Last month, local real estate agency Mcore Properties Investment Ltd. announced a private loan scheme for employees enabling them to purchase homes in Macau, with as much as MOP3 million (US$375,000) granted per application. Mcore chairman Melvin Leung Ming Fai told Business Daily that the scheme is not about boosting housing prices, as some say, or indeed about receiving a single buck from employees
The Mcore home-starter loan scheme has sparked a debate in society. Can you tell us how the idea came about?
In fact, between the end of 2013 and the beginning of 2014, when we were organising our company, we stakeholders had already started discussing the scheme, as the housing prices then were at their peak. In addition, at that time, the banks had also tightened the maximum percentage of mortgage loans, from between 80 and 90 per cent to only 60 and 70 per cent [of the total price], amounting from up to MOP10 million to only half of that.
During the period, in the companies of we shareholders, there was a group of employees receiving high salaries but still unable to afford the down payment on a property.
We were thinking at that time if we establish such a scheme to help our employees, to assist them on the initial deposit issue that they need for their first home it would be very helpful for them and for society. It would also be very meaningful.
The scheme was initiated in 2013. Why was it only officially launched last month?
We knew that it was quite sensitive for us to announce the scheme during this period as the number of transactions [in the property market] had dropped to a very low level while housing prices were also depressed. However, we really didnt think that our scheme would trigger much debate like, are we a property company [or] trying to boost housing prices and activate the number of transactions through this scheme, bringing business benefits to our company.
As I mentioned, we had prepared for this scheme for more than one year before its official launch. We really want to help our employees who are hoping to buy their first home. During the one-year discussion, we have consulted many legal [sources], discussed with the banks for co-operation and the legal issues that may be involved in the scheme. Thats why it took more than a year.
How do you screen the employees?
Supposing our employees are interested in buying a residential flat. There are a few procedures that they have to go through when applying for the loan.
First, we will consider whether it is the employees first time to purchase a property. If yes, we will also consider whether they can afford the flat that theyre planning to purchase, even if we lend them the money that they need.
In fact, at the beginning, we knew that many of our high-salary employees were not unable to pay the initial deposit – just unable to pay the initial deposit for the homes they were interested in.
Suppose they want to buy a property worth MOP7 million. The banks will only grant some MOP3.6 million mortgage loan, which means they still have to find MOP3.4 million, excluding the special stamp duty, contracts and commissions. Many of our high-salary workers can save only MOP1 or MOP2 million in one or two years, so they arent able to buy these properties worth MOP7 to MOP8 million.
As an enterprise, if we want to offer more than the government allows the banks to, we have to carry some social responsibility. Thats also the reason why the scheme took so long before being announced.
What procedures do you have in place for loan application?
First, the employee has to be eligible for a bank mortgage loan. Say the employee wants to buy a property worth MOP7 million. They have to pass the property to the bank to assess. Only if the bank approves them for the regular mortgage loan will we consider whether we will lend them the money that they still need for the initial deposit.
In fact, we also lend them the money via the bank. Were not lending them money directly from our capital. Moreover, we dont charge the maximum interest rate of 4.5 per cent in our loan scheme either; its the bank that charges them. We dont earn a buck in interest.
Can you explain how your loans can be granted via the bank?
We shareholders have collected a rather large amount of capital. We put the capital inside the bank for a fixed deposit, which cannot be withdrawn. We do this because if our employees want to borrow more money, say MOP1.5 million, then the bank will lend them an extra amount of money as private loans if we allow, after it approves the employees normal mortgage loans.
As such, the scheme does not conflict with any government policy. In addition, its just an internal benefit measure for our own workers.
The reason we have to collect capital is because the bank requires us to place security deposits. Once our employees cease repayments, or they cannot afford to repay the loan to the bank, the bank will deduct the money from our capital account. Our role is that of guarantor.
So in the end, its the bank that gives the loans?
Yes, they wont take money from our capital account right away. They will lend the money to our employees as private loans, which is very different from mortgage loans. In Macau, every bank has its own procedures for approving private loans. The normal annual interest rate of these private loans is usually between 6 per cent and as much as 15 per cent. Some of these private loans require the debtors to finish their repayment within 5 years. Through our security deposits, our capital to guarantee, we reach an agreement with the bank to only charge interest of no higher than 4.5 per cent per year. This means that for higher salary staff, the bank will decrease the interest to even 3.6 to 3.8 per cent per year.
Did the company think about the consequences of many employees ceasing repayment, and that the company might have to pay a lot to the bank?
Generally speaking, if an employee is unable to repay the private loan, [he or she] is probably not able to return the mortgage loan to the bank either.
In this case, the bank will follow their regular policy to sue these people in court, to confiscate their property for auction.
