Hong Kong (Reuters) – At a convention in Shanghai, a group of investors with USD 110 billion (63 billion pounds) in funds between them asked a property expert where in Asia he would put his money.
„Without hesitation, Macau,“ answered Peter Barge, author of „The little book of big decisions“ on how to be decisive.
Barge, who is also Asia head of property consultants Jones Lang LaSalle, has two „opportunity funds“ for property in the former-Portuguese colony, which is rushing to build huge casino resorts to draw Chinese gamblers in their millions.
Other foreign investors are following. What was once a speculative residential property market, supplied by local developers, is starting to attract bigger international names interested in building shopping centres, offices and flats.
Citigroup Inc. has hooked up with private developer Macau Land to build two luxury high-rise apartment blocks.
The site overlooks the Cotai Strip — a parcel of reclaimed land fusing two of Macau’s islands, where U.S. casino operator Las Vegas Sands Corp. is luring investors to Asia’s first „neon alley“ of hotels, shopping centres, casinos and theatres.
And a joint venture between Morgan Stanley, Wachovia Corp. and Hong Kong-listed Pioneer Global bought a 22-storey office tower last year. Many investors believe too many office blocks have been turned into casinos in recent years.
Dan Tagliere, co-founder of Macau Land, gives regular tours of the 27 sq km territory for investment bankers, fund managers and wealthy individuals. For all these investors, property is one of the few ways to bet on Macau, which has no stock market and whose Pataca currency is pegged to the Hong Kong dollar.
The Macau of cobbled streets and pastel colonial facades, smoky casinos and seedy massage parlours is being bustled out of the way by USD 24 billion worth of private and government investment pledged for the next decade.
The boom began in 2002 when Macau, the only place in China where casinos are legal, broke a four-decade-old gaming monopoly, letting in U.S. operators Las Vegas Sands and Wynn Resorts A year later, China eased rules on overseas travel for citizens of its main cities, unleashing a flood of gamblers.
„If you believe in the increasing tourist numbers and think the economy will grow and survive regional economic downturns, as Las Vegas has, real estate is a good investment,“ Tagliere said.
Macau’s economy grew 28 percent in real terms in 2004 and 6.2 percent last year, while visitor numbers have climbed from 11.9 million in 2003 to 18.7 million last year.
The government expects that when the Cotai Strip is built, Macau will host 40 million tourists a year, and will need to swell its population by 27 percent to 610,000 to make it all work.
But not all property investors are convinced. Morgan Parker, Asia president at U.S. mall developer Taubman Centers Inc., thinks there will be an oversupply of luxury malls.
„People like us are being hounded by mixed use developers, casino developers, to build retail,“ said Parker.
„All the projects have a retail component and the aspirations are quite similar. But how many stores can a retailer like Louis Vuitton have in Macau?“ Macau though, thinks it is too small for the investment plans and is adopting a policy of territorial expansion.
Last month it unveiled sea reclamation plans to add 14 percent more land.
The move will give more opportunity for foreign developers in the crowded city, but will probably upset those who bought near the three areas earmarked.
„Investors who bought pristine waterfront land woke up to discover they’re going to have a view of a 10-year building site,“ Barge said, urging the Macau government to consult more.
Developers believe Hong Kong and mainland Chinese people will keep buying apartments as investments in anticipation of an influx of expatriate executives, partly because prices are still about one fifth of those in Hong Kong, an hour away by ferry.
Macau home prices jumped about 50 percent in 2004 before rising interest rates and high vacancy subued the market.
The main worry for developers are shortages, which are raising the costs of materials and labour.
„Part of the risk is construction, getting it built on time and at the right quality,“ said Nicholas Sallnow-Smith, chief executive of Hongkong Land Holdings, which is building luxury apartments with partner Shun Tak Holdings Ltd.