© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
March 7, 2014 1:34 pm
Like its Las Vegas cousin, The Venetian casino in Macau offers gondola rides along a garish imitation of the Grand Canal, but it is the gambling that pulls in the punters. Crowds congregate around spinning roulette wheels and baccarat tables under the strip-light glare of the gaming floor. Amid the fruit machine jingles, the flashing neon and the flutter of chips and cards, some play the role of gawping, detached spectator, while others try their luck. The atmosphere is far from festive but then Macau’s gambling industry is, and always has been, a serious business.
For centuries, the region has acted as a melting pot of different peoples, cultures and desires. Gambling was legalised in the late 1840s by the colonial Portuguese government in a bid to bolster the economy after China ceded Hong Kong to the British in 1842. Since then Macau has promoted itself as a casino resort, successfully luring tourists and immigrants from around the world. Local gambling magnate Stanley Ho dominated the scene in the late 20th century but in 2002, three years after Macau was returned to the Chinese, his monopoly was broken up and 24 new casinos have since been built. Now governed as a special administrative region, Macau remains the only location in China where gambling is legal.
Macau’s gambling industry is now thought to be seven times bigger than that of Las Vegas. Last year, gambling revenue within the region was 360bn patacas (the Macau currency, equivalent to $45bn), up 18.6 per cent from 2012, and last month alone gambling revenue rose 40 per cent against January. Meanwhile, visitor numbers in 2013 increased 4.4 per cent year-on-year to 29.3m (18.6m from mainland China). Inevitably, the boom has not been confined to Macau’s casinos, it has also had a huge impact on the tourist, property and retail industries.
Geographical, as well as economic, shifts have been key to Macau’s recent success. In 2003, work began on a major land reclamation project that has fused Macau’s two main islands, Taipa and Coloane, to form a new area known as the Cotai Strip. Development work has followed and there are now four casinos on the site – including The Venetian, one of the largest buildings in the world by area at 10.7m sq ft – with five more set to be completed by 2017. A bridge, due to open in 2016, will cut the drive time between Hong Kong and the Macau peninsula to 40 minutes and relieve pressure on the 24-hour ferry fleet.
Taipa has since become a popular residential enclave. In the northwest of the island a vast new edifice is under construction. Behind the clouds of dust and noise and jumble of bamboo scaffolding lies a spotless entrance lobby, an Aladdin’s cave of gold and polychrome marble, with legions of staff already in attendance. This is the Windsor Arch development, a cluster of 10 connected residential towers, marketed by Savills as 857 units priced between HK$10,000 and HK$13,000 ($1,300 and $1,700) per sq ft. No apartments are ready yet but the theme continues in the upstairs marketing suite where there are plush furnishings, fiddly faux-baroque details and views over the Cotai Strip – all designed with wealthy mainland Chinese buyers in mind.
“It’s the same old story – they want gold taps and marble bathrooms, they want the bling factor. Macau is very glitzy, it has a lot of swagger, like Las Vegas, and it’s all in keeping with the new image,” says Simon Smith, head of research at Savills Hong Kong.
Mid- to high-end residential prices, calculated per sq ft, rose by 26 per cent over the course of 2013, says Savills, a slowdown on the 52 per cent growth the previous year, while transaction volumes fell 29 per cent over the same period. The market in Macau is small compared with Hong Kong, so figures can be disrupted easily, but agents blame these falls on a lack of supply and the impact of Chinese government cooling measures.
Yet while foreign buyers may be forced to consider their investment carefully, Macau still offers an attractive lifestyle choice, and a protective economic microclimate. The population has increased since 2000, predominantly due to immigration, and Macanese residents enjoy low unemployment (the rate was 1.8 per cent in the fourth quarter of 2013) and one of the highest life expectancies in the world. “It’s rather like an oil economy,” says Smith. “Such are the revenues generated by gaming that the government has been able to reduce the top level of income tax to 12 per cent, top level corporate tax rates are 12 per cent, there is no VAT or goods and services tax, people get free healthcare, so suddenly a middle class has emerged.”
Jeff Wong, head of residential at Jones Lang LaSalle Macau, has seen a 10 per cent fall in foreign buyers since 2011. After a soft launch in May last year, 16 units of the upmarket One Penha Hill complex, located on the peninsula, were sold to locals, and Wong expects to find Macanese buyers for most of the remaining 63 units, priced between HK$13,000 and HK$20,000 per sq ft. “Local consumption power is very strong,” he says. “A lot of local people earn a quick fortune from the gambling industry and in Macau we do not have a lot of investment vehicles. Unlike Hong Kong, we do not have [our own] stock market so most people who want to invest, invest in real estate. The real estate market benefits a lot from the booming of the gaming industry.”
