JLL: Macau's removal of cooling measures fails to halt home price decline

MACAU and HONG KONG, 24 July 2024 – Despite the removal of cooling measures, the housing market continued to experience price decline in the first half of 2024 as it faces a lack of liquidity/new capital, largely due to tightened mortgages for first-time buyers, according to JLL's Macau mid-year 2024 market review released today. Retail and commercial leasing markets are deteriorating, and the investment market is under pressure due to high interest rates, resulting in falling rents and prices. To mitigate this, the government should consider policy adjustments to support the overall property market.

Data from DICJ show Macau’s gaming revenue in the first half of 2024 grew 41.9% year-on-year (y-o-y) to MOP 113.75 billion, returning to about 80% of pre-pandemic levels. The gross revenue generated from VIP junkets continued to improve in the first quarter, increasing by 67.9% y-o-y to MOP 14.38 billion, accounting for approximately 25.1% of the overall market. 

The GDP of Macau in the first quarter grew 25.7% y-o-y to MOP 78.13 billion. The increase, as per the GDP calculated on an expenditure basis, was mainly driven by the exports of goods, fixed capital formation, and private consumption expenditure, which rose by 23.9%, 12.2%, and 10.9%, respectively. However, government final consumption expenditure fell 20.7% y-o-y. Meanwhile, household expenditure outside Macau surged by 23.1% y-o-y to MOP 3.29 billion.

According to Macao Government Tourism Office, the visitor arrivals to Macau in the first half of 2024 surged 43.6% y-o-y to about 16.729 million. Data from DSEC statistics show that mainland Chinese tourists accounted for 69.8% of the total visitor arrivals, while tourists from Hong Kong made up 21.0%. Overseas arrivals also increased significantly. As at the end of May, Macau had a hotel room supply of 46,908, an increase of 244 rooms compared to the end of last year, representing a 0.5% increase. The cumulative hotel occupancy rate was 84.5%, with an average stay of approximately 1.7 nights.

Macau's employment market continued to improve this year. Figures from the DSEC show that the overall unemployment rate fell to 1.9% and the underemployment rate dropped to 1.4%, returning to pre-pandemic levels. The number of expatriate employees increased by 2.3% to 180,777, a rise of 4,116 compared to the end of 2023. In terms of income and savings, Macau's median total income reached a new high of MOP 18,000 in the first quarter, up by 2.9% compared to the end of 2023. As at the end of May, local residents' deposits amounted to approximately MOP 735.09 billion, up by 4.2% compared to the end of 2023.

Mark Wong, Director of Value and Risk Advisory at JLL in Macau, said: "Although all real estate demand management measures have been removed recently, high-interest rates continue to constrain short-term property investment returns, and transaction volumes have failed to pick up. Also, some investors who entered the market during a perceived bottoming period found that the downward cycle was deeper and longer than expected. Given that interest rates in Macau are expected to remain flat throughout the year, we believe investors will maintain a cautious approach towards entering the market."

Data from DSF show that the housing market transaction volume decreased by 12.7% y-o-y in the first half of the year, whilst the presale home were recorded 172 units during the same period. Following the launch of 'The Zenith' in Taipa, other developers have shown increased activity in launching new projects such as 'YOHO Twins', 'Waterfront Duet' and 'Le Chun Fok'. To boost inventory sales, developers have adopted a conservative pricing strategy for new properties, aligning them closely with secondary market prices.

In the first half of 2024, two projects were issued pre-sale permits, offering 2,072 new homes with a total gross floor area of 238,505 sqm, mainly on the Macau Peninsula.

The residential leasing market continues to be bolstered by strong demand for rental properties from expatriate employees, with the introduction of new projects offering rental incentives leading to an increase in the supply of rental properties in the market. According to JLL Macau Property Index, rents for luxury residences rose by 0.3% compared to the end of last year, while rents for mass housing increased by 7.4%. However, the performance of assets is trending in the opposite direction amid developers lowering the asking prices of new projects. Prices of luxury and mass residential dropped 4.5% and 3.5%, respectively, in the first half of the year, while investment yields climbed 1.8% and 2.0%, respectively.

