Property: Tale of the Tenant

Unlike what was feared prior to the implementation of amended rental regulations, the residential rental market has so far stayed put - except that landlords are becoming pickier while tenants still have few options

Prior to the approval of the amendments to property rental regulations in the Civil Code, some argued that the changes would further shrink market supply, push rental levels to new highs, and disturb market equilibrium.  

Now, more than a month after the implementation of the amendments, the residential rental market has so far remained business as usual – except that some landlords have become more fastidious about the background of their tenants, while a few are allegedly trying to avoid paying higher tax. 

Weeks before the two-year residential lease came to an end in February, Ms. Chan had commissioned real estate agents to look for a new tenant for her studio flat in high-end complex M. Residences on the Peninsula.  

“I didn’t really attempt to rush for a new lease before the enforcement of the [amended] rental law, which isn’t completely different from the original [version] apart from the three-year term and more bureaucratic procedures,” said Ms. Chan, who only wants to be identified by her surname. “It’s just standard procedure to look for a new tenant a month or two before the end of a current lease when there is a consensus it will not be renewed.” 

The revised rental regulations, which came into force on 18 February, extend the minimum duration of a rental lease of any type of property to three years from two years in the past, while the signatures of both landlords and tenants on lease agreements have to be certified by a public or private notary. 

For the new lease, Ms. Chan is asking HK$1,000 (US$127.5) more than the previous one, which represents a hike of less than 15 per cent. “The hike is not really due to the new law but the overall [macro] economy, which is much better than two years ago,” she explains. The city’s economy expanded 9.1 per cent in 2017, following a loss of three consecutive years prior to the recovery of the gaming industry. 

“There have not been any big changes in the residential [rental] market since the implementation of the law,” says Jeff Wong, head of residential at property services firm Jones Lang LaSalle (Macau) Ltd. “The market was quiet due to the Chinese New Year [which fell on 16 February this year] but activity started to rebound after the holiday season.” 

Her only change after the amended rental law is perhaps to glean more information about possible tenants. “But I’ve always been picky about tenants – I always meet them face-to-face before deciding whether to lease the flat to them, a practice which some landlords might not do,” she adds. 

Migrant workers 

During the discussion of proposed changes of the rental regulations in the Legislative Assembly last year some property industry figures proclaimed fewer landlords would be willing to put their flats on the market if they had to sign a lease of at least three years. In reality, landlords are much like Ms. Chan by not being too fazed about the amendments. 

“There have not been any big changes in the residential [rental] market since the implementation of the law,” says Jeff Wong, head of residential at property services firm Jones Lang LaSalle (Macau) Ltd. “The market was quiet due to the Chinese New Year [which fell on 16 February this year] but activity started to rebound after the holiday season.” 

With regard to rents, Mr. Wong believes that the balance of supply and demand is the key driver, as imported workers – dominating the leasing market – account for more than a quarter of the labour force. According to the property services firm, the rental values for high-end and mass-to-medium residential properties grew by 8.4 per cent and 8.1 per cent, respectively, last year due to the slight hike in the number of non-resident workers. 

Rental hike 

“I don’t see any landlords stopping leasing their houses due to the rental regulations – they are ready to sign a three-year lease,” he says, adding that landlords only clearly state the rental increment during the three-year period. 

For instance, landlords might demand a 10 per cent hike in rents in the third year of the contract, or state clearly that the rent has to be negotiable in the renewal of a contract of less than three years. According to the revised rental law, landlords and tenants are allowed to sign a lease of fewer than three years, and tenants could automatically extend the lease to three years upon the lapse of the contract based upon the original rent unless stated otherwise. 

“Stating the hike protects the interests of landlords,” says Mr. Wong. “Some landlords did this before the revision and demanded clearly that there would be a hike in the second year of a two-year lease.” 

This is the case of Mr. Ho, a Hong Kong man working in the construction industry here, who has recently signed a two-year lease for a one-bedroom apartment in luxury residential project One Oasis in Cotai.  “My contract lists clearly that the rent is up to negotiation for the extension [to the third year],” he notes. 

“Tenants don’t have much say [in rents] in this market with demand outstripping supply,” he adds. “Landlords are like: ‘If you don’t sign it, there will be others who are eager to seal the deal’.” 

Tax evasion 

Although the revision demands the signatures of both tenants and landlords on the lease to be certified by a notary, some landlords attempt not to do so in order to avoid paying higher tax. Portuguese newspaper Hoje Macau reported in March that a tenant had said that some landlords and real estate agents could offer lower rents provided the lease was not notarised.  

The current tax regime mandates that any property owner in the city has to pay property tax every year. Landlords are subject to a tax of 10 per cent of annual rents on leasing properties, as well as a lease stamp duty equalling 0.5 per cent of the total rental income during the lease period; for non-leasing properties, homeowners are also subject to a levy of 6 per cent of the market rental level of their properties. For instance, a landlord has to pay a property tax and lease stamp duty of MOP9,100 this year for a flat leased at MOP10,000 a month, given a deduction of MOP3,500 on property tax by the government for fiscal year 2018. 

The Finance Services Bureau has not confirmed whether any case of tax evasion has surfaced following the implementation of the amended law, only noting it had conducted daily inspections to check on any irregularities in the market, the report said. Macau Business had a reporter ask two local real estate agents as a tenant whether the landlords could offer lower rents provided the lease was not notarised, with the request declined in both cases.  

Jane Liu Zee Ka, Managing Director of Ricacorp (Macau) Properties Ltd., is not surprised that there are few irregularities in the market, stressing that most landlords and agents act in accordance with the law.   

“Tenants don’t have much say [in rents] in this market with demand outstripping supply,” says tenant Mr. Ho. “Landlords are like: ‘If you don’t sign it, there will be others who are eager to seal the deal’.” 

No options 

She also remarks that the notary procedures make it difficult for overseas landlords to put their apartments up for rent in the market. Under the current regime, overseas landlords can either have their identification documents mailed to Macau for the notary process or have their rental lease mailed to their place of residence to have their signature notarised or authorised by a third party to lease their flats on their behalf and sign the lease contract. 

“These procedures make it quite impossible for overseas landlords to lease their properties, straining the supply in the market,” says Ms. Liu, noting in general that there is limited supply in the residential rental market. 

“The demand is huge because of the large number of imported workers, who account for 90 per cent of residential leases [done via my company],” she adds. “[Tenants] basically don’t have many options in the market.” 


Three main changes in rental rules 

  • Lease period: The minimum duration of a lease that landlords cannot terminate the contract without the agreement of tenants extends to three years from two years. Tenants can terminate the contract earlier than stated without the agreement of landlords, provided a 90-day notice is given in advance. 
  • Notarisation: The signatures of both tenants and landlords in the lease have to be certified by a private or public notary (MOP10 per signature by a public notary). The rules do not require the witness signature of the contract to be notarised. 
  • Arbitration centre: It has been proposed that an arbitration centre on property affairs be set up although the government has yet to announce details of the proposed centre. 

Property Rental Trend in 2017-18  

  2017  2018 
High-end Residential  + 8.4 pct  Stable 
Mass-to-medium Residential   + 8.1 pct  Stable 
Office   + 1.9 pct  + 0-5 pct 
Retail  – 8.3 pct  + 0-5 pct 

Source: Jones Lang LaSalle (Macau) Ltd. 

 By Tony Lai 

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