Macau's property boom appears to be pausing for breath, with prices unlikely to resume their upward spiral ahead of the completion of major casinos scheduled for 2006, agents say. Prices for well-located luxury property have risen 100 to 150 per cent in the past 18 months. The mid-level market has also made strong gains of 40 to 60 per cent - bringing the overall market in line with valuations at the peak of the 1996 bubble. By some yardsticks residential prices in the gambling enclave now seem well ahead of fundamentals. Rentals in the middle-to-luxury sectors are only about half that of comparable Hong Kong property, according to Macau-based realtor Warren Rooke. That means investors counting on double-digit rental incomes to pay off hefty mortgages are walking a fine line. Mr Rooke says he has about a dozen luxury properties for rental - all recently purchased by non-Macau investors. 'The rate of increase [in property prices] is going to be far more realistic than in the past and the [reason] is a soft rental market,' he says. 'Finding tenants in the $15,000 to $25,000 range is not going to be all that easy.' Recent off-the-plan sales of 1,400 to 1,800-square-foot units in the luxury King's View development fetched prices in the range of $2,000 to $2,800 per square foot. On a rental yield basis, these are slightly above Hong Kong prices, he says. Many investors are Hong Kong professionals in their early 30s to 40s who can afford to use the flats as weekend homes. Some are leaving them vacant, thanks in part to record low mortgage rates of 2.5 per cent. The monthly repayment and maintenance charges on a $5 million property are under $20,000. Several Hong Kong banks slashed their best lending rates by 12 basis points earlier this month, a move that may help to improve the affordability of investment buying. Flats are still selling at a brisk pace, but prices have softened after near-panic buying by investors from Hong Kong and the mainland during the summer. In the first nine months of this year 15,000 sales transactions were signed, up 41 per cent over the year-earlier period. The Las Vegas-based Venetian group opened its US$265 million Macau Sands casino in May. According to recent US stock exchange filings, it is on track to recoup its entire investment within the first year of operation. The remaining gaming licence holders, Stanley Ho's Sociedad de Tourismo e Diversoes de Macau (STDM), Wynn Resorts, and Galaxy Casino and Resort, all have casino developments under construction. The earliest completions are expected in 2006. The Venetian is also planning to open Cotai strip resorts in 2006. Last week Australian gaming tycoon Kerry Packer announced he would invest US$163 million in a joint venture with an STDM subsidiary to build a hotel and casino complex on Taipa Island. The total value of projects planned or currently underway by all licence holders is more than US$22 billion . Ahead of the casino openings, the upscale rental market is not expected to improve substantially despite robust GDP growth of 47.5 per cent in the second quarter. Most of the new jobs created by the casinos are low-paid service positions. Agents say the influx of foreigners overseeing casino construction will help support the market, but may not have a substantial impact, owing to their relatively small numbers. Longer term, the bigger question revolves around the number of highly paid executive positions generated by the casino developments. 'I personally feel that a lot of this new prosperity is pretty fully valued by Macau terms,' Mr Rooke says. He sells two to three properties a week, mainly to Hong Kong buyers. Another dampener is tighter mortgage-issuance practices. Concerned about the rapid rise in residential prices, Macau banks have started to question the valuations on purchase agreements, even revising figures down to levels which they feel are more in line with market realities. That means potential buyers face having to find substantial cash deposits. For example, a property selling for $1.5 million five months ago may now have an asking price of $2.5 million. If the bank assesses the property at $1.8 million, and approves the maximum 70 per cent mortgage financing, or about $1.26 million, the buyer will have to make up more than a $1 million shortfall. 'The banks are trying to control the rate of increase by not keeping up with valuations,' Mr Rooke says. Until recently, agents would overstate the transaction price on bank documents to secure mortgage financing above the 70 per cent maximum. The banks are believed to be clamping down on the practice by being more vigilant in assessing valuations. The dramatic turnaround in prices marks an end to a property collapse that began eight years ago, with prices declining as much as 60 per cent from their 1996 peak. The building boom, much of it funded by mainland hot money flows during the early 1990s, left the territory awash in excess supply, with an estimated 30,000 surplus flats. Owing to the property glut after the bust, few flats were built in almost 10 years. About 2,200 units are expected to be completed in the next year. Agents say the shortage of newer flats and the lack of available land for development point to a longer-term bullish outlook. 'The sheer volume of interest in Macau is gong to be breathtaking. I don't think anyone can fathom how much this place is going to change in the next 24 months,' Mr Rooke says.