Calling market bottom

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A strong demand for small to mid-sized homes by end-users will help the home market emerge from the trough, says the industry With the opening of two new integrated gaming projects on the Cotai Strip in these two months, not only does the Macau gaming industry hope to put the worst behind it so do the territory’s realtors and developers, with ‘hitting bottom’ the clarion call now used to describe the prospects of the property market. Given the signs of stabilisation in the local economy, the real estate industry expects home prices to barely change for the remainder of the year, while the volume of home sales will be sup-ported by end-users looking for the scarce supply of low-to-mid-priced fl ats. “Although Macau’s economic indicators large-ly saw negative growth in the fi rst half of 2016, the drop has been moderated while the city’s economic fundamentals remain healthy,” asserts Jeff Wong, head of residential at Jones Lang LaSalle (Macau) Ltd. He refers to the monthly decline in gaming revenue, which has eased to single dig-its in four of the past fi ve months vis-à-vis the double-digit plunge since the dive began more than two years ago.Albeit the early signs of stabili-sation in the casino industry, which accounts for over 80 per cent of gov-ernment revenue, are evident the resi-dential market has still taken a beating this year. Figures from the Financial Services Bureau show the average home price in the fi rst six months of 2016 declined some 17.9 per cent year-on-year to MOP76,620 (US$9,577.5) a square metre, extending the 13 per cent slump of 2015. Looking ahead, Mr. Wong is hope-ful about the performance of the prop-erty market in the second half: “With the low unemployment rate in Macau and the new gaming facilities sched-uled for completion in 2016, we expect residential prices will remain stable at the existing level with only minor fl uctuations [for the remainder of this year].” Wynn Macau Ltd’s fi rst US$4.1 billion (MOP32.8-billion) project in Cotai – Wynn Palace – will open on 22nd August, while the latest addition of rival Sands China Ltd. on the Strip, the US$2.7 billion Parisian featuring a half-scale replica Eiffel Tower, will be inaugurated in September. Three-year high His optimism is shared by Jane Liu Zee Ka, managing director of Ricacorp (Macau) Properties Ltd. “The market can’t get worse than what happened in January and February, when it hit bot-tom,” she says. The market has seen an upswing, in terms of residential sales volume, since March supported by end-users, she notes. “Many end-users have stayed away from the market amid the eco-nomic downturn of the past two years but they are returning,” she says. “Most of them are now looking for low-to-mid-priced homes at MOP4-6 million.”The number of residential trans-actions plunged to 268 in February of this year, bringing total sales in the fi rst quarter to 1,215, the lowest on record since the city’s handover in 1999, gov-ernment fi gures reveal. After reaching a new low, sales rebounded to 1,087 and 1,038 in April and May, mark-ing the fi rst time that monthly volume had exceeded the 1,000 mark since May 2013. In the fi rst half of 2016, the number of residential transactions to-talled 4,178, increasing by nearly half from the previous year.Chong Sio Kin, president of the Macau General Association of Real Es-tate, remarked that the uptick in home sales signalled the recovery of the mar-ket. “Home prices will hit bottom this year and start to hike up next year,” he said. “I don’t see there is room for any signifi cant downward momentum in the rest of the year.” In a worst-case scenario, he expects home prices may dip a further 5 per cent from the cur-rent level. Off-plan presales As buyers have begun to enter the mar-ket again, some developers are seizing the opportunity to clear their inven-tory. Hong Kong-based property fund GAW Capital Partners has, since June, launched off-plan pre-sales of its high-end project Oscar Crescent next to the Macau Jockey Club in Taipa.Boasting 299 fl ats and villas of at least two bedrooms to be completed by 2018, the project has pre-sold nearly 200 units at MOP3 billion as of July, according to Centaline (Macau) Prop-erty Agency Ltd. The warm recep-tion towards the project, say realtors, was due to its appealing price – about MOP6,500-9,800 a square foot – close to the level of the second-hand market, as well as the rebates and discounts the developer has offered. GAW Capi-tal was not immediately available for comment on this story.Le Jade, a 172-unit project at Ave-nida Marginal do Lam Mau on the Macau Peninsula, and Macau Court, a nearby project of 64 three-bedroom fl ats, have also been up on pre-sale in recent months. “We had about 800 fl at-viewing requests in the past two months, mostly about Macau Court, but not many cases led to transactions,” said Ms. Liu. “Prospective buyers don’t have enough money for a down pay-ment because the homes in Macau Court are worth over MOP10 million each given their size.”As a consequence, she urges the authorities to ease the loan-to-value ratio for residential mortgage loans, which they tightened in 2010 and 2012 to curb the red-hot property market. The administration has reiterated on several occasions that it would not introduce any changes in response to market conditions. Supply mismatch Despite the fall in home prices, the rea-son why most residents still moan about the diffi culties in buying a home is due to a mismatch between supply and de-mand, said legislator Ho Ion Sang. “There is an imbalance in the supply of the Macau real estate market: there are so many large fl ats in the high-end segment but there are not enough low-to-mid-priced units to satisfy the actual needs of h ouseholds here,” he said. Of the 32,000 homes completed be-tween 2000 and 2015, only 2,200 fl ats – or 7 per cent of the total – were smaller than 80 square metres, while more than half of the units were larger than 120 square metres. “But the average size of fl ats transacted in the fi rst quarter [of this year] was only 65 square metres,” Mr. Ho highlighted. Apart from enhancing the supply of small-to-midsized fl ats in the mar-ket, authorities should heed the call of the Policy Research Offi ce to enhance the home-buying costs of companies in the territory, he added. According to the population policy report published by the research offi ce last year, companies and entities hold 16 per cent of units with an average size of more than 150 square metres in Macau. Tackling this situation, the report advised the admin-istration increase the residential invest-ment costs of companies and entities in a bid to release more fl ats onto the market. Mr. Wong of Jones Lang LaSalle also fl agged similar concerns. “Macau’s residential property sector saw a re-bound in the second quarter of 2016 [due to] end-users’ demand for exist-ing mass-to-medium residential stock,” he asserted. “However, the lack of new supply in the mass-to-medium sector may lead to a mismatch between de-mand and supply in the future.”