Macau used to be an enclave that people visited for a few days in order to gamble at casinos.
But since 2002, when the Macau government allowed foreign casino operators to set up shop, Las Vegas heavyweights like Sheldon Adelson and Steve Wynn have set in motion a radical real estate shake-up in the former Portuguese colony, an enclave just slightly bigger than Manhattan.
While the recently built casinos and their hotels remain big earners, they have also generated a secondary development boom, this time of high-end residential properties — which are sold to wealthy Chinese buyers with a penchant for gambling.
“Macau is an up-and-coming market, and for investors who know about the Las Vegas story, this is a hotspot,” said Gregory Ku, managing director of Jones Lang LaSalle Macau.
The result is, ironically, that the only city in China where casinos are legal is seeing its properties become something of a high-stakes gamble, as buyers pay ever-larger sums for residences, in effect betting that real estate will continue its meteoric rise.
“You are 99.9 percent likely to have made a profit if you have bought a property in Macau in the last two years; it just depends on how much,” said Ku. He noted that investors are gravitating toward Macau despite the soaring prices because property values remain significantly cheaper than those of other major cities in the region, including Hong Kong and Singapore.
Prices for high-end residential apartments have at least doubled in the last three years thanks to a booming economy fueled by the growing number of casinos and hotels. Presently, Macau has 28 casinos, which collectively posted revenue increases of 46 percent in 2007, to more than $3.1 billion, according to Colliers International.
The average price for a new condo has risen to about $1,060 per square foot, up from about $800 per square foot a year ago, according to a report by Jones Lang LaSalle.
Though developers have been working overtime to fuel the voracious appetite of buyers, approval of new sites for high-rises has been slow, said brokers, as the Macau government is keen to protect the peninsula’s colonial streetscapes, which have led to its designation as a UNESCO world heritage site.
“There is just very little in the luxury market, which is why every time a new property becomes available, it is sold out very quickly,” explained Johnny Lai, deputy general manager of Colliers International in Macau.
About 2,100 new units came online in 2007. There are about 25,000 more units, including roughly 7,500 high-end apartments, that are scheduled to come online by 2010. At the same time, demand should outpace supply, as a further 85,000 casino jobs are expected to be created by 2010.
To capitalize on the market’s upward momentum, some wealthy investors are making bulk purchases and choosing to flip some properties and lease out others. For example, one of Ku’s foreign clients bought more than 10 apartments in Macau; none of them were for his own use.
While the in-casino bettors may be counting on Macau to turn their fortunes overnight, in the property domain, players are said to be holding onto their properties in anticipation of bigger payoffs down the road.
Rico Kwok, Centaline Property Agency’s managing director in Macau, says only about 20 percent of investors have flipped their properties within a year of purchase. The vast majority, he says, are choosing to hold on for more than two years.
International investors currently comprise a third of property buyers in Macau, brokers say, with the remaining buyers from Hong Kong, China and Macau.
Voracious gamblers aren’t the only people driving up the residential market. By the end of 2007, the number of overseas workers in Macau had soared 28 percent in a year, to over 80,000. This influx has fostered a bullish rental market that has seen gains of 15 percent over the last two years as hotel and casino executives jostle for accommodation.
As a result of the strong demand, properties have sleeker designs than ever before, as well as more lavish finishes and a broad range of clubhouse facilities that were unheard of just a few years ago. “Prior to 2005, you would have been lucky to find a pool and gym in an apartment building,” said Lai.
Now, these offerings are part and parcel of what’s expected. The question is how elaborate and extensive they are.
In any other market environment, investors who had already doubled the return on their investment would be reaching for the champagne. Yet brokers are confident Macau’s rise will continue, with the opening of more hotels and casinos. Indeed, big players in the hospitality industry like Four Seasons, Shangri-La and a second phase of the Venetian are scheduled to open in the next few years.
“I don’t believe the market has peaked yet. With so many hotels and casinos opening in the next few years, there will be much more good news for the housing market,” said Ku. “If Sheldon Adelson’s vision turns out to be correct, Macau’s property market will climb to another level. House prices will one day be in line with Hong Kong.”
Andrea Li is a freelance reporter based in Hong Kong.