and Pacific.

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