“There’s a lot of interest from investors in Macau”

Headland Developments has been developing many projects in which clients want to preserve the traditional ‘Macau style’, a combination of Portuguese and Chinese elements in their buildings. Is this an area the company is now specialising in?
Absolutely; it’s taken us seven years to get to this point. Now we can take an existing building and restore it, while preserving its cultural heritage value. This is the result of working closely with not only the owners, but also the Cultural Heritage Department and specialists in heritage architecture from Hong Kong and Macau.

Regarding the renovation of these heritage buildings, is this an area that we can say is a niche market?
In a way it’s niche because it’s a very small market that only a very small number of people are able to access. In a way what we’re doing is enhancing the cultural heritage of the buildings and at the same time allowing people to continue to use them. We’re looking for ways to help owners of these particular buildings see how we can help them bring the buildings back to life, while keeping their glory, but also reusing them. The key point is to give the building a longer life and be able to upgrade its interior and maintain or improve its exterior façade.

The Cultural Bureau (IC) is expected to classify in the coming year 70 buildings of ‘architectural interest’. According to the law, the owners of the buildings have to preserve them. Is this a process Headland Developments is following?
Yes. Macau has quite a significant number of heritage buildings that are on the Heritage list or Monuments list. It’s a shame to see buildings falling into decay simply because there’s not enough money from the owners to be able to rebuild and take good care of them. We’re all in favour of maintaining Macau’s cultural heritage history and culture. Before, we worked very closely with the Cultural Heritage Department and all our projects go through some form of consideration by this department.

Is the fact that Macau has natural limitations because of its size and that when you renovate old buildings you’re able to increase the gross floor area by expanding underground a plus in this business?
There are ways to make the value of the heritage building significantly higher through straightforward renovation, but also by building a basement and stories above the current limit. Effectively, it’s possible to almost double the gross floor area of a building. It takes some time and planning, and requires close work with the government but once you get the permit the process doesn’t take long.

What is the main profile of your clients in this business?
To date, we’ve worked mostly with Sniper Capital as a prime source of projects. Obviously, we’re open to working with other private sector clients at any level and we’re not focused 100 per cent on heritage projects. We’ve been involved in the development of the residential Rua de Laboratorio and there are other projects, such as Senado Square – which is a retail project in the heart of Macau.

Originally, the Senado Square project was expected to already be completed. What happened with this project in order for the opening date to be moved to the fourth quarter of 2017?
This issue is sensitive and involves information [from] the Macau Property Opportunities Fund. But essentially it has taken a while to work out the design parameters. However, there’s been extensive work with the Cultural Heritage Department to ensure we get the best possible design. Hopefully, in the coming few months we’ll receive the first approval for the design and then we can get a construction permit and start the works. We hope that the construction works will start by the end of this year.

Recently, one gaming operator manager said that they don’t mind delaying the opening of their Cotai project because it will give them more time to gauge the future. Are you applying this logic to the Senado Square project?
It is a prudent move if you are thinking about expanding to Macau to hold fire until you get an accurate forecast. The market is showing signs of bottoming out. I’m not a market pundit but the more people I talk to about the retail and gaming sectors, they feel the market is reaching its bottom. That is not reflecting in any upturn in activities but it means that it has been flat. That’s probably a good sign.

The local retail market, mainly the luxury sector, is falling. Some brands are closing stores and rental prices are declining. How will this affect your project?
The market is cyclical and in the last year and a half there’s been a downturn in tourists, existing demand, and the average tourist spending was cut. This has happened because other markets have opened up, there was a decline in the numbers of tourists and also the crackdown in terms of corruption in Mainland China. All these combined to have a negative impact upon retail sales. But this is cyclical and the market will come back, particularly once the Hong Kong-Zhuhai-Macau Bridge is operating.

How do you expect the opening of the casino resorts in Cotai to affect the tourism industry?
This so-called second wave of casinos opening is another positive factor that will contribute to a regeneration of tourism and spending in Macau. At that point the numbers of gross gaming revenue will also increase. That will stimulate the retail market back again. I hope that by the time we come to complete the Senado Square project we will be entering another upturn in the cycle. With the Bridge heading towards conclusion, and the construction of the Light Rail Transit (LRT), there’re a lot of positive factors about Macau’s future.