Oliver Tong, General Manager of JLL in Macau and Zhuhai, said: "Macau's real estate market experienced significant policy changes this year, including stamp duty reductions, easing luxury property mortgage ratios, and the recent removal of cooling measures. While these actions could potentially restore home sales to healthy levels, they are unlikely to drive home prices higher in the current challenging economic environment. In fact, the home prices correction was exacerbated following the government's decision to lower the maximum loan-to-value (LTV) for first-time buyers, coupled with price cuts in the primary market. Despite the extension of the interest-only repayment option until the year end, Macau's property loan delinquency rate rose to 4.1% in May, a multi-year high. While the market has welcomed the removal of cooling measures, the impact of reducing the down payment mortgage requirement for first-time buyers has been more significant. The government's complex policy changes have further stressed the weak housing market, making it difficult for the market to adapt."

Macau Residential Index – % Change since the end of 2023

In the first half of the year, Macau saw the registration of 1,853 new companies, down 14.5% y-o-y. Amidst a soft business sentiment, the office market remained in a downturn. JLL Macau Office Index shows rents of overall offices dropped 3.4% in the first half of the year. Specifically, Grade A office rents in Nam Van district fell 6.4% due to an influx of new office supply. According to the DSEC statistics, the office vacancy rate rose to 13.2% in the first quarter of the year.

In the sales market, the combination of a rising vacancy rate and high interest rates has brought the capital values of offices back to levels last seen a decade ago. JLL Macau Office Index shows the capital values of overall and Grade A offices dropped 8.3% and 5.2%, respectively, in the first half of the year. Meanwhile, the investment yields for overall and Grade A offices were 3.0% and 3.1%, respectively.

Matt Kou, Senior Manager of Leasing at JLL, said: "Due to limited new expansionary demand, the vacancy rate of offices has continued to increase, resulting in further reductions in both rents and capital values. Given the government plans to build several new government office buildings, the office leasing market will continue to face pressure in the near term. Office prices have seen a significant drop, with the prices of some office units even falling below their existing construction costs. Considering cases of government institutions in nearby cities such as Hong Kong and Shenzhen acquiring properties in the private market, the Macau government should consider buying suitable office space in core areas for their offices. This would be more efficient than constructing their own buildings and avoiding relocation inconveniences for the residents and business disruptions, while achieving environmental benefits."

Macau Office Index – % Change since the end of 2023

Retail sales shrank by 12.5% y-o-y to MOP 20.71 billion in the first quarter of the year due to weakening consumption, changing tourist spending habits and the rise of similar services and products being offered in neighbouring cities. Data from the DSEC showed that sales of leather goods, department store items, communication devices, home appliances, and watches & jewellery all recorded double-digit declines. In contrast, Chinese food products saw a significant y-o-y increase of 24.2%.

The market is witnessing a surge in the release of destressed assets for sale, including many first-tier retail properties in tourist and neighbourhood districts. JLL Macau Retail Index shows that rents for prime street shops dipped by 0.5% in the first half of the year compared to the end of last year, with capital values dropping 4.6% in the same period. The investment yield for prime street shops hovered around 2.3% as at the middle of 2024.

"The leasing activities of retail shops in tourist districts turned active following Macau's ongoing tourism recovery. However, the recovery of Macau's retail market has been impeded by weakening domestic consumption and strong northbound travel. Shops in neighbourhood areas have borne the brunt of this impact, with the shopping behaviours of local residents and outbound tourists having undergone significant changes. Coupled with the increasing competition from neighbouring cities, Macau's retailers need to innovate and strike a new balance, enhancing the quality of their products and services to attract and retain customers," Tong added.

Macau Retail Index – % Change since the end of 2023

_{(left to right) Matt Kou, senior manager of leasing, Oliver Tong, General Manager, Mark Wong, Director of value and risk advisory}