Making a safe bet
Avid and astute investors wishing to cash in on Macau's high-end property market must join early before prices rise. The Macau government's recent policies aimed at controlling and stabilising soaring property prices have been described by analysts as only interim measures to restructure the market, which still has potential for growth.
In April, the government suspended its investment residency scheme indefinitely to cool the market down and help buyers of second-hand homes. It also announced a series of measures to help the low-income group by providing subsidised public housing. This resulted in property deals worth about 1 million patacas (the minimum immigrant investment requirement) dropping dramatically - by 40 per cent in the second quarter of this year.
'Despite the fall, prices have remained firm,' says Franco Liu, director and office head of Savills (Macau), which provides valuation and professional services. 'While the suspension allows disgruntled Macau residents to buy properties before being priced out, it also enables the Macau government to clear the application backlog.'
He believes the suspension will be lifted and the government will adjust the 1 million patacas entrance requirement to at least 3million patacas.
'Many legislators complain that the amount is too low, failing to attract real professionals. In Hong Kong, the sum is at least HK$6 million,' Mr Liu says.
Apartment prices in Macau early this year rocketed to a record high of HK$5,000 to HK$6,000 per sqft. There were 3,761 transactions in the first quarter, up 54 per cent compared with the same period last year.
About 37 per cent of the total transactions were high-end properties, representing 75 per cent of the total market transaction prices.
Mr Liu says that Macau's property market boom is not a bubble.
'Speculators joining the market won't be able to reap profits within a short time. But for strong and patient investors, they will cash in.'
He says many Hong Kong developers such as Kerry Properties, Nan Fung Development and Chinese Estates Holdings bid for land in Macau, sending a clear message of their confidence in and commitment to the enclave's property market.
Macau's GDP has increased more than 20 per cent since sovereignty was returned to China in 1999. In the second quarter of 2004 alone, it reported a GDP growth rate of 50 per cent. The gambling industry accounted for more than 50 per cent of GDP in 2005. Since the monopoly operating system was discontinued in 2002, the number of casinos has grown to more than 30, leading to significant new investment in other related developments such as hotels, shopping and entertainment facilities.
With the massive continuing construction projects, Mr Liu estimates that about 80,000 new foreign workers are needed in the coming five years to complete these developments. However, the total number of new medium to high-end units to be completed by 2010 is less than 18,000.
From the fourth quarter of last year to the second quarter of this year, prices of new units grew 29 per cent. High-end property prices in the second quarter of this year were 159 per cent higher than the overall average property transaction prices in the same period.
Mr Liu says more than HK$200 billion worth of investments will pour into Macau in the coming years. Investment is still in its infancy, and he advises investors to enter the market as soon as possible before prices reach new heights.
He predicts that property prices of quality units in good locations could rise to HK$8,000 or HK$10,000 per sqft within five years, on a par with those in Hong Kong.
He does not see any major high-end properties going on sale by the end of this year as cautious developers are adopting a wait-and-see attitude, pending the outcome of the revised policies on the investment residency scheme.
One of the few luxury residential projects that will go on sale next year is Hong Kong-based Tenacity Real Estate Group's HK$2.5billion to HK$3billion twin tower, temporary named C5C6, at Nam Van Lake near the Macau Tower. Savills is the sales and leasing agent for the project.
Benjamin Kao, principal of MacauLand Developments, says with the opening of the Venetian Macau and other casinos and hotels, the high demand from expatriate executives for housing has shifted from the sales market to the tenancy market, which he describes as being 'very active'.
He thinks the Macau government had solid reasons to suspend the investment residency scheme as the enclave's unemployment rates are so low. Employees' average income was up 23 per cent in the second half of this year.
'Money continues to flood Macau. The HK$1million investment ceiling is less significant. Most investors buy a unit with cash, but they neither live there nor rent it out, thus providing less choice in what is already a housing market shortage,' he says.
As the supply of luxury apartments is limited, Mr Kao advises investors to buy as quickly as possible. He predicts that Macau's high-end property prices will eventually transcend Hong Kong's.
