Slump spreading from gambling tables to property market

Residential buildings stand in Macau

Macau’s six-year lucky streak has come to an end. That’s become evident not just at the baccarat tables but at real estate agencies, too. After more than quintupling over six years, residential prices are heading for their first year of declines since 2008, tracking a gambling revenue slump in the world’s largest casino hub. Home prices may drop 15 percent this year, real estate broker Jones Lang LaSalle Inc. forecasts.
Homeowners – mostly local residents who had been enriched by Macau’s casino boom – have been selling properties at lower prices as the drying up of high-
stakes gambling ripple through the city’s economy. Residential prices will stay under pressure as gaming revenue shows few signs of recovery, falling for the 12th straight month in May.
“We don’t see any upturn in Macau’s gaming industry in the near term, so I don’t see residential prices going back up,” said Gregory Ku, managing director for JLL in Macau. “Most economic figures are dropping to various degrees.”
Transaction volumes fell in the first quarter to the lowest in six years, according to Macau’s statistics and census bureau. Luxury residential values have been the hardest hit, dropping 13.4 percent this year, almost double the pace of declines for mass-market homes.
For example, prices fell as much as 26 percent at One Central Residences, high-end serviced apartments located next to casinos owned by MGM China Holdings Ltd. and Wynn Macau Ltd., according to Franco Liu, Macau head of Savills Plc.
“Those in the casino industry are concentrated in the luxury home segment,” Liu said. “They’ve made lots of money in the past and spent it on properties or cars. These past few months, the drop is more significant because they’re offloading some of their investments.”
China President Xi Jinping’s drive to eradicate corruption and a slowing economy has kept high rollers away, dragging down the city’s economic output 24.5 percent in the first quarter.
Gross gaming revenue in June may drop as much as 38 percent from a year earlier, which would mark the worst month in five years, JPMorgan Chase & Co. analyst DS Kim said in a June 23 note. For the full year, gaming receipts are expected to slump by about a fifth.
Macau’s low unemployment rate and strong incomes will likely help put a floor under price declines, Savills’s Liu said. The city’s jobless rate has stood at a record low of 1.7 percent for more than a year, one of the lowest in Asia. Gross domestic product per capita ranks fourth globally behind Luxembourg, Norway and Qatar, according to The World Bank.
The home market is dominated by Macau residents, with non- local buyers making up just 2 percent of total transactions last year, according to Savills. That compares with mainland Chinese and foreigners accounting for 13 percent of purchases in 2011 amid the casino boom and before the government imposed extra taxes to rein in home prices.
Investors are returning with the latest sale of Shun Tak Holdings Ltd.’s Nova Park, according to Midland Holdings Ltd. The Hong Kong-based developer is luring buyers with a plan that allows them to pay for the apartments over 28 months, including a 25 percent down payment.
Tom Ashworth, principal of Sniper Capital Ltd., expects housing prices to recover next year as new resorts begin to open, drawing more visitors and bringing in more foreign workers. Sniper Capital manages London-listed Macau Property Opportunities Fund Ltd., which has about USD550 million of assets in the city, including luxury residence The Fountainside.
“The current pullback is healthy and welcomed,” Ashworth said. “Long-term drivers of property values – population growth, rising incomes, scarcity of land and a tight housing supply – remain firmly in place.”
Whether prices rebound next year might ultimately depend on Xi’s determination to root out graft and curb ostentatious display of wealth by officials.
“No one is predicting casino revenue will rebound and rise in the short term,” Liu of Savills said. “And I can’t see President Xi will stop the anti-corruption campaign for at least the rest of the year.” Michelle Yun, Bloomberg