Telok Real Estate Partners is looking for a more sustainable business model than simply building and selling homes — and this niche developer, with more than a decade of experience here, has made a bet in co-living projects
“What we are seeing is the [real estate] market is charging more and we are giving people less”. This type of remarks is something you might hear from market analysts, legislators, community representatives, youngsters, you name it. But what about a property developer?
This was precisely what Philip Pang, Partner – Investment at Telok Real Estate Partners, said in a recent interview, as the Hong Kong-based investment fund aims to provide exquisite accommodation at an affordable price for the youth. Since tapping the Macau market in 2006, Telok has developed 10 projects of studios and small-sized apartments for sales, but it is now branching out into the rental and hotel fields.
The investment fund is developing a co-living project and a boutique hotel side by side at Rua do Almirante Sergio, near Barra. The co-living project — Macau Co-Living — is a seven-storey building that is now under renovation, with the first two floors and a basement serving as a 6,000-square-foot common area with food and beverage offerings, while the top five floors offer about 75 bedrooms for rent in 10 apartments.
The monthly rent for a bed space in the project ranges between HK$ 4,000 (US$ 511) and HK$ 5,400; tenants have a small bedroom for themselves and share a living room, a kitchen and two toilets with six or seven other housemates. Tenants must be local residents, or foreign employees in the city with a valid working visa, and they have to sign a rental lease for at least three months with security deposits equalling to one month’s rent.
“The mission of the firm is to provide well-designed affordable accommodation for young people — that has always been the aim and it is still our aim”, said Mr. Pang in an October interview in one of the newly refurbished apartments of Macau Co-Living. “But the [home] price has jumped so much that it has become really hard for most people to afford buying”.
“When we launched the first sales here in 2008-09, a lot of people could afford to buy because each apartment only cost MOP 1 million”, he said, as Telok has developed boutique residential projects like 160-unit Cerese, the 32-unit Casa Verde and the 30-unit Lazarus Verde throughout the years in the gambling enclave.
“The price jumped to MOP 2-3 million in 2012-13, and now unless you can afford MOP 4-5 million you can’t buy anything decent in Macau”, he added commenting on the steep rise of the local property market pricing in the past decade. According to government data, the home price averaged a MOP 110,263 a square metre as of June 2019, almost quadrupling from MOP 28,176 a square metre in 2008, while the average monthly earnings of the employed population only doubled from MOP 8,000 to MOP 16,300 as of June 2019.
“From a young person’s perspective, it has become more and more difficult to buy a house unless you are born rich”, Mr. Pang stated. “That’s very sad, so, as a small firm, we’re trying to do something within our own means [to help them]”.
Purchasing the seven-storey residential tower from the hands of another developer in 2016 — one of the hiccups of the property market in recent history, given the economic slowdown and the lacklustre gaming industry at the time — Telok originally leased the apartments unit by unit. “We didn’t have any specific plan for this building at first, but it’s nice to own the property adjacent to the building you are developing”, he said. The adjoining building he refers to is the 60-room boutique hotel also developed by Telok, which will open early next year.
With the concept of co-living taking off across the globe, from nearby Hong Kong to Berlin, London and New York in the west (Hong Kong newspaper South China Morning Post has recently reported that the number of co-living units in the Asian financial centre could rise to 1,400 next year from the current tally of 400), Telok has decided to introduce this type of solution to the Macau market, in partnership with a group that used to run hostels in Singapore for the day-to-day operation of the co-living project and the adjoining budget hotel.
Following the commencement of renovation in recent times and branding the seven-storey tower as Macau Co-Living, its has nearly 20 tenants as of October — mostly Portuguese, Hong Kong and Mainland Chinese people working in the city, as well as local residents — and the occupancy rate is expected to reach 75-80 percent by mid-2020 when the renovation is fully completed.
“We were the first company to sell studio apartments in Macau, and the spirit of the firm, its DNA, is to constantly think of new things, because the market is constantly changing”, Mr. Pang said. “We have to keep looking for ways to make it easier for people to have a good quality of life at an affordable price”.
Although he presents Telok as a socially responsible developer, the co-living concept is not without its own controversies. Some critics brand these projects as a sugarcoated version of the notorious subdivided flats — flats divided into many smaller units, where the living conditions are below average, for the profit of the operators.
