The house wins

So far real estate bets in Macau have paid off

Forget its replica of the Eiffel Tower or the fake San Luca canal. For evidence that Macau was booming, you only needed to look at the price of a humble car parking space.

Last year the cost of spaces jumped 30% to as much as $350,000 each, according to real estate firm JLL, making Macau one of the most expensive places to park in the world.

The price surge may be short-lived. Macau’s economic health is deeply entwined with the fortunes of its casinos – and especially the high-rollers from China who play its Baccarat tables.

In recent years the times have been not only good, but stellar. In 2013 Macau earned seven times as much as the Las Vegas Strip from gambling, with mainland Chinese accounting for two thirds of its visitors. But in the wake of a decline in gaming revenues in 2014 – the first since Macau began releasing financial figures in 2002 – are property prices in line for a reality check?

For most of last year, it would seem not. Buoyed by a dearth of new supply, residential prices in the former Portuguese enclave seemed healthier than ever. Transaction value was up 50% year-on-year in the third quarter of 2014, with an average price of more than HK$97,116 ($12,450) per square metre, according to JLL. This is only slightly below Hong Kong’s notoriously aggressive market, where the average residential unit cost HK$120,879 per square metre over the same period.

The supply of new-build property in Macau is set to grow, with about 2,700 units due to be completed each year between 2014 and 2016. But that may not be enough to bring down prices, especially as several large-scale casino projects are scheduled to open in the second half of this year.

“We believe the new supply will be inadequate to meet the strong demand from the expatriate workers. With the new gaming facilities in Cotai completed, we expect to see a more active residential market. There is still a gap for residential sales and rental growth,” explains Jeff Wong, head of residential at JLL Macau.

In fact, the volume of residential sales in Macau fell to a record low last year. According to government statistics, 7,163 residential transactions were registered for the first 11 months of 2014, down by 55.8%.

Others warn that Macau’s bricks-and-mortar boom is set for a correction in pricing terms too, including Susheela Rivers, Head of Real Estate in Asia-Pacific at law firm DLA Piper. “The casino industry has contributed approximately 80% to Macau’s government revenue and this has definitely had a part to play in increased property prices through the years,” Rivers says, pointing out that the casinos are the largest employers in Macau too.

Many of the new housing development projects like The Residencia Macau in Pearl District, The Carat in Nape and La Bahia No.1 in the Nam Van Lake Area are also focused on luxury housing designed to interest the wealthier of Macau’s millions of gamblers.

Such properties, Rivers thinks, will be less in demand. “The decline of the gambling industry will reduce the demand for housing, along with the prices,” she reasons.

The contrary view is that the city’s property prices will be unbowed. Chris Comer, chief executive of Singapore-based property developer, Castlewood Group, believes that any fall in real estate prices will be a “blip” as there are forces besides casinos that maintain Macau’s appeal.

“If real estate prices were to dip, a rebound would likely happen before long,” he suggests. “Drawing parallels to Singapore, the lack of land resources means that as the economy grows, there’s only one way prices are going to move and that’s up.”

Comer argues that a bigger cause for concern would be major changes in policy, like tougher visa rules for Chinese travellers entering Macau. Another issue is the restrictions in how UnionPay cards can be used in the enclave, restricting access to cash for visitors (see WiC237).

“Most importantly for Macau in general, reform is needed to diversify its sources of revenue instead of depending too heavily on the gambling industry,” Comer also told WiC.

This diversification process has been underway for a while as Macau tries to woo more “mass” market visitors. Alternatives to long hours at the casino tables are being promoted, including bungee-jumping from the Macau Tower, shows like Cats the Musical and even high-profile boxing events, like the card featuring Filipino star Manny Pacquiao last year.

Macau also wants to strengthen its reputation as a shopping destination. Despite the clampdown on gift-giving in mainland China, retail sales in Macau grew 23% in 2013, according to Savills, and designer boutiques are a growing presence in all of the major casinos.

Also, Hengqin New Area, a sandy island three times the size of Macau, has been marked out by the Chinese authorities as a non-gambling holiday destination. Development started in 2010, and includes the construction of ‘Ocean Kingdom’, an enormous theme park with a dolphin-themed hotel.

But while Macau’s bulls have been talking down the impact of the gambling slowdown on local real estate, they are recognising at least one major disappointment: a delay in the bridge due to connect the territory with Hong Kong and Zhuhai, which promises to increase the potential for tourist arrivals significantly. Earlier this month the South China Morning Post reported that the bridge is unlikely to be opened on schedule next year, citing Hong Kong’s transport minister. So any boost to property prices from that quarter isn’t likely to occur until 2017.

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