Plataforma. 13 October 2023. By Nelson Moura e Paulo Rego.

Macau’s housing price index continues to fall post-pandemic. This phenomenon drives away potential investors in new land and “may justify the lack of bids in the recent public land competition”, says general manager of Ambiente Properties, Alex Cheng. There are other factors to consider, however, he states. Macau may be the victim of a widespread loss of confidence in the Chinese market.

The housing market in Macau continues to fall. After appearing to be recovering from the pandemic at the beginning of the year, the truth is that since May it has been falling, and increasingly so. House prices are the lowest recorded since December 2022 and in year-on-year terms are below assessments made in the three years of the pandemic, according to data from the Statistics and Census Services Directorate (DSEC) for the June-August quarter of 2023.

According to Alex Cheng, general manager of Ambiente Properties, a local real estate agency, the drop in the housing price index “may justify the lack of bids in the recent public land auction”. The analyst refers to the recent public tender to auction two plots of land located in Taipa, intended for private housing. Despite being the first at public auction since 2008, there was only one interested party, and for just one of the plots.

According to information published in the official bulletin, the base bidding price for Lot 8 was set at 1.13 billion patacas, with Lot 9 having a base price of 777 million patacas, the latter being the target of interest from a single consortium. A situation that had not been resolved, surprising the director of Land and Urban Construction Services, Lai Weng Leong.

Alex Cheng portrays the current scenario in the real estate sector: “The residential market is showing a downward trend”. For this reason, “investors and developers may become more cautious and hesitant in committing to new projects. They may be anticipating the potential decrease in demand for residential properties due to the drop in the index, leading to a reduced desire to purchase land or properties.” In his opinion, it is important to highlight that this factor is not the only contributor to the lack of bids in the auction, referring to “economic conditions, government policies and market uncertainties” as other elements that “influence investor behavior and may have an impact on the search”.

Speaking of the instability that the real estate sector is facing, Cheng believes that Macau may be a victim of the loss of global confidence in China’s economy. “It can also affect overall market sentiment and investor confidence,” she notes.

After a strong start at the beginning of 2023, the Chinese economy fell far short of expectations: it rose just 0.8 percent in the second quarter, which represents one of the weakest growth rates in China, even during successive confinements to make in the face of the Covid-19 pandemic.

The World Bank’s forecast for China’s economic growth was revised downwards last week. From the initial projection of 4.8 percent growth in 2024, it has now increased to 4.4 percent. This rate, despite being positive, is the slowest in the country since the 1960s.

Meanwhile, exports plummeted, consumption, production and investment slowed, and the unemployment rate increased. The renminbi, the Chinese currency, reached new lows in August and September 2023. “People can choose to keep their funds instead of investing in new developments”, says the person responsible for Ambiente Properties.
“Is China’s economic miracle over? Probably yes, because no miracle lasts forever. Higher incomes and the labor costs they generate, the deterioration of external conditions and the aging of the population constitute, in the long term, serious obstacles to high growth”, can be read in an opinion article by Yiping Huang, director of Peking University Institute of Digital Finance.

The academic also mentions that financially “China’s biggest concerns” revolve precisely “around the real estate sector”.

The Chinese property market – which represents up to 30 percent of the country’s economy – went into crisis more than two years ago, following restrictions imposed by Beijing on developer loans, with investment in the sector in 2022 falling for the first time in a decade.

Chinese real estate giant Evergrande abandoned a restructuring deal for more than US$19 billion in bonds at the end of last month, after nearly two years of discussions with its shareholders. A group of investors warned that this could have a catastrophic effect on other companies.

Evergrande is not an isolated case. The New York Times says more than 50 real estate developers have defaulted or defaulted on debt payments in the past three years. But the case of the Chinese giant is more worrying, because despite the fact that a large part of the debt belongs to foreign investors, many small and medium-sized companies in China are still awaiting payment. The company declared that it owed $82 billion to construction material suppliers alone. At a time when China’s growth is falling, “Evergrande’s unpaid bills are a burden that has repercussions on the entire economy”, reads the North American newspaper.

“If this sector were to collapse, the consequences would be very damaging”, predicts Huan, despite pointing out differences in relation to the crisis in the USA in 2008. “One difference between the situation in China and the subprime crisis in the USA is the absence of a visible negative equity in the Chinese real estate sector. This fact is due to the substantial down payments required in China, especially for the purchase of a second or third property, which vary between 60 and 90 percent. If housing prices were to fall – and they have not yet fallen substantially in most areas – the real estate sector’s contribution to financial crisis risk would be less than that of the United States in the global financial crisis.” However, he recognizes that “the resulting losses in terms of family wealth and economic growth could still be large”.