Property market falls; residential sector records ‘historic low’

The city’s property market will remain under pressure from adverse factors such as continued border closures, coupled with potential interest rate hikes, according to realtor JLL.

The new wave of Covid-19 in mid-June led to partial lockdowns, shutting down non-essential businesses and closing Macau to tourists, thereby hampering the city’s gradual recovery. 

In its 2022 Macau Mid-year Property Review and forecast, the realtor noted that “investors were not confident about the outlook of Macau’s property market in view of the strict border control measures adopted by the city currently.”

“Factors such as the COVID-19 pandemic, hyperinflation, interest rate hikes and shortage of liquidity among real estate companies in mainland China will continue to affect the economy in the short term, impeding the pace of recovery of the property market,” says Mark Wong, director of Valuation Advisory Services at JLL Macau.

Residential sector at historic low

During the first half of the year, official data recorded a total of 1,632 residential sales transactions, down a significant 50.5% year-on-year over the period. No new projects were launched.  

For JLL, the city’s residential property sector “fell to a historic low.”

Only 44 pre-sale transactions were recorded for the first six months of the year, accounting for only 2.7% of the overall residential transaction volume: a record low.

“Currently, residential prices in general have dropped by about 10% compared with last year.  If the economic downturn and the epidemic continue, potentially a negative wealth effect may occur under the interest rate hike environment, leading to an increasing number of residential mortgages in negative equity,” comments Oliver Tong, General Manager at JLL Macau and Zhuhai.

Meanwhile, the capital value of high-end and mass-to-medium residential properties fell by 8.2% and 7.6% y-o-y respectively, while yields from both categories were recorded at 1.5%.  Some landlords who were in urgent need of cash sold their premises at a discount of 20% lower than the market rate, according to JLL.

Retail units not over MOP20 million

During the first half of the year, a total of 156 retail property sales transactions were recorded, down 18.3% year-on-year. The transactions were mainly concentrated in retail units worth less than MOP20 million. According to JLL Macau Retail Index, the capital values of top-tier retail properties fell by 16.5% y-o-y in in the first half while the retail rental value fell by 16.4% y-o-y.

 According to the real estate firm, the current retail market remains weak and the market is still worried that the epidemic will return.  

During the pandemic, the government allocated MOP10 billion to fund alleviation programs for citizens and businesses affected by the outbreak.  JLL noted that most of the landlords were reluctant to provide rent relief to their tenants, which may be due to the fact that “landlords have also started facing pressure due to the weak retail market.”

VIP market woes reduce demand for office space

Hobbled by the pandemic crisis, and the recent turbulence in the VIP gaming market, JLL noted in the report that the demand for office space has contracted.  

According to Matt Kou, senior manager, Markets at JLL Macau, the vacancy rate of the local office market will continue to increase with the government set to gradually retreat from the private office market.

Also, “due to the tight border control measures adopted by Macau, new leasing demand from foreign companies has been weak, with only a few insurance companies looking for space to expand,” says Kou.

With the lack of new supply, the occupancy rates of Grade A office buildings have remained “relatively stable.”