MYANMAR REPORTCONSTRUCTION MARKET UPDATE

JUNE 2016

MYANMARREPORT

MARKET TRENDS

According to the International Monetary Fund (IMF), Myanmar’s economic growth eased to 7.0% in FY 2015/16 while the Asian Development Bank (ADB) estimated its growth shrunk to 7.2%. The severe mid-year nationwide floods in 2015 had destroyed millions of dollars of infrastructure and caused food shortages and weakened rise exports.

Foreign direct investments (FDI) rose to a record of US$9.4 billion in FY 2015/16. Although the newly installed civilian government raises hopes of increased economic stability in 2016, it has yet to trigger an immediate surge in new investments in their new financial year (i.e. FY2016/17).

Inflationary pressures remained persistent in the first six months of 2016 following the pre- and post- election climate. The new administration is expected to take a little bit more time to assemble an able bureaucracy to implement the laws and regulations to manage the influx of funds as well as its capacity to maintain reforms.

The United States lifted some economic sanctions against Myanmar in the banking, timber and mining industries in May this year. This signifies the western nations’ support for ongoing political and economic reforms under the new administration to

address corruption while encouraging private sector growth and diversifying the economy. Most of the restrictions on trade and investments with the country’s military forces remain in place.

The IMF projects an economic rebound for Myanmar this year as the impact of the floods dissipates and the amount of FDI increases. The country continues to leverage on the booming construction and tourism sectors as well as support from the government’s economic reform programmes. In ADB’s latest outlook report, Myanmar’s economic growth is forecast to lead all ASEAN nations in FY 2016/17 and FY 2017/18 at 8.4% and 8.3% respectively.

It is anticipated that the new government will remain committed to updating essential services such as their water supply and sewerage, upgrading their airports and building better housing. Analysts also expect further liberalisation in key industries would renew foreign investors’ demand for good quality developments in the real estate market.

MYANMAR ECONOMY

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JUNE 2016|

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MARKET TRENDS

PROPERTY MARKET

MYANMARREPORT | JUNE 2016

The real estate sector raked in about US$345 million in foreign direct investment (FDI) for FY 2015/16 with nearly US$100 million of that sum invested in January 2016 alone. But real estate activities had been fairly quiet as effect of the elections saw falls in transactions and rental returns across the market.

Market observers reported the supply of residential accomondation is spread unevenly across the country’s real estate segments. Developers had been placing their focus on building lucrative luxury units over the past few years. This has resulted in an overstock at the top end of the market, with a shortage of low-cost and mid-range residential accommodations, in a country where about a quarter of the population live below the poverty line.

Based on published market data, unsold high-end apartment stock doubled to 6,650 units at the beginning of 2016 from that of 2014’s. The weak legal structure, exhorbitant land prices, financing hurdles, an undercapitalised banking system and high regulatory levy rates imposed on property transactions exacerbated the supply glut.

The Condominium Law was passed in 1Q 2016. This law is highly anticipated to encourage property sales in the near future

as foreigners are now allowed to purchase condominiums. This law however, limits the ownership to a maximum of 40% of the space available on the sixth floor and above in a building, according to the Myanmar Real Estate Services Association.

Real estate for the hotel sector is supported by the tourism boom. Tourist arrivals grew to 4.7 million in 2015, up from 3.08 million in 2014, 2.04 million in 2013 and 791,505 in 2010, according to the Ministry of Hotels and Tourism (MHT). Market observers projected there were about 1,000 new upper-scale hotel rooms being added to the hotel market in 2015. An additional of more than 1,500 hotel rooms are forecasted to be completed this year.

For the retail sector, the influx of tourists and foreign investment on top of a growing middle class population in Yangon is expected continue to remain buoyant in 2016. In the Yankin township, the US$440 million mixed-use Myanmar Centre was completed in December 2015. As part of the development, the Myanmar Plaza added 38,364 m2 of leasable retail space to Yangon city. Market observers expect another new shopping mall to be completed by 2018, in addition to several office and residential blocks. The Yankin township is slated to be a viable business district to downtown Yangon.

MARKET TRENDS

CONSTRUCTION INDUSTRY

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MYANMARREPORT | JUNE 2016

Many timelines for private-sector projects are being delayed as the Yangon City Development Committee (YCDC), the Ministry of Construction and parliament members conduct a city-wide review of the high-rise building permits to ensure that they cor-respond with Yangon’s urban development plans. All high-rise building projects above nine floors are subjected to re-assess-ment, including those undergo-ing construction.

The ADB estimated that about US$60 billion in investments will be needed through to 2030 to upgrade transport systems in the country. In order to further bolster rapid growth in both the trade and tourism sectors, the Yangon International Airport is currently expanding its terminal building to accomodate more visitors, from 2.7 million to 6 mil-lion passengers annually, along with more car park lots and roads within the airport grounds.

Construction works for the new Hanthawaddy International Air-port, 80km outside of Yangon, is slated to start within this year. This airport is a public-private partnership (PPP) between My-anmar’s Department of Civil Avi-ation (DCA) and a Singapore-Ja-pan consortium with a proposed gross area of about 32km2. Its first phase of construction allows it to handle an annual capac-ity of 12 million passengers upon completion in 2022 while the

second phase includes a long-term plan to upgrade the airport to manage 30 million passengers annually.