In his defense, Mr. Pang said that what separates Macau Co-Living from subdivided flats is the density. “It’s different in how many people you pack into each apartment; we’re doing it in a low-density manner”, he noted, adding that the common area represents more than half of the size in each flat of the project. “That’s generous. In other markets, [developers] might just put more rooms here and there”.
While acknowledging it is cheaper for a few people to share a standard apartment together, he points out the key selling point of the co-living project is a community spirit so they will gradually organise more and more events for the tenants, especially with the opening of the 60-room boutique hotel early next year.
The 6,000-square-foot common area on the first two floors and the basement of Macau Co-Living could be a platform for tenants and hotel guests to interact. “The idea is to create cultural exchange, to create an option without a casino, sauna, nightclub or whatsoever…but where young people can have fun nonetheless”, the fund partner said.
“It’s always nice to learn about another culture”, he stated, adding that the common area, featuring dining options of authentic Portuguese and Macanese food, will be ready in the first half of 2020, while the renovation of 10 co-living units will be completed by end of this year.
“With the opening of the hotel, we can invite artists, host seminars and talks, and even invite chefs for cooking classes [in the common area]”, he continued. “People can find something to do other than work and their phones”.
As there is also a third-party cleaning service for the common area in the building, Telok believes there will be fewer troubles and quarrels living in the co-living than sharing a house with a few people. “If you can’t get along with [your housemates], we can swap you into another unit”, the executive commented.
Besides the co-living project in Barra, Telok is developing a second similar project in the Old Taipa Village, near the Pak Tai Temple and a famous bar in the district, Old Taipa Tavern. The new project, providing about 25 bedrooms for rent in total, could become operational next year.
The investment fund is also planning for a third co-living project in a land plot near the city’s main thoroughfare, Avenida de Almeida Ribeiro, better known as San Ma Lo. It hopes to break ground on this project soon, which will provide about 50 bedrooms.
“These products are not going to be for everyone, because if you have a family and kids, these are not going to work for you”, Mr. Pang said, adding that their co-living projects particularly target young people and those working in Macau. “Young people are the most willing to trying new things and adaptive to changes. We will see whether it’s going to work”, he remarked.
According to property consultancy Jones Lang LaSalle Macau (JLL Macau), the rental value of high-end residential properties jumped up 7 percent year-on-year in the first half of 2019 in the wake of a 17.5 percent hike last year. The capital value though, dwindled 3.5 percent in the first six months of this year.
For the mass and medium residential property, the rental value also went up 3.8 percent in the January-June period, in contrast to a 1.8-percent drop in the capital value, due to global economic uncertainties like the on-going saga of the trade war between the United States and China dampening investment sentiment, the consultancy said.
In spite of a faster rise in the rental level of house properties in recent times, the JLL Macau data show that the latest annual rental yield in the local residential market only ranged between 1.6 percent and 1.7 percent.
Mr. Pang revealed the yield for Telok’s co-living project stays below 3 percent a year, which means it will take a long time for the fund to recoup its investment. Together with the boutique hotel — as the fund is optimistic towards the local tourism market, which is expected to receive at least 40 million visitors this year compared to the record high of 35.8 million in 2018 — Telok is gradually shifting from a business model of traditional developers to a quick cash-in from sales.
“It would be more sustainable for us to hold on to the property, instead of selling the units one by one”, he explained, “We are in the process of exploring this new business model, and hopefully this will allow us to have more stable businesses”.
“Developers pay more and more for the land, and set new record prices, which helps the sales of existing projects because people think [house] prices will go up. That’s the model, right?”, he asked. “But who knows when the music will stop?”
He pinpoints the ongoing economic uncertainties across the globe might affect the property market. “With what’s going on in the world — not only in Macau — it is hard to be super optimistic [towards the market]”, he noted without commenting on whether he believes the local property market will go down in the future.
The latest official figures show the local house price expanded by 2.5 percent in the second quarter of 2019, rebounding from an 8.7 percent decline in the first quarter.
“It’s actually hard to predict the market, and we’re just finding a way for our business to operate well in good, normal and bad times”, he concluded. “How much longer and how much more can we increase the price and expect people to pay for that?”