Macau’s amazing, incredible, soaring property prices
October 03, 2017
Macau´s amazing property boom since 2009 has quintupled property values. There was a decline in 2015-2016, but now prices are taking off again, amidst massive infrastructure investments which will transform Macau´s connections to China and Hong Kong.
During the year to Q2 2017, the average transaction price of residential units in Macau surged 32.8% to MOP 104,263 (US$12,958) per square metre (sq. m), according to the Statistics and Census Service (DSEC).The double-digit increase was in sharp contrast with last year´s 17.6% annual decline and the biggest y-o-y rise since Q3 2014. When adjusted for inflation, prices rose by 31.5%.
The number of residential property transactions increased by 19.5% y-o-y in Q2 2017, while transaction values surged 67.8% to MOP 25.64 billion (US$3.19 billion).
Quarter-on-quarter, residential property prices increased 14.8% (14.5% in real terms) in Q2 2017.
All of Macau´s major islands saw surging residential property prices.
- In Macau Peninsula, the historic center of Macau, the average transaction price of residential properties rose 18.5% (17.4% in real terms) y-o-y in Q2 2017. NATAP registered the biggest house price increase in the island of 27.9% during the year to Q2 2017, followed by ZAPE (24.2%), NAPE e Aterros da Baía da Praia Grande (23.6%), and Horta e Costa e OuvidorArriaga (6%).
- In Taipa, where there are many hotels, casinos, and shopping malls and which is home to the Macau Jockey Club racecourse, residential property prices surged 49.3% (47.9% in real terms) during the year to Q2 2017. House prices rose by 54.1% in Baixa da Taipa and by 47% in Jardins do Oceano e TaipaPequena.
- In Coloane, home to two of Macau´s best beaches - Cheoc Van and HacSa, residential property prices increased 29.6% (28.4% in real terms) y-o-y in Q2 2017.
Coloane has the most expensive housing in Macau, with an average transaction price of MOP 132,696 (US$16,491) per sq. m. in Q2 2017. It was followed by Baixa da Taipa, with an average price of MOP 123,678 (US$15,370) per sq. m; Jardins do Oceano e TaipaPequena, at MOP 116,498 (US$14,478) per sq. m; and NATAP, at MOP 111,659 (US$13,877) per sq. m.
Rentsof high-end residential properties continue to rise, albeit at a much slower pace. At The Waterside, the average monthly rent increased by 1.5% to US$2.27 per square foot in Q2 2017 from the previous quarter, according to MPO Fund.
Yet residential construction activity is mixed. During the first seven months of 2017, residential building permits issued fell by 14% from the same period last year while completions increased 13.5 times over the same period.
Macau´s property market is expected to remain strong in the medium term, supported by spectacular economic growth.
"As sentiment continues to improve, we believe that the recent increase in housing demand among local residents will be sustained," said Macau Property Opportunities Fund (MPO Fund). "Macau´s market fundaments remain healthy, with high and stable median income, rising residents´ deposits, low unemployment, a growing population and attractive levels of residential affordability."
However, "Uncertainties exist, including the possibility of another round of Federal Reserve interest rate increases, China´s attempts to restrain capital outflows, and reactions to global political changes. The imposition of new LTV ceilings and mortgage loan caps may also prompt investors to adopt a more conservative approach to property purchases."
Macau´s economy expanded by 11.5% in Q2 2017 from a year earlier, higher than the previous quarter´s 10.3% growth, thanks to strong private consumption and an increase in exports of services, according to the DSEC.
Macau´s amazing boom
Macau´s housing market generally follows its economy. After plunging by 26.5% (-31.6% in real terms) in 2008 due to the global crisis, house prices have risen by double-digits every year since (with an exception of 2015 when the economy was in recession). Residential property prices skyrocketed by a total of 426% (281% in real terms) from 2008 to 2016, more than 11 times the rise in overall inflation.
