• Macau property market to enter a new downcycle

    23 February 2022

    (23 February 2022, Macau and Hong Kong) The Macau property market showed signs of recovery in mid-2021, however, the emergence of a new wave of epidemics at the end of the year suppressed the pace of recovery.  The global economic and political uncertainties, coupled with the recent government crackdowns on illegal gambling and money laundering, are expected to cast a shadow over the outlook of the property market, according to JLL in its Macau Year-end Property Review 2021.

    According to the DICJ statistics, Macau’s gaming revenue recorded at MOP 86.86 billion in 2021, up 43.7% y-o-y.  The gaming industry recovered in the first three quarters of 2021 but slowed down in 4Q21 due to the epidemic conditions and the issues with the VIP market.  The revenue of the VIP market grew by 8.4% y-o-y to MOP 28.49 billion in 2021, accounting for 32.8% of the city’s total gaming revenue, albeit contracting to 25.7% in Q421.

    Macau’s GDP totalled MOP 177.23 billion in the first three quarters of 2021, up 27.5% y-o-y.  According to the statistics of the expenditure-based GDP, private consumption expenditure recorded growth of 9.0% y-o-y, and a trade surplus was recorded thanks to the recovery of the gaming industry in the middle of 2021.  The fixed capital formation and government final consumption expenditure contracted by 0.4% and 0.3% respectively.

    According to the DSEC statistics, Macau’s total visitor arrivals totalled approx. 7,706,000 in 2021, up 30.7% y-o-y.  With the lack of foreign visitor arrivals, visitors from Mainland China made up 91.4% of Macau’s total visit arrivals, while the number of visitors visited Macau under the Individual Traveller Scheme (ITS) accounted for about 34.8%.  As of end 2021, the total supply of hotel rooms in Macau recorded at 37,700, up 10.6% from end 2020, as some of the hotels that were previously designated for medical observation are now no longer used as a quarantine facility. The cumulative occupancy rate of hotel rooms in Macau rebounded to 50.4%, while the average length of stay of guests maintained at about 1.7 nights.

    From Left – Mark Wong, Director, Valuation Advisory Services; Oliver Tong, General Manager, Macau; Matt Kou, Senior Manager, Leasing

    Ongoing outflow of expatriate employees from Macau’s labour market was observed in 2021.  According to the DSEC statistics, the number of imported labour recorded at about 171,098 as of end December, a fall of 6,565 or about 3.7% from end 2020, mainly attributable to the decrease in imported labour in the domestic helper (-3,372), gaming (-2,557), and, hotel and catering (2,283) industries.  However, the number of imported labour increased significantly in the construction sector.  The overall unemployment rate recorded at 2.9% while the underemployment rate recorded at about 4.1%.  The overall median monthly income rose to MOP 15,800.  The total resident deposit in Macau recorded at MOP 667.65 billion as of end 2021, down 0.9% from end 2020.

    “In 2021, the total property transaction value in Macau recorded at about MOP 49.77 billion, down 2.6% y-o-y.  Both the total number and value of transactions reached a record low since the subprime mortgage lending crisis.  The repeated epidemics have delayed the pace of economic recovery for Macau and the issues related to junkets and “satellite casinos” will continue to occur in the year.  The property market is likely to remain gloomy in the near term.  Impacted by the current weak tourism and the crackdowns on illicit gaming operations, recently we have received lots of enquiries on valuation of hotel properties, mainly for investment and business strategy review and planning.  Some institutional investors are considering selling the hotel assets in their portfolios to raise funds for investing in the higher quality projects in the peripheral areas.  We expect hotels to become the focus among investors in 2022,” says Mark Wong, Director of Valuation Advisory Services at JLL Macau.

    Residential

    Due to the repeated epidemics, economic downturn and high unemployment rate in Macau in 2021, property demand decreased as most of the potential buyers tended to wait and see.  Coupled with the lack of new projects launched for sale, residential transactions were mainly concentrated in the secondary market.  The overall residential sales transaction volume shrank significantly.  According to the DSEC statistics, a total of 5,970 residential sales transactions were registered in 2021, down 6.6% y-o-y.  Presale transactions totalled 467, accounting for only 7.8% of the total residential sales volume, lower than the average levels recorded in the past.  The similar phenomenon is expected to continue in the future.

    In 2021, a total of 20 projects providing 244 new residential units with a total GFA of about 17,644.83 sqm were issued with pre-sale permits.  As of end June 2021, there were a total of 16,655 vacant units in Macau, representing an overall vacancy rate of about 7.0%.  The majority of the vacant units were larger size units.  The vacancy rate for units with saleable area of 150 sqm or above was 17.2%. 

