The Macau government recently adopted several macro-control measures - including suspending the issuance of new gaming licences as well as halting approval for applications for new casino projects and more gaming tables - in an attempt to curb the burgeoning growth of the gaming sector. These measures have attracted attention from all sectors of society, and potential buyers are concerned that Macau’s economy will be adversely affected. However, Jones Lang LaSalle Macau believes that these measures have barely affected Macau’s property market.
Boosted by the gaming boom, Macau’s economy has been the region’s best performer. With the liberalisation of the gaming sector, Macau’s gaming and construction sectors have posted rapid growth, accounting for more than 80% of Macau’s total GDP in 2007. So, how will the government’s new policies affect Macau’s property market?
Existing Gaming Tables Approach Over-supply
According to Jones Lang LaSalle Macau, it is rational for the Macau government to curb the excessive growth of the gaming sector, as the existing number of gaming tables in Macau is approaching a situation of oversupply. The new measures are conducive to preventing excessive competition; Macau should also start expanding ancillary sectors to achieve a more sustainable growth model.
While Macau has outstripped Las Vegas in terms of gaming revenue, it nevertheless faces diverse challenges. First, the rapid increase in the number of gaming tables has led to a decline in daily table revenues; in 2007, table revenues declined to around US$6,700 from around US$23,600 in 2003. Second, the rate of table usage in Macau is lower than that of Las Vegas – on average, one table received 14,512 guests in Las Vegas while in Macau one table served only 6,169 guests in 2007. Third, Macau’s gaming industry is predominantly centred round VIP gaming and as such lacks diversification. In 2007, VIP baccarat accounted for 66.5% of Macau’s total gaming revenue.
Advisable to Promote Ancillary Industries
With the implementation of the Mainland’s restrictive policies on individual travel to Macau designed to curb Mainlanders’ gambling in Macau, some early signs of cooling seem to be setting in, as in the y-o-y growth in VIP Baccarat, which slid from 73% in Q1 08 to 52% in Q2 08. While property developers and casino operators may reassess their long-term business plans in Macau against the backdrop of slowing gaming, the importance of boosting ancillary industries becomes apparent. From the long-term perspective, Macau should consider diversifying its economy by freeing itself from its current reliance on VIP gaming, and seek a more sustainable development mode for its gaming industry as well as its economy as a whole.
According to Jones Lang LaSalle Macau, apart from building more non-casino tourist sites, Macau should develop its MICE sector. In 2007, Las Vegas hosted about 23,800 events with 6.2 million attendees, while Macau held only 391 events for 75,723 attendees, just 1.2% of the figures recorded for Las Vegas. It is worth noting that the MICE sector generated revenue for Las Vegas of US$8.48 billion or US$ 1,361 per attendee in 2007, which was much higher than the city’s return on gaming of US$277 per head.
Construction Sector likely to Bear the Brunt
‘With its existing casino facilities Macau is able to serve a much larger number of visitors. The impact of the recent restrictive measures on the gaming sector, therefore, will be more on the psychological side than on the economic side,’ says Marcos Chan, Jones Lang LaSalle’s Head of Research, Hong Kong and Macau. ‘The construction sector will probably be the hardest hit but the impact will still be mild as the construction sector had anticipated that the market would slow in Q4 07, and most of the previously approved projects remain unaffected by the new measures. For the property sector, the high-end residential market will stay in good shape due to ongoing housing demand from expats employed by the casinos. The market for medium and small properties will face some consolidation pressure with the completion of current projects - but a sizable price correction is unlikely with the current tight supply,’ says Chan.