Macau Busting At Its Seams

Written on February 2, 2007 by a2zMacau

We always have said Macau is busting at its seams. Infrastructure is becoming a serious issue, and if they are getting the 40 million visitors in 2010 they will be arriving in traffic jams! At the moment Macau’s population stands at 503,000, which is growing by about 20,000 a year, so let’s say 550,000 by 2010. What this means that the current public transport system has to cater for +/- 650,000 people, of whom at least 300,000 will be traveling each day. Compare that with the +/-200,000 traveling a day today, and you can see Macau is running out of puff.

It is already difficult to get Public Transport (full with workers) and taxi’s to go to Tapai (Cotai Strip). Yet the government, despite sitting on a huge budget surplus, seems to be moving like snail, and yet there is still another US$24 billion in construction projects to go! The Elevated Light Metro system is yet to start, but supposed to be completed by 2010.

Chinese are crazy about gambling. But whether they will bring their families and pass up a chance to get rich to go to the theater or to shop is a huge unknown, and not every operator in the former Portuguese colony is a sure investment bet.

Some $24 billion has been earmarked for infrastructure and building the Cotai Strip — reclaimed land where casinos, hotels, malls, convention halls and theatres are springing up.

Optimism reigned at a ground breaking ceremony in early January for Macao Studio City — a venture between eSun Holdings, a unit of Lai Sun Development, and a U.S. consortium.

As hip-hop music blared and guests donned hard hats and drank champagne, the chairman of U.S. mall firm Taubman Centers, touted the idea of “build it and they will come”.

“Las Vegas has proven that a supply driven strategy will be successful,” said Robert Taubman, whose firm is a partner in the Macao Studio City retail, casino, film and entertainment complex.

But some analysts doubt Macau will transform overnight into a Las Vegas, which has in the last few decades reinvented itself to attract families and conventions as well as gamblers, providing lucrative new revenue streams.

Morgan Stanley’s Rob Hart, for example, is not keen on retail because of a spike in supply.

Macau is building 10 million square feet of retail space, five times more than the current level. Las Vegas Sands is adding nearly one tenth of the new supply at the Venetian Macao, due to open in mid-2007.

“Stay with the gaming plays and avoid the retail,” said Hart, a Hong Kong-based gaming and property market strategist.

Because of their low emphasis on retail, Hart likes Galaxy Entertainment Group Ltd. and Melco International Development Ltd. <0200.HK>, whose joint venture with Australia’s Publishing and Broadcasting Ltd. — Melco PBL Entertainment (Macau) Ltd. — is building three casinos.

But Hart said Melco PBL’s Crown Macau hotel-casino, due to open in April, could suffer because of its poor location.

Wynn Resorts, which opened its first Macau casino in September, has jumped 72 percent in the last year, while Las Vegas Sands has surged almost 120 percent.DELAYS?

Mary Ellen Olson, a credit analyst for Standard and Poor’s (S&P), believes Macau’s long-term future is strong. Some 100 million Chinese live within a three-hour drive, and 1 billion within a three-hour flight.

The southern Chinese city is only an hour’s ferry ride from Hong Kong, a former British territory returned to China in 1997 where casinos remain illegal.

But a massive supply of gaming tables and hotel rooms would depress profit margins in the near term, Olson said.

“When you have a look at the length of the (Cotai) strip, it’s hotel, hotel, hotel, hotel — all with casinos,” she said.

Daily revenue per gaming table in Macau has already dropped to $12,000 this year from $22,382 in 2002, when a four-decade monopoly owned by casino mogul Stanley Ho expired and other players, including U.S. operators, were allowed in.

The average stay is still a shade less than 24 hours, with many gamblers leaning on tables through the night.

And questions linger over whether Macau can build the infrastructure needed to handle an expected doubling of visitor numbers to around 40 million a year by 2010.

A second ferry terminal has been put back to 2008, labor is scarce and building costs are climbing, raising the prospect of costly delays for many projects.

Source | Reuters

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