MPO Fund sees opportunities from land leasehold concession issues

Macau Property Opportunities Fund Ltd (MPO), managed by property investment company Sniper Capital, thought the local government’s policy on the issue of leasehold concessions’ expiry would not bring negative effects to its invested properties but benefits, despite the fact that the policy may decrease the city’s housing supplies.
‘It is worth noting that the issues relating to the expiry of land concessions will not affect MPO’s properties and they could in fact benefit MPO. As the market experiences a decline in housing supply and uncertainty over some projects under construction, home buyers are likely to shift their focus to completed properties in the market,’ the Fund said in its latest investor report.
Recently, the local government stressed that it would retake any land plot with temporary concessions if the plot fails to be developed by its developer before the temporary concession, which carries a 25-year term expires.
Meanwhile, the investment fund said it had observed a decline of some 20 per cent in housing prices for second-hand residential units during the second half of last year.
‘We have observed a decline in the average residential prices by 20 per cent for the secondary market in the second half of 2015 and sellers are more pragmatic these days, aligning their asking prices with transacted prices,’ it reported.
In addition, the Fund perceives the decreased number in housing transactions last year is due to ‘the lack of new launches, coupled with government policies such as new Pre-sale law, Special Stamp Duty and Double Stamp Duty, as well as the uncertain outlook for the gaming industry.’
‘Looking ahead, we anticipate housing prices and rental rates to stabilise in tandem with gaming revenues. This is expected at some stage during 2016. Demand is likely to be supported by the cash-rich domestic market, especially the middle-income group, for mass market projects that are in well-established locations and near amenities,’ the Fund forecasts.
The Projects
On the other hand, the Fund mentioned in the report that the occupancy rate at The Waterside had recovered slightly in the final quarter of 2015, reaching 39 per cent, following six quarters of decline.
The Waterside is the Tower Six of high-end residential project – One Central Residences on the Macau Peninsula.
According to the report, average monthly rents at The Waterside had dropped by 16 per cent to HK$22.95 (US$2.9) per square foot in the previous three months compared to third quarter of 2015.
The Fund claimed that the decrease in rents is due to some six new leases being negotiated at lower rental levels.
For another project on the Penha Hill – The Fountainside – the Fund said a total of 27 of 42 units had already been sold. The sold units had brought the Fund a total income of HK$202.6 million. Moreover, the Fund also generated some HK$21.9 million from the sale of parking lots at the project.
MPO bought the project in October 2006 for HK$62 million (US$8 million) and invested another HK$116 in redeveloping it.
‘The current market downturn has made it a challenging environment in which to sell units. While we are in discussions with a number of interested buyers, they are adopting a wait-and-see approach before committing to a new purchase,’ it remarked. Nevertheless, MPO anticipates the demand for parking lots at the project will remain strong ‘as there is no cap on the number of motor vehicles allowed in Macau.’