The property market has been declining for some time now. The common view is that this trend will continue. What’s your take?
Again, I think it’s cyclical. We’ve seen the same in Hong Kong in the past, like in 1997 and 1998; and also with the SARS situation. But then there was a V-shaped spike. From that point on, it increased significantly until 2008 and 2009, until the global financial crisis. Then there was a sudden decline and then from 2010 to 2015 we saw the recovery again. It’s a strong decline but it’s cyclical. I don’t have the fear that the market will not come back to its former position. Maybe it’ll actually exceed it.

How do you see the development of Hengqin, the easing of conditions for locals buying homes in Zhuhai and the new claimed territories? Will this benefit the local market?
In my view these factors are all positive. There’s a lot of business moving into Hengqin bringing new industries and more opportunities. This will create extra demand for homes of the people coming to the area. Hengqin is more at this point business-generating and therefore it’s going to attract more people into the area and create demand for housing. I don’t think that the fact that the market and the boundaries seem to be opening up will be a negative trend.

Does the fact that the market is going down increase the number of people interested in investing?
Everybody views a downturn as an opportunity. I still feel there aren’t that many new houses coming onto the market and that there’s an underlying demand for new properties of the right size and affordability. Even in a period of decline there’s always a continuous demand for new property. It’s a demand that always occurs even when people are seeing the market going down, but they wait until they can see signs that the property market is bottoming out and possibly on the incline. Then, we’ll see those people who have waited about their buying decision jump into the market very quickly. That’s when you see an uplift in the curve, because all these people have been waiting for the buying opportunity and this is the right time to get into the market.

Investment in property is one of the core areas of Headland Developments’ business. Can you elaborate?
Usually, we identify a project and we try to secure the development rights. Then either through a direct purchase or option agreement we start working with our joint-venture partner. After that, we prepare a feasibility study and we go out to the market to source the equity to go into those deals. Once we source the equity, it’s relative easy to secure the bank debt in the UK. With the whole package we are able to go back to investors with the returns. It’s difficult to tell how the money is going to multiply but generally 25 per cent return on revenue plus returns, this is our target.

What’s the profile of the clients involved in this kind of investment?
Usually, they are high net worth or people in the industry. Still, we are open to any background. It’s also common for investors to be financial or real estate institutions. In Macau, the background of the existing investors relates to very experienced people in construction and development. We’re talking about local experts in development and construction.

Is it easier to attract investors from Macau to invest abroad or to attract investors to Macau?
Nowadays there’s a lot of interest by Hong Kong and Singapore investors in Macau. Some investors see Macau today as a good buying opportunity because of the downturn. Others say it’s an opportunity to take advantage of people who need a quick exit from their positions. So some funds and even families are looking at the opportunities and for a quick and relatively easy exit with profit. They know that if they buy at discount they can make profit because in two or three years time the building will be back to its original market price.

What about investors from Macau? What’s the main trend now?
Investors in Macau started to realise that there may be higher returns in other markets, particularly in Europe, the U.S. or Australia. These are very strong favourites because a lot of these people send their kids to universities in these countries and they see buying opportunities there. Concerning more high-end investors they may seek other investment opportunities.

Besides Macau, Headland Developments is operating in Hong Kong and the United Kingdom. What is your main focus at the moment?
We’ve set up an investment platform to develop – which is called the Franklin in Birmingham, the former Cadbury’s headquarters in Bournville – with 73,000 square feet. We made it into 79 houses/apartments and we renovated the building. So far, we’ve sold 62 per cent of the apartments and are looking to finish the project [in late] May this year. We’re looking to be 100 per cent sold before that.

At the moment you’re only operating in Macau, Hong Kong and the UK. Would you consider stepping into the Mainland?
We definitely consider it but we don’t have specific plans. Clearly, if there was an opportunity that was right for us, we would definitely consider it. We’re open to investing in good opportunities outside our markets. At this moment, we have a one-time opportunity in Lisbon and we’re looking for investors for a luxury project in the city’s downtown, very close to Avenida da Liberdade. This is one of the [potential] high-end areas of the town.