Myanmar, India and Thailand are also anticipated to work on a 1,400km long highway that will link India with Southeast Asia by land for the first time in decades, giving a boost to trade and cultural exchanges between these three nations. The Trilateral Highway starts in Moreh in the eastern region of India to Myanmar’s Tamu city. To facilitate this cross-border route, repair works on more than 73 WWII-era bridges in Myanmar are already in progress and is targeted to be completed within 18 months by 2017.

The Ministry of Construction (MOC) promised in May this year to prioritise building housing for the poor, after inheriting a chronic housing shortage from the former government. The MOC pledged to build more than 8,000 low-cost homes nationwide over the next two years, with each unit priced at less than MMK 10 million (approx. US$8,425). Foreign companies will soon be invited through a public tender to build these low-cost housing projects in the Yangon Region, according to the MOC. This will mark the first time foreign contractors are given access to the affordable housing sector in Myanmar.

CURRENCYUNITS PER USD

3Q2015 4Q2015 1Q2016 2Q2016P

Myanmar Kyat (MMK) 1,265 1,274 1,235 1,187

METAL PRICES

Data Source: London Metal Exchange (LME)

CONSTRUCTION MATERIAL

PRICES

Data Source: Market Sourcesp: preliminary

Exclusions: • Plant and Equipment • Transport • Wastage • Overheads and Profit • Preliminaries• Witholding Tax • Commercial Tax

Notes: All supply prices stated above are only applicable for building construction projects in Yangon. Specific cost consultancy should be sought for your particular factual situation prior to utilising this

information.

MATERIAL UNIT

AVERAGE SUPPLY RATE (MMK)

4Q2015 1Q2016 2Q2016P

Concreting Sand m3 4,520 5,300 3,540

Stone Aggregate (20mm) m3 37,010 33,460 33,730

Ordinary Portland Cement kg 140 112 114

Reinforced Concrete (Grade 30 MPA) m3 101,480 90,670 90,000

Reinforced Concrete (Grade 40 MPA) m3 115,150 107,000 96,340

High Tensile Steel Bars (10 - 32mm) kg 480 420 540

Mild Steel round bars (6 - 25mm) kg NA 475 510

Structural Steelwork (U-beam, stanchions) tonne 774,210 573,000 630,400

Plywood Formwork (2438 x 1219 x 20mm) pc 40,810 41,060 39,950

Clay Bricks (100mm thick brickwall) pc 100 101 101

CURRENCY EXCHANGE

Data Source: Oandap: preliminary

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MYANMARREPORT | JUNE 2016

Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16

Copper 5,833 5,456 5,088 5,207 5,221 4,807 4,628 4,462 4,594 4,947 4,850 4,707 4,630

Aluminum 1,683 1,637 1,539 1,588 1,523 1,465 1,494 1,479 1,535 1,530 1,564 1,556 1,591

Steel 124 100 100 108 167 170 185 170 170 61 50 50 222

0

500

1,000

1,500

2,000

2,500

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

USD/Tonne USD/Tonne

Aluminium (RHS)

Copper (LHS)Steel (RHS)

YANGON CONSTRUCTION

PRICES

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DEVELOPMENT TYPE COST PER CFA MMK (’000) / m2

COST PER CFA USD / m2

OFFICE

Standard 1,050 - 1,790 850 - 1,450

Prestige 1,420 - 2,160 1,150 - 1,750

HOTEL (Excluding FF&E)

Three Star 1,670 - 2,160 1,350 - 1,750

Four Star 1,910 - 2,470 1,550 - 2,000

Five Star 2,470 - 3,030 2,000 - 2,450

COMMERCIAL

Medium Quality Retail 1,360 - 1,750 1,100 - 1,420

Good Quality Retail 1,790 - 2,160 1,450 - 1,750

RESIDENTIAL

Medium Quality Condominium 1,240 - 1,670 1,000 - 1,350

Good Quality Condominium 1,580 - 2,040 1,280 - 1,650

CAR PARK

Above Grade Carpark 430 - 740 350 - 600

Basement Carpark 930 - 1,420 750 - 1,150

Notes:Construction Floor Area (CFA) - The area of all building enclosed covered spaces measured to the outside face of external walls including covered basement and above ground car park areas.

All Yangon construction prices stated herein are as at 1st Quarter 2016, and include a general allowance for preliminaries, foundation, car parking, and external works. The price ranges herein are indicative and due consideration should be given to the different specification, size, location and nature of each project when utilising this information. The prices here may not fully reflect the extent of current market forces and tendering conditions.

Exchange Rate Used: USD 1.00 = MMK 1,235

Exclusions:• Land cost • Legal and professional fees • Development charges • Authority fees • Finance costs• Site infrastructure work • Diversion of existing services • Models and prototypes • Future cost escalation• Loose furniture, fittings and works of art • Tenancy work • Resident site staff cost • Withholding Tax• Commercial Tax

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MYANMARREPORT | JUNE 2016

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Cover: Sule Pagoda, Yangon, Myanmar