- In 2009, residential property prices skyrocketed by 41.9% (42.1% in real terms)
- In 2010, residential property prices rose by 30.3% (25.4% in real terms)
- In 2011, property prices rose by 24.3% (16.5% in real terms)
- In 2012, property prices soared by 56.2% (48% in real terms)
- In 2013, property prices soared again by 32.5% (25.2% in real terms)
- In 2014, the housing market slowed, with prices rising by just 10.3% (4% in real terms)
- In 2015, residential property prices fell by 19.7% (-22.7% in real terms)
- In 2016, residential property prices rose by 24.9% (23.1% in real terms)
Increased connectivity to benefit tourism and the housing market
Improved connections are the key. The 200,000 sq. m. Taipa maritime terminal began operations in June 2017, increasing travel within Macau and its neighbouring cities, and providing direct connections to the planned light rail transit system.
Construction of the Gongbei tunnel, the only link connecting Zhuhai with the Hong Kong-Zhuhai-Macau bridge, started in April 2017. The bridge is scheduled to open in 2018.
The Shenzhen-Zhongshan tunnel, a key infrastructure development in the Greater Pearl River Delta, is also under construction. The project, scheduled for completion in 2020, will reduce the average travel time between Shenzhen and Zhongshan from two hours to less than 30 minutes.
Beijing has also committed to a comprehensive Guangdong-Hong Kong-Macau Bay Area development plan expected to commence by end-2017, to increase connectivity, trade and investment between the three regions.
"We believe these initiatives will enhance Macau´s competitive advantage, complement its ties to Guangdong province, stimulate economic growth, and pave the way for the city to become a point of connectivity between China and Portuguese-speaking countries," said MPO Fund.
Demand is surging, but is still below the peak levels of 2005-2012
In Q2 2017, residential property transactions increased by 19.5% y-o-y while transaction values surged 67.8%.
- In Macao Peninsula, the number of residential property transactions increased 6.2% y-o-y to 2,398 in Q2 2017.
- In Taipa, residential property transactions surged by 67.4% y-o-y to 1,053 in Q2 2017.
- In Coloane, residential property transactions increased 18.1% y-o-y to 111 over the same period.
In 2016, residential property transactions rose by more than 70% from a year earlier to 10,170 units. However this was still below the average sales of 17,000 per year from 2005 to 2012.
Residential construction activity mixed
Eight new projects providing about 382 units were granted with presale consent in H1 2017, including Nova Grand, Star River Windsor Arch and Sky Oasis-The Lux Mansions, according to Jones Lang La Salle Macau.
In 2016, residential building completions fell sharply by more than 90% to just 404 units from 4,218 units in the previous year. However during the first seven months of 2017 residential completions increased 13.5 times to 3,423.
By end-2016, there were a total of 219,010 residential units in Macau, up 1.2% from a year earlier, according to DSEC. Macao Peninsula accounted for about 79% of the total housing stock.
Vacant units declining
The number of vacant residential units is falling. In 2016, there were a total of 12,497 vacant residential units in Macau, down by 11.1% from a year earlier. This is equivalent to 5.7% of the total housing stock.
- In Macao Peninsula, vacant residential units increased slightly by 0.4% y-o-y to 12,497 in 2016.
- In Taipa, vacant residential units were down 13.3% y-o-y to 1,981 over the same period.
- In Coloane, vacant residential units were down 41.3% y-o-y to 1,836 in 2016.
Residential mortgage loans continue to rise, despite curbs
In May 2017, the government imposed loan-to-value (LTV) restrictions on housing purchases, in an effort to curb excessive demand.
- Residents: LTV ceiling lowered by up to 20% for second and subsequent purchases
- Non-residents: LTV ceiling lowered by 10% for first and subsequent purchases
- In addition, the Monetary Authority of Macao (AMCM) raised its base rate by 25 basis points to 1.5% in June 2017.
Despite these measures, the value of new residential mortgage loans (RMLs) approved increased 65% to MOP 5.8 billion (US$721 million) in July 2017 from a year earlier. New RMLs to residents accounted for more than 66% of the total new approvals while the remaining 34% were to non-residents.By end-July 2017, the total outstanding RMLs rose by 6% y-o-y to MOP 187.9 billion (US$23.35 billion), according to the AMCM.
