Residential market: Cooling measures not effective on prices

Friday, July 22, 2011
Issue 1364, Page 2 & 3
Word count: 1822
Published in: Macau Daily Times

By Poyi (Natalie) Leung & Tiago Azevedo

The government’s imposition of the special stamp duty (SSD) has been very “effective” in curbing speculation in the past month, but analysts believe the effects are temporary and home prices may even rise again in the fourth quarter of the year.

Committee member of the Macau General Association of Real Estate, Kelly Kou Sio I, who has been in the industry for about two decades, told the Macau Daily Times that residential transactions have plunged 80 percent, while the remaining 20 percent of buyers (end-users) have also been very “cautious”.

In mid-June the special stamp duty came into effect, which imposes a levy equivalent to 20 percent of the transaction price if a person sells a residential property – either complete or incomplete – within one year after purchase. The tax reduces down to 10 percent if the re-sale is done in the second year of buying.

The initiative has successfully combated speculation once it was introduced, Kou said, but she expects market activities would return to the original status before the end of this year.

“The industry – both buyers and sellers – have adopted a wait-and-see approach for a three-month period. If the market can digest [the new levy], home prices may rise again after September but won’t increase rapidly. A significant drop, however, I believe is unlikely,” she told the MDTimes.

As a result, she said the bargaining space has become greater now for residential properties, with a discount that could reach HKD 100,000 or even more.

In spite of Macau’s real estate market generally turning quiet at this time, Kou said if property owners or speculators have the financial capability that allows them to hold onto the property for a little longer, they definitely won’t sell them cheaper than usual.

Even though the government’s latest steps to rein in fast-rising property prices pushed flats sales down, “but the market may rebound late this year,” said Ronald Cheung, sales director of Midland Macau.

“The SSD definitely affected the number of total transactions. The market has been affected by the cooling measures, combined with China trying to slow down its growth and the sluggish stock market,” Cheung told MDTimes.

“If the global market doesn’t favour buying a property, which is still one of the most preferred investment vehicles for locals, Macau will go through a restructure period that will see the market a bit stagnant in coming months,” he added.

“Many developers have taken units off the market and therefore reduced the supply of new property. Although supply has been reduced, demand has also been affected and the net effect on pricing has been more neutral than anything,” wrote JML Property in the column ‘Real Estate Matters’.

According to the property firm, most speculators will avoid the 20 percent ‘speculative’ penalty through two simple mechanisms.

“Firstly, they will simply purchase property through a company, and sell the company rather than the property. Secondly, they will again leave a clause in the sales contract to re-assign ownership before registration of the property, which is what happens in most cases with new properties,” they said.

A housing bubble?

Kou says that the city’s private property prices have “quadrupled” in the past couple of years, primarily due to “the strong economy, excessive hot money, overactive speculation as well as the impacts brought by the external environment”.

Yet, this veteran industry practitioner does have her concerns. “No one knows whether it’s a bubble or an illusion.”

The current home price level is almost double that in the early 90s, Kou pointed out, adding that she believes it has already reached the “peak”.

In her 20 years of experience in the industry, she recalled that the “worst time” was probably between 2002 and 2003 when the epidemic of SARS (severe acute respiratory syndrome) occurred widely throughout mainland China and some countries in Southeast Asia.

“At that time [2002-03] you could buy a one-bedroom apartment at HKD 50,000, or a fifth-floor apartment together with the rooftop at HKD 110,000 only,” she said.

“In the past [when property prices weren’t that high] using HKD 1 million could buy a very nice apartment with three bedrooms,” she continued.

According to Kou, nowadays if a white-collar worker wants to buy a flat, he/she still has to be prepared to shoulder a debt burden of “at least HKD 2 million”.

This money, she said, will likely be able to purchase a two-bedroom apartment in a building more than 20 years old with no elevators. “It can only be one-bedroom if they want lifts,” she added.

While the string of anti-speculation measures have successfully slowed down the residential transaction volume and the effects are expected to continue for the rest of the year, Jones Lang LaSalle believes it will have little impact on prices.

From January to May this year, a total of 10,441 sale and purchase agreements in the residential market were recorded, but the transaction volume dropped in May and June.

“The number of transactions is expected to only restore growth at the end of the third quarter or in the fourth quarter of this year to around 800 to 1,000 per month,” said on Wednesday Jones Lang LaSalle’s head of residential in Macau Jeff Wong.

Nevertheless, he pointed out that home prices have remained steady in the past couple of months. Limited supply in the upcoming months will allow home prices to continue to hold firm in the second half of the year.

