Boom or bust?

Following a robust year, the boom might not be replicated in the retail property market in 2019, with increased supply and economic uncertainties possibly spoiling the party. 

In the first 11 months of 2018, a total of 595 shop transactions were recorded, up 12.7 per cent from a year earlier, while the total value of these transactions amounted to MOP8.21 billion (US$1.03 billion), surging 36.2 per cent year-on-year, the latest government figures show.  

The sales include two retail units in downtown Praça de D. Afonso Henriques and Avenida do Infante D. Henrique, which fetched about HK$300 million and HK$200 million, respectively, according to market sources. 

Roy Ho Siu Hang, Director of Centaline (Macau) Property Agency Ltd., believes that the total value of retail property transactions might exceed MOP10 billion for the whole of 2018, the first time it has surpassed this threshold since 2014. 

       MOP111,237 

       Average per square metre home price in 2018 

The strong performance in the shop property sector rode on the coattails of surging retail sales, which jumped 20.8 per cent from a year earlier to MOP56.97 billion in the first three quarters of 2018. The sales of watches and jewellery climbed 12.9 per cent to MOP12.01 billion in the first nine months although growth slowed to 2.6 per cent in the third quarter, according to government data. 

While retail sales data has yet to fully reflect the impact of the trade war between China and the United States since the second half of last year, Mr. Ho says that “starting from the fourth quarter of last year, some shop owners have lowered their asking price, usually about 20-30 per cent, in the face of the ongoing trade war . . But this has also provided a good opportunity for investors to pick up shops at optimal locations and prices, successfully leading to numerous transactions [in the fourth quarter].” 

Bull vs. bear 

Looking ahead, the real estate professional believes the retail property will be the best property performer in 2019 despite persistent economic uncertainty.  

“Starting from the fourth quarter of last year, some shop owners have lowered their asking price, usually about 20-30 per cent, in the face of the ongoing trade war.”  – Roy Ho Siu Hang, Director of Centaline (Macau) Property Agency Ltd. 

“Tourism prospects remain bright with gaming revenue hitting over MOP300 billion again last year and tourist arrivals reaching a new high,” he remarked. 

Government figures show gross gaming revenue amounted to MOP302.85 billion in 2018, surging 14 per cent year-on-year, while the city received 32.23 million travellers in the first 11 months of last year, poised to surpass the 32.61 million recorded for the entire year of 2017. 

“There will be room for rental hikes for shops in tourist sites; namely, NAPE, the city’s downtown and Taipa,” Ho remarked. “An increase of 15-20 per cent increase in rents is expected, while shop values will also go up.” 

Oliver Tong, Head of Leasing at Jones Lang Lasalle Macau, however, does not share this bullish view. The international property consulting firm, which focuses on the high-end retail property sector like shopping facilities in resorts, predicts shop rents will decline by up to 10 per cent this year, with capital values decreasing 5 per cent. 

“Chinese tourists have become less keen to shop [in Macau] due to the depreciation of the yuan,” said Tong, referring to the impact of Sino-U.S. trade issues and a slowing Mainland Chinese economy. “We’ve got some feedback from retailers in apparel, cosmetics and other areas that their businesses were lacklustre in the fourth quarter of last year, thus brands are more conservative about development and expansion plans this year.” 

Supply and demand 

The gloomy outlook is further compounded by new supply in the perspective of Mr. Tong. Not identifying any specific projects, he estimates at least 1 million square feet of retail leasing space will come online in 2019, including new shopping facilities in the existing resorts, re-branded shopping spaces, and shops that will see the conclusion of their leases.  

“Coupled with other factors, there will be downward pressure on shop rents: landlords will become more flexible in rental negotiations,” he opines, anticipating that underperforming shopping malls will take the hardest hit while rental levels in popular resorts will likely remain unchanged. 

“There will be downward pressure on shop rents: landlords will become more flexible in rental negotiations.” – Oliver Tong, Head of Leasing at Jones Lang Lasalle Macau 

A local management executive of a luxury brand, declining to be identified due to the sensitivity of the matter and the company’s media policy, says it will open a new flagship store in an existing resort in Cotai this year.  

