The Vietnamese property developer Hoang Anh Gia Lai Group Wednesday broke ground on its latest project in Myanmar, the Hoang Anh Gia Lai Myanmar Center.

The US$440 million complex is located in a golden position in downtown Yangon city, spanning more than eight hectares.

Construction will be divided into two phases, with the first stage intended to establish a commercial center, a five-star hotel with 480 rooms, and a 27-story office building for lease, from 2013 to 2014.

The second phase, expected to reach completion in 2016, will set up four building blocks consisting of 1,800 apartments and another office building, with both facilities spanning nearly 64,000 square meters.

All necessary equipment and machinery was transported from Vietnam to Myanmar in February, in order to ensure construction progress, HAGL chairman Doan Nguyen Duc said at the groundbreaking ceremony.

The project is expected to consume 30,000 tons of iron and 200,000 tons of cement and other building materials including wood, stone, glass, aluminum, and bricks sourced from Vietnamese firms.

The Hoang Anh Gia Lai Myanmar Center is HAGL’s largest outbound investment project so far.

Duc said in a statement in January that if HAGL rushes the project, it can pocket billions of US dollars when Myanmar’s real estate market heats up over the next five years.

“Over the last three years, the real estate markets in Ho Chi Minh City and Hanoi have been at freezing point, 0 degrees Celsius, but the newly-opened Southeast Asian market is at 18-20 degrees Celsius,” he said.

“It will be around 80 degrees Celsius by 2018, an ideal temperature for real estate developers,” he added.

Multi-million dollar revenues

Duc, the second richest man on the Vietnamese stock exchange, said in an interview earlier this year that it is cheaper to transport necessary building materials from HAGL’s headquarters to the building site than to Ho Chi Minh City, and the average wage for unskilled workers in Myanmar is half of what they are in Vietnam.

However, the appeal is not in the cost of construction material shipping, but in the high real estate prices there, which are three to four times higher than Vietnam’s due to scarce supply, according to a two-year survey in the country.

Specifically, the rents for Grade A and Grade B offices in Yangon were $100 and $80 per m2 per month, 3.3 times and 4 times and higher than in Ho Chi Minh City.

The rent for a 60 m2 one-bedroom apartment is $5,000 a month, about 2.5 times higher than in Vietnam. The rate for 2-3 bedroom apartments for lease is up to $8,000 a month.

A stay at an old 4-star hotel costs $300-400 per night, and they are always fully booked due to a supply shortage.

With such rates, HAGL can earn $300 million annually from leasing 1,000 serviced apartments in the complex. It can rake in $100 million from a block of office buildings annually after the first project is completed.

A block of office buildings can be exploited over 7-10 years, so the income from this alone is some $700 million to $1 billion in total, he added.