Here in Hong Kong, we take Macau for granted. It’s a great mid-week stat holiday destination, but we couldn’t live there. The food is great, but the tourists are maddening. It’s the other SAR but it’s barely scraping by. Really, what does Macau do besides egg tarts? Oh, right. Gambling.
City on Fire
Before throwing stones it should be recalled that Hong Kong is also a one-industry town. Yes Macau is cheaper than Hong Kong (about 30 percent cheaper in mass residential) and so might be a better investment on outlay, but right now it’s also a better market full stop — including luxury, which currently runs around $15,000 per square foot. It is its own beast. “The Macau story is a bit different. Hong Kong is definitely an international finance centre; it’s cosmopolitan. But Macau is a sports and entertainment centre that relies on gaming and hospitality,” begins Jeff Wong, Jones Lang LaSalle executive director of residential sales in Macau. “But to a certain extent, Macau is healthier because the domestic demand is very strong. In Hong Kong the luxury sector depends on the Mainland. Local Macau upgrade demand is strong and the gaming sector keeps setting records. Demand is strong, supply is on the low side and there’s still room to grow.”
Considering the size of it — the population sits a shade over 550,000 — Macau has one of the most robust property markets in Asia-Pacific. In the wake of two new cooling stamp duties foreign investment has dropped from 10 percent to 2, but that should not be taken as an indicator of the general health of the market or interest in it. “From the beginning of this year it’s been in good shape. We’re experiencing things similar to Hong Kong in that there have been many government measures trying to cool down the market. We have a special stamp duty, a buyer’s stamp duty. We don’t have a double stamp duty yet, but still. Despite government intervention prices are still going up and transactions are coming down,” explains Wong. Interest rates are low, and like other fundamentally strong markets (Jakarta), local demand and activity is driving it.
Foreign investment may be modest now, but that could easily change if Macau fulfils its potential. In addition to the stamp duties designed to keep things under control, the government has recently engaged in whipping the industry into international standard shape. New ordinances and the revision of land laws, estate agency laws presale regulations and town planning laws are in the pipeline. It takes time and policy moves are slow — unless they have to do with revenue generating hotels — but they are on the way and some new laws formalising the industry were implemented on July 1. “I think that’s good for international investors because their interests will be protected,” says Wong.
Looking Down the Road
Currently investing in Macau is a long-term endeavour. With the massive development the city is seeing carrying on for several years, scores of people — from casino executives to construction workers — are inbound and housing demand will go through the roof, particularly in rentals. End-user demand will support capital gains and though the years of 25 percent gaming growth are likely in the past, predictions are that it will level off at a steady 7 to 8 percent. Overall GDP growth should be in the double digits and CPI is rising as companies fight for good staff. All signs point to Macau heading into another five or six-year rapid growth cycle.
And then there’s the granddaddy of all property investment tenets: supply. “There’s not that much supply for Macau as a whole. In Hong Kong the government is very active in trying to put land in the market through tenders and options and trying to increase supply. We don’t have tenders and options in Macau,” explains Wong. More crucially, there are only 7,200 actual units coming on the market in the next few years, and that’s in projects largely sold in pre-sales. “By our estimates 80 percent are sold, which means there are about 1,000 units coming for sale. Prices are definitely going to stay high,” Wong notes.
Macau’s luxury market is in its infancy, and what it does make available disappears quickly. The Manhattan, One Central, Star River, One Tanner Hill and One Grand Tai are all old news, though the just-announced approval for Las Vegas Sands to sell apartments at the 30-storey Four Seasons Macau will be welcome in the luxury sector. Macau lacks something akin to the Urban Renewal Authority to help “create” luxury housing from its older stock, and boutique developers require 100 percent consent from owners for redevelopment. Wong doesn’t think much progress on that front will be made until the government gets involved, but as it stands, Macau is a, ahem, gamble that might be worth it. Even with the extra stamp duties. As Wong said, markets where locals buy are the strongest in the world. “One day the gap between premium property prices in Hong Kong and Macau will narrow considerably,” Wong finishes. Oh, snap!