Closure of satellite casinos alarms local businesses

Simon Sio

The impending closure of 11 satellite casinos and three slot machine halls in Macau has alarmed local businesses, with the District Development Promotion Association warning of significant property depreciation, while the Industry and Commerce Federation urged small- and medium-sized enterprises to unite and collaborate with the government to revitalize the local economy.

Confronting the reality of the satellite casino closures, Simon Sio, president of the District Development Promotion Association, anticipates a substantial short-term impact.

He highlights two key effects: first, the properties associated with those venues are likely to experience a significant decline in valuation due to the loss of income support; second, property owners nearby who invested based on the presence of the satellite casinos will also be adversely affected.

According to Sio, satellite venue operators and property owners are increasingly at risk of negative equity, particularly when their debt ratios are high.

Bank loans typically require a 30% down payment; for instance, when purchasing a property valued at HKD1 million, the remaining HKD700,000 must be financed through a loan.

If the property value declines to HKD500,000, the owner would need to pay an additional HKD150,000 to secure the bank’s loan. Before 2019, a 40% down payment combined with a 60% loan was considered a safe strategy. However, due to the sharp decline in property values in recent years, such owners must exercise caution in managing their debt to mitigate further financial risks.

“As operators and real estate investors, we are facing a serious problem,” Sio remarked in an interview with the Times yesterday. He noted that the presence of satellite venues has inflated property valuations beyond normal levels. Consequently, even properties that were previously considered fairly valued may now be at risk of becoming seriously negative assets.

Lei Cheok Kuan

The closure of the satellite venues not only devastates nearby businesses by driving away customers and lowering rents, but also forces property owners into a downward spiral of tenant turnover and reduced rental income, Sio stressed.

In light of the potential impact from the closure of the satellite casinos, Sio urged the government to implement measures that ensure both social and economic stability in its decision-making. He emphasized that this issue goes beyond supporting a specific group; it concerns the stability of society as a whole.

“While Macau may seem economically prosperous at first glance, with a steady influx of visitors and significant casino revenues, the government must thoroughly evaluate the underlying health of the economy to mitigate potential risks hidden beneath these superficial indicators,” he said.

Three local gaming companies have decided to stop operating 11 satellite casinos and three slot machine halls by the end of this year. This closure will particularly affect the ZAPE area in Macau, where six of the satellite casinos are located, leading to significant consequences for that region.

Putting emphasis on ZAPE, Sio pointed out the urgency for the government to take decisive action, particularly in the critical six-month transition period leading up to the closure.

“During this time, the government should clearly communicate its support policies aimed at transforming the local commercial environment to effectively address the impending challenges and ensure stability,” he stated, pointing out the potential negative impact of declining property prices on the overall economy, which could affect society as a whole and undermine public confidence.

Sio pointed out the need for the government to ensure that the area remains viable and attractive to both tourists and residents after the satellite venues close, encouraging spending across different districts to maintain a vibrant commercial environment.

While he acknowledged plans to beautify the ZAPE area and enhance local facilities, he cautioned, “This sounds simple, but it will be quite difficult to implement in practice.”

He stressed that all regions should be able to attract customers, warning against concentrating resources solely on one area, as this could lead to complaints and reduced foot traffic elsewhere.

“If visitor numbers can increase from 200,000 to 220,000 or 230,000, the overall market will expand, allowing everyone to benefit, even if individual shares decrease,” he said, emphasizing the need for the government to effectively strategize how to draw more tourists to ensure adequate economic support for all areas.

Reflecting on ZAPE’s prosperity before the return of gambling and the establishment of satellite venues, the area once featured outdoor dining without vehicle traffic, creating a relaxed atmosphere. He urged the government to learn from this past and transform ZAPE into a leisurely consumer environment, stressing the need for close communication with local community groups and businesses to develop a concrete plan that boosts confidence among residents and investors.

Time for SMEs to share their insights

ZAPE is home to numerous small- and medium-sized enterprises (SMEs), including pawn shops, gold shops, and restaurants, creating a vibrant mix of commercial activity. A telecom business operator near a satellite casino there told public broadcaster TDM yesterday that changing consumption patterns have made it challenging to operate physical stores.

In an interview with the Times yesterday, Lei Cheok Kuan, chairman of the Industry and Commerce Federation of the Macau Central and Southern District, emphasized that now is the time for SMEs to collaborate as satellite casinos close.

“I believe this is the ideal moment for SMEs to share their insights. We should combine our ideas and work together. In light of the economic downturn, it’s essential to analyze the changing consumption patterns of Generation Z. Businesses must consider the future of their products and how to appeal to new consumer groups,” he stated.

Lei believes that the Macau government must take a more proactive role in driving the district’s economy, stating, “This is not a minor issue.”

Simultaneously, he urged businesses to provide more feedback and approach the challenges with an open mind.

“Adhering to the law is non-negotiable; we must adapt to the environment and seek survival strategies. If anyone has ideas, we encourage brainstorming and seeking our advice. We are happy to relay these suggestions to the government. When faced with problems, we should focus on finding solutions rather than avoiding responsibility. While expressing frustrations is acceptable, what truly matters is taking action to achieve results,” he said.

Lei suggested that the government explore hosting large-scale events in ZAPE, particularly along the corridor from the Macau Science Museum to the Kun Iam Statue, “which would be ideal for concerts or music festivals to attract tourists.” He also proposed establishing a food street in the alleys surrounding the Plaza Restaurant.

“If events and concerts can be held together, it would add vibrancy, especially around the Guanyin statue at night, creating a pleasant atmosphere worth considering,” Lei stated.

However, he emphasized that the success of these plans depends on the inclusion of residents and business operators.