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Asia's worst property market buoyed as Macau gamblers return

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The worst may be over for Asia's worst- performing property market. Macau's housing prices, which have plunged by a third since 2014, may get a boost amid signs that a two-year casino slump in the Chinese gambling mecca is near its end.

[HONG KONG] The worst may be over for Asia's worst- performing property market. Macau's housing prices, which have plunged by a third since 2014, may get a boost amid signs that a two-year casino slump in the Chinese gambling mecca is near its end.

A private equity fund managed by Gaw Capital Partners sold almost 90 per cent of the units it offered on the first day at a development in early July, with evidence of buoyant demand from local buyers. Billionaire Sheldon Adelson, whose firm owns Macau's largest casino operator, expressed optimism on a recovery in the hard-hit betting industry, fueled by recreational gamblers and tourists, joining analysts at JPMorgan Chase & Co in predicting a turnaround.

The fortunes of the former Portuguese colony are deeply entwined with gambling. The gaming industry, dominated by casino companies such as Mr Adelson's Las Vegas Sands Corp and Wynn Resorts Ltd, accounts for half of gross domestic product and a large chunk of employment in city dubbed the Las Vegas of Asia.

As China's anti-corruption push in 2014 drove big spenders away, housing in Macau suffered a deeper and more prolonged slump than in Hong Kong, where prices are down 11 per cent from a peak in September.

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"There is almost a direct correlation between the decline in gross gaming revenues and pricing in the mass residential market," said Macau-based Tom Ashworth, principal of Sniper Capital Ltd, which manages the London-listed Macau Property Opportunities Fund Ltd.

"There are signs of a pick up," with the market potentially at a "bottom," he said.

Jones Lang LaSalle Inc's Jeff Wong is also calling the bottom of Macau's property market amid strong demand from domestic buyers, who now account for virtually all home purchases. A 10 per cent tax on foreign buyers and banking regulations that restrict mortgages to 50 per cent of a property value has seen Chinese buyers and other speculators exit the market, according to Mr Wong, head of JLL's Macau residential practice.

"We are at the bottom already," Mr Wong said. "Many undervalued properties are being absorbed by end users or long-term investors."

Though those demand curbing measures are likely to stay in place, there are signs the mood in the housing market is lifting. In April and May, sales transactions reached 2,123, the highest two-month period since 2013, and exceeding the 1,739 units sold in the same period in 2014 when prices hit their peak, according to data provided by Sniper Capital.

Gaw Capital sold 175 of 200 units on offer at the unveiling on July 2 of Oscar Crescent, a development in Macau's Taipa district. Prices at the luxury development, which features Miele appliances and views of the Macau Jockey Club, range from HK$8,500 (S$1,489) to HK$11,500 per square foot. All but one were bought by locals.

"These prices are 30 per cent off what we could have sold them for two years ago," said Goodwin Gaw, chairman of Gaw Capital. "They are equivalent to most New Territory prices," he said, referring to a district of Hong Kong with the city's least costly housing.

Though direct comparisons aren't possible, JLL's Mr Wong said that equivalent properties in Hong Kong's upscale Mid-Levels district would cost more than two-and-a-half times as much. Prices for the most expensive units at Macau's One Central, a waterfront luxury retail, residential and hotel complex developed by Hongkong Land Holdings Ltd and Shun Tak Holdings Ltd, have dropped to about HK$13,000 per square foot from HK$20,000 at their peak, Mr Wong said.

During Macau's boom that peaked in 2014, housing prices more than quintupled over a six-year period, as Sands China Ltd, MGM China Holdings Ltd and Galaxy Entertainment Group Ltd opened casinos that lured high-stakes mainland gamblers.

Then prices hit the skids as Chinese President Xi Jinping's clampdown on corruption and tighter government restrictions on Chinese using credit cards to finance their wagers started to bite, depressing gaming revenue.

Macau's gross domestic product contracted 20.3 per cent in 2015, and shrunk 13 per cent in the first quarter of this year. Home prices have declined almost 35 per cent from a high in April 2014.

In a July 24 note, JPMorgan said Macau's gross gaming revenue will "finally" turn positive by the fourth quarter from a year earlier, increasing 2 per cent. New projects such as Wynn Palace, Wynn Macau Ltd's new casino on the Cotai Strip, and Sands China Ltd's Parisian have the "best chance" to underpin demand, JPMorgan said. Year-on-year gross gaming revenues fell in June for 25 consecutive months.

That could help improve demand for housing, which is dominated by Hong Kong developers such as Hongkong Land and Shun Tak and property funds. Grant Govertsen, an analyst at Union Gaming Group LLC, is among those closely watching for the opening in August of the Wynn Palace for any sign of a pickup in gambling activity that could feed through to the housing market.

Macau Chief Executive Fernando Chui also said the economy may be turning the corner.

"Macau's gaming industry and the whole economy will continue to adjust, but the decline may shrink to 7.2 per cent this year and even resume growth in 2017," the city's top government official said in a televised session of the city's legislature Wednesday.

"It's a good time for Macau to re-position after a 25-month gaming revenue drop."

Not everyone is optimistic about the prospects for a gaming industry turnaround, as spending from Chinese high rollers, or the so-called "very important persons," remains muted.

"The two markets, property and gaming, go hand in hand," said Alfred Lau, a Hong Kong-based analyst at Bocom International Holdings Co. "We do expect a pick up in mass- gaming revenue to continue, but it is not strong enough to bring up overall gaming revenues," because the VIP segment is still weak, he said.

"I am not only a property bear, I am a gaming bear." While prices are stabilising, it will take some time for the market to claw its way back, Sniper Capital's Mr Ashworth said.

"People are holding back and waiting," he said. "This won't be a V-shaped recovery. Confidence will return once gaming revenues stabilise." Richard Yue, Hong Kong-based chief executive officer at fund manager Arch Capital Management Company Ltd, which is developing the seven-tower One Oasis project close to the Cotai Strip with Hong Kong builder Nan Fung Development Ltd, agrees.

"For the timing being, we believe the market has bottomed out," he said. "We have a couple of phases left to go, and not in a rush to complete everything. The market will only get better with time."

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