To re-balance or not

José I. Duarte Half a dozen mega-facilities are under construction or expected to open in Cotai in the next few years. Their full operation will require several tens of thousands of workers. The residents’ labour pool cannot fulfil that demand. Consequently, most – almost all, in fact – of the necessary effectives will have to be recruited from elsewhere. That is, the number of non-resident workers is bound to increase. Rough estimates suggest that those new casinos plus associated premises – namely, hotels, restaurants, resorts plus commercial facilities – will need some 50 to 70,000 workers. Such growth is bound to further stretch the city’s public infrastructure and strain an already stressed residential market. The real estate market and, in particular the residential segment, is already severely distorted. The average price per square metre for residential transactions rose from slightly less than 8,300 patacas in 2004 to just below 100,000 last year, a 12-fold increase in just 10 years. That is to say, the price of one square metre ten years ago would today buy less than a square foot! The measures taken earlier to cool the market – and that the Chief Executive has already declared will be kept in place – did little to achieve their supposed aim and, if anything, made buying a flat less accessible for those who needed it most. The average size of unit transacted rose from about 675,000 patacas in 2004 to 6.5 million patacas in 2014. The number of years necessary for the median wage earner to buy the average house rose from 11 to 41 years in the same period. Of course, we are not talking about that same type of house, on average, nor the same profile of buyers. Most of the recent transactions will fall into the luxury category, meaning (much) bigger units and (supposedly, at least) much higher building standards. They are certainly not meant for the regular resident or imported worker. They, obviously, simply cannot afford such prices; they will have neither the savings nor the financial worth that would allow the banks to lend the required amounts. These values are then not, even remotely, affordable for the typical income of the average family. However, contrary to what is often claimed, the main drivers of this state of affairs are not primarily external ‘speculators’. Almost all the credit for residential units granted by the local financial institutions was contracted with residents. As there must be few locals, organisations or individuals, that have the resources and credit worthiness that would allow them to obtain loans for units sold at prevailing prices, this evolution must also represent a staggering transfer and concentration of wealth. The revenue trends affecting the casino sector will force many operators to review their expansion plans, both in terms of size and timing. That may not be completely bad. The current economic slowdown might be a welcome lull, if only it was used to re-balance the hugely distorted residential market. But one would be wise to hedge such a bet.