Four associate directors of Jones Lang LaSalle Macau explained the correlation between the gaming slump and property market in an interview with Business Daily, in addition to analysing the Hengqin effect on Macaus property market. Jeff Wong, Head of Residential of JLL Macau, Alvin Mak, Associate Director of Strategic Consulting, Alison Yip, Associate Director of Capital Markets and Oliver Tong, Associate Director of Retail, shared their take on developments
How is the ongoing slump in the citys gaming revenues affecting the local property market?
Jeff Wong: The gaming slump has affected the housing wealth effect. In the past decade, along with the rapid growth of the gaming sector, many people working for the industry accumulated a certain amount of wealth. Hence, the drop in gaming revenues affects these people the most.
Secondly, the consecutive drops in gaming revenue have also affected the confidence of investors. Although we dont see obvious influences on the investment market, [the gaming slump] is affecting investors psychologically.
Thirdly, the drop, resulting from the adjustment of the industry, is also shrinking the housing rental market, causing an indirect impact upon the property market as the rental segments adjustments in prices or return rate leads to changes in the asset values of the market as well.
On the other hand, the governments policies suppressing housing prices are also shrinking the property market, in addition to the gaming slump, resulting in the housing market being more quiet and dragging down transactions even further.
Whats your prediction for residential unit transactions for the second half of the year?
JW: We see that the number of housing transactions during the second half of the year will remain at a low level as we dont see there will be any big residential projects opening for sales during the second half, only those small-scale projects providing some 20 to 30 units, or even fewer.
For the second-hand market, due to the special stamp duty (SSD) [that financially penalises property owners selling their units two years or less after purchase] many residential units are not available. As such, we dont see there will be a very significant growth in the second-hand sales market, either.
Do you think the government should loosen the current policies that suppress the property market, such as SSD?
JW: In fact, many of these polices, such as regulating [purchasers to] pay full-amount stamp duty, have been in force since 2011. I think at that time these policies aimed to help residents buy their houses. In the past few years, many investors in the market have been affected by internal and external factors, like the quantitative easing policy at that time. Thus, many residents have failed to fulfil their dream of buying a house.
However, the environment has changed quite a lot already. As to whether the government should alter these policies, I think it will need the consensus of society. Nevertheless, I think its now very good timing for the public to discuss the issue, given the heated discussions on the roles of public and private housing in the market.
In fact, the government should also consider whether it needs to set a long-term housing strategy based on our population and its growth; for example, setting the proportion of public to private projects in the residential market.
In reviewing the housing policies, I think the most debatable part is whether the public wants to resolve the citys housing demands by the private sector, or the public sector.
If the public tends to support the private sector, we will need to consider how we can make the market run efficiently. Currently, it is very obvious that the tax policy has affected the number of saleable units in the market.
Although I believe these policies were carried out for a special time back then, when most residents agreed that the government could not increase the housing supply in a short period of time. But now, from the latest data, we can see that the number of projects still under construction have increased from some 6,000 in 2011 to 13,400 units, while the completed units that were issued uptake permits amounted to some 4,000. Hence, the supply from the market is still sufficient. It will really need public discussion to see whether we should review polices that were set up for the past.
You mentioned the housing rental market has been affected by the gaming slump. Where are the most affected districts?
JW: Such as the high-end residential buildings near MGM Macau, and Wynn Macau in Nape.
Can the pressure on the rental market be relaxed?
JW: We see that the impact will actually be relaxed a bit. With more new gaming projects slated to open, we predict the number of foreign workers will increase, boosting housing rental demands. Hence, we anticipate that rents will stabilise during the second half of the year.
In all, do you think residents still have the purchasing ability to acquire new housing supplies?
Alvin Mak: Looking at [total] residents deposits in banks, they still recorded a growth of some 5.6 per cent last year, so I think the citys purchase ability is still there.
Not like Hong Kong
The gaming slump has also affected the retail industry. Have any retailers, especially luxury-goods retailers, broken their leases following declining sales?
