The market still under pressure due to Covid, interest rate hikes
According to JLL in its 2022 Macau Mid-year Property Review and forecast, Macau has been gradually back to normal with the new wave of COVID-19 pandemic that emerged in the middle of the year being brought under control. However, in the absence of favorable factors like border reopening, coupled with the potential interest rate hikes, Macau's property market will continue to be under pressure.
According to the DICJ statistics, Macau's gaming revenue recorded at MOP 26.27 billion in 1H2022, down 46.4% y-o-y. The gaming market ceased growth due to the pandemic and the issues with the VIP market. The revenue of the VIP market plunged by 61.3% y-o-y to MOP 6.83 billion in 1H2022, accounting for only 26.0% of the city's total gaming revenue.
Macau's GDP totaled MOP 54.27 billion in the first quarter of 2022, down 8.9% y-o-y. According to the statistics of the expenditure-based GDP, private consumption expenditure and government final consumption expenditure reduced by 2.7% and 2.0% y-o-y respectively. However, trade in goods boomed, with imports and exports of goods rising by 29.0% and 56.8% y-o-y respectively. The overall net exports fell by 35.4% y-o-y due to the contraction in exports of services. The fixed capital formation grew by 3.2% y-o-y, mainly driven by the increase in government investment.
According to the DSEC statistics, Macau's total visitor arrivals totaled approx. 3,465,000 in 1H2022, down 11.8% y-o-y. Visitors from Mainland China made up 90.3% of Macau's total visit arrivals, while the number of visitors visiting Macau under the Individual Traveler Scheme (ITS) accounted for about 28.3%. As of mid-2022, the total supply of hotel rooms in Macau recorded at 36,369, down 1,312 rooms or 3.5% from end 2021. The cumulative occupancy rate of hotel rooms in Macau fell to 37.5%, while the average length of stay of guests maintained at about 1.8 nights.
Ongoing outflow of expatriate employees from Macau's labor market was seen in all sectors in 2022. According to the DSEC statistics, the number of imported labor recorded at about 162,391 as of end June this year, a fall of 8,707 or about 5.1% from end 2021. The overall unemployment rate recorded at 3.7% while the underemployment rate recorded at about 4.1%. The overall median monthly income fell by 3.2% from end 2021 to MOP 15,300. The total resident deposit in Macau recorded at MOP 659.64 billion, down 1.2% from end 2021.
"A new wave of COVID-19 pandemic emerged in Macau and Zhuhai in late June this year. Thanks to the immediate actions and precautionary measures undertaken by the governments of the two cities, the situation was successfully brought under control. However, investors were not confident about the outlook of Macau's property market in view of the strict border control measures adopted by the city currently. Most casinos and hotels have made more conservative forecasts for their financial performance this year, expecting a modest recovery only next year. Factors such as the COVID-19 pandemic, hyperinflation, interest rate hikes and shortage of liquidity among real estate companies in Mainland China will continue to affect the economy in the short term, impeding the pace of recovery of the property market," says Mark Wong, Director of Valuation Advisory Services at JLL Macau.
According to the DSEC statistics, a total of 1,632 residential sales transactions were registered in 1H2022, down significantly 50.5% y-o-y. During the period, no new projects were launched. Investors and potential buyers tended to be cautious in view of the economic downturn and potential interest rate hikes. The volume of residential transactions shrank. During 1H2022, only 44 pre-sale transactions were recorded, accounting for only 2.7% of the overall residential transaction volume, a record low in recent years.
In 1H2022, a total of 3 projects providing 100 new residential units with a total GFA of about 10,372.67 sqm were issued with pre-sale permits. During the same period, the reconstruction of Sin Fong Garden was completed. Originally built in the 1990s, Sin Fong Garden was found to have structural issues and classified as a dangerous building in 2012, and started its reconstruction in late 2018. With a height of about 100 m, Sin Fong Garden provides a total of 144 residential units.
The capital values and rental values of residential properties continued to drop. In 1H2022, the rental values of high-end and mass-to-medium residential properties fell by 13.2% and 8.3% y-o-y respectively. The capital value of high-end and mass-to-medium residential properties fell by 8.2% and 7.6% y-o-y respectively, while yields of both recorded at 1.5%. Some landlords who were in urgent need of cash sold their premises at a discount of 20% lower than the market rate.
"The number of residential transactions in Macau fell to a historical low in 1H2022. Mortgage rates will be on the rise in the short term. Coupled with the high unemployment and underemployment rates, the residential property market will continue to be under pressure in 2H2022. Currently residential prices in general have dropped by about 10% compared with last year. If the economic downturn and epidemic continue, potentially a negative wealth effect may occur under the interest rate hike environment, leading to an increasing number of residential mortgages in negative equity. Consequently, a consumption downgrade may be a result, creating negative impacts to the economy again. The government should proactively implement measures to stabilize the property market to alleviate the impact on the overall economy.," comments Oliver Tong, General Manager at JLL Macau and Zhuhai.