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Macau

JLL: Macau’s property market returns to rationality amidst declining Gaming Revenue


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HONG KONG AND MACAU, 15 July 2015 – Macau’s property sectors largely saw a negative growth in 1H15 amidst the 13-month continuous decline in the city’s gaming revenue, with the residential and retail markets showing the most significant signs of slowdown, according to JLL in its Macau Mid-year Property Review today.

Impacted by the Central Government’s anti-corruption measures, Macau’s gaming industry was badly hit in 1H15 that the gaming revenue significantly dropped to the 2010 level.  According to the DICJ figures, the total gaming revenue in 1H15 was recorded at MOP121.6 billion, representing a dramatic decline of 37% y-o-y. In fact, the gaming revenue generated by the VIP-market segment has been on a downward trend since mid-2014, with recorded negative growth widening from 6% y-o-y in 2Q14 to 42% in y-o-y 1Q15. The impact on the mass-market segment was relatively mild – negative growth of 16.2% y-o-y was first seen in this segment in 4Q14 and it expanded to 27% y-o-y in 1Q15. The structure of the gaming industry in Macau has also changed, with the proportion of VIP-market segment contracting from 64% in 1Q14 to 58% in 1Q15.

Macau’s GDP recorded at MOP82.8 billion in 1Q15, registering a negative growth of 24.5% y-o-y.  Underpinned by the construction works of several massive entertainment projects in Cotai, Macau’s fixed capital formation grew by 32.2% y-o-y to MOP 18.3 billion in 1Q15. The private consumption expenditure also recorded a strong growth of 6.7% y-o-y at a total of MOP20.8 billion during the same period.

With the cut in the length of stay allowed for mainlanders on transit visas, Macau’s visitor arrivals recorded at 12.5 million for the first 5 months in 2015, down 2.7% y-o-y.  Visitors from Mainland China still made up the largest portion, accounted for 66.8% of the total visitor arrivals.  With the opening of the Galaxy Macau Phase 2 in May 2015, the supply of hotel guest rooms increased to a new high of 29,900.  The hotel occupancy rate declined to 78.9%, largely due to the fall in the number of visitor arrivals. The average length of stay of guests maintained at 1.4 days as of May 2015.

Macau’s retail sector suffered from a downturn in 1H05 due to the slowdown in the gaming and tourism sectors. On the other hand, the Chinese government’s crackdown on graft significantly slowed down the consumption by high-rollers on luxury items.  For the first quarter of 2015, the retail sales of watches, clocks & jewellery fell by 30.5% y-o-y, according to the DSEC statistics.  The total retail sales dropped by 11% y-o-y to MOP16.4 billion in 1Q15.

The labour market remained stable in 1H15, with unemployment rate edging up by 0.1% to 1.8% in May 2015.  The overall median monthly income rose to MOP15,000, up by 15% y-o-y in 1Q15. The total number of imported workers in Macau reached a new record level of 179,416 at the end of May 2015, significantly increased by 5.3% or 9,070 from the level recorded in end 2014. The number of imported workers is expected to continue growing, with the ongoing construction of the entertainment projects due for completion in 2H15.

According to the figures announced by the DSEC, the residential deposit rose by 5.6% y-o-y to MOP481.0 billion as of April 2015. This reflects that people in Macau still maintain a certain level of purchasing power.

​“The slowdown of Macau’s gaming industry has actually brought about a return to rationality for the city’s property market, which is a good sign from the perspec​tive of the overall economy.  With the numerous massive entertainment projects currently in the pipeline and Macau government’s relaxation of the restriction on the length of stay allowed for mainlanders on transit visas, we expect Macau’s property market will remain stable or see a mild consolidation, if any, in 2H15,” said Alvin Mak, Associate Director, Strategic Consulting at JLL Macau.


Residential
The residential market was weak and recorded a significant drop in its total transaction volume in 1H15.  According to the DSEC figures, a total of 2,378 residential transactions were registered in the first 5 months of 2015, dramatically down by 36.5% y-o-y.  This downtrend has started since 2H14. 

