Myanmar

Country Profile

Myanmar experiences a period of accelerated economic growth – expected to increase to over 6 percent during this fiscal year - fueled by foreign investment in energy and increased exports of commodities. Inflation has come down from past double digit numbers and is expected to be around 6 percent this fiscal year due to declining food prices and reduced budget deficit funding by the Central Bank. GDP per capita has increased to around US$900 per annum, but is still amongst the lowest in East Asia. Approximately one-quarter of its estimated 60 million people live below the national poverty line and, although precise data are lacking, there is a sense that the income disparity is growing.  

While its economy and population are predominantly rural[1], Myanmar is industrializing and urbanizing rapidly. The urban growth rate is estimated at 2.9 percent per year from a small base and at least 150,000 new urban households are formed in or migrate to urban areas each year and will require accommodation. These figures will only increase in the coming years. Moreover the existing housing stock is in poor state of repair after years of neglect, particularly the low- income stock. Pressure on serviced and well located land in the main urban areas of Yangon and Mandalay, will result in redevelopment of high density low-income residential areas, which in all likelihood, will be replaced by higher quality housing, adding to the requirement for new low income housing.  

To date formal sector public or private housing production is an extremely small proportion of the total annual requirement for new housing. While the private sector has increased its residential production, it caters mostly to high income households and even in that bracket supply is inadequate relative to demand and there is pressure on high end house prices. At the low income end the government implemented large scale plot allocation schemes for self-construction over the past 20 years (a total of 250,000 plots), but production has dwindled in recent years to around 2000 per year. Scale production of middle income apartments only took place in the new capital city of Nay Pyi Taw where government built more than 60,000 apartment units between 2003 and 2011. The construction of public housing in other municipalities has been of a much smaller scale. It is estimated that the total formal supply of housing by public and private sector is between 5 to 10 percent of new construction, with the remainder being supplied informally.[2]  

There is enormous pressure on the current government to take steps to facilitate the construction of new houses for middle and low income households and find ways to increase housing affordability. Lack of serviced land and main infrastructure, and shortage of local planning capacity are some of the reasons for current poor performance of the housing sector, but low incomes, a limited government budget for subsidies and the absence of a housing finance system limit the demand for formal middle and lower middle income housing.  

The entire financial system is extremely small[3] and underdeveloped. Interest rates are administratively set: maximum lending rates are 13 percent and minimum deposit rates are 8 percent. Maximum loan terms are still one year. Only recently has the Central Bank allowed some flexibility in the pricing of deposit products within a narrow band (inflation has decreased). While lending rates are still fixed some administrative curbs on credit have been relaxed, notably on collateral requirements. In addition, Deposit-to-Capital requirements have been lifted allowing for a growing deposit base.[4] Loan fees are set by the Central Bank at 1 percent of the loan value. Housing finance is only a small proportion of total credit, but precise figures are not available. Just as an indication, one of the largest private banks with an extensive branch network had only 2000 housing loans on its book.  

As of August 2013 the only housing loans offered are non-amortizing, interest only loans for a maximum term of one year. Interest over the full loan is paid upfront either over the full year or every three months or so, depending on the contract. The borrower can prepay the loan without penalty. At the end of the year, the loan can be rolled over or a new loan agreement is made, conditional upon the borrower being current on the interest payments. Another 1 percent fee will be charged and a new appraisal of the property is to be done.  

Loan amounts are solely based on the value of the collateral and only titled landed property and gold are accepted as collateral. Banks do not use household income and repayment capacity in the underwriting formula, because of the lack of reliable income data and verification mechanism. There is no credit information[5] and an unreliable taxation system. The banks keeps the property title until the loan is fully repaid. The urban land registrar system is considered fairly accurate but incomplete.  

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[1] 43 percent of GDP comes from agricultural production and 70 percent of the population lives in rural areas (2012).

[2] Figures from the draft Urban Development Policy Discussion Paper by Alistair Blunt, July 2013.

[3] There are 19 private bank and 4 state banks; as well as 28 representative offices of foreign banks.

[4] Deposit-to-Capital requirements restricted deposit taking by private banks to 10X paid-up capital and with limited access to other sources of funds it severely restricted lending. This ratio has been relaxed to 25x and will be phased out when the capital requirement regulatory system has been strengthened. Restrictions on foreign currency transactions have been lifted and modalities for participation of foreign banks are expected in 2015. From the flurry of visits by foreign banks to financial institutions in Myanmar, it appears likely that foreign participations in the financial system will soon bring not just new capital but much needed expertise for growth in the sector.

[5] The Central Bank is establishing a credit bureau, which is expected to come on line in 2014.