Yangon, 27 December 2017

Analysis: The New Condominium Rules

The Ministry of Construction published the Condominium Rules (“Rules”) - bye-laws implementing the
Condominium Law (“Law” - English translation here: https://tinyurl.com/ya8rmsy7) - on 15 December
2017 on its homepage. Please find our analysis of the Rules below. An English translation of the Rules is
available to our premium subscribers.

1. What do we need the Law and the Rules for?

We think that the main purpose of the Law and the Rules is to address the following five
deficiencies:

(a) There is currently no registration system for apartments

As, contrary to land, apartments presently cannot be registered, there is currently no

certain way of checking who owns an apartment. Potential buyers therefore risk
purchasing from a fraudulent owner, losing the apartment when the real owner turns
up. In the same vein, it is risky for a lender to accept an apartment as security for a loan.
Private lenders might accept an apartment as security, but banks are reluctant as they
find it hard to check title. Consequently, even legitimate apartment owners find it
difficult to use the apartment to raise money.

It is common to refer to the “sale” and the “purchase” of an apartment. However, it is

presently unclear what is actually transferred: The ownership of the apartment? Or just
the right to occupy it?

The Law and the Rules introduce a registration system for units in a condominium. Each
unit (apartment) is registered on a separate folio and can be sold, given away or
mortgaged like any other piece of real estate. A unit registration certificate certifies
ownership.

(b) It is presently difficult to obtain a bank loan for the purchase of an apartment

In order to purchase an apartment from a developer, the purchaser would presently

make a down payment and pay the rest in installments over three to four years which is
a comparatively short period of time. If an apartment is purchased from a private owner,
it is common to pay the entire purchase price in a lump sum up front.

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La Pyi Wun Plaza, Room 409 (4 Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 A purchaser must therefore presently have a rather large amount of cash readily
available.

Developers say that they could sell more apartments if purchasers had the option of
obtaining a long-term (e.g., 30 year) bank loan. Presently, it is difficult to obtain a bank
loan for the purchase of an apartment due to banks being reluctant to accept an
apartment as security. If a loan can be obtained, it usually has to be repaid within a
relatively short term of three to four years.

As an exception, Shwe Taung seems to have negotiated a credit facility with AYA Bank
that allows purchasers of apartments in two of Shwe Taung’s high-end projects to
obtain a loan with a term of 15 years.

According to Rule 41, the person whose name is stated in the unit registration certificate
“is the legitimate owner of the unit”. The owner may deposit the certificate with a bank
as security for a loan (in analogy to, e.g., a land grant certificate). Developers hope that
this system - which reflects the idea that it should be possible to use apartments as
security for a loan with ease - will entice banks to develop long-term credit facilities for
potential buyers of (high-end) apartments, thereby expanding the market.

(c) Foreigners presently cannot own apartments

The transfer of an apartment to a foreigner is presently prohibited by the Transfer of

Immovable Property Restriction Law of 1987. Developers say that they could sell more
(high-end) apartments if foreigners were able to purchase them legitimately. In
response, Rule 34 says that up to “40% of the total floor area of a condominium” may
be sold to foreigners.

(d) A developer can presently start selling apartments without having funds and without
having started construction

Presently, a developer can start selling apartments without having started construction
and without funds in its bank account. Buyers making a deposit and paying installments
in order to purchase apartments are at risk of losing their money.

In response, the Rules provide that a developer must deposit 20% of the total costs (or
such other amount as the Management Committee may stipulate for capital-intensive
projects) in a bank account (Rule 15) and may start selling units only after 30% of the
foundation work have been completed (Rule 30). The developer must report the use of
the funds quarterly to the Management Committee.
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La Pyi Wun Plaza, Room 409 (4 Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 (e) Management of a building presently not regulated

There are presently no rules on how the building is to be managed once the units are
sold. An honest developer will obviously (i) provide for a management team to ensure
the maintenance and repair of the condominium and the functionality of the common
facilities and (ii) contractually oblige unit owners to adhere to the rules made by the
management team for the amicable coexistence of the residents, but what if the
developer does not care?

In response, the Law and the Rules provide for an executive committee that is charged
with the management of the condominium and answerable to the unit owners grouped
together in an “association of members”.

