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Impact from Government Policy Changes in Macau and Guangdong Should be Minimal in the Short Term
Underpinned by the robust economy, booming tourist sector, surging gaming revenues and the low interest rate environment, Macau’s property market maintained a steady growth in the first half of 2008. The Macau government’s new measures to cap gaming developments and the Guangdong government’s new restrictions on Individual Traveller Scheme is expected to cause little impact to the city’s property market in the short to medium term, reports Jones Lang LaSalle in its Macau Mid-Year Property Review.
Following a strong growth of 27.3% in 2007, Macau’s GDP grew by 31.6% y-o-y in 1Q08. The total export of services surged by 46.3% y-o-y, driven mainly by the gaming sector. Non-resident gaming revenues and non-resident accommodation expenditures grew by 62.5% and 33.5% y-o-y, respectively. Macau’s private consumption expenditure also saw a healthy growth at 9.6% y-o-y on the back of rising domestic incomes and local interest rate cuts.Total visitor arrivals in 1H08 amounted to 14.9 million, up 18.1%. Visitors from Mainland China accounted for 59% of the total. Meanwhile, tourism receipts increased by 21.7% y-o-y to MOP 8.44 billion in the first quarter.
In April, the Macau government announced that no new gaming licences and casino development plans will be granted, including application for new gaming tables in existing casinos. In May and July, the Guangdong provincial government also tightened its Individual Traveller Scheme to further limit the number of Mainlanders to pay visit to Macau. Meanwhile, weekend direct-flight services between some selected Mainland cities and Taiwan also commenced in early July. These new measures have greyed Macau’s overall market sentiment to a certain extent; however, their impact to the overall property market is unlikely to be significant in the short to medium term.
Residential Market
Following the US interest rate cuts, Macau’s average best lending rates were further lowered from 6.75% to 5.25% during the first quarter. In June, Macau’s Composite CPI surged by 9%, pushing the city’s real savings and mortgage rates deeper in the negative regime. As such, properties become an increasingly attractive asset class to hedge against inflation.
On the supply side, developers continued to launch new projects for sale despite the relatively subdued market sentiment. The more notable projects included The Buckingham, The Residencia Macau, Windsor Arch, Tower 2 of The Praia and La Cite. All were launched in 1H08. Grand Villa in Macau Peninsula, which comprises a total of 46 units, was the only new completion recorded in the first six months. For the remainder of the year, a total of about 2,650 new residential units are slated for completion.
The second quarter saw Macau’s residential sales market slow down after the government announced to cap the number of gaming licences and tables. Although not widely spread, landlords were generally more flexible in price negotiations, while some have lowered their asking prices. The number of residential sale and purchase agreements fell by 34.3% y-o-y to 7,673 between January and May; but very likely, the total number for 1H08 will be higher than that in the same period of 2007.
Supported by strong investment demand stemming from lower interest rates and rising inflation in the first quarter, the capital values for high-end residential properties grew by 10.9% in 1H08. High-end residential rents grew by 7.7% over the same period on the back of growing leasing demand from expatriates and a tight level of supply.
‘The capital values for high-end residential properties may experience a short-term consolidation due to growing uncertainties in the global economy and the potential impact stemming from the government’s intention to moderate the growth of the casino industry. However, with the continuous influx of expatriates and on the back of the tight availability of quality leasing stock, the high-end residential leasing market shall continue to perform and rents will remain on the rise. The outlook of the sales market will remain cloudy for the remainder of the year, owing to the credit tightening and uncertainties in the global market. However, the deepening of negative real mortgage rates together with rising incomes shall offset some of these negative impacts.’ says Jeff Wong, Jones Lang LaSalle’s Head of Macau Residential.
Retail Market
Macau’s tourism market remained strong in 1H08 despite the tightening of the Individual Traveller Scheme and the growing uncertainty in global financial markets. With a booming local economy, a rising population and the government’s grant of a one-off relief to residents, retail consumption demand has been strong through 1H08. The city’s total retail sales were pushed up by 46.4% y-o-y to a record high of MOP 4.5 billion in 1Q08. The sales of big ticket items were particularly strong.
Prime street shops also remained sought after. The first six months of 2008 saw capital values and rents for prime street shops increasing by 9.9% and 9.7%, respectively.
The second half of 2008 shall see the opening of The Shoppes at Four Seasons and New Yaohan, adding a total of over 400,000 sq ft of prime retail space into the market.
‘The rising population and escalating tourist arrivals will continue to underpin the growth of Macau’s retail sales in the next few years. However, stock market volatility, growing uncertainties in the global economy and the climbing inflationary environment may slow domestic spending growth in the near future. We expect capital values and rents for retail properties to remain stable in 2H08.’ says Marcos Chan, Jones Lang LaSalle’s Head of Research, Hong Kong and Macau.
Office Market
For the first six months of 2008, capital values and rents for Grade A office space increased by 13.6% and 3%, respectively.In the coming three years, there will be no new Grade A office supply. FIT Centre and AIA Tower, with their more advanced specifications and professional management, will attract demand from newly set up companies and existing tenants seeking to upgrade their office premises.‘With more mega resorts coming in the next two to three years, there will be an increasing number of retailers and business services sector tenants setting up operations in Macau. This, combined with the tight availability of Grade A office space, will help capital values and rents to remain on the rise.’ remarks Gregory Ku, Managing Director of Jones Lang LaSalle Macau.
Investment Market
In spite of the subdued market sentiment, several investment transactions were recorded in 1H08. Through a public tender, two government residential sites at Fai Chi Kei, with site area of 18,342 sq ft and 31,936 sq ft, respectively, were sold for a total of MOP 1.42 billion in January. In April, a construction site at Lot TN6 in Taipa, with site area of about 50,170 sq ft, was sold for HKD 530 million. In May, a site on the Nam Van Lake waterfront, with a maximum developable residential GFA of around 1.6 million sq ft, was sold for HKD 3.15 billion. In June, a batch of 259 units in a high-end residential development on Macau Peninsula was sold for HKD 1.03 billion.
‘No doubt the US credit crunch will continue to affect cross-border purchases from institutional funds in the short term, and with the volatility in global equity markets, surging inflationary pressure and potential interest rates hikes will hinder property investment demand in Macau. However, with Macau’s economic fundamentals remaining positive, foreign investors are still keen in looking for investment opportunities in the city. On the other hand, the prevailing negative interest rate environment will continue to help stimulate investment demand from local investors for the remainder of the year.’ continues Ku.
