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Hong Kong and Macau, 6 July 2011 — With the announcement of the imposition of the special stamp duty (SSD) in April, Macau’s residential market cooled down immediately with a substantial drop in the transaction volume. Jones Lang LaSalle’s Managing Director, Macau, Gregory Ku, says, ‘Demand for residential properties in Macau mainly comes from local investors who dominated 80% of the total transactions. Although some overseas investors have off-loaded their residential holdings in Macau by offering a 10% discount against the market price level, the stocks were absorbed almost at once when they were put on market, by local investors for long-term investment. This explains why the property transaction volumes drop but prices remain stable.’
The Chief Executive of Macau announced in late April the imposition of SSD and tightening mortgage lending as anti-speculation measures to cool down the overheated property market and to curb the price bubble. Effective 14 June 2011, purchasers who sell their residential properties within one year of the purchase are required to pay a special stamp duty equivalent to 20% of the transaction price or 10% of the transaction price for a sale within two years.
In fact, various governments in Asia’s major cities including Hong Kong, Taiwan and Singapore have already adopted similar measures to cool their overheated residential markets caused by excess liquidity in 2010 as a response to their citizens’ complaints about the exceedingly high and unaffordable home prices. Realising that majority of the buyers in Macau were short-term speculators from the local market, in order to curb the unhealthy trend and speculative trading in the housing market, the Macau government imposed the SSD of 20% for properties sold within one year of purchase. In Hong Kong and Singapore, the duties are 10% (15% for resales within six months) and 16% respectively for homes resold within a year, while in Taiwan the duty is 15% for resale within two years.
In cities that have introduced SSD, in general, the transaction volume in their residential sector fell immediately after the implementation of the measure. However, it brought about little impact on the residential prices.Take Hong Kong as an example. The city saw an immediate slowdown in its residential transaction volume after the implementation of SSD in November 2010. However, the residential prices in the high-end and medium segments still recorded growth of 8.3% q-o-q and 5.7% q-o-q in 1Q11, respectively.
‘One of the most important reasons for transaction volume coming down but prices holding firm is the low holding costs attributed to low interest rates. Low holding costs are not there only to reduce the direct financial burden of home purchasers but also contribute to “positive carry” investments as yields are higher than mortgage rates that leads to positive spreads,’ says Ku, ‘The properties are paying for themselves; as long as you have a tenant in your property, the rents from the tenancy is more than enough to offset the interest payments to the banks. As such, there’s no reason for owners to sell their properties even though transaction volume has come down—they really have no pressure to sell.’
In Macau, the current yields for residential properties are only around 2–2.5%, which is just enough to offset interest payment. Investors are willing to hold onto their residential properties for a longer term as they anticipate further capital gains with the improved infrastructure such as the Hong Kong-Zhuhai-Macau Bridge and the light rail that connects Zhuhai and Guangzhou.Banning people from selling their properties within the first two years of sale will reduce market liquidity in a sense as proven by the decline in transactions. What this actually means is fewer tradable stock in the market and hence higher pressure on prices. However, in Macau, the situation may be different as speculators account for a high portion of the market. Should they all fire sell their holdings, prices would have higher pressure to fall.
‘Macau’s residential market is mainly driven by local investors. With the city’s optimistic economic outlook underpinned by the robust gaming industry and the construction sector, Macau’s citizens are enjoying higher income and stronger purchasing power. Unless there is a sudden financial crisis, we don’t expect to see investors “dumping” their property assets at cut-rate prices,’ says Ku.‘Properties have been and will continue to be one of the most preferred investment vehicles among the Macau people. In fact, the rising cycle in Macau’s property market after the financial turmoil in 2008 was mainly driven by local capital rather than foreign funds. It is expected that owner-occupiers and long-term investors will continue to be the major source of demand for residential properties. On the back of the limited supply in the upcoming months, home prices are expected to continue to hold firm, with a good upside potential in the long run,’ concludes Ku.
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