Property roulette

With more bearish signs evident for the Hong Kong and Mainland Chinese residential property market amid the trade war and other factors, observers say the local home market will likely remain unscathed as long as casinos here don’t lose their glitz.

On the heels of the first interest rate hike for more than a decade, coupled with the continuous simmering trade war between China and the United States, Hong Kong has seen more and more homeowners offer steep discounts for property sales in recent times, while new residential projects have failed to generate the hot sales they once did.

The situation has led to more bearish calls for the Hong Kong home property market, as well as the Mainland Chinese sector, in the near future. What about Macau? Pundits believe the number of residential transactions might shrink despite the push by some project developers, although prices could remain stable – at least for now.

Dong Fu Ye Property Development Co. Ltd. launched about 100 more flats at its luxury Waterfront Duet residences near the Macau Yacht Club in Fai Chi Kei for presale in November. The project, which has offered presales in phases since January, comprises some 1,000 units in all and will be completed by the last quarter of 2019.

Developer chairman Chong Siu Kin is not worried about recent negative market sentiment.

“There’s not much room for the local property price to go down as demand still outstrips supply here,” he says, adding that the recent opening of the Hong Kong-Zhuhai-Macau Bridge, which reduces land travel time in the region, could help boost the market. “Although local lenders have raised the interest rate in recent times, the increment is not big and will not significantly deter buyers.”

In the face of a series of interest rate hikes in the US since 2015, local banks did not follow suit for years despite the city’s currency being indirectly pegged to the greenback via the Hong Kong dollar; this, due to the ample capital pool in the local financial system. But local banks finally increased the interest rate by 0.125 per cent in September, the first time for 12 years, signalling the end of a low interest rate era.

On the sidelines

Amid the start of the rising interest rate cycle and government property curbs introduced in 2018 to rein in soaring home prices, local developers have jumped on the bandwagon in recent months to offer incentives to entice homebuyers to stimulate sales. For instance, Dong Fu Ye allows a long period for buyers to seek financing and settle down payment, while developers of luxury projects Praia Grande & Praia Peninsula in Fai Chi Kei and Praia Park in Seac Pai Van permit buyers to settle payment with them in instalments without bank loans.

The latest incentive came from La Marina – a high-end development of over 2,700 units in the Areia Preta district – which offers a subsidy of 3.15 per cent of the property value for buyers on stamp duty.

But incentives have so far failed to ramp up sales significantly.

“There are more flat views, which do not immediately translate into transactions,” said Lily Hong, Sales Director of Midland Realty (Macau) Ltd. “Buyers are still adopting a wait-and-see approach now [in the event of] any changes in the market.”

The latest figures from the Statistics and Census Service reveal that home prices have so far maintained a growth trajectory for 2018 despite a slower pace in recent months. The average home price in the third quarter stood at MOP103,844 (US$12,980.5) a square metre, up 4.6 per cent from the previous year.

The growth was higher than the 3.2 per cent up-tick of the second quarter, the lowest increment since the second quarter of 2016 when the property market had just snapped a losing streak of more than a year.

Staggering sales

In nearby Hong Kong, the market might even reach tipping point. Hong Kong’s official price index of used homes plunged for two months in a row, recording a 1.44 per cent decline in September and a 0.08 per cent drop in August. The latter was the first decline in 28 months.

Leading property agency Jones Lang LaSalle predicted in November that home prices in the Asian financial centre will fall by 15 per centnext year, and that the slide will even be as much as 25 per cent if the Sino-US trade war worsens and the rout in the Hong Kong stock market deteriorates.

‘Hong Kong’s almost 10-year housing market bull-run looks like it is coming to an end,’ the company said in a report.

Lily Hong of Midland Macau believes the Macau market will fare better, however, as some Hong Kong homeowners have asked for a second mortgage for their properties, a practice that is not common here.

“Macau home sellers have ampler financial power and will not lower asking prices easily due to fluctuations in the macro economy,” she said, although conceding that the number of home transactions might remain stagnant for some time. Official figures show Macau posted 9,066 home transactions in the first nine months of 2018, increasing by 13.9 per cent from a year earlier.

Gaming revenue

Over the border, new home prices have continued to rise as of October despite a slowing trend, while some agencies predict home prices will turn a corner next year in Mainland China.

S&P Global Ratings forecasts residential property prices on the Mainland will fall 5 per cent next year, while securities firm China International Capital Corporation anticipates a decline of as much as 10 per cent. The latter also said that 2019 will be a ‘year of recession’ for the Mainland real estate sector, with sales to fall for the first time in five years, financial news agency Bloomberg reports.

Gregory Ku Ka Ho, Managing Director of Jones Lang LaSalle Macau, points out that the recent bear calls in the property market in the region are due to the ongoing trade war between China and the US But he believes that Macau property will remain resilient as long as the local tourism and gaming industry – the cornerstones of the economy – remain robust.

“If there aren’t any changes to the policies [of Beijing], the Macau economy will remain safe and sound despite the fluctuations,” he maintains.

The last downswing in local real estate dates back to 2015-2016, due to slumping gaming revenue of more than two years over a slowing economy and a widespread anti-corruption campaign on the Mainland. The monthly tally of gross gaming revenue has been on a rising tack since August 2016, when a losing streak of 26 straight months was reversed.

Growth in the gaming sector, however, has slowed since the second quarter as the VIP segment has been hit by the weakening property market and lower economic growth on the Mainland. The growth of overall monthly gaming revenue in September and October slowed to 2.8 per cent and 2.6 per cent, respectively, the worst performance since the sector’s recovery two years ago, underscoring how the lacklustre Mainland economy and trade war have weighed on the gambling enclave.

Believing that the Macau home market will remain steady in the meantime, Mr. Ku strikes a cautious note, observing: “As long as the gaming sector doesn’t slump, the home market will not go down.”

First-time buyer market

Home sales this year have so far been dominated by first-time local buyers after the government loosened mortgage lending ratios for this segment.

Official figures show that local first-time homebuyers accounted for 62.9 per cent of total home transactions in the first 10 months of this year, or 6,074 of 9,659 homes.

Local homebuyers who owned one residential unit or more accounted for 31.7 per cent of home transactions – or 3,059 units – in the same period, while foreign and corporate buyers accounted for only 5.4 per cent of the total number.

The dominance of local first-time homebuyers in the market is due to the fact that authorities unveiled new mortgage loan ratios for first-time resident buyers aged 21 to 44 years in February in a bid to help the young buy their own homes, while imposing a new stamp duty of 5 per cent on buyers acquiring a second residential unit and of 10 per cent on those buying a third or more properties at the same time.

Prior to the new rules, local first-time homebuyers accounted for about 30 per cent of total home transactions here.