Macau A Property Boom or Bubble?

Written on April 1, 2007 by a2zMacau

Macau, more and more, has turned its property market into a casino that gives the safest bet to all fortune hunters.

Gaming communities changed the face of Macau as they began sprouting up across the city in the early ´70s. I always thought the main appeal was to waltz into the local casino, drop a quarter in the slot and walk out with a big jackpot. The reality, of course, is usually quite different. While those big jackpots do indeed get won, the odds are quite long.

This was before I knew much about real estate and property investing. Macau, more and more, has turned its property market into a casino that gives the safest bet to all fortune hunters. Since the opening of Sands Macau in 2004, the property market in Macau has been skyrocketing, recording a two-fold increase in housing price growth. In the scramble for high-end properties by investors across Asia, high-quality properties in ZAPE of Macau so far have accumulated almost a three-fold increase since 2000. Stepping into the second half of 2005, the secondary transactions in Macau cooled down on a relatively small scale. Despite this temporary adjustment, Macau’s property boom is still showing no signs of abating.

Sales activities in new developments such as La Cité and Novo City received extremely encouraging market responses.

Foreign investors keep fueling Macau’s property investment boom. The launch of Wynn Macau last September induced another catalyst into the property market. The high-end properties were sizzling, triggering another wave of spiraling increases in property prices. Properties with sea views had attracted participation by overseas funds and executive expatriates as high-end property demand is quite location-specific. Also, waterfront properties always command a premium. The typical example was the notable development, One Central Macau Residences, jointly developed by two renowned Hong Kong developers. A couple of high-rise residential blocks in the development had been acquired by overseas funds shortly after it was launched to the market. The momentum of new releases of high-end residential projects across Macau is envisaged to be strong. The average prices for new developments range from MOP$3,000 per sq. ft. to MOP$6,000 per sq. ft.

With thousands of new units expected to come in the pipeline in the coming years, I am thrown with questions: Is this high growth rate in the Macau property market sustainable? I agree with the consensus that housing prices will continue to rise. The rationale behind such expectation is that Macau’s economic growth still seems assured, which is likely to create continued demand for property. On the other hand, though there are worries that the rapid upsurge probably makes residential property less affordable to buy, the market observes that buying sentiment is still boosted by low lending rates and continued double-digit growth in household income. Thus, the perceived strength of investment sentiment will continue to support the high demand for bricks and mortar.

Speculations are known to be active in the market but have not developed to an excessive level. The present housing prices not only reflect the market fundamentals but also serve as a gauge of confidence in Macau. International casino and hotel operators penciled in for Macau include a proposed US$3 billion Virgin Casino, Four Seasons and Raffles. Apart from becoming a favourable gaming and tourist destination, the Macau government has unveiled hugely ambitious plans to transform the city into a logistics hub as well as a convention and exhibition centre. The substantial increase in air cargo volume and the close collaboration with other Pearl River Delta cities in terms of infrastructure development has demonstrated the city’s efforts to realize its logistics plan.

Furthermore, the upcoming Venetian Convention Centre, scheduled for the second half of this year, is the first large MICE facility developed by Venetian Las Vegas. This project also reaffirms the government’s ambition to compete on the MICE industry battlefield with other neighbouring cities. Therefore, it is believed that diversification of property investments in Macau will continue to grow in the longer term. Office and industrial properties are likely to be a new spotlight.

Some investors still consider Macau as an untapped market with enormous property investment potential. Dozens of new projects are under construction or on the drawing board to meet the increasing demand. With all this in mind, I am betting on positive growth in Macau in the coming few years. The possibilities of the bubble bursting anytime soon seem to be fairly remote considering the current fundamentals and market movements. Property market fluctuation is always caused by irrational expectations or negative sentiment due to rising unemployment, moderated incomes and higher mortgages. However, the city’s current market fundamentals point to stability and bore well for the future rise.

Pocketing a nice real-estate gain against hitting the slot machines? You have my bet.

Courtesy | Kenny Suen, Vigers Asia Pacific Limited