Real Estate Matters | A simple analytic tool for property investments – take A RIDE!

Juliet Risdon

Buying a property is exciting, but it is an investment that requires sound information and careful analysis. If you are not sure where to begin, it at times be overwhelming and lead you to make decisions based on your emotions and ‘gut feel’. Although these are not things that can be altogether ignored, if you are buying purely as an investment more focus should be put on the numbers and conditions of the investment.

I would like to introduce a simple macro-level tool called taking ‘A RIDE’ which you can use to determine whether the timing and the market you are considering investing in is right for you.

A – Actual

When it comes to property investing, everybody and their uncle has an opinion that they would like to share. Although you can listen to other people’s advice and take them as reference to gauge the general sentiment of the market, you should always refer to actual data and information instead of opinions to make your final investment decision. If it is not supported by hard data, even newspaper articles (yes, even this one!) should be taken with a grain of salt, and you should never shy away from putting on your thinking hat and doing your own critical analysis.

So where can you get some actual data in Macau? Here are some options:

1. www.dsec.gov.mo – Statistics and Census Service Macau (DSEC)

2. Recent property transaction data from reputable local magazines and newspapers – not opinion pieces!

3. Property registration offices – In Macau detailed property information is publically available and can be obtained at a small fee

R – Ratio

The price-to-income ratio is basically the average property price divided by the average annual salary. This is a general indication of how affordable the property is and affects the demand side of the equation which we will discuss a bit later. As you can imagine, the ratio tends to be very high in Macau in comparison to some foreign markets but nonetheless the market stays relatively active due to various other economic factors.

I – Interest Rates

It’s no surprise that the structure and amount of mortgage due has a large impact on the feasibility and potential of a property investment. We have been experiencing extremely low levels of interest rates globally in recent years which many investors have rightly leveraged to their advantage. Under these circumstances borrowing from banks is usually quite straight forward, but when rates are higher as they have been in the past investors tend to consider more creative ways of financing or simply go to a different market with cheaper rates to borrow money. But while doing this it is important to also consider the currency exchange rates and fees.

D – Demand & Supply

Going back to basic economics, demand and supply are one of the most important factors to consider in investment strategy. In a small city with limited geographical space like Macau, the demand side tends to move more dramatically as we’ve seen since 2010 but the supply side is more static, with tight government regulations and licensing protocols. During the first seven months of 2017, residential building permits issued fell by 14% from the same period last year while completions increased 13.5 times over the same period.

E – Economy

The last factor, Economy, is the broadest consideration of all but one that cannot be ignored. This includes any demographic shifts, changes in investment or legislation, and the general health of the economy measured by GDP and GNP. Macro political and economic factors must also be taken into account such as Beijing’s VISA policy for tourists which we’ve seen to significantly impact the real estate sector.

Although not a comprehensive model, taking ‘A RIDE’ will help orient you when first starting to consider your property investment and provide a framework which you can work with. I hope this article has been useful to you, and if you would like to discuss investment opportunities in Macau please don’t hesitate to get in touch.

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