What you need to know about Macau’s property market

The office leasing market is set to lose one of its largest tenants.

Given the easing of the pandemic in Macau and China, Savills reveals that tourists are finding the confidence to travel between cities, and this is obviously a favorable factor for the outward looking economy of Macau. The number of tourist arrivals totaled 1.73 million in Q1/2021, a fall of 7.4% compared to Q4/2020, but still offering support to gaming revenues even at this level. 

“Macau’s gaming revenue hit MOP23.7 billion in Q1/2021, which is another consecutive increase by a quarter of 8.4% compared to Q4/2020, and given the growth in vaccinations, the economy may see a further rebound over the coming quarters.”

Here’s more from Savills:

Office sector

The Macau Government has recently announced that it will relocate most of its offices from the private leasing market to government-owned properties. It is hoped that by the end of 2024 most of the departments of government will have been relocated in this way. 

Over the past few years, the Macau Government has occupied over 1.2 million sq ft of lettable area in the two major business zones of Nam Van and Nape. Including other secondary buildings this figure rises to nearly three million sq ft of lettable area, and it is reported that the Macau government typically pays over MOP800 million as rental expenses to private landlords every year, making it one of the largest tenants in the commercial property market. 

In recent years, there are many voices from both the general public and the legislative council requesting the Macau Government to develop their own office buildings thus reducing public rental expenses. The Government identified an opportunity from 2015, when under a new land law approved by the legislative council, the government has reclaimed over 80 sites over the past six years (usually because the owner of the site failed to complete the development within the land grant period). 

The new land law has therefore provided sufficient land reserves for the government to develop numerous office buildings, including a recently completed project near ZAPE, an 11-storey building providing over 13,400 sq m of GFA for both office and parking uses, designed for government use only. 

The government continues to take steps to implement its development strategy and two sites located in NAPE have been reclaimed by the government under the new land law commonly known as lot 12 and lot 25, able to provide over 12,000 sq m of developable area. It is estimated that the sites could yield office properties with a height of up to 75 meters, and with a plot ratio of close to 11. The government has already taken action on lot 25 to start the development process, and it is expected that the same usage will be approved for lot 12. 

The plans for the government to quit the private market have caused some concern in the private office property market. According to Savills’ statistics, almost 20% by GFA is occupied by diff erent departments of the government among the 19 office buildings in the two major business zones. Most of the office units comprise a whole floor, or several contiguous floors, rather than individual or separate units. In other words, it is potentially possible for the government to release most of the occupied units back to the private market, and availability would therefore rise by 20% in the most extreme case, undermining the bargaining power of the owners of such properties.

Residential sector

The performance of the residential market continues to fluctuate, and the average transacted unit price of residential properties stood at 97,493 per sq m (salable area) in Q1/2021, a fall of 8.7% compared to Q4/2020. Among the 1,365 transactions in Q1/2021, 91% of all transactions were accounted for by the second-hand market, while only 9% came from the primary market. 

The average transaction unit price of second-hand residential stood at 93,456 per sq m (salable area) in Q1/2021, a drop of 4.8% compared to Q4/2020. While first-hand residential recorded an average transaction unit price of 147,571 per sq m (salable area) in the same quarter, a fall of 4.3% compared to Q4/2020. 

Such an outcome indicates that the overall transaction price was dragged down by a reduction of first-hand residential project supply coming to the market, as currently the average price of first-hand units is over 50% higher than second-hand units. 

According to statistics from the Macau government in Q1/2021, the price index divided by building age revealed a figure of 265.3 for residential units with a building age of five years or below, 243.9 for 6 – 10 years, 299.4 for 11 – 20 years and 276.4 for buildings over 20 years old. While the price index divided by saleable floor area stood at 285.7 for residential units with an SFA of less than 50 sq m, 297.1 for 50 – 74.9 sq m, 246.7 for 75 – 99.9 sq m, and 233.9 for over 100 sq m of saleable floor area, both indices take 2010 as a base. Such results indicate that the most favourable residential units in Macau are aged between 11 and 20 years, with a saleable floor area of between 50 and 74.9 sq m. 

One of the major reasons causing the current lack of new residential supply is the site resumption action of the Macau government mentioned above, and most land reserves are now held by the government. With no signs of the land being released, it is forecast that the supply of new residential projects will remain at a relatively low level.