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HONG KONG AND MACAU

Jones Lang LaSalle: Macau’s Property Market Expects Stable Growth across all Sectors in 2013 under the Austerity Policy Measures


 

hong kong and macau, 17 January 2013 Macau’s GDP registered a stable growth of 10% in 2012, even though the gaming revenue experienced a slowdown in growth. The capital values and rental prices across all property sectors, including residential, retail and office, maintained an upward trend despite the government’s introduction of additional austerity measures in 4Q12, according to Jones Lang LaSalle in its Macau Year-end Property Review today. 
During the first three quarters, Macau’s GDP registered a 10% y-o-y growth to MOP 219.7 billion, mainly driven by the city’s exports of services. Another key driver is the fixed capital formation, which rose by 18% y-o-y in 2012, backed by the launch of massive entertainment complexes such as Sands Cotai Central. The growth momentum in fixed capital formation is expected to be sustained over the next few years, underpinned by the new gaming projects in Cotai and the ongoing infrastructure developments including the LRT and Taipa Ferry Terminal.
In the meantime, Macau’s gaming revenue witnessed a slowdown in 2012, registering a 13.5% y-o-y growth, a sharp decline from 42.2% y-o-y in 2011. This was attributable to the slower growth of China’s economy as well as the high base of gaming revenue in 2011. Nevertheless, Macau’s gaming revenue still reached a record of MOP 304 billion in 2012. The retreat of China’s economic growth, along with the capacity limit of ports in Macau, also led to a slower growth of visitor arrivals. For 2012 as a whole, Macau’s total visitor arrivals recorded at 28 million, representing a 0.3% y-o-y increase, a significant drop from the 12.2% growth in 2011. Visitors from Mainland China continued to be the dominant force in Macau’s inbound tourist profile, which grew by 4.6% y-o-y to 17 million in 2012, while visitors from Hong Kong, Taiwan and India recorded negative growth in 2012.
The labour market continues to prosper with the unemployment rate dropping to a record of 1.9% in October 2012, the lowest since 1991. Technically speaking, the city was at its full employment level, with its median income further increased to MOP 11,700, up 17% y-o-y as of 3Q12. In anticipation of launching six massive entertainment complexes in Cotai in the near future, Macau’s labour market is expected to embrace more than 50,000 imported workers to meet its need for manpower, in addition to the current 110,139 imported workers as of end-November 2012.
Alvin Mak, Senior Manager, Research at Jones Lang LaSalle Macau, remarked, ‘We remain optimistic on Macau’s property market throughout the course of 2013 under the circumstances that there are no big impacts from the external economic environment, given that the economic fundamentals of the city remain solid. Coupled with a low interest rate environment and the launch of QE3, we expect that the property sector will remain robust in the next few years.’
 
Residential
Supported by long-term investment and upgrading demand, the residential market saw a strong growth in 2012, with capital values rising by 25.9% y-o-y in the high-end residential sector and 51.9% y-o-y in the mass and medium residential sector.
According to the DSEC figures and Jones Lang LaSalle’s estimation, a total of about 17,500 units were transacted in 2012, up 1.6% y-o-y. Among these transactions, the primary market accounted for only 7%. The government figures also showed that for transactions during the first 11 months of 2012, only 10.2% of buyers and 17.6% of sellers identified themselves as foreigners. Both figures indicate that the residential market remains mainly local driven.
Supply in the residential sector remained limited, a situation that is not expected to change in the immediate future. A total of 2,400 residential units were delivered in 2012, while another 1,000 units are expected to come to the market this year.
The leasing market also saw a strong demand from expatriates led by the opening of new gaming facilities, further driving up the residential rents. The average rent in the high-end residential market grew strongly by 24.2% y-o-y in 2012, while the mass and medium residential market also saw rental trending up by 30.3% y-o-y.
In the face of surging property prices, the Macau government launched a new series of austerity policy measures in 4Q12 that included extending Special Stamp Duty (SSD) to office, retail and car park sectors, as well as introducing a Buyer Stamp Duty (BSD) at 10% of the residential price paid by non-local residents or anyone purchasing through a company. The government also tightened the loan-to-value ratio for the pre-sale/completed units for both local residents and foreign investors.
‘How effective these austerity measures are in cooling down the property market remains to be seen,’ says Jeff Wong, Jones Lang LaSalle’s Head of Residential in Macau. ‘However, if the situation of limited supply and strong investment demand remains unchanged in the near future, we believe the residential market will continue to trend higher, and we estimate that property prices will increase by 10-15% in 2013.’
 