    With expatriate workers continuing to leave the Macau labour market, a fall was seen in the rental of residential leasing properties.  In 2021, the rental values of high-end and mass-to-medium residential properties fell by 9.5% and 15.5% y-o-y respectively.  In terms of asset value, the capital value of high-end and mass-to-medium residential properties fell by 3.4% and 0.8% y-o-y respectively, while yields recorded at 1.6% and 1.5% respectively. 

    “The Macau government is expected to focus on implementing the housing ladder policy, and the future residential supply will be dominated by public housing.  Though setting up city master plans and increasing supply of private residential sites will help drive the long-term development of the property market, currently only 2,241 residential units are under construction or close to completion.  In the short to medium term, the new supply in the private residential market will remain limited, lending support to the capital values of the mass-to-medium residential properties.  However, with the uncertainties in the epidemic conditions, coupled with the economic downturn and interest rate hikes, the job outlook and income of the residents will be affected, resulting in a more cautious sentiment and weaker affordability for homebuyers.  In fact, buyers should evaluate their affordability before making a decision to purchase a property as the market will continue to be affected by many negative factors in the short run.  The government introduced measures to cool down the property market in 2010 and 2018 respectively. Now, as the residential sales transaction volume has already dropped by two-thirds comparing with that in 2010, it’s time to consider adjusting the relevant measures to make sure it’s in line with the current economic and market conditions,” comments Oliver Tong, General Manager at JLL Macau.

    Residential market – 2022 forecast

     Capital valuesRental values
    High-end residential▼5% – 10%▼5% – 10%
    Mass-to-medium residential▼5% – 10%▼5% – 10%

    Office

    In 2021, a total of 5,434 new incorporations registered in Macau, down 4.6% y-o-y.  Impacted by the epidemics and the wave of early termination of lease by tenants, the office leasing market was under pressure and the overall office vacancy rate rose to about 12%.  According to JLL Macau Office Index, the rental values for the overall office market and Grade A office market fell by 4.6% and 1.0% y-o-y respectively.  With the tight supply of Grade A offices, the impact on the leasing market was relatively mild. During the year, a total of about 35,000 sq ft of office space was taken up by tenants for business expansion, with demand mainly coming from the insurance and finance sectors.

    In the sales market, the number of office transactions fell by 6.4% y-o-y to a total of 146 in 2021, as shown by the DSEC statistics.  The capital values for the overall office market and Grade A offices fell by 4.4% and 3.0% y-o-y respectively.  The yields for the overall office market and Grade A office market recorded at 2.8% and 3.1% respectively.

    A new office building was completed in Taipa in end 2021, providing a total of 4,340 sqm of new office supply.  The government is planning to retreat from the private office market by 2024, with the recent completion and operation of a number of government buildings.  The office vacancy rate will continue to rise in the future, exerting pressure on office rentals.  The recent issues with the VIP market in the gaming sector have led to a contraction in demand for office space by the sector’s related tenants.  We expect the office demand to remain at the relatively low level,” says Matt Kou, Senior Manager, Leasing at JLL Macau.

    Office market – 2022 forecast

     Capital valuesRental values
    Overall▼5% – 10%▼5% – 10%
    Grade A office▼0% – 5%▼0% – 5%

    Retail

    According to the DSEC statistics, the total retail sales recorded at MOP 55.45 billion in the first three quarters of 2021, up 105.1% y-o-y.  The proportion of tourist spending in total retail sales rebounded to 20.8%.  The retails sales of most categories recorded growth except for Supermarkets that saw a fall of 8.3% y-o-y.  Benefited by the strong demand for luxury goods from the visitors from Mainland China, as Macau has become one of their most popular outbound travel destinations during the epidemic, the retail sales of Watches, Clocks & Jewellery, Leather Goods and Communication Equipment saw the biggest growth, up 267.8%, 248.9% and 231.5% y-o-y respectively.

    The retail property sales market recovered in 2021.  A total of 392 retail property transactions were recorded, up 15.0% y-o-y.  The majority of the transactions were from the retail units worth not more than MOP 50 million.  According to JLL Macau Retail Index, the capital values of top-tier retail properties fell by 16.0% y-o-y in 2021, while the retail rental value fell by 8.9% y-o-y.  As of end 2021, the yield of top-tier retail properties recorded at about 1.9%.