“The new store has been planned for some time, and there are surely concerns about the market but we think the expected income is justifiable for the costs. The negotiation [with the landlord] is smoother and faster than expected, which is now in the final stage,” the executive continued. “We’ve got a good deal.” 

Given the uncertainties clouding the market, the executive commented that there might be more pop-up stores and short-term leasing retail contracts in integrated resorts here, a similar and popular practice for the high-end retail segment in Hong Kong in recent years.  

“Brands could build up awareness among consumers and test market reception through pop-up stores without putting the balance sheet under too much pressure,” said the executive. “If business is satisfactory with a good leasing deal they could then set up a permanent store. For instance, there are now a number of pop-up stores for luxury brands and mass appeal retailers in Galaxy Macau which are quite successful.” 

In addition, Mr. Tong believes the expected lower rental level this year could attract more brands other than luxury retailers to set foot in the gaming enclave.  

“Lower rentals . . . will create opportunities for experiential entertainment operators such as VR game centres, trampoline parks, cinemas, food and beverage,” he remarked. “Macau has been actively promoting the diversified development of tourism and different industries, attracting much attention from overseas operators.” 


Failing property curbs 

Despite the government’s intervention to rein in the red-hot property market home prices still surged to a new annual record high last year. 

According to Financial Services Bureau data, home prices averaged MOP111,237 (US$13,904.6) a square metre last year, soaring 10.6 per cent year-on-year, while the number of home transactions totalled 10,585 in 2018, up 1.27 per cent from a year earlier. 

Some 2,982 pre-sales of unfinished flats were recorded last year, averaging MOP142,190. Both the number of transactions and price represents an increase of 39.5 per cent and 3.1 per cent from 2017, the data show. 

The major incentive for rising home prices last year was the sales of completed homes, including both firsthand and second-hand units. A total of 7,603 completed flats were transacted in 2018, down 8.5 per cent from a year earlier although the average price jumped 10.3 per cent year-on-year to MOP99,259 a square metre. 

Property prices have maintained an upward trajectory even though the government rolled out a new stamp duty of 5-10 per cent of the value of units for buyers owning more than one property in February of last year.  

Analysts and real estate experts, however, are divided on whether the hike can endure, based upon the current global economic climate. In January, the World Bank lowered its growth forecast for the world economy this year from 3 per cent to 2.9 per cent, warning that ‘storm clouds are brewing.’ 

By contrast, Centaline (Macau) Property Agency Ltd. expects local home prices could rise by up to 20 per cent this year due to the resilience of the Macau economy and the bright prospects of the Guangdong-Hong Kong-Macau Greater Bay Area.  

Counterbalancing the bullish view of Centaline, Jones Lang Lasalle Macau predicts home prices for high-end residential units could drop 5-10 per cent in 2019, with a decline of up to 5 per cent for mass residential units although it rules out any substantial price correction this year given the healthy economic fundamentals of Macau. 


Macau residents account for 27 pct of property sales in Hengqin 

Macau residents were the second largest group of buyers for various types of property in Hengqin in 2018, according to Centaline (Macau) Property Agency Ltd., which also has operations on the nearby island.  

Hengqin recorded a 56 per cent increase in the number of property transactions last year to 5,953 units, accounting for about 15 per cent of the total sales of 38,486 units in Zhuhai City, Guangdong Province, said the agency. 

Some 2,707 office units were transacted in Hengqin in 2018, up 33.8 per cent from a year earlier, while the number of commercial property transactions surged 508.8 per cent to 1,242 units. The island saw the sales of 976 homes last year, the agency added. 

Of all types of property sale in Hengqin last year, Hong Kong buyers accounted for the largest proportion, or 28 per cent, closely followed by Macau buyers at 27 per cent. The remaining buyers came from cities across Mainland China and others. 

Centaline Macau expects property sales in Hengqin to maintain upward momentum this year with an increase of 20 per cent in the number of transactions because more infrastructure on the island will be completed while more policies will be rolled out to support its development.