2. Sounds good - have all the deficiencies mentioned above gone, then?

No. Presently, buildings with an elevator are marketed as “condominiums” whereas buildings
without elevator are referred to as “apartment buildings”. However, the Law and the Rules - and
all the changes that they bring - only apply to condominiums established according to the Law,
i.e., to buildings on “collectively owned land” whose units are separately registered as
condominium units. No land has been registered as “collectively owned” and no condominium
units have been registered yet. However, the Rules have set the framework for registration, and
we hope to see the first “official” condominiums in the not too distant future.

For registration to be possible, however, it is still necessary for the Ministry of Construction to
establish “Management Committees” in the Regions and States (most importantly, in Yangon
Region as most condominium projects will be located there) and a “Condominium Registration
Office”.

On the whole, it is important to note that the Law and the Rules (and, consequently, the
contents of this analysis) will only apply to a limited number of buildings in Myanmar.

3. Understood. Can an existing building be converted to an official condominium?

Theoretically yes, provided that

(a) the building has at least six floors (s. 2 (a) Law),

(b) it stands on land with an area of at least 20,000 square feet (0.5 acres; 1,858 square
metres; s. 10 (d) Law) and

(c) the land owner agrees to convert the land to “collectively owned land” (s. 10 (b) Law).
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La Pyi Wun Plaza, Room 409 (4 Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 In practice, we expect, however, difficulties if units have already been sold as we think that it
would be necessary to (i) track down the current unit owners and (ii) request them to register
their units with the Condominium Registration Office - something which they may be reluctant
to do if they have to fear tax exposure.

If a developer has sold most or all of the units already, we do not really see a benefit for the
developer from going through the trouble of converting an existing building to a condominium
as the developer would have made its profit already.

4. Can a condominium be built on any type of land?

A condominium must be built on land which “may be used for housing development” and is of
“the type that allows the transfer of ownership” (S. 10 (a) Law). According to our reading of the
Rules, the land may be (a) freehold land, (b) grant land or (c) government land leased to the
developer under a BOT arrangement.

(a) Freehold land

Freehold land is rare, but exists in Yangon and Mandalay. Ownership is for an unlimited
term; the owner does not have to pay rent to the government. The government may
confiscate the land only for a public purpose on payment of adequate compensation
according to the Land Acquisition Act 1894. A freeholder may sell or otherwise transfer
the land, mortgage it and pass it on to his heirs. Freeholders own their land.

The purchaser of an apartment in a building built on freehold land can be rather certain
of not having to vacate the apartment due to the land reverting to the government. It is,
however, not entirely clear what would happen under current legislation if the land
owner sold the land and the new owner requested the apartment owners to vacate the
property. If the building is converted to an official condominium according to the Law
and the Rules, the unit owners are protected as they individually own their units and
collectively own the land so that any unit owner can oppose the sale of the land.

(b) Grant land

A land grant is technically a long-term lease (usually, 30, 60 or 90 years) by the

government to an individual or a company. Contrary to freehold land, the grant holder
(lessee) has to pay rent to the government, but the rent is only of a nominal amount.
Prior to the expiry of the grant, the government may confiscate the land (i.e., revoke the
grant) only for a public purpose on payment of adequate compensation according to the
Land Acquisition Act 1894. The government may decide not to renew the grant upon its
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La Pyi Wun Plaza, Room 409 (4 Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 expiry for a public purpose, but we have not heard of such a case in recent years and in
practice renewal is almost automatic. The grant holder may sell or otherwise transfer
the grant, mortgage it and pass it on to his heirs. A land grant is close to land ownership.

Consequently, the purchaser of an apartment in a building built on grant land can be

rather certain of not having to vacate the apartment due to the land reverting to the
government. It is, however, not entirely clear what would happen under the current
laws if the grant holder sold the grant and the new grant holder requested the
apartment owners to vacate the property. If the building is converted to an official
condominium according to the Law and the Rules, the unit owners are protected as they
individually own their units and collectively own the grant so that any unit owner can
oppose the sale of the grant.

(c) BOT land

Under a BOT arrangement, the government (usually, a department in a ministry or a

state-owned enterprise) leases land to a developer for fifty years with the option to
renew the lease twice for up to ten years each time. Upon the expiry of the lease, the
land, including the building, reverts to the government. The developer usually has to pay
(i) an up-front land use premium and (ii) annual rent. The annual rent is usually not paid
as a lump sum in advance for the entire lease period, but every year. The lease and the
BOT contract with the government usually provide for a regular increase of the annual
rent (usually, up to 10% every five years). Depending on the size of the land and its
location, the annual rent may easily amount to billions of kyat (millions of USD). A BOT
arrangement is not comparable to a land grant (although technically, both are leases
from the government); the lessee in a BOT scheme is in no position that could be
described as being close to ownership.