For us, we need to carry the risk of the loss with the bank as well. I dont think there will be a situation where the employee repays the mortgage loan but not the private loan granted by the bank.
However, the bank is guaranteed by our capital thus they may not face any loss. Nevertheless, the bank will instigate their normal procedures if the employee suddenly ceases repayment.
Does the company gain any profit from the scheme?
No, not at all. Although we may charge a service fee; we havent confirmed the amount but we think it will be reasonable. This charge is [in the event that] the employee leaves the company and stops repayment – we wont use our own money to pay the legal fees for the court.
Is there any quota set for these private loans?
No, we dont have any. However, we will observe our debtors. We have a scheme to alert us, like what ratio of our debtors is not repaying. The account may face bad debts [as well] in which case we may terminate our scheme.
Have you received any applications from your employees?
Not yet. Not for official application but we have received some enquiries.
How are the Hengqin properties affecting the local real estate market?
The properties in Hengqin have become popular since September last year. Many people say that Hengqin will attract many Macau people to move there in the future. But the future is the future. It will take at least four or five years for their properties, social and traffic facilities to be completed.
Who is purchasing Hengqin properties?
They are mostly Macau people, who account for 80 per cent of the total. I think most of them are buying Hengqin properties to improve their quality of life in the future, rather than as investments. After all, you can only buy those old buildings without elevators for MOP4 million in Macau. With MOP 4 million in Hengqin, however, you can buy [places] of much better quality and even bigger space, which is very attractive to local residents.
Once Hengqin is completed, do you think it will drag down housing prices in Macau?
I cant predict that. It depends on whether all the national governments policies on the Free Trade Zone can be implemented. So I can only answer this question in three years.
Best is gone
Many property agents have left the industry because the property market is becalmed. Whats your take on this?
The overall property market of Macau, frankly, is not as good as that of three or four years ago, which was the peak period for the industry. The property industry supported many peoples livelihood in the past few years.
This year, amid dropping gaming revenues, the number of housing transactions has significantly dropped. There were nearly 10,000 property agents, including part-timers, in the market during the peak period. However, I estimate the current number of property transactions might only support between 4,000 and 5,000 agents.
Is the becalmed property market directly related to declining gaming revenues?
I think the real estate market is more affected by the atmosphere. Based on our agents, their incomes are still stable and even increasing. I think the becalmed housing market is because of the VIP gaming segment, leading fewer high-rollers to buy luxury products here in Macau, including luxury housing.
Do you think the negative atmosphere will continue pressuring the real estate market as many predict gaming revenues will continue declining?
I dont know how the gaming revenues will be. But only looking at the economy of Macau, I see that although some of the properties have dropped to rather low prices, many users have appeared and purchased.
According to the income of local employees and the inflation rate, I think only the number of transactions will continue decreasing. I dont really agree that housing prices may drop further still.
But if you ask me whether housing prices will increase I dont see any factor to boost them.
I dont think housing prices will sharply decrease or increase. However, the number of transactions will depend on gaming revenues. If gaming revenues stop registering declines, the market atmosphere will be more positive.
Mcore opened a few branches at the same time last year . . .
We opened three branches during May last year, then we opened more two in August. The reason were confident is due to the structure of our employees. Most of them have worked in the industry for years. Some have more than 10 years experience. As such, they have their own sources of clients. They also have the ability to survive in the industry. I feel very grateful that we have these employees, who provide room for our company to survive, to sustain, and to be profitable, at least for now.
What does the future hold for Mcore?
We will expand our businesses in Zhuhai, in Hengqin, and even in Hong Kong. We named the company Mcore as we want to develop our business [around the] core of Macau.
The city has a lot of talent. Who dont lack education but vision and experience. Many international firms and Hong Kong companies set foot in Macau when the gaming industry started to grow. Thus, the development of more than 10 years in Macau has broadened our vision.
Famous Hong Kong and Mainland property agencies are entering Macau to expand their businesses. But why are there no famous Macau property agencies setting foot in other regions, especially when Macau has both talent and capital? This is one of our dreams, which were fulfilling step by step.
Mcore, with VIP junket operator Suncity Group, announced at the end of April that they are establishing a home loan scheme for employees wishing to buy properties for the first time in Macau.
The home-starter loan scheme established by the agency can grant up to MOP3 million (about US$375,000) to employees, for 12 years, paying annual interest of no more than 4.5 per cent.
Mcore chairman Melvin Leung Ming Fai says the scheme intends to encourage valuable employees to remain in their positions.
In addition to the staff of Mcore and Suncity, employees working for their subsidiaries, Anzac Realty and Kingship Restaurant Group Ltd., also qualify to apply for a mortgage loan.