Oliver Tong: For top street shops, we can see that [their prices] have posted a very sharp decline. In fact, many of our clients who retail gold say their rental has been decreased. Nevertheless, many of them signed their leasing contracts two or three years ago; as such, they can still afford the rent even though their business is worse than before.
This is different from the situation in Hong Kong. We can see that many retailers retailing luxury goods like gold and watches exited [amid the retail downturn]. But in Macau, we did not see such a situation happening during the first half of the year.
Hence, we dont see many gold stores have closed even though their sales have dropped for sure. Meanwhile, for other retailers, like those selling cosmetics or fast fashion, the rent is still affordable for them.
How much has the rental of top street shops declined?
OT: Compared to the third quarter and the fourth quarter of 2014 when landlords were asking high prices, we can see that some deals for leasing have dropped more than 30 per cent.
What about the sales segment for the shops?
OT: [Prices] depend upon retail sales. The reason why is that we need to see whether tenants can afford the rent that the owners ask, as sales prices for street shops need the support of return rates, especially for investors who plan to purchase at the moment. With many impacts pressuring Macau at the present, the commercial property sector is more sensitive to whether tenants can make business. So we see that many of the investors are very careful.
However, some of the owners of street shops are people from the gaming industry. Some of them are in need of capital following the gaming downturn, thus they may not mind selling their properties at cheaper prices. In general, we predict that there wont be a very significant adjustment in the commercial segment during the second half of the year.
Other property agents say the office segment is also under pressure with the government announcing its intention to build office buildings in reclamation Zone B
Alison Yip: Well, I think this intention is still at a very initial stage and it will need a long time to complete. In fact, the citys supply of office has been very limited for many years while the vacancy rate is very low, at some 6 per cent. Hence, for the second half of 2015, we predict that the office segment, for both rental and sales, prices will grow stably. After all, supply and demand in the sector is quite balanced.
Hengqin
The Hengqin property market has attracted quite a lot of capital from Macau residents. Do housing prices there still have room to surge?
AM: The housing prices in Hengqin have posted strong growth in the past two years, due to its geographic location very near Macau, and most importantly – the policy of allowing vehicles with Macau plate numbers to enter Hengqin introduces the concept to local residents that they can live directly in Hengqin in the future.
This is the reason why the housing prices in Hengqin were catching up with those in Macau before the gaming slump, when the housing prices in Macau were very expensive.
Yet, following the housing prices in Macau slowing a bit, its hard for Hengqin property prices to go higher, especially after some 3,000 units have already been consumed, meaning it has attracted capital of some tens of billions. We can say that the local demands on the Hengqin property market are kind of fulfilled for the current stage. Hence, I dont think Hengqins housing prices can increase.
Are local residents buying houses there for themselves or for investment?
AM: I think most of the buyers are there for investment. But some of the purchasers may buy the property for their next generation, like a long-term investment. After all, Hengqin doesnt provide the conditions to allow Macau residents to live there currently as all the facilities are still under construction. People are eyeing Hengqins development in five and ten years after, when everything there is constructed and they may bring their children to live there.
Hengqin also features many new office buildings; how will this affect the Macau market?
AY: The statistics we collected show that the supply of office in Hengqin is really high . . .
AM: . . . like offering a total of 700,000 square metres of office will be available in the coming three years. Compared to Macau, the amount of supply is much higher. However, Macau clients will only consume part of the supply, as Hengqin does not only target Macau companies, but also the Pearl Delta Region and even the whole of Greater China. In addition, theres another question: will Macau companies be willing to move to Hengqin? That will be another question.
AY: Yes, because the policies in the two regions, like taxation, and the supervision of sensitive information, are very different. Although we dont eliminate the possibility that Hengqin will attract part of Macaus demand for offices, some of our clients, like gaming operators, insurers and financial companies, say they dont want to bring the sensitive information of their clients to Mainland China. As such, new offices in Hengqin may have an effect on the local sector but it wont be a very serious one.
