Real Estate Matters | Rising Real Estate Prices…Can Prices Be Controlled?

Juliet Risdon

Like most products and services, rental prices are influenced by basic and inescapable economic factors such as supply and demand. This ‘ebb and flow’ of supply meeting demand is of course one of the cornerstones of economics.

At it’s simplest level, an excess in the number of homes available and a shortage of people looking for somewhere to live should of course lead to competition amongst the supply, ultimately contributing to lower prices or higher quality offerings.

As we witness in Macau, there is of course a minimal amount of land and therefore a limited supply of apartments that can be constructed.

The population of Macau has almost doubled since 1990 from just under 340,000 to almost 650,000 by the end of this year. However, thanks to land reclamation, the physical size of Macau has increased by 75% in the same period, going from 17.4 sq km to the current 30.4 sq km.

The number of residential units available for occupancy in the middle of this year was slightly more than 217,000.

Records show that this number has increased by 40,000 over the last twelve years, in 2004 the number of residential units was just 177,000.

The statistics do not tell the whole story of course, but they are a good starting point for discussion.

The average apartment in Macau has 3 people living in it, which doesn’t seem to be an unreasonable number at all.

However, this does not take into account the number of apartments that are uninhabitable, derelict, vacant and just simply forgotten about.

If we use the 80/20 rule as a measure, Macau may well have more than 40,000 such apartments, and the number of actual apartments available drops down to just 175,000.

In this case, the number of occupants per apartments shoots up to more than 3.7 per apartment before we even start to consider the difference between low, medium and high end properties.

When we look at these figures and start projecting forwards, it’s not hard to see that there is a huge potential problem looming if Macau and its population continues to grow at the same rate.

The government are discussing rent control measures, but any measure introduced to artificially control rents is unfair on one of the parties involved. Both a landlord and tenant are dependent on each other to reach a mutually agreeable level for the rental price.

How would you feel as a tenant if the government made you pay an artificially high price to rent an apartment ? This of course is how an owner might feel when being told that he cannot rent an apartment for the market price, and must rent at a discount.

It’s not to say that landlords should be able to increase rents at the expense of tenants, but rather that the government should seek ways to influence the pricing of properties by using market forces.

Trying to use artificial measures and interfere with the market nearly always leads to unintended consequences, the biggest of which is the fear is that owners will simply deem the measures ‘too troublesome’ and refuse to rent out properties, further decreasing an already limited supply.

There are some potential solutions though, and that’s what we will look at next week.

* Figures expressed in MOP unless otherwise stated

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

info@JMLProperty.com