From a buyer’s perspective, apartments in a building on BOT land are less attractive
than those in buildings on freehold or grant land.

For one thing, the buyer cannot be sure that the government will renew the lease with
the developer after 50 years. The buyers or his heirs may lose the apartment after 50
years; they are likely to lose it after 70 years at the latest. There is an inherent expiry
date in buying an apartment in a building on BOT land; in addition to the ordinary wear
and tear, the apartment loses value as the expiry date approaches.

More importantly, however, the buyer must place considerable trust in the developer
dutifully paying the annual rent every year. If the developer defaults, the government

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La Pyi Wun Plaza, Room 409 (4 Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 may take back the land and the building and evict the apartment “owners”. It is
conceivable that a developer disappears after having sold the apartments instead of
staying around to pay millions every year. (If it is a mixed-use development, the
developer may, however, have an incentive to stay on as it would continue to generate
profit from leasing space to businesses.) Even an honest developer will default if it
becomes insolvent.

We think that matters are even worse for the buyer of a unit if the building is converted
to a condominium under the Law and the Rules as, according to our reading of Rule 54
(f), the unit owners become responsible for paying the annual rent. This means that, if
the developer defaults, the apartment owners risk having to pay millions to the
government in the developer’s stead. In a worst-case scenario for this unit owner, the
government may decide to pick one unit owner to pay everything; this unit owner would
then be left on his own to get the other unit owners to refund his money.

5. What is “collectively owned land” and how is it created?

According to our reading of the Rules, “collectively owned land” is freehold land, grant land or
BOT land to which the following happened:

(a) Freehold land: The previous owner (or a developer having concluded a sale and
purchase agreement with regard to the land) registered the land as “collectively owned”.
As a consequence, the apartment (unit) owners automatically own a share in the land.

(b) Grant land: The previous grant holder (or a developer having concluded a sale and
purchase agreement with regard to the grant) registered the land as “collectively
owned”. As a consequence, the unit owners automatically hold, according to our
understanding of the Rules, a share in the grant. According to our understanding, the
conversion to “collectively owned land” would not create new freehold land, in spite of
the land being referred to as “owned”.

(c) BOT land: The developer having taken out a lease from the government registers the
land as “collectively owned” with the approval of the Management Committee and the
government entity owning the land. As a consequence, the unit “owners” automatically
accede, according to our understanding of the Rules, to the position of the previous
lessee (i.e., the developer) and in particular are jointly (and severally?) liable to pay the
annual rent (Rule 57(z7)(1)). According to our understanding, the conversion to
“collectively owned land” would not create new freehold land, in spite of the land being
referred to as “owned” and S. 17 of the Law stating that land “which has been

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La Pyi Wun Plaza, Room 409 (4 Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 registered as collectively owned land may not be owned by any [government]
department”.

It is debatable whether the unit “owners” should be responsible for payment of the land
rent as the developer would have included the land rent in the calculation of the
purchase price of the apartment. In an ideal scenario, the developer would negotiate
with the government entity owning the land and pay off the entire future rent prior to
conversion, thereby avoiding a potential liability of the unit owners.

Stamp duty applies to the conversion; the rates should be as follows (but, as is often the case
with stamp duty, it may be possible to categorise the instruments that are to be submitted
according to Rules 18-21 differently, resulting in duty rates that are different from those below):

Conversion of freehold land/grant land: 6% of the value of the land in Yangon; 4% in the
rest of the country

Conversion of BOT land: 6% (Yangon)/4% (rest of the country) “of the consideration for
the transfer”; the amount of the “consideration” used as the basis for the stamp duty
may be subject to debate

There are furthermore registration fees to be paid at the Registration of Deeds Office. In case of
a conversion of freehold land or grant land, the fees should be 0.2% of the value of the land.

The conversion of BOT land apparently only has to be registered at the Condominium
Registration Office (to be newly created) and not also at the Registration of Deeds Office.

Fees at the Condominium Registration Office are, with the exception of the fees for the
registration of the transfer of ownership of a unit, still unknown.

6. Does this mean that foreigners can also own a share of the land?

This question is only relevant in case of freehold and grant land. According to officers of the
Department of Urban and Housing Development quoted in the press, foreigners can only own
units and not the underlying land. An analysis of the Law and the Rules is inconclusive in this
respect, although S. 17 of the Law suggests that all co-owners (including foreigners) are
“entitled” to the collectively owned land.

