Real Estate Matters | The dirtiest word in Macau; Diversification The impossible task…

Juliet Risdon

We published an article in February this year that touched on the issue of diversification and what it means to Macau. This article expands on the original, which at the time was one section of a four part series.
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 ‘people living in Macau’) have seen an evolution that has been nothing short of spectacular, and it is mostly of course, if not completely, a product of the opening of the gaming licenses.

So what can we expect over the next 10 years?
The new Wynn Palace has opened within the last two weeks, and the Sands ‘Parisian’ resort is scheduled to open later this month.
MGM and SJM integrated resorts are expected to open sometime in 2017.

An opportunity to diversify?
Overall, and despite the slow down in gaming industry revenue, the long-term future for Macau looks positive.
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.
But Macau faces some serious challenges, and these challenges will almost certainly affect property prices either directly or indirectly.
One of the most telling surveys was the exit poll of mainland Chinese tourists earlier this year, asking thousands of visitors whether or not they will return to Macau.
The result? Approximately 1 person in 12 or just 8% of those asked said they would return.
When 92% 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 !

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? In the original article we pointed out that a small business needs 4 things. In fact we have been forced to add a 5th point to this list;

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
5. The ability to anticipate bureaucratic government requirements

Continued next week…

Juliet Risdon is a Director of JML Property and a property investor.
Having been established 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.

www.JMLProperty.com
[email protected]