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.
The last ten years have seen explosive growth in the Macau property market.
Many people believe that property is the safest investment you can make. However, in a property ‘bubble’, that is no longer true.
Are we in a ‘bubble’ in Macau?
Rapidly increasing property prices have caused the real estate market to rise to price levels never before seen, even when adjusted for inflation.
The growth of Macau property has been fuelled by a huge change in the demand for rental apartments, whilst the level of supply in the market has not kept pace.
In addition, low interest rates have meant that buyers can enjoy some of the cheapest funding in history.
The psychology of any bubble market, whether we are talking about the stock market or the real estate market is known as ‘herd mentality’, where everyone follows the actions of the larger group.
The bubble continues to rise as long as there is a “greater fool” to buy at a higher price.
As there are less and less “greater fools” available or willing to buy property, the mania disappears.
During the upsurge in prices, there is usually a huge increase in supply as a direct response to the demand. When the hysteria passes, the excessive inventory that was built during the boom time causes prices to plummet.
This is true for all of the property bubbles and there are many historical examples.
Another reason that real estate bubbles ‘burst’ is that new homebuyers are no longer able to buy homes due to high prices and higher interest rates.
In a ‘bubble’ market, as prices rise the ‘bottom end’ of the market becomes increasingly expensive and first time homebuyers are priced out of the market.
A third reason that bubbles are created and then burst is that the psychology of investing changes, going from one of ‘greed’ to one of ‘fear’.
The positive return for so many investors over the last eight years fueled the market, and as more people saw this they decided to invest in real estate before they ‘missed out’.
So how does Macau stand today ?
Well, demand remains high and growing, whilst supply remains relatively short.
Even with the impending occupation of the Windsor Arch and One Oasis developments there is no ‘over-supply’ of new property on the market, and with government policy on approving new projects, it does not look as thought this will change anytime soon.
As for interest rates, these are being kept low globally in order to create growth. Once again, it does not look as though there is a major change on the horizon in this respect.
Finally, demand. As Macau grows, so does its need for people to fill the jobs being created. And these people have to live somewhere, and whether they buy or rent it has an effect on the market in the long term.
In conclusion, if you consider the pure growth numbers, it would be easy to deduce that there was a property bubble.
However, all the time there is a demand for housing, the supply of that housing is short, and interest rates are low, that trend may continue regardless of current high prices
Only if one or more of the factors above change, then there may be a market slowdown or ‘correction’.