Posts Tagged ‘real estate’
What a break! Myanmar…is…amazing! To think that this country was largely closed for so many years, yet possesses such hidden and endangered monumental pieces of history, it deserves your visit. After my NEO survey (you do this early in your LBS MBA life) suggested I needed more adventure, I decided to go on the trek to Myanmar instead of the more popular Japan trek because of the former’s unique appeal; lay on top of that the lure of original Asian food and my continued interest in frontier markets. After grueling exams, a block week and minimal sleep, Myanmar did not let me down.
My serious notes (Quick takes on the economy, banking system and real estate market)…
- The country reminds me of Ethiopia. Rather, what Ethiopia could be in a few years with a little flexibility towards foreign investments. Myanmar, a country of c.60mn people, is seen by some investors as the next growth frontier (IMF: 7.3% GDP growth in 2015) given its relatively lower wealth in the South East Asian region and the still basic nature of goods and services currently available.
- As with many countries when they start opening up with an intention to attract tourists, the airport, hotels and restaurants are some of the early areas that attract investments. Myanmar possesses quite a decent and functional airport (significantly better than that of my home country, Nigeria) as well as a number of high quality hotels and restaurants connected by very good roads. The conscious attempt to develop the country with tourists in mind is quite apparent. While we went during low season, the number of hotels/resorts and feedback from locals suggests things gather significant momentum between August-January.
- On a separate note, we heard about a heating up in the real estate market, largely demand-side driven. As I dug further on this issue, I discovered from locals that Myanmar is predominantly a cash-based economy. Also, real savings rate is negative, at the regulated 8%, considering inflation is 11-12%. Therefore, most of the professionals I met mentioned locals keep stacks of cash and/or gold at home or invest in real estate given the lack of low risk alternatives. This means that while the locals may be concerned about a bubble, the heating up could be sustained until maybe structural changes are made to improve the intermediation of the banking system.
- While the average Nigerian has 3-4 bank accounts, it’s not uncommon to find a local here with no bank account; and where he/she does, its one bank account with balances sometimes as low as $10 equivalent.
- The Kenyan government can take a cue from Myanmar on the negative implications of lending and deposit rate caps (13% and 8% respectively in Myanmar), to observe the stifling impact on credit availability to the private sector.
- The banking system, with 14 private banks, is largely dominated by big business men, partly due to a shortage of alternative funding sources for their businesses. There are 14 other government-linked banking entities. Commodities (gold and other precious materials) are a key driver of economic activity and one professional mentioned that the military still has back-end control despite the 2015 elections which further entrenched democracy in the country.
- The most incredible thing I discovered is that loan sharks here lend for as high as 12% per month. Even when the loan is collateralized with gold (sometimes kept in mattresses), the lending rate drops to only 8% per month! These monthly rates are almost equivalent to 100-150% per annum on the same principal, ex fees (NB: In Africa, micro lending rates tend to range 2-5% per month, on average). Clearly prohibitive and points to the weak intermediation role of the banks in this economy. One professional mentioned 1) that banks often ask for 200% loan collateralization, 2) prefer this to be land, and 3) the banks rarely have credit committees. Consensus seemed to be building among the locals that a banking crisis may be around the corner.
Was this post too boring for you? Then get on my LBS Student Blog page to read Part 2 – My fun notes!