On the supply side, a total of about 2,200 new residential units entered into the market in 1H15. The major projects such as One Oasis, Paragon and Nova Park were completed in 1H15. 

In the leasing market, the new supply in the mass and medium residential sector has pushed the rental values downwards by 5.5% in 1H15 compared with the end 2014.  For the high-end residential sector, as the VIP junkets withdrew from the luxury housing market, the high-end residential rental values significantly dropped by 11.7% y-o-y in 1H15.

In the sales market, a number of newly completed residential projects were launched at discounted prices in 1H15.  The capital values for the high-end and mass-to-medium residential sectors fell by 17.1% y-o-y and 11.6% y-o-y in 1H15, respectively.  Nevertheless, the investment yields of the high-end and mass-to-medium residential sectors were 1.9% and 2.0% in 1H15, edged up by 0.03% and 0.1% y-o-y, respectively.

​“In spite of the uncertainty of the gaming industry and the cautious attitude adopted by the investors, the new gaming facilities scheduled for completion in 2H15 and the increasing number of imported workers will lend support to the residential market.  However, taking into account the abundant new residential supply in 1H15, we expect to see a mild consolidation in both the residential sales and leasing markets in 2H15,” remarked Jeff Wong, Head of Residential at JLL Macau.


Office
In 1H15, the performance of the office sector was relatively stable comparing with the other property sectors. In the first four months of 2015, a total of 1,908 new incorporations were registered in Macau, up 17.9% y-o-y.  Most of the companies were from the wholesale and retail as well as the construction and financial sectors, which made up a total of approximately 80%.

In the leasing market, the overall office rental values and the Grade A office rental values rose by 0.5% and 5.7%, respectively, in 1H15 from end 2014, according to JLL Macau Office Index.

The office sales market recorded negative growth in 1H15 as the demand for offices from the offshore companies, gaming-related businesses and China-based investment companies contracted significantly.  According to JLL Macau Office Index, the overall office capital values fell by 4.8% while the Grade A office capital values dropped by 1.5% in 1H15, comparing to the end of 2014.  The office supply was still very limited in Macau, with the overall office vacancy rate remained stable at 6% as of June 2015. 

​“With the rising office rentals in Nam Van district amidst the declining office capital values, the investment yields of Grade A offices rose significantly to 2.3% while the overall office sector recorded a 2.6% in 2Q15.  We expect both the office sales and leasing markets in Macau to remain stable in 2H15,” said Alison Yip, Associate Director, Capital Markets at JLL Macau.


Retail
Macau’s retail property market was also affected amidst the slowdown in the gaming, tourist and retail sectors.

Under the tenant-oriented leasing market, the overall retail rentals dropped by 5.8% in 1H15, comparing to the end of 2014.  The asking rentals of high street shops also softened, down by approximately 30% in 1H15, comparing to the end of 2014.  In 1H15, two notable retail leasing transactions were recorded, with NaRaYa leasing a shop in Rua de S. Paul and Innisfree taking up a shop unit in Rua de S. Domingos. In the meantime, several retailers were reported to have taken up shop spaces or renewed their existing leases in Rua de S. Domingos area at monthly rentals from about HKD 300,000 to HKD 900,000 in 1H15. 

The sales market was relatively quiet with very few major transactions. According to JLL Macau Retail Index, the overall retail capital values fell by about 6.6% in 1H15, comparing to the end of 2014.

Despite the signs of slowdown in the retail property sector, the opening of Galaxy Phase II and Broadway Macau in Cotai Strip in May might give a boost to the market.  The Promenade which has a total retail space of over 100,000 sqm also opened in May.  This brand-new retail complex features over 200 shops, from luxury flagship stores to high-street lifestyle retail outlets.  During 1H15, there were a number of international brands such as H&M and Uniqlo entering Macau to set up their first branches there.  This further enhanced the landscape of the retail market in Macau.

​“The opening of new mega malls increased the overall supply of retail spaces in Macau and may attract more new brands to consider entering the city.  We expect to see a more diversified mix of brands and stronger competition in Macau’s retail market in 2H15,” commented Oliver Tong, Associate Director, Retail at JLL Macau.
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