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News Release

Hong Kong and Macau

Jones Lang LaSalle: A Strong Rebound in Macau’s Residential Market in 2H09 amidst Lower Interest Rates and Improved Economy

With the completion of the Chief Executive election and the listing of Sands China and Wynn Macau on Hong Kong Stock Exchange, Macau’s economic and political environment showed signs of improvement.  Coupled with low interest rates, a high level of global liquidity, stock market rally and the beneficial mortgage and loan schemes, the investment sentiment was strengthened in 2H09 that resulted in an increasing number of residential property transactions and an uptrend of capital values in 2009 as a whole, according to Jones Lang LaSalle in its Macau Annual Property Review today.
Macau’s GDP recorded negative growth for the first two quarters but returned to positive regime in 3Q09, up 8.2% y-o-y.  For the first three quarters as a whole, it still fell 6.8%.  For private consumption expenditure, it declined by 0.5% y-o-y for the first three quarters following the negative growth of 1.2% y-o-y in 3Q09.  Fixed capital formation decreased by 35% y-o-y for the first three quarters, partly due to the suspension of construction projects on Cotai Strip.
Gaming revenue experienced a turnaround in 3Q09 after reaching its record high of MOP 32 billion for a single quarter, with a growth of 22.2% y-o-y.  However for the first three quarters as a whole, total gaming revenue still recorded a drop of 1.8% y-o-y.  Entering October, gaming revenue continued to rebound and reached another record monthly high of MOP 12.7 billion.  For the year to end-October 2009, Macau’s total gaming revenue reached MOP 96.6 billion, up 2.3% y-o-y.
For the tourist sector, total visitor arrivals fell by 7.1% y-o-y to 17.8 million for the first 10 months. However, it is worth noting that the y-o-y decline slowed from 11.4% y-o-y in 1H09 to 0.2% y-o-y for the period from July to October.
‘Thanks to the clearer picture of the global economy, Macau's gaming sector has regained its momentum and returned to the positive growth track since 3Q09, with new hotels and casinos opening in the city.  This trend is expected to extend into 2010.  With all these favourable factors in place, we can expect to see a more prosperous and healthy economy in Macau next year, lending support to the growth of the city’s property market,’ remarks Marcos Chan, Jones Lang LaSalle’s Head of Research, Greater Pearl River Delta.
Macau’s residential market has regained its growth momentum since 2Q09 when the global economy started to recover.  Demand for residential properties strengthened with a dramatic pick-up in transaction volume from May onwards.  The number of residential transactions returned to the pre-crisis level of over 1,000 transactions per month during the period from June to October.  As of end-October 2009, a total of 7,944 residential transactions were recorded for the year-to-date, down 38.7% y-o-y.
For the mass–to-medium residential market, with the announcement of the 4%-interest rate subsidy scheme and mortgage guarantee programme by the government in 2Q09, purchasing demand strengthened significantly.  As of December 2009, the government had approved 2,016 applications under the 4%-interest rate subsidy scheme and 1,471 applications under the mortgage guarantee programme.  Since then, double-digit capital value growth was observed in the mass-to-medium residential market, bringing the full-year growth to 42.5%. Indeed, capital value growth was even higher in some of the newer schemes where demand is particularly strong.
On the leasing side of the mass-to-medium market, demand increased as some expatriates relocating to lower tier properties to reflect the contracted housing budgets.  In 2009, mass-to-medium residential rents rose by 5.5%.
The high-end residential sector was less benefited by the government’s newly announced incentive measures as they were mainly designed for mass residential properties.  On a higher base of comparison, high-end residential capital values grew by 21.9% in 2009.  The leasing sector remained subdued as the number of expatriates in Macau continued to reduce.  High-end residential rents remained stable after the dramatic falls in 4Q08 and1Q09, however, the completion and handover of One Central Residences has created some pressure on rents due to the increase in leasing stock.  For 2009 as a whole, rents for high-end residential properties dropped by 12.6%.
‘While there is no indication whether the government will extend the subsidy schemes upon their expiry in June 2010, we observed that local purchasing power has been strengthened due to the government’s incentive policies.  The number of local buyers for residential transactions in 2009 was on the rise and we expect this trend to continue in the near future,’ remarks Jeff Wong, Jones Lang LaSalle’s Head of Residential in Macau.
Several new projects were launched in 2009, such as Celebrity Lodge, Grand Eurheight, The Residencia Macau, Verde I & II, and One Central Residences.  All of them were well received by the market.  For the three years to 2012, there will be a total of 7,715 residential units entering the market.  However, many of the newly completed units, estimated to be around 70%,  have been pre-sold during their construction period.  Thus, the effective number of new units available for sale is reduced to about 2,300 units.
‘Though there are risks of interest rate hike towards 2H10, ultimate holding costs will likely remain low and banks will remain positive towards mortgage lending.  The mass residential sales market may slow down a bit as buyers will become more cautious after the strong run-up in prices in 2009.  However, prices will remain stable as new units available for sale will remain relatively tight in 2010.  For the luxury segment, the growing interest on Macau properties among the high net worth individuals from mainland China, coupled with the high level of liquidity and a gradual economic recovery, we expect there to be further room for capital value growth in 2010,’ concludes Wong.
The year of 2009 saw Macau’s office market consolidate, with companies giving a high priority to cost savings.  The majority of activities were for relocations to more cost-effective spaces, with expansion requirements not notably seen.
Having  suffered from a slow momentum, office capital values and rents declined by 9.5% y-o-y and 12.9% y-o-y respectively in 2009.
‘Macau’s economy is expected to see a gradual improvement in 2010 with some of the suspended projects on Cotai Strip resuming their construction works and the construction of Hong Kong-Zhuhai-Macau Bridge moving onto track.  It is not surprising to see demand for office space growing in 2010.  However, companies’ expansion pace is expected to be slow at this initial stage of economic recovery.  To look on the brighter side, the tight office supply will continue to lend support to Macau’s office rents,’ comments Gregory Ku, Jones Lang LaSalle’s Managing Director in Macau.
The year of 2009 saw foreign investors holding a wait-and-see attitude towards investment in Macau’s property market. Instead, local investors were relatively active, with properties in the four largest investment transactions during the year being purchased by the locals, fetching a total of about HKD 1.5 billion.
‘Hopefully with the reactivation of some of the suspended construction projects on Cotai Strip and on the back of a gradual global economic recovery, Macau’s property investment market will see a healthy growth in the coming year,’ says Ku.