Insight | Non-interventionism is a poor excuse

Paulo Barbosa

1. The lack of control for rental increases – both for shops and for residential buildings – remains a problem. Although there has been a slowdown in the rental market, the situation will likely worsen in 2016, with the opening of several huge casino-­resorts that demand the import of thousands of workers. Supply won’t meet demand and inflation will persist – but until when?
Lawyers Pedro Cortês and Marta Mourão recently published an article on the website of the International Law Office analyzing the local market. They wrote: “The lack of restrictions in place to prevent landlords from increasing rent has led to situations where rent has been increased by 50% or more, leaving tenants with no alternative other than to refuse such rent and search for a new place to live. Without prejudice to contractual freedom and the right of parties to freely establish contractual conditions, there should arguably be a rule to cap rent increases (e.g. according to the rate of inflation) in order to allow tenants to keep living in the same place without having to move each year.”
Another local lawyer, Sérgio de Almeida Correia, published last week a column in the newspaper Hoje Macau stating that, “real estate brokerage in Macau, as it’s currently practiced, is only a way to inflate the market and contribute to the speculative and uncontrolled prices [of rent]. That is what justifies the mushrooming of new real estate agencies and franchising outlets.” Still, according to him, this results in pressure on tenants and the extinction of traditional businesses.
Meanwhile, the government turns a blind eye and refuses to introduce legislation to control rents, on the pretext that it would be interfering with the free market.
The non-interventionist justification is poor, especially in a region where authorities tend to intervene in issues that affect companies and individuals. Assistant professor of finance at Stony Brook University and freelance writer Noah Smith explained recently on Bloomberg how, in some cases, what he calls “crony-capitalist policy” is similar to government non-intervention: “For example, when coal-burning power plants blow pollution into the air, the government should tax them in order to make up for the social harm they cause. If the government doesn’t tax them because of the strength of the local lobby, that’s true crony capitalism, even though it looks like the government is doing nothing.”
If the MSAR government doesn’t want to be accused of favoring crony capitalism, then it should understand that the current rental situation is creating social harm, with small businesses closing and people living in unfavourable conditions, with subdivided flats getting smaller and rents going up.

2.  I follow with interest the developments in  neighboring Hengqin island, because I think that its connection to Macau is crucial for the future. The latest announcement made by the Hengqin New Area’s director-general Niu Jing must come as a disappointment to Macau. After clear indications that all of locally registered vehicles could be driven in Hengqin, he now hinted that those who have invested in the new area will have priority access when using their Macau vehicles to enter and drive around the island.
If confirmed – the rules should be announced this month – this is a completely different arrangement, since only local residents who invest in the mainland will be able to drive in Hengqin. The prospects for those who invest in businesses or housing are different.  The size of clientele for shops in Hengqin will not be the same if most local cars can’t be driven there. And if a resident buys a house in Hengqin, will the friend he invited for dinner be able to drive there?
Of course there are traffic concerns that must be considered, but if I were a local investor in Hengqin, I would feel defrauded by Niu Jing’s announcement. It simply doesn’t match previous statements and ultimately changes the rules of the game. And it makes people wonder if, in spite of the cooperation pacts, there are forces on the Zhuhai side that wish to contain Macau’s expansion to Hengqin.