An idea supported by Ronald Cheung, who expects sales to rebound later this year.

“Prices will drop eventually, but only likely after four to six months. We’ll probably see lower residential prices in the last quarter of the year,” said Midland’s sales director.

‘No transparency’

You think properties on the Macau peninsula may be generally cheaper than those in Taipa? According to Kou, the overall prices have gone up regardless of the areas, since owners usually set the price tags based on market conditions and other sales.

“The prices are so varied from one to another”, she admitted, disclosing that buyers never know whether they can purchase a nicer property for less.

For brand new high-end residential properties, she said the prices are also “very fluctuating” and are raised by developers whenever they see favourable factors in the market.

“In the past the prices were very clear because developers were required to release a price list even before the construction was completed, but right now there is no transparency,” she pointed out.

“The biggest problem in the property market remains a lack of transparency and industry guidelines. Flipping properties is a common practice for agents, and this needs to be addressed,” wrote JML Property.

“Agents are often in a privileged position where they represent the buyer and seller, and are privy to confidential information from both sides,” said JML’s representative, adding that some agents use this knowledge to sell a property at a higher price, “effectively acting as a ‘broker’ and not an agent”.

According to Kou, the price per square foot in “old buildings” today is usually around HKD 3,000, and in “luxury buildings” is close to HKD 5,000 on average.

“A one-bedroom flat more than 30 years of age occupying about 300 square feet can cost HKD 1 million, even though it’s in poor quality and facing the yard and drain pipes of the building,” she told the MDTimes.

However, if the buyer works in a casino he/she may prefer a flat with less natural light, “because they need to sleep during the daytime”.

For example, Kou said a two-bedroom unit in a five-storey building over 20 years of age with no elevators can cost HKD 1.8 million, whereas in a 40-year-old building such flats also carry an over HKD 1 million price tag.

Meanwhile, The Paragon, the latest high-end property facing the sea in NAPE, had an unofficial (grey market) price of some HKD 7,000 to 8,000 per square foot, she disclosed. The pre-sale of One Oasis in Cotai was about HKD 4,000 per square foot.

“The prices of incomplete, luxury properties such as The Paragon, Green Island and the one on Parcel P in Areia Preta that belongs to Polytec Land Investment are usually between HKD 4 and HKD 5 million,” she said.

A rough checklist

The Macau Daily Times went to inspect a one-bedroom flat on the first floor of a five-storey, 25-year-old building located near the Social Welfare Bureau. The stairwell is dark even during the day unless you switch on the light after entering the building.

The unit has a construction area of nearly 400 square feet but a usable area of 300 square feet. It comes with no furniture except a double bed with a brand new mattress, a used wardrobe, used range hood and a used air-conditioner in the living room.

Priced at HKD 830,000, non-negotiable (HKD 2,075 per square foot based on the construction area), the flat faces the street where cars, buses, tourist coaches and even ambulances frequent travel as Kiang Wu Hospital is just around the corner.

There are no windows in the bathroom or in the bedroom, which also has no space for a desk or other large furniture.

The renovation is decent but one may like to re-paint the walls before moving in.

In addition, occupants will need to pay roughly MOP 50 per month for the building’s miscellaneous charges, stairwell cleaning fee and the public antenna service.

The MDTimes then went to see a two-bedroom apartment in Travessa do Pato, very close to Rua do Campo, one of Macau’s busiest areas.

Yet, inside the third-floor flat no noise from the street can be heard at all, from the windows you can only see the yard and the pipes of the five-storey building which is 13 years of age and one elevator.

The 600 square-foot construction and 480 square-foot usable area costs HKD 2.03 million, translating into a unit price of some HKD 3,383 based on the construction area, yet it comes with used furniture and electrical appliances and no refurbishment is required.

Searching on the local major real estate firm’s websites, a fully furnished duplex apartment with four bedrooms and one utility room as well as a 600 square-foot terrace in Taipa are asking for HKD 7.3 million.

The description says it has a gross area of 2,292 square feet and a net area of 1,719 square feet, meaning the unit price is HKD 3,185 based on the gross area.

Another three-bedroom apartment in a less than four year old building in central Taipa costs some HKD 6,300,000. The agency says it has about 1,700 square feet of total surface and also comes with a maid’s quarter and parking space.

In Coloane near Hac Sa Beach, the owner of a three-bedroom, fully furnished apartment is asking HKD 3,980,000. With a gross area of 1,663 square feet and a net area of 1,247 square feet, the balcony offers the occupants open and large green views.

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