What is certain, however, is that foreigners can purchase units only with a built-in expiry date.
According to Rule 36 (which, we understand, was included at the request of the Union Attorney
General’s Office), a “foreigner having purchased a unit in a condominium is entitled to own the
unit for a term equivalent to the term of the condominium”.
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La Pyi Wun Plaza, Room 409 (4th Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 It is not clear whether the “term of the condominium” refers to the period until the
condominium is actually dismantled or to a term set by the developer. In any case, a foreigner
risks losing his unit for good if the association of co-owners decides to “reconstruct the
condominium after dismantling it” (S. 28 Law).

7. What other restrictions are there on foreigners owning units?

Foreigners may not acquire “more than 40% of the total floor area of a condominium” (Rule 34).
Before selling a unit to a foreigner, the seller has to enquire with the Condominium Registration
Office (still to be created) whether the foreign ownership ratio has been exceeded.

It is not clear whether the purchase of units is restricted to foreign individuals or also open to
foreign companies. According to our reading of the Law and the Rules, we suppose that the
purchase is restricted to foreign individuals.

Once the new Companies Law is in effect (which is expected to happen on 1 August 2018),
companies incorporated in Myanmar with a foreign shareholding ratio of up to 35% will not be
considered “foreign” anymore; it should be possible for such companies to acquire units in a
condominium.

There is no residence requirement for foreigners to purchase a unit.

With the exception of foreign ownership being limited to 40% of the total floor space and its
duration being limited to the “term” of the condominium, a foreign co-owner has the same
rights as a local co-owner (Rule 46) and is in particular not required to live in the apartment
himself.

8. Can foreigners develop condominiums?

A “foreigner or a foreign company” can be a “co-developer” of a condominium (Rule 2 (d)). It is

not entirely clear what this means.

In a 100% Myanmar context, the developer would typically be a construction company that
would offer a land owner to build a “condominium” on the owner’s land and agree with the land
owner to split the building according to a certain ratio; e.g., the construction company would get
to sell 50% of the apartments and the land owner the remaining 50%.

The Rules seem to assume that the foreign “co-developer” would act like a construction
company in the example above as Rule 33 states that a “list of the units which may be sold by
the foreign co-developer according to the business contract” shall be submitted to the
Management Committee.
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 In reality, however, foreign participation in the “development, sale and lease of residential
apartments and condominiums” occurs through the establishment of a joint venture company
with a Myanmar business partner as mandated by MIC Notification 15/2017. Assuming that the
Myanmar business partner owns land, he would lease the land to the joint venture company in
return for shares in the joint venture company. The joint venture company would obtain an MIC
permit or endorsement, sell the apartments in the building and distribute the profit thus
generated by way of dividends to the foreign and the Myanmar joint venture partner according
to the ratio of their respective shareholdings in the joint venture company. There would be no
“list of units” reserved to be sold by the foreign “co-developer”.

In the end, we think that it will be necessary to interpret the Rules generously to ensure that
foreign companies can engage in the development of condominiums.

9. An MIC permit or endorsement is only valid for a certain period of time. Does this affect unit
ownership?

This is not regulated, but we think that one has to distinguish as follows:

(a) In the first alternative, the Myanmar joint venture partner has land (freehold or grant
land) and leases the land to the joint venture company in return for shares in the joint
venture company. We think that in this case, the Myanmar joint venture partner would
have to terminate the lease agreement and instead convert the land to collectively
owned land. Each unit owner would in this case automatically acquire a share in the
freehold land or the land grant. An expiry of the MIC permit or endorsement in the
future would not matter as the MIC permit or endorsement was granted for the
purpose of “developing a condominium and selling its units” and this purpose is fulfilled.

(b) In the second alternative, the joint venture company (developer) has taken out a BOT
contract from the government. The MIC permit would have the same term as the BOT
contract. Unit buyers would face the risks associated with condominiums on BOT land
described above. They face an additional risk if the MIC revokes the permit (due to non-
compliance of the developer with its terms and conditions) prior to the expiry of the
BOT contract as it is conceivable that in this case the government takes back the BOT
land and evicts the unit “owners”.

