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Two Sides to Macau
The road may be bumpy in the short term for Macau property but ultimately it’s smooth sailing
| Text : Elizabeth Kerr |
With two billion people within four hours of the city, Macau has become a leisure Mecca that millions flock to every year. Visitor arrivals are strong (over 2 million in March 2010 according to the Macau Government Tourism Office) and by the end of the year it is expected the tiny enclave will have nearly 20,000 hotel rooms. Last month Wynn opened the second phase of its hotel, the ultra-high end Wynn Encore.
Like many cities and states, the financial tsunami of the past couple of years had its effects on Macau: Let’s not forget Dubai had to be bailed out by neighbouring Abu Dhabi in late 2009. The Cotai Strip, a massive reclamation project where scores of glitzy international hotel-casinos will eventually sit, was dotted with cranes and scaffolding for months up until 2008 when the proverbial ceiling caved in. Construction ground to a complete halt and thousands of jobs disappeared overnight.
But that was then and this is now, and Macau seems poised on the verge of recovery — its property market along with it. Macau is in the middle of a luxury construction boom, with One Grantai, the Bayview and One Oasis among the current projects generating considerable buzz. Pre-sales of flats at One Oasis — 870 units in five residential towers with a clubhouse — are selling at just around $HK4,000 per square foot, a little off pre-2008 peaks but respectable. International and institutional investors have already snapped up at least 500 of the units generating approximately $2 billion.
On One Oasis’s website, a press statement says “Incremental returns from property investments in Macau in the previous year were predictably lower than those seen in Hong Kong and the mainland. However, since the beginning of this year, a huge amount of capital has already funneled into the Macau property market and it is speculated that the market will see reasonable overall increments in 2010.”
That sounds like good news for investors, however in May MacauNews speculated that Macau’s already “plummeting” property prices are likely to drop even more, and contradicted One Oasis’s optimism by stating international investor sentiment is also dropping, according to Macao Association of Building Contractors and Developers president Tommy Lau. He went on to tell MacauNews that nothing was likely to improve anytime soon. Naturally, Lau is concerned largely with a dearth of construction jobs. Given the casino delays and some recent corruption scandals that frequently make overseas buyers nervous it would seem Macau has its work cut out for it.
It’s not all doom and gloom though, says Jeff Wong, Director & Head of Residential property at Jones Lang LaSalle in Macau. “Prices aren’t dropping that significantly. Market transactions will definitely decrease [this month], but only in volume. I’d say prices were pretty stable,” Wong says. “Obviously it’s not a very good signal for the market as whole, but it also due to measures by the Chinese and Hong Kong governments. Macau is a small market that’s easily influenced by [them]. But fundamentally I think Macau is still very sound.” Wong goes on to remind that 1,500 new units have been sold in the weeks leading up to mid-May, and while a consolidation period is expected, another major price drop that leads to a crisis point is not.
Macau, and its growing economy, is often referred to as the Las Vegas of the East, but that’s a misleading statement. Las Vegas has more diversity of industry and only a fraction of its revenue comes from gaming. Macau is still a one-industry town and the majority of its revenue comes from that — and its property buyers aren’t too concerned over a lack of diversity yet. “The market does not just serve the Macau population itself. The catchment area itself extends beyond Macau and Hong Kong. We’ve observed buyers from China, Japan, Korea and other parts of Asia. In the last year, yes, the main drivers have come from Mainland China, but the market doesn’t cater to just that,” Wong admits. That said, the issue of the dominance of the gaming industry and its continued viability hover just outside the luxury development sphere as do questions about whether or not average buyers will be priced right out of Macau — the way average Las Vegas residents were forced out of Vegas.
Macau property breaks down into two segments: The luxury market aimed at gaming executives, wealthy second homeowners, and investors and local buyers and casino staff. The middle class. Local Macanese buyers should be set to benefit from better quality available at the resale level. There’s a very liquid resale market even though there’s a limited amount of product available. But, Wong estimates that in the coming years developers will begin to supply the kind of new product the burgeoning middle-class can feasibly purchase. “All new projects are packaged as luxury homes and so there are needs that will not be satisfied. [Local buyers] won’t be able afford these luxury homes. But some developers are building projects to cater to these needs.”
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