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Worth a gamble
Over the last few years Macau has been developing at breakneck speed. Don Gasper investigates what this means for the residential property market
"supply cannot keep pace with demand from the rapidly expanding population, which will have grown by 100,000 additional residents within two years"
Johnny Lai, deputy general manager of Colliers International Property Services (Macau) Ltd
Last year, according to Johnny Lai, deputy general manager of Colliers International Property Services (Macau) Ltd, “Macau enjoyed almost 30 percent growth as a gaming and entertainment hub, and the average residential price edged up over 20 percent, with almost 20,000 transactions.”
Macau’s property market is at the early stage of a period of growth that should last for at least 15-20 years. Some people feel it must be a “bubble” or that they have already missed the boom; but there are still plenty of gains to be made.
The fundamental reason why property prices have been going up has nothing to do with speculation or bubbles. The main factor is that there is a housing shortage.
“Driving factors,” says Lai, “include the completion of new casinos, an increase in total visitor arrivals, surging gaming revenue and the strong labour market.”
Supply cannot keep pace with demand from the rapidly expanding population, which will have grown by 100,000 additional residents within two years. This equates to a 25 percent increase over a period of five years.
Demand for housing
Over the past two years, there has been a considerable increase in the number of jobs – admittedly starting from a low base – and wages have been going up. Importantly, this goes not just for people from overseas (often seeking luxury, new-build accommodation) but for the Macanese themselves.
“At the end of the fourth quarter of 2007, unemployment was at a low level of 2.9 percent,” says Lai, “and personal earnings rose 15.5 percent.”
Locals who were earning MOP$7,000/month (HK$7,000/month) as shop assistants have seen their wages swell to between MOP$15,000/month and MOP$30,000/month in the new gaming-related sectors. In addition, young people are moving out of home earlier and new households are being formed. All this is creating demand for housing.
There is not enough accommodation for the migrant labourers who are working on the new integrated resorts that are springing up. There is also a chronic shortage of mid- and luxury-tier housing, which suggests that the market for this category of dwelling will do well for a long time.
Currently there is a bottleneck as, following the arrest of the former secretary for transport and public works Ao Manlong, the public works department has stalled approvals for new projects. There has been a significant slowdown. However, nobody is losing money over this. Approvals are likely to come through eventually and when they do, buyers will have a lot of choice. Meanwhile, prices continue to rise.
Investment opportunity
Even four years ago there was nothing of institutional quality to buy in Macau and very little that an individual would be comfortable with in the existing property stock. This meant a tremendous opportunity for developers.
Last year, Hong Kong developers who expressed confidence in the Macanese market by bidding for land included Kerry Properties, Nan Fung Development and Chinese Estates Holdings. For now demand looks set to outpace supply, as there is a limited number of new developments coming on stream this year. Although about 80,000 new foreign workers are expected to enter Macau in the next five years, only 18,000 new luxury units are scheduled to be completed by 2010.
“New-builds to watch,” says Lai, “include The Praia, which includes 1,288 units, and is due for completion in 2008; The Residencia’s 625 flats that are due for completion in 2009; and The Harbour Mile, which comprises seven towers, five for residential, one for office and retail, and one for serviced apartments, and will come on line in 2010.”
2007 launches doing well
Luxury Macau properties, even those with poor facilities, are now commanding prices of between MOP$5,000 and MOP$6,000 per square foot.
One Central, a quality property on the peninsula, launched by Hongkong Land at the end of 2007, has already sold very well. Units were first offered at between MOP$4,000 and MOP$6,000 per square foot, but prices are now between MOP$6,000 and MOP$8,500.
On the Cotai Strip, where most of the new jobs are located, MacauLand Holdings Ltd’s The Manhattan has also proved an outstanding success with investors, since its completion in June 2007. Eighty-seven of the apartments in one tower have already been sold. In June 2006 the average selling price per square foot for mid-floor apartments was around MOP$3,500. Now it is around MOP$5,000.
“At One Grantai launched last year by Sai Kei Hou Yuen Real Estate Development Ltd about 80 percent of the 830 units have sold in the range of HK$5,000 to HK$8,000 per square foot,” says Lai. “At The Buckingham by Wai Heng Group about 50 percent of the 196 units have sold for between HK$5,000 to HK$5,500 per square foot.”
Such prices have got ahead of demand; some will not be supported by rents for a while. But there always tends to be a lag: now is definitely the time to invest before prices really go up – added to which funding shouldn’t be an issue.
At first banks would only grant mortgages to cover MOP$2,000 per square foot because they hadn’t seen units of this quality. Now they have had a chance to inspect the new developments however, they are giving full valuation.
Rental and resale viability
The luxury rental market in Macau was slow until the end of last year but now it is highly active, primarily due to demand from expatriate executives working in the new casinos.
Rents are now in the high twenties on average: units with three bedrooms rent for MOP$17,000/month, those with four bedrooms for MOP$23,000/month. But if they are on the higher floors, units with three bedrooms rent for between MOP$28,000/month and MOP$29,000/month. Those with four bedrooms rent for between MOP$35,000/month and MOP$38,000/month.
As prices have gone up by MOP$1,000 per square foot on average, landlords can expect a gross yield of between 5 percent and 8.5 percent.
Macau’s isn’t a speculators’ market as yet: buyers would do better to sit tight and watch those resale and rental prices really begin to soar.
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