Dagon City’s Demise Casts Doubts on Myanmar

Developers uncertain about Asian market after Buddhist monks block luxury project

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A man walks past the construction site of the Dagon City project in Yangon, Myanmar. Photo: U Aung/Xinhua//Zuma Press

By

Shibani Mahtani

July 21, 2015 5:33 a.m. ET

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YANGON—The $300-million Dagon City development promised to bring a touch of luxury to this decaying city. The design included hundreds of plush apartments, a high-end mall and thousands of square feet of desperately needed office space. Its biggest selling point was that it overlooked the Shwedagon Pagoda, the spiritual heart of Myanmar and a magnet for visiting dignitaries such as President Barack Obama.
A government decision this month to ax the project and four others amid opposition from Buddhist monks, however, has left developers wondering if their investments are safe in one of the world’s fastest-growing real-estate markets.
Since Myanmar began to open up in 2011 after decades of military rule, condominiums and grade-A office space have doubled or sometimes tripled in price as foreign multinationals scope out opportunities and set up local offices. As rents rose to match that of office space in Singapore, investors have made big bets that prices could rise further. Myanmar’s real-estate sector now accounts for $2.2 billion, or 4% of overall investment in the country.

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Marga Landmark, which describes itself as an international real-estate firm focusing on Myanmar, was among the first to join the fray, much as it had entered markets in China, Thailand and the Middle East before. After filling out a very long application for the Dagon City project that Marga’s founder, Stephen Suen, compared with Tolstoy’s “War and Peace,” it received the government’s go-ahead for the prime site, just north of Yangon’s downtown, in 2014. In a news release at the time, executives said it would be a “new symbol of international progress” for Myanmar and would help accelerate Yangon’s development.
The first phase of sales began late last year. Buyers leased almost 300 units in the 22-acre plot. Real-estate advisory firm Colliers said in a client report that hundreds of units would help cool the overheated market in Yangon and stabilize prices for quality apartments.
Then, in January, Marga caught a glimpse of just how unstable frontier property markets can be: Local authorities abruptly suspended the project and four others close to Shwedagon Pagoda, the country’s holiest Buddhist site, after monks claimed it would affect the foundations of the historic temple.
Mr. Suen, who is from Hong Kong and once studied Buddhism at university there, said he “wasn’t worried at all” in an interview in February and considered the move a routine disruption. Marga’s local partner was the Thu Kha Yadanar group, which had secured the Dagon City site from Myanmar’s powerful armed forces, which still control much of the country’s prime land. Mr. Suen, who oversees a property portfolio worth nearly $1 billion in China, also said he felt comfortable working in Myanmar. The obstacles to doing business in Myanmar, he concluded, were much like those in any other developing country. Mr. Suen also said the construction wouldn’t affect the pagoda, around 3,000 feet away.
In the months that followed, however, monks linked to the increasingly powerful nationalist Buddhist group, the Association for the Protection of Race and Religion or Ma Ba Tha, grew more vociferous in their opposition. Monks have played a vocal role in Buddhist-majority Myanmar for decades and in recent years their voice has grown louder, in some instances calling for new laws to peg back what they say is spread of Islam in the country.
Their lobbying power strengthened with the approach of landmark elections in November. With their encouragement, the government has introduced legislation that critics say could be used to impose family-planning measures in predominantly Muslim areas. The legislature has approved laws that would limit interfaith marriages. The monks’ growing influence has primed the business climate for “misunderstandings, and the potential for charges of ‘insulting religion’ or protests,” says Erin Murphy, founder of Washington-based Inle Advisory Group, which advises companies looking to enter Myanmar.
She said the government’s decision on July 9 to scrap the Dagon City project entirely “could just be a bridge too far” for investors already concerned about the shifting political landscape ahead of the elections, in addition to the impact of U.S. sanctions on anyone transacting business with anyone on Washington’s blacklist. About 200 or so entities and businesspeople are on the blacklist in Myanmar that prevents American companies from working with them, and these remaining sanctions deter many American companies from entering.
In a statement released on July 9, Marga said it respects the final decision of the Myanmar government in the matter, even though the company said it had pursued the Dagon City development in a manner it described as proper and legal.
The company also said it is working with the national government “towards an arrangement that upholds the international contract between Myanmar and foreign investors.” It didn’t elaborate how or when people or entities that had invested in the project would be compensated.
Others, though, see the brouhaha as an opportunity to rethink how to improve doing business in Yangon. “Damage to investor confidence is a very important consideration...but should not be the be all and end all,” said Thant Myint-U, a historian and chairman of the Yangon Heritage Trust, a group working toward conservation of Yangon’s historic buildings and sites.
“If you have a bad development plan, it will take hundreds of years to undo,” he said.
Write to Shibani Mahtani at shibani.mahtani@wsj.com