Of course, no one is prepared to talk about the role that money laundering plays in Macau’s economy. The British civil servant and writer Austin Coates (1922-1997) once remarked that Macau had “never lived by honest toil”, and while its days as one of the foremost ports for the illegal trade of heroin may be over, rumours of illicit funds and links to criminal triad gangs persist today. Over the past two years there has been a clampdown on so-called junket operators, who arrange trips for wealthy mainlanders, and supply them with credit to bypass China’s export limit – at present $50,000 a year – but tales of million dollars of bets in private VIP rooms abound.
Macau has, throughout its history, demonstrated a feisty resilience and a knack for reinvention, but there are factors on the horizon that could threaten its current prestige.
First, a swath of new gambling hubs has opened up across Asia. Singapore is already well known for its casinos, and last year two large-scale casino resorts opened outside Ho Chi Minh City and Manila respectively. Japan, too, now looks poised to lift its ban on casino gambling. Second, once China begins to relax its currency restrictions, as it is expected to, Macau – and Hong Kong, for that matter – will no longer function as stepping stones to the wider market. At present, wealthy mainland Chinese buyers are able to circumvent the restrictions through business links or relatives based in these locations, but may soon have much greater freedom to purchase second homes elsewhere.
These issues in part explain the huge effort to diversify Macau’s tourist industry. On the Hong Kong-to-Macau ferry, looped video ads show a range of activities on offer, from bungee-jumping off the Macau Tower to family meals out, but gambling is conspicuously absent. Most of the six casino operators in Macau have developed their entertainment offering. In November, The Venetian hosted a boxing match featuring Filipino star Manny Pacquiao, and this weekend the Rolling Stones are performing. Despite the recent clampdown on gift-giving in mainland China, as a result of President Xi Jinping’s anti-corruption drive, retail sales in Macau grew 23 per cent in 2013, compared with 11 per cent in Hong Kong, according to Savills, and designer stores are a growing presence in many casinos.
It is also striking that in 2005 Macau successfully applied for its historic centre to be designated a Unesco world heritage site. Tourists flock to the 17th-century ruins of St Paul’s church, to take snapshots in front of its façade, and visit the cobbled Senado Square and the Tin Hau Temple in Areia Preta. Old colonial houses in attractive ice-cream shades can still be found, and it is possible to purchase and renovate them as private homes, although few do. Throughout Macau there are restaurants and street vendors serving Macanese fusion cuisine, from pork chop buns to sweet egg-custard tarts. However, it remains doubtful that this rich Sino-Portuguese history could, as some suggest, help Macau become a global heritage destination.
Jason Wordie, a writer and local historian – whose book, Macau: People and Places, Past and Present, was published last year – believes that the Chinese are more interested in mainland heritage but says the perception of Macau as antique and otherworldly has long been part of its appeal. Although Wordie laments the loss of old architecture through new development, he points to the symbiotic relationship that exists between heritage funding and the gambling industry.
“What people forget is that up until the 1920s Macau didn’t even have a reliable water supply,” he says. “It’s easy for the nostalgia-seekers to wallow in some imagined past and forget the beggary and the prostitution . . . while much has been lost, there’s been a lot of human benefit.”
So what next for Macau? While its reputation for opulence may continue in the short term – evident in the upcoming Louis XIII casino hotel, which plans to charge nearly $130,000 a night for its premier suite – it seems inevitable that the resort will open up to the mainland’s growing middle classes. Macau already attracts coach-loads of day-trippers and Savills’ Smith believes it will continue to develop its heritage and entertainment potential. “I’ve even heard medical tourism being discussed as a sort of add-on,” he says, “so you could go there to get a quick nose job.” He also highlights the plans for neighbouring Hengqin island, which include a new business district, golf resorts and even a university campus.
So while growing numbers of wealthy mainlanders look to invest in global cities such as London and New York, Macau, with its hint at more, and therefore cheaper housing, looks set to become increasingly mass-market – less Asia’s Monte Carlo, more Butlin’s on the South China Sea – and perhaps no less lucrative for it.
Laura Battle is deputy editor of House & Home. She was a guest of Savills
How to buy in Macau: Government moves to cool the market
Foreigners (including mainland Chinese and Hong Kongers) are free to purchase property in Macau but recent government cooling measures have made the process more difficult.
All buyers must pay stamp duty of between 1 and 3 per cent, depending on the value of the property, but in 2012 the government imposed an additional stamp duty of 10 per cent on foreign buyers. And in 2011, in an attempt to discourage speculation, a special stamp duty was introduced that taxes sellers 20 per cent if ownership of a property is transferred within the first year of purchase, and 10 per within the second year.
Then there is the additional obstacle of mortgages; foreigners applying for a loan are required to make a down payment of between 30 and 60 per cent, depending on value. This means that for mainland Chinese, without business links or relatives in Macau, restricted as they are by an annual export limit of $50,000, it is almost impossible to buy property.
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.