Victor Cheung

The overwhelming response to a luxury project on the Cotai Strip has made market watchers confident the property market in Macau will turn around despite uncertainties following the suspension of the investment residency scheme. But sustainability of growth remains a concern for some.

Expected to be completed in 2010, the luxury residential project One Grantai, located on the "avenue of casinos," will contain 856 apartments and duplexes with sizes ranging between 1,400 square feet and 5,000 sq ft. Ninety percent have already been presold.

Recently a unit was presold at 8,700 patacas (HK$8,456) per square foot, a record for Macau. In comparison, an ordinary apartment sells for 3,000 patacas psf.

Several luxury projects, on sale in the coming few months, are priced at 5,000 to 7,000 patacas psf. With the feel-good effect fueled by the opening of the Venetian Macao, these prices may even reach 10,000 patacas psf within six months, Midland Realty Macau chief executive Ronald Cheung Yat-fai said.

Sentiment in the residential market started off strongly in the first quarter but turned cautious in the second, following the government's suspension of the investment residency scheme in early April, property consultant Jones Lang LaSalle said in a research note. Hesitant buyers combined with desperate landlords pushed capital values down, particularly on mass apartments, which have fallen 10-15 percent in the first half.

Stanley Chan, managing director of Stanley and Partners Investment Management, suggested that the investment residency scheme could be reinforced with tighter conditions, for example, doubling the minimum investment amount to 3 million patacas, while restricting the number of people coming in.

Immune to this trend was the high- end residential market, as landlords could afford to hold and leverage on strong leasing demand. Supported by the strong influx of expatriates and a reducing leasing stock, rental and capital value of high-end residential market properties in the first half grew by 7.6 percent and 4.3 percent, respectively.

Overall, the number of sales and presales rose 111 percent year on year in the first five months, according to Jones Lang LaSalle.

Jeff Wong Chi-wai, head of residential, Macau at Jones Lang LaSalle, believes that demand from local end- users will continue to be positive. But Chan does not think it is enough. "Residential properties are overvalued. The market grew too quickly. People here couldn't pile up money to support it," he said.

Chan estimates in the next six to 12 months, the price tag will remain high, but transactions will be weak. He is more positive about the longer-term outlook, though. "In three to five years, Macau's middle class may emerge, given the demand for human resources in the service industry. They will be the key to the healthy growth of Macau's property market."