An end to the building boom

The construction sector has been one of the main drivers of Macau’s growth over the past few years. There are indications however that the steam has gone out of the sector and that the boom is over.

That assumption is demonstrated in the most striking manner by the figures for concrete and cement consumption in Graph 1. Construction activity, as measured by these two indicators, has returned to levels close to where they were in the crisis years of 2002 and 2003. Levels today are at about one-fifth of where they were in the peak years of 2006 and 2007.

It is very clear that the boom is over and the construction sector has not been, for the past two years, as significant a contributor to growth as it had been in the previous four or five years of our analysis.

This graph displays the cumulative figures for the floor area added in the period from 2002 to last year. It dramatically conveys the sense of cycle coming to an end, as the gap between completed and new buildings has almost disappeared.

The graph also illustrates the outcome of eight years of intense effort; more than 7.5 square km of gross floor area.

Such a remarkable level of construction activity is unlikely to be achieved again, as most of the big buildings, casinos, associated hotels and shopping areas are finished or in the final phases of their construction.

This graph shows two distinctive features. First, there are the peaks associated with the construction of big structures and, secondly, there is a steep drop in the average size of new buildings towards the end of the timeframe of the analysis.

Building transactions

Although there are obvious connections between construction and the state of affairs in the real estate market, the two sectors are nonetheless distinct. It is clear the construction boom did not translate into a growing real estate market that was able to smoothly match demand for residential space.

The sector was relatively uneventful, so to speak, in the early phase of the years between 2002 and 2010. However, in the last few years, except for the financial uncertainties during 2009, the total value of transactions in the residential market increased by a factor of up to nine times compared to the recession years of 2002 and 2003.

Growth in the value of transactions for commercial and office space also increased significantly in the period, although not as strikingly.

The average value of building transactions paints a familiar picture of growth.

The average value of a flat sold in 2002 was about MOP500,000 (US$62,500). By the end of last year, the average value was five times that amount.

Part of that increase is explained by a trend towards bigger and more luxurious units.

That does not change the fact that such a dramatic variation in such a short period suggests a serious mismatch between demand and supply in the residential market. This has been much more pronounced in the residential sector than in the commercial or office sectors.

Taking the sum of our analysis into account, one might expect a noticeable increase in the transaction price per square metre for residential flats. In the period of our analysis, the average price per square metre in Macau increased three-fold.

Although the average price for property in Taipa has always been higher than on the Macau peninsula, the rise in the latter was even more striking in relative terms.

The most impressive rise, namely in Coloane last year, may be an outlier, thanks to the effects of the new One Oasis luxury development. Some might interpret that as a bad omen for Macau’s greenest area.

by José I. Duarte
Economist /Macau Business
Senior Analyst Data source: DSEC
Charts and graphics in our paper edition and MB online browseable