10. Who can actually be a “developer” and how can a permit to build a condominium be
obtained?

A developer can be a company, organisation, partnership, individual or group of individuals that

are not insolvent, have experience, have been tax-compliant in the past and have obtained a
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La Pyi Wun Plaza, Room 409 (4th Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 business license from the Management Committee (Rule 5). A business license is valid for 5
years (Rule 7). The application can be filed at the same time as the application for a permit to
build a condominium if the applicant is an “individual or an organisation” (Rule 5(a)(9)); we are
not sure why this is not extended to companies, partnerships and groups of individuals .

The construction of a condominium requires permission from the Management Committee; the
required documents and information are listed in Rule 14. Furthermore, the land on which the
condominium has to be built has to be converted to collectively owned land as described above.

11. How can a “unit registration certificate” be obtained? How is a unit sold?

In a first step, the developer has to register the units with the Condominium Registration Office
(still to be established) after a building completion certificate has been obtained for the building
(Rule 39).

This means that there is a significant period in which units can be traded without proper
registration as a developer can start pre-sale upon completion of 30% of the foundation (Rule
30).

The Condominium Registration Office then has to issue a “unit registration certificate” for each
unit. If a unit has been fully paid, the developer and the buyer shall together register the sale
and purchase agreement within 30 days (Rule 40). After this registration, the Condominium
Registration Office shall sign and stamp the unit registration certificate. The person whose name
is stated in the unit registration certificate is the legitimate owner of the unit and can use the
unit registration certificate as security for a bank loan (Rule 41).

The resale of a unit has to be registered in the same manner (we suppose that seller and buyer
have to cooperate to effect registration).

In addition to the upper limit on foreign unit ownership, there are the following restrictions with
regard to the sale of units:

The developer shall sell at least 75% of the units in a condominium to buyers in the
market (Rule 35).

Not more than 25% of the units in a condominium may be registered in the name of one
purchaser (Rule 37).

The purchaser is liable to pay stamp duty and other taxes (Rule 43). Stamp duty would be 6%
(Yangon) or 4% (rest of the country) of the purchase price. “Other taxes” could mean the
following:
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La Pyi Wun Plaza, Room 409 (4th Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
 The sale of the units by the developer is in our opinion subject to commercial tax. The
tax rate should be 5%. The Union Tax Law 2017 provides for a reduced rate of 3%, but
this rate should only apply to the “sales proceeds from selling a building after having
constructed it in the state” and not to the sale of units in a building. The resale of a unit
by a private owner should, in contrast, not be subject to commercial tax.

If the purchaser uses undeclared funds to pay for the unit, he has to pay 15%, 20% or
30% of the purchase price as “income tax on income that has hitherto escaped
assessment” if found out by the tax authorities.

Registration fees between Ks. 20,000 and 50,000 arise if a unit is resold (they do not appear to
arise if a unit is sold by the developer for the first time); they are borne by the seller (Rule 44 (a)).

12. How are the collectively owned land, collectively owned assets and the expenses divided
between the co-owners?

Each unit owner must contribute to the expenses of the condominium according to a ratio that,
in essence, is being calculated by dividing the floor area of the unit by the total floor area sold.
The “total floor area sold” is the floor area of the condominium that was sold to individual
owners as opposed to the collectively owned floor area (Rule 14 (d)).

The method of calculating a co-owner’s share in the collectively owned land and assets is not
provided for in the Law and the Rules.

13. Can units in a condominium be used for commercial purposes?

Yes, provided that commercial use is restricted to floors that are not used for residential
purposes, the owners of the neighbouring units agree and the architectural design prevents
annoyance to residents.

14. What is the effect of the conversion to collectively owned land on pre-existing mortgages?

Banks having lent money secured by a mortgage of land which may be converted to collectively
owned land may wish to have their legal department check whether the conversion to would
have an impact on the mortgage as the concept of collectively owned land is new and its effect
on existing mortgages is not regulated in the Law. We have no definite opinion on the subject
yet.

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Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com
15. Can foreign lenders finance the purchase of a unit?

According to S. 26 (d) (i) of the Law, a co-owner can mortgage the unit “to a foreigner”, but we
suppose that “foreigner” refers to an individual and not to a company, although this is not
entirely clear.

16. How is a condominium managed?

About half of the Rules are about the executive committee elected by the association co-owners
and its responsibilities. Ultimately, the condominium is managed by the executive committee
which is answerable to the association of co-owners; the executive committee may outsource
management to professional service providers.

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La Pyi Wun Plaza, Room 409 (4 Floor), 37 Alan Pya Pagoda Road, Dagon Township, Yangon
Phone: +95-9-262546284 - E-mail: [email protected] - Web: www.lincolnmyanmar.com