The many housing projects owned by the public sector, planned and already undergoing construction, are likely to have an impact on the private market but only in terms of perception, and will not be a direct competitor to the sector, Oliver Tong, general manager for Macau and Zhuhai and, Head of Retail for Hong Kong of real estate investment company JLL told the Times.
Tong was speaking on the sidelines of a press conference organized by JLL Macau on the 2022 Macau Year-end Property Market Review and Forecast.
Questioned by the Times on the perceived and expected impacts of the numerous public housing projects, particularly on the sandwich-class housing, he said, “many projects are coming and we are talking about a huge amount of supply that will be around 35,000 units. However, we don’t have a very clear timeline [of] when it’s going to be launched so it takes time to observe,” adding, “I don’t think it is good for the private market in terms of value and leasing because, in people’s perception, they think they will have more options at a much cheaper rate when compared to the private market. It is very tough to say right now but I am sure there will be an impact.”
Such a perceived impact that would mainly influence the value and leases of the private sector is nonetheless seen as less influential in terms of direct competition, with Tong saying that sandwich-class housing would not directly compete with private housing.
“Macau’s market is very unique. I don’t think [the sandwich-class housing] will be a direct competitor because most of the residents would love to own properties. [This new housing type] will just create the perception that they will have more options [choices] but eventually, I think that if they have the opportunity they [would] prefer the private market,” he remarked.
After 2022 was considered a “tragedy” for the property market with transactions on residential property to drop by 50.6% year-on-year, JLL forecasts that in 2023 the Macau property market is expected to pick up with more residential leasing transactions, in light of the reopening of the borders.
However, taking into account the rising interest rates on loans and the issues related to unemployment and underemployment rates which will not be immediately tackled, it is not expected that the market will see a major recovery this year, with JLL forecasting capital values for high-end residential to remain stable, while growth up to 5% is expected on the mass-to-medium residential segment.
As for rental values, it is forecasted that high-end could reach some 5% up while the mass-to-medium segment could see a 5 to 10% increment.
‘Market cooling measures’ not suitable
For JLL the current “market cooling measures” being applied by the government, dating back to 2010 and 2018, were not effective, and are now contributing to additional difficulties in the property market, which is struggling to recover from the pandemic.
“When the cooling measures were launched, I don’t think anyone on the planet predicted [something like] Covid and the related impacts. Back in the day I believe it was necessary to have some cooling measures but now the world is very different and in terms of the property market we are at a very low level and I believe it can pose a risk if this market decreases too much as it will hurt everyone’s pockets,” Tong said.
“I think it is time to, at least, reevaluate these measures. We are not suggesting to remove all of them but we believe it is the right time to review and evaluate any potential easing,” JLL’s General Manager for Macau and Zhuhai noted.
Among these measures are restrictions related to the loan-to-value (LTV) ceiling that reduced the percentage of the loan that buyers can obtain from financial institutions (via mortgages) for the acquisition of property.
“I think it’s not [just] about transaction volume and investment. I think it affects the quality of life,” Tong said, explaining that young couples who acquired a studio or 1-bedroom apartment when they start their married life now cannot find a way to move to a bigger apartment as the ceiling for the LTV is placed at 50%, which requires home buyers to have a very large down payment. This required down payment could easily reach HKD4 to 5 million, making it impossible for growing families to upsize their homes.
“Recently, the mainland has gradually relaxed the restrictions on real estate in some cities, and at the same time were urged to provide more financing support for the systemically important real estate companies. Though the pandemic in Macau has been under control and borders have reopened, it is crucial to implement appropriate measures to help alleviate the cash flow pressures faced by the small and medium enterprises SMEs, which in turn will help boost the local economy,” added Tong.
Office spaces only segment not expected to grow
The only property segment in which JLL does not forecast any growth is related to office spaces.
In contrast to residential and also retail, which on top-tier spaces is expected to grow up to 5% in capital value and between 10 to 15% in rental value, the office segment is expected to remain stable in 2023.
“Macau’s office leasing market was very weak with the rising vacancy rate in 2022 as the local economy was badly hit by the pandemic.
Government authorities are also gradually moving out of their existing offices that were rented from the private market,” Matt Kou, senior manager for Leasing at JLL Macau said, adding that although the activity is resuming as well as the influx of tourists, due to the fact that the government is said to be building its own building in NAPE area to host several services that are current lodged in private office buildings, it is expected that the overall vacancy rate will remain high.
“Vacancy rates of offices in NAPE district remains high; Grade A offices in Nam Van district are more resilient but the office space available for lease in the Treasure Island Resort World development will increase the Grade A office supply in the area,” Kou said, adding that the exiting of government services from Vicky Plaza in Rua do Campo at the end of 2022 also contributed to more prime spaces in the city center.
Nonetheless, JLL says that such a space is in demand and already achieved an occupancy rate of 50%.
Still another co-working space in Nantong Commercial Building expected to start operating mid this year will create new competition in the Macau office market, which fell by 11.2% in 2022.