Office
Driven by the strong demand on short-term investment opportunities in the sales market during the first three quarters of 2012, Macau’s office sector experienced a robust growth throughout 2012. According to Jones Lang LaSalle’s Macau Office Index, the capital value of the office market posted a growth of 63.5% y-o-y in 2012. The government’s introduction of a series of austerity measures in 4Q12 to tighten the office sales market have, in fact, locked up most of the available stocks in the secondary market. Coupled with the limited market supply, the capital value in 4Q12 witnessed a surge of 21.4% compared to 3Q12. On the other hand, office rental values increased by 9.9% y-o-y in 2012.
The expansion activities of multinational companies have lent support to the growth of the leasing market, but government departments are still the biggest tenants in the office sector. According to the DSEC figures, the number of new corporations registered in Macau totalled 2,822 in the first three quarters of 2012, representing an 11.6% y-o-y growth, with wholesale and retail, business services, construction and real estate as the key growth drivers. As more and more entertainment complexes are expected to be completed in the next few years, the supporting business for these projects has gained a new momentum to expand. As a result, demand for offices in the leasing sector continued to grow, leading to a fall in average vacancy rates to 13% in 2012 from 18% in 2011.
On the supply side, it is expected that only one new Grade A office in Nam Van Lake Zone A will be completed within the next 12 months, adding a total of 280,000 sq ft of new office space to the leasing market.
‘Looking ahead, the demand-supply imbalance in the office market will continue to boost rents up.  Against this backdrop, we believe both the office sales and the leasing markets, especially in the Grade A sector, will maintain the upward trend in 2013. We expect that the overall capital value of the office market will rise between 15-20% this year, while the rental value will increase by 10-15%,’ comments Alison Yip, Associate Director, Agency at Jones Lang LaSalle Macau.
 
Retail
Macau’s retail sector also experienced a slowdown in 2012, largely attributed to the slower growth of visitor arrivals on the back of China’s weaker economic growth. In the first three quarters of 2012, Macau’s retail sales increased by 24.4% y-o-y, a noticeable drop from the 41.7% growth achieved for the whole year of 2011.
Nevertheless, the average retail rents and capital values in 2012 soared by 99.1% y-o-y and 142.6% y-o-y, respectively, backed by investors’ confidence on the long-term growth prospects of the retail sector. In prime locations, the unit rate of retail rental rose sharply to the range of MOP 500-1,500 per sq ft gross per month.
Driven by the positive market sentiment, some retailers further expanded in popular tourist locations such as Senado Square, Rua de S. Domingos and Rua de S. Paulo. Notable examples were recorded in Rua de S. Domingos, including the expansion by an international jewellery retailer, which leased a building en bloc for over MOP 2.5 million per month;. and the sale of a three-storey building for HKD170 million (The unit rate of the ground floor portion is high at about HKD180,000 per sq ft).
However, due to the slowdown in demand drivers and rising rents, some retailers, especially those from the F&B and fashion sectors that have tighter margins, were forced to relocate to the more affordable locations. In the meantime, landlords started to adjust the trade mix of their projects that were located in the prime locations to attract a more diversified range of travellers.
‘We expect that demand for retail space, especially those located in the prime areas, will continue to increase in 2013. In addition, visitor arrivals will likely rebound with the opening of the Guangzhou-Zhuhai Intercity Railway in end 2012. We expect retail rents will remain on the growth track while capital values can maintain a double-digit growth in 2013,’ says Gregory Ku, Jones Lang LaSalle’s Managing Director in Macau.
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