Real Estate Matters | The Challenges Facing Macau What is it going to take to restore confidence?

Juliet Risdon is a Director of JML Property and a property investor.
Having established the company in 1994, JML Property offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.

Anyone living in this part of the world is familiar with the extraordinary pace of change that has become a trademark of Macau over the past ten years.
Macau residents (and by resident we mean ‘anyone living in Macau’) have seen an evolution that has been nothing short of spectacular, and of course it is mostly, if not completely, a product of the opening of the gaming licenses.
What lies ahead for Macau?
The new integrated resorts on the Cotai strip from Sands (The Parisian) and Wynn are due to open this year, whilst MGM and SJM are scheduled for some time in 2017.
Then there is the bridge linking Macau with Hong Kong and Guangdong, and something that we cant help feeling does not get as much attention as it should, the growth of the ‘MICE’ or convention business.
Sands alone will have 12,000+ rooms on the Cotai strip within 2016, and with critical mass achieved Macau has a golden opportunity to become the venue of choice for regional conventions, shows and exhibitions.
Overall, and despite the current slow down in gaming industry revenue, the long-term future for Macau looks positive. But Macau is facing some serious challenges, and these challenges will almost certainly affect property prices either directly or indirectly.
One of the most telling surveys recently was the exit poll of mainland Chinese tourists, asking thousands of visitors whether or not they will return to Macau. The result ? Approximately 1 person in 12 or just 8 percent of those asked said they would return.
When 92 percent of your customers don’t want to repeat the exercise, it does not take an economist to figure out that any business would be in trouble !
Over the coming weeks we will look at some issues that Macau must address and ask what can be done. If Macau is going to prosper long-­term and enjoy a healthy property market, hard questions have to be asked and hopefully answered.
It is worth bearing in mind that it’s easy to be critical, especially in hindsight when everything becomes 100 percent clear. Forecasting and solving issues proactively is far more difficult and goes mostly unnoticed since ‘problems’ are solved before they hit the radar of the general public.

Small Business Growth or ’diversification’
‘Diversification’ seems to be a difficult word to understand for a lot of people.
Is staging a sports event at a Casino ‘diversification’? No, it most certainly is NOT. This is ‘Vertical Integration’, another economic term for adding a supply chain to an existing business. In this case it is the supply of customers into the hotels and casinos.
Companies use vertical integration in all walks of life and there is nothing wrong with it. But it is important to understand the difference.
Diversification in Macau means creating services and products not directly dependent on or related to Casinos.
Make no mistake, diversification in Macau is almost impossible under the current circumstances. Why? A small business needs four things;
1. An entrepreneur to conceive, create and launch the business
2. Money to fund the business
3. A place to start the business
4. People to work in the business
Anyone who has ever tried to start a business knows how hard it is.
Want to start a restaurant in Macau? Well you may be confident that, as an award-winning chef, you stand a better chance than most. Now you have to find the money.
In other countries, go and talk with the bank. In Macau, the banks will not fund a new business. They already know what the outcome will be in 95 percent of the cases, so they don’t lend money to new business.
But, money is arguably relatively easy to solve in Macau, and credit where it’s due, the government do support small businesses financially.
Anyway, lets say that you find someone who has more money than sense, and likes your cooking. He agrees to put up some money.
Now the fun really starts. You need premises.
Rents are very expensive, and landlords know that once you have spent a small fortune fitting out the place, they have you over a barrel. Every renewal the rent is going up. In business school across the world, a rule of thumb is that rent should be a maximum of 10 percent of your revenue. Good luck.
If you overcome this hurdle, you still have the most difficult challenge. You need people. Where are they going to come from? The 1.7 percent unemployed? No. What about some work permits? Sure, how many Macau ID holders do you already employ?
The energy of the entrepreneur should be on the business. In Macau, it is fighting bureaucracy.

Possible Solutions
In no particular order;
1. Use public land to create a subsidized retail and commercial space to allow new business to launch and test for a finite period of time, two years for example. Business must move after the fixed period, and if it cant work in that period of time, there is no chance of it going further.
2. Spouse-dependent work permits. Macau has so few resources, why let those at its disposal go to waste? Secondary work permits for spouses would allow those people who are currently here going crazy, to work. Making the work permit on the primary permit will mean that the person cannot stay independently, but at least they can work whilst they are here.
3. Realize that poor service is a major reason for non-returning customers. When staff are not motivated to do a great job, the company and service levels both suffer. Over protection of jobs creates a dangerously indifferent workforce and service levels suffer. Instead, why not operate a dual tax and benefit system that heavily favours Macau ID holders and encourages employers to look for ID holders FIRST, but also makes it easier to employ work permit holders at a higher cost?

To be continued…

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