21 September 2019
Macau's property prices surged in the past decade due to the gaming industry boom. Now, as the industry has slowed down, so has the housing market. Photo: HKEJ
Macau's property prices surged in the past decade due to the gaming industry boom. Now, as the industry has slowed down, so has the housing market. Photo: HKEJ

Why we can’t compare HK and Macau property markets

As uncertainties continue to cast a pall over Hong Kong’s housing market, even the real estate gurus are becoming increasingly bearish.

Among the pessimists, seasoned property investor Chan Ching-bak, often dubbed the “White Tornado”, has even said that things right now are worse than they were in 1997.

He said he won’t be surprised if home prices in Hong Kong plummet by one-third shortly, just like what happened in Macau.

True, Macau has witnessed its worst ever home price crash this year, but that doesn’t necessarily mean Hong Kong will follow the same course.

The reason: there are three major differences in the property markets between the two cities.

Firstly, according to the latest figures published by the Macau government, the average price of residential flats in the city was HK$84,753 (US$10,935) per square meter in July, or HK$7,874 per square foot.

This represented a monthly drop of 8 percent, and a whopping year-on-year fall of 24 percent, as compared to the peak in the second quarter last year.

There were only 883 deals closed in July, almost 70 percent less than the record high number in 2013.

However, despite all these terrifying figures, the current average property price in Macau is still nine times higher than what it was in 2004.

In comparison, home prices now are only two times higher than 2004 in Hong Kong, suggesting that homes here are still much less overpriced than those in Macau.

Secondly, there is one unique reason behind the surge in property prices in Macau over the past decade. Since the Macau government opened up the gaming industry in 2001, it has brought astonishing economic growth to the city, driving up property prices to record levels.

Last year the gambling tax alone accounted for over 83 percent of the total government revenue of Macau and was the single most important growth engine for the city. However, as the gaming industry in Macau is undergoing an unprecedented slowdown this year, the city witnessed a catastrophic 24.5 percent slump in its GDP in the first quarter, leading to the property market crash.

Although Hong Kong’s economy also relies a lot on spending by mainland Chinese tourists, it still can’t be compared to the degree to which the Macau economy depends on the gaming industry.

Despite all the bad news, it is still estimated that the Hong Kong economy will expand 2-3 percent this year, whereas Macau is undergoing its worst ever recession.

Lastly, even though both the Hong Kong and Macau governments are eagerly looking for land to build new homes to alleviate housing shortage and drive down property prices, Macau is far more efficient in churning out new flats than its neighbor.

That is because the government is truly practicing “executive dominance”, unlike Hong Kong, where partisan gridlock in the legislature often leads to severe delays in public construction projects.

The massive increase in housing supply in Macau only adds to the pressure on the city’s property prices during an economic downturn.

This article appeared in the Hong Kong Economic Journal on Sept. 17.

Translation by Alan Lee

[Chinese version 中文版]

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Hong Kong Economic Journal columnist