Property bets follow casinos in Macau gold rush
A model of the 'City of Dreams' by Melco International Development, a hotel and casino project that will feature the world's first underwater casino in Macau, is displayed during a news conference in Hong Kong May 17, 2005. REUTERS/Bobby Yip
By Dominic Whiting, Asia property correspondent
MACAU (Reuters) - The way Macau property prices are soaring while rows of new apartment blocks stand nearly empty, investors could be forgiven for thinking that the mushrooming casino business is providing the gas for a property bubble.
The former Portuguese enclave on China's southern tip has drawn speculative flows from Shanghai, which is being officially cooled after an explosion of real estate investment, and Hong Kong, where rising interest rates are starting to bite.
Macau developers can still sell sparkling high-rise blocks in just a couple of weeks, but buyers are taking a big risk. There is hardly any rental market -- only around a tenth of new apartments are lived in.
"There's a tremendous feeling of a gold rush town," said Elaine Young, chief executive of Hong Kong serviced apartment firm Shama, which is looking to expand into Macau.
"The property market has risen outrageously."
Apartment prices rose 50 percent last year. Property agents predict the same in 2005, and analysts at investment bank Merrill Lynch expect the cost of an apartment to double in three years.
But the rampant speculation, mostly by people from Hong Kong and the rest of China, is based on economic fundamentals.
Gross domestic product grew 28 percent last year thanks to a 40 percent jump in tourists visiting the only place in China where casinos are legal. Per capita GDP for Macau's 465,000 residents has risen to the level of New Zealand's from that of Slovenia in just one year.
Officials predict 20 million visitors will pour in this year, a fifth more than in 2004.
ROOM TO BOOM
Investors are betting there will be a bigger boom in 2007, with the opening of the first phase of the Cotai Strip of opulent casinos, plush hotels and shopping malls, being built on about 5 sq km of land reclaimed from the silt-clogged Pearl River delta.
The 60,000-room seven-casino three-phase project was dreamed up by Las Vegas gaming tycoon Sheldon Adelson. Hoteliers involved include Hilton Group, Marriott International and Four Seasons Hotels.
"I don't see a bubble," said Gregory Ku, head of property consultants Jones Lang LaSalle in Macau, who has privately invested in two Macau apartments.
"A bubble means there are no good things to support the market. But Macau has many."
China could clamp down on loan sharks that fund gambling trips, and some analysts say competition from Singapore's planned casinos could stack the odds against another Macau boom.
But the demands of the industry itself, regardless of its success, are having an impact.
"Until the casinos raised their glamorous heads, there was no need for serviced apartments," said Young. "Now there will be human resources people, entertainers, people to run the hotels and convention business, designers, architects, civil engineers."
The excitement began in 2002 when Macau ended a gaming monopoly held by shipping and gambling tycoon Stanley Ho, who boasts of having once fought off a pirate attack.
China then eased travel restrictions in 2003, prompting a flood of Chinese tourists.
The number of mainland Chinese approved for residency in Macau nearly trebled last year to 6,885 -- each bringing mandatory property investment of $128,000 (70,000 pounds).
A typical 2,000 sq ft, three-bedroom luxury apartment costs $900,000, but that is still only a tenth of some projects in Hong Kong, an hour away by ferry or 10 minutes by helicopter.
Authorities are considering market-cooling measures, such as a cut in bank loans to 70 percent of a property's value, from 90 percent, but Merrill Lynch analyst Hillman Wong points out that similar moves in Hong Kong did little to quell speculation there in the 1980s and 90s.
He expects Macau home buyers to pay up to 188 months' salary for a flat, against 118 months' worth now. At the height of the bubble in Hong Kong in 1997, home buyers paid 440 months' salary.
"People in Macau are getting wealthy and there's big demand for upgrading accommodation," Wong said.
"Construction workers got 40 to 60 percent pay rises last year. Junior casino dealers will get 13,000 (Hong Kong) dollars a month," compared with Macau's average of HK$5,500 per month now.
The narrow streets of peninsular Macau are crammed with greying concrete apartment blocks with a smattering of mustard and pink colonial buildings, their arches and shuttered windows remnants of four centuries of Portuguese rule that ended in 1999.
Most of the new construction is on nearby Taipa island, which is fused by the Cotai Strip to Coloane island, and via a causeway linking it directly to mainland China.
Only a handful of outside developers, mostly from Hong Kong, have chiselled a foothold in the tight-knit market, including Hopewell Holdings, Shun Tak, Kowloon Development and Far East Consortium.
A joint venture between Morgan Stanley, Hong Kong-listed Pioneer Global and Wachovia Corp managed to buy a 22-storey office tower.
"Even if a deal is on the table, people pull it because they are petrified of selling too cheaply," Young said.