Duncan Burry lays out a path for a revised Condominium Law.
Myanmar’s Condominium Law has not helped the quiescent condominium market. Before its enactment in early 2016, many hoped it would provide an operable framework that could spur development – not least by permitting foreign ownership. Instead, the Law has fuelled uncertainty, prolonging the torpor.
A heavy-handed, albeit well-intentioned, approach to regulation in Yangon has not helped. In 2016, over 200 high-rise projects were frozen, pending inspection and approval. Some developers were facing the uninviting prospect of removing already-built floors from their project, before such orders were retracted.
Issues big and small
Some of the gaps and ambiguities in the Law are minor, others fundamental. It is hoped the forthcoming bylaws will provide clarity. These bylaws are reportedly in the drafting stage, but further updates have been scant.
The path ahead
Three things need to happen to make this law implementable and effective:
(1) Bylaws need to be issued that clarify the nature of land ownership;
(2) These bylaws need to adopt laws and regulations from abroad that make condominium and strata schemes workable; and
(3) External factors inhibiting the market need to be addressed.
Land ownership – the vexed issue
The Condominium Law requires all condominium projects be constructed on land that is collectively owned, being land of beneficial interest under prevailing law to all collective owners. It does, however, not specify which types of land are capable of collective ownership. Alexander Bohusch, Partner at Luther Law Firm, identifies this as one of the biggest questions with the new Law, which has to be clarified in its bylaws. He points out that “if only specific types of land, such as grant land and freehold land, can be used for the construction of condominiums, then the limited availability of suitable land may limit the registration of properties under the new Law.”
This issue stems from the fact that a large proportion of projects are built on leased-land under build-operate-transfer arrangements. This means developers cannot procure strata title of the land for property purchasers. The pragmatic approach is for the bylaws to integrate this kind of land, most of which is government-owned. This requires providing an expanded definition of “collectively owned land” that includes long-term leasehold interests. Such a course may be unlikely, unless the government proves willing to cede some control of its land. It would also be beneficial if such interests could be continually renewed, but that is a matter for broader reform.
Adopting rules and regulations from abroad: Thailand’s foreign ownership lessons
The Law would also be greatly improved if it clarified the rights attached to foreign owners. 40% of a condominium may be sold to foreigners under the Law. Thailand’s condominium law permits 49%, a similar proportion. This close neighbour provides the following useful lessons for clarifying aspects of foreign ownership:
Legality of foreign ownership: Earlier law forbids the transfer of land and property to foreigners in Myanmar, with only limited exemptions. Thailand’s condominium law contains a clear statement that any previous inconsistent laws are superseded. An unequivocal statement in the Condominium Law that it supersedes previous law or qualifies as a permitted exemption would provide clarity.
Foreign ownership share: The common assumption is that foreign share is calculated by the number of apartments under the Law. That is, 40 of 100 apartments would equal 40%. Where units vary significantly in size, this is not proportionate. The conventional measure of floor space used by Thailand’s law is preferable. This measure is indexed to the most valued aspect: space. It also provides an effective means for determining a proportionate share of the strata title.
Foreign entities: Clarifying that foreign ownership under the Law extends to foreign entities would broaden scope for increased market activity. The law in Thailand specifies that foreign entities can hold ownership.
Adopting rules and regulations from abroad: long-term additions
Condominium and strata schemes from abroad reveal a list of additions that the Condominium Law would benefit from incorporating long-term. This includes provisions related to the following:
Owners corporations: Compared to other schemes, the Condominium Law contains limited information about condominium management. With luck, the forthcoming bylaws might shed some light here. Incorporating a range of detailed processes for forming, managing and running an owners corporation – ‘executive committee’ under the Law – would be beneficial.
Owners corporation bylaws: The Law would be strengthened if it provided conditions for each executive committee (i.e. owners corporation) to enact and enforce its own bylaws. Other regulatory schemes contain provisions that incorporate mandatory or model bylaws, and provide for the creation of bylaws by each owners corporation.
Mandatory Insurance: The Condominium Law could incorporate mandatory insurance provisions. Other regulatory schemes contain provisions making insurance mandatory. Ordinarily the owners corporation must enter and maintain a contract of insurance over the building. Given that Myanmar’s insurance industry is currently limited, this might not have immediate practical utility. However, it will in the long-term.
Dispute resolution: It would be worthwhile to adopt provisions that ensure disputes are settled in a structured manner. Other schemes govern a range of disputes involving owners, owners corporations and/or tenants. Dispute resolution procedures can also assist in enforcing owners corporation bylaws.
External market factors
Outside of the Law, there are greater obstructions to growth. These external market factors are numerous, but there are two acute inhibitors:
Parking regulations: Tony Picon, Vice Chairman of Colliers International’s Yangon office, emphasises that “what is really causing problems in the market is the parking regulations for condominiums.” The current Yangon regulations mandate 1.2 parking spaces per unit. Mr Picon explains that “the more units you have in the condominium, the more parking spaces and the less feasible the project becomes.” In Yangon, where prospective apartment owners are not necessarily car owners, a lower ratio could result in a greater number of smaller units, where demand is concentrated.
Financing: The second factor is a lack of access to financing. Stephen Lee, Director at Yangon real estate firm RE/MAX 777 LUX, points out that most property transactions are outright and in cash, rather than on bank loans. He explains that prices have stayed too high in a market where “there’s no pressure from the bank because [people] don’t borrow.” Without borrowing, the government cannot influence the market by regulating the permitted loan quantum relative to borrower incomes and debt levels. There are two promising developments. The first is the budding mortgage market. Certain banks now offer mortgages, with terms of up to 15 years. The second related development is the establishment of a credit bureau, which should become operational later this year. The ability to build up a credit score will make securing a loan easier for many. These advances indicate that, at the very least, progress is being made.
Ultimately there are no panaceas, and the challenges are formidable. Improvement to the Condominium Law and to the broader conditions preventing its implementation will be a positive, if hard-won, reformative step.
Duncan Burry is a graduate from Melbourne Law School. The above article is part of a research project on how to improve the Condominium Law in Myanmar that Duncan was involved in during his time at Consult-Myanmar Co Ltd in Yangon. An edited version of this post also appeared at Frontier Myanmar.