Far-off relief

José I. Duarte Economist Media reports suggest that the rise in residential property prices has stopped. According to some, the trend may even have reversed. Some cooling of the residential property market could be expected in the current circumstances; but it is too soon to suggest that the issues raised by the rapid price growth in recent years are over. Two main factors underpin the evolution of demand in that market. They are changes in available income and population growth. As they rise, demand will also rise. More people will be looking for more flats and, possibly, bigger and better flats. In a free or relatively free market, developers will build according to the expectations they have about these changes and, in an ideal world, competition will keep prices in check and ensure that the types of buildings are adequate for the requirements of their buyers. In a place like Macau, with physical limits to urban growth and subject to significant external demand, two other factors weigh mightily on the local property market. They are the nature and contents of government policies, namely those concerning zoning arrangements and construction guidelines, and the ease of property acquisition, both legally and financially, by non-residents. The economic and demographic trends of the last 10 years were compounded by the attractiveness of holding local assets revealed by many non-residents and the government’s aloof approach to the matter. It is no surprise that prices went up and many developers focused mainly on properties aimed at external buyers, with or without purely speculative aims. All that is well summed up by a twelve-fold rise in the average price for each square metre of sold property in that period. Under these circumstances, it is only natural that the recent changes in casino revenues and, as a result, gross domestic product, dropped cold water on the prospects of some. Suddenly, growth expectations are shrinking and uncertainty is mounting. Earlier confident predictions that ‘this’ will last a couple of months and then it’s back to ‘business as usual’ are ringing increasingly hollow. The Chinese economy has slowed down; its credit markets look increasingly uncertain, and the government has taken a decidedly more muscular approach to illicit flows of money – all these hit strongly at the leading sector and its revenues. Reviewing expansion plans has become a priority; growth expectations have to be reassessed, and the operating model itself is under scrutiny. Estimating income and population growth has become less reliable. A new government is in place and there are unknowns there, too. The expectation that flows of money from the Mainland could only go up and up forever were briskly cut down. Has all this somehow resolved the residential problem affecting many local residents? Far from it, it provides a brief respite, at most! Annual figures for the average flat price in 2014 show that just repaying the principal would take more than 40 years of a median wage. No real relief is yet in sight.