One of the reasons of the continued surge in demand is the decision of most banks to maintain their low mortgage rates.
"Despite having raised the base rate by 0.25 percentage points in June by the Monetary Authority of Macao, banks are currently maintaining their mortgage rates," said MPO Fund. "We expect interest rates to remain low in the short term, given that the city has been running on abundant liquidity. However, if the United States Federal Reserve continues to increase interest rates, we believe banks will eventually follow suit and mortgage rates will increase, albeit at a gradual pace."
Gaming sector weak
In 2016, total receipts of the 10 gaming enterprises amounted to MOP229 billion (US$28.46 billion), down by 1.8% from a year earlier, according to the Statistics and Census Service (DSEC). However this was a sharp improvement from 2015´s 34.3% decline.
Likewise, total expenditure attributed to the gaming sector fell by 4.8% y-o-y to MOP96.93 billion (US$12.05 billion) in 2016.
With the completion of several large-scale tourism and gaming facilities in 2016, gross fixed capital formation of the gaming sector surged more than 170% y-o-y to MOP7.43 billion (US$923 million).
About 60% of Macau´s economy depends on the gaming industry, and another 11% on related sectors like hotels, shops, and restaurants, according to economics professor Ricardo Siu of the University of Macau.
However, tourist arrivals are surging
In July 2017, visitors on package tours increased 22.8% to 819,000 people from the same period last year, according to the DSEC. During the first seven months of 2017, package tour visitors were up by 12.4% to 4,596,000 people over the same period last year.
Package tour visitors in July 2017:
- From Mainland China: 669,000 people, up 25.6% y-o-y
- From Korea: 38,000 people, up 24.8% y-o-y
- From Taiwan: 42,000 people, up 4.8% y-o-y
Likewise, the number of guests in hotels and guesthouses rose by 15.6% y-o-y to 1,212,000 in July 2017, according to the DSEC. During the first seven months of 2017, guests surged 15.8% to 7,557,000 people from the same period last year.
Guests in hotels and guesthouses in July 2017:
- From Mainland China: 792,000 people, up 21.6% y-o-y
- From Korea: 49,000 people, up 96% y-o-y
- From Taiwan: 49,000, up 13.2% y-o-y
As of July 2017, there were 107 hotels & guesthouses operating in Macau. Over the same period, the number of guestrooms increased 15.3% y-o-y to 37,000, with 5-star hotel rooms accounting for more than 60%.
The average occupancy rate in hotels and guesthouses reached 90.4% in July 2017, up by 2.9 percentage points from a year earlier.
Macau´s economic growth is accelerating
Macau´s economy expanded by 11.5% in Q2 2017 from a year earlier, higher than the previous quarter´s 10.3% growth, thanks to strong private consumption and an increase in exports of services, according to the DSEC. During the first half of this year, the economy grew by a total of 10.9% from the same period last year.
During the first half of 2017:
- Exports of services surged 16% y-o-y, in which exports of gaming services and other tourism services increased by 15% and 21.5%, respectively
- Exports of goods rose by 5.5%
- Imports of goods rose by 3.8% while imports of services surged 13.8%
- Private consumption increased 2.5%
- Government expenditures increased slightly by 0.9%
- Investments increased 1.8%
The economy contracted by 2.1% in 2016, after shrinking by a whopping of 21.5% in 2015 and by 1.2% in 2014, after Macau´s main industry - gaming activities - took a major hit from China´s anti-corruption campaign. Macau´s economy grew by almost 17% per year from 2010 to 2013.
Macau´s economy is expected to expand by an average of 7.8% per year in 2017 and 2018, according to the Economist Intelligence Unit.
In July 2017, overall inflation stood at 1%, down from 1.1% in the previous month and 2.1% in the same period last year.
The general unemployment rate was 2% during the three months ending July 2017, down from 3.1% in the same period last year, according to DSEC. There were about 8,000 unemployed persons in this tiny special administrative region of China.