    “As the epidemic continues, the performance of retail submarkets varies.  In the tourist areas, rentals of some retail properties have dropped by 70% from the pre-epidemic levels, due to the high vacancy rate.  However, as tourists have generally adapted to the new way of travel, some retailers have taken up new space for expansion taking advantage of the significant fall in rentals.  Some landlords provided relief to their tenants by offering rent concessions and various incentive packages.  Some landlords who are relying on rental income for mortgage repayments have opted to leave their properties vacant when rentals have dropped to a very low level.  It’s because if the rental income of a property is too low, it may lead to a downward adjustment to the valuation of the property.  The loan borrower or the property owner may face insolvency and be forced to sell his/her property,” says Oliver Tong.

    Retail – 2022 forecast

     Capital valuesRental values
    Top-tier retail▼5% – 10%▼5% – 10%
    More Real Estate
    CBRE forecasts record year for Asia Pacific commercial real estate investment in 2022
    (20 January 2022, Hong Kong) CBRE foresees a record year for Asia Pacific commercial real estate investment in 2022, driven by steady economic growth and pent-up investor demand, according to the company’s 2022 Asia Pacific Real Estate Market Outlook. CBRE expects total investment volume this year to grow by at least 5% to more than US$150 billion, surpassing the previous pre-pandemic high [...]
    Asia Pacific property market to accelerate further in 2022 despite uncertainties, says JLL
    (4 January 2022, Hong Kong) Asia Pacific’s commercial property market will stabilize further in 2022 as investment and leasing activities are poised to accelerate. Global real estate consultant JLL (NYSE: JLL) expects 2022 investment volumes to be around US$200 billion or over 15% above the full-year estimate for 2021, which currently stands at US$162-169 billion. This forecast is despite [...]
    JLL reveals that wellbeing amenities are a top workplace priority for employees
    (9 November 2021, Hong Kong) More than three-quarters of employees today are struggling to find the time or energy to adopt healthy habits, and employers who fail to address that may risk losing talent; impacting their organisation’s overall performance. This is according to JLL’s How Regenerative Workplaces Can Restore Employee Wellbeing report. The global real estate consultancy [...]
    Knight Frank launches Prime Global Forecast
    Miami on top in 2022 with prime price growth of 10% forecast Prime Global Forecast for 2021 & 2022 Highlights: • Miami leads the forecast for 2022 with price growth of 10%• Sydney is in second place with prices expected to rise 9% in 2022• Los Angeles (8%), Auckland (7%) and London (7%) complete the top five. For Auckland 7% represents a marked slowdown, for London it will be the [...]
    JLL: 60% of Hong Kong employees believe offices can be instrumental in reducing carbon emissions
    (25 October 2021, Hong Kong) About 60% of employees in Hong Kong believe the office can be highly impactful in reducing carbon emissions, according to JLL (NYSE: JLL). The firm is strongly of the opinion that it’s time for business leaders in Hong Kong to engage with employees and achieve carbon reduction in the workplace, with more than four in ten (43%) employees expressing a desire [...]
    Asian capital backs launch of Savills IM contrarian UK retail park strategy
    (12 October 2021, Singapore / Hong Kong) Savills Investment Management (Savills IM), the international real estate investment manager, has launched a UK retail park strategy to capitalise on the strong income-producing characteristics of the UK retail parks sector with a target capital raise of £360m (US$500m). Straits Real Estate, the real estate investment subsidiary of The Straits Trading [...]
    Mid-sized flats outperform the market after lending rules loosen
    (7 October 2021,Hong Kong) Prices of Class B and Class C residential flats (saleable area between 430 and 1,075 sq ft) have outperformed the housing market in the past 21 months after the government raised the mortgage entitlements for borrowers, according to JLL’s Hong Kong Residential Sales Market Monitor released today. Chief Executive Carrie Lam relaxed the ceiling on mortgage [...]
    Proptech startup funding on track to break real estate industry records in 2021
    (4 October 2021, Hong Kong) The number of real estate technology startups has increased 300% over the past decade, seizing the opportunity to address the industry’s biggest challenges through technology. Data released by JLL (NYSE: JLL) suggests that opportunity continues to abound in the sector’s startup landscape, with over US$9.7 billion of funding activity in the first half of 2021, [...]
    Business centre expansion and higher demand support office leasing
    (23 September 2021, Hong Kong) Net absorption in the overall office market continued to decrease to -10,900 sq ft in August. There were still some corporate downsizing activities due to the pandemic but those were largely offset by the upgrading demand and expansion of the flexible office space sector, according to JLL’s latest Hong Kong Property Market Monitor released today. The [...]