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.
We have explored four factors that influence the Macau property market over the past two weeks.
In the final part of this article we look at another three factors, and remind readers that Macau property prices are influenced by at least 7 variables and may potentially be affected by many more.
As a reminder, the more variables there are, the more complex the equation. The more complex the equation, the higher chance of inaccuracy.
In no particular order and carrying on from last week:
General / Global Economy
As we saw in 2008, the global economy can knock the wind out of the most aggressive property market in earth.
The banking industry is fundamental to the property market, and when banks tighten lending policies and investors stop making investments, the supply of capital dries up and affects the general sentiment.
Alternatively, aggressive lending tends to create growing confidence, and investors are eager to place funds where they see bigger returns.
There certainly seems to be a degree of turmoil in world markets right now, and there is speculation that the global economy is more ‘fragile’ when markets are linked closely with each other rather than operating independently. In other words, a downturn in part of the world triggers a downturn in another.
Will 2016 see another market decline similar to 2008 ? It is unlikely.
It would also be difficult to argue that all factors are in place for massive growth this year. Consequently the most likely outcome for 2016 is something closer to neutrality than sensationalism.
Interest Rates
Interest rates have been at an all time low for a long time. It is easy to discount this phenomenon and forget that loans are susceptible to rate fluctuations.
As interest rates rise and fall, so do loan repayments, and a rise in rates of 1% will increase payments of a 20 year mortgage loan on $1,000,000 by just under $6,800 per year.
In a typical example, someone owing $3,000,000 on property with a 20 year mortgage would experience an increase in interest payments alone of over $80,000 per year if interest rates returned to a more historical average of 7% than the current level of 3%.
The US has just had the first interest rate rise for almost one decade.
It’s not likely that there will be big rises this year, but it could be the start of slow creep upwards.
Purchasing & Lending Guidelines
In a combination of efforts between government and banks, guidelines on property loans and loan ratios make it easier or harder to speculate on property prices.
Simply put, it is easier to buy a property when the bank will loan you 90% of the property value than when they will only lend you 50%.
However, the obvious point here is that it only affects those people with limited cash reserves, allowing people who have an abundance of cash easier access to properties that may be on the market because of;
a) The decrease in competition / demand for property and
b) the corresponding difficulty of a person to obtain a loan they need even if they have the 50% of the purchase price at their disposal, but require the timely cooperation of the bank to be able to make a successful bid / purchase of the property.
Will banks change their policy this year ? If business is slow, they may be forced to relax lending guidelines and restrictions.
In conclusion, it is no wonder that property value predictions are really for the brave hearted folks.
They have to be blessed with a crystal ball allowing them to see all of these factors with absolute clarity, as well as the required intellect or computerized models to run the corresponding equation that calculates the sum of all of these factors with a high degree of accuracy.
They might also try their hand at weather forecasting as we have yet to find anyone that can tell us with any degree of certainty whether it will rain tomorrow or not.
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