Property sluggish despite lifting of cooling measures

From left: Matt Kou, Oliver Tong and Mark Wong

Macau’s property market continues to face significant challenges, even as the broader economy shows signs of recovery.

According to Jones Lang LaSalle’s (JLL) mid-year market review, released yesterday, the lifting of government cooling measures has not led to the anticipated revitalization of the property sector.

The first half of 2024 saw home prices drop, as potential buyers faced increased borrowing costs.

JLL acknowledged that despite a notable surge in Macau’s gaming revenue, which rose by 41.9% year-on-year (YoY) to MOP 113.75 billion, nearing pre-pandemic levels, this economic rebound has not translated into a recovery for the property market.

The property market remains fragile due to high interest rates and a lack of new capital influx.

Moreover, tightened mortgage conditions and high borrowing costs for first-time buyers were primary factors contributing to the persistent decline in home prices.

Mark Wong, director of Value and Risk Advisory (JLL Macau), noted the market’s downturn has been deeper and longer than anticipated, leading to a cautious approach among investors.

At yesterday’s JLL press conference, Wong emphasized the challenges facing the market, stating, “Although all real estate demand management measures have been removed recently, high-interest rates continue to constrain short-term property investment returns, and transaction volumes have failed to pick up.”

Despite the removal of cooling measures, the government’s decision to lower the maximum loan-to-value (LTV) ratio for first-time buyers has exacerbated the situation, making it more difficult for these buyers to enter the market.

The residential sector’s transaction volumes fell 12.7% YoY, with only 172 presale homes recorded in the first half of 2024.

In response, JLL reported developers were adopting more conservative pricing strategies to stimulate sales, aligning new property prices with those in the secondary market.

JLL’s general manager in Macau and Zhuhai, Oliver Tong, added, “We saw that after the government reduced the proportion of cross-contract loans, many customers wanted to sell goods because they had a lot of inventory.”

The commercial real estate sector is similarly affected, with office rents declining 3.4% in the first half of the year.

Matt Kou, senior manager of Leasing at JLL, said limited expansion demand amongst offices has led to rising vacancies and further reductions in both rent and capital value.

Kou added, “In the future, I believe the rental value or purchase price of properties may not be good in the short term.”

The JLL Macau Index revealed that Grade A office rents in the Nam Van district fell 6.4% due to an influx of new supply, while the overall office vacancy rate climbed to 13.2%.

Retail sales have also taken a hit, shrinking 12.5% YoY to MOP20.71 billion in the first quarter.

The decline is attributed to shifting consumer habits and increasing competition from neighboring cities. JLL’s Retail Index indicated a 0.5% drop in rent for prime street shops, with capital values decreasing by 4.6%.

Last year, Tong said there was a polarization in Macau’s retail market. He noted high-end goods rose very quickly, with some mask products also selling well.

The realtor first saw a shift in the retail landscape for high-end consumption in the first half of this year. Tong noted that sales fell very quickly, and that even though tourist numbers had rebounded, consumption had not.

Despite the challenging real estate market, there are signs of recovery in other areas of society.

The improving employment market, with unemployment rates falling to 1.9% and median total income reaching a new high of MOP 18,000 in the first quarter, is one positive indicator.

Additionally, a rebound in tourism could eventually benefit the property market, as visitor arrivals surged 43.6% YoY.

Nadia Shaw

Residential Index: % Change since end of 2023