Macau's property boom: bubble or sustainable gaming economy

¶ … Wall Street Journal

Cheng, Jonathan. (11 Apr 2008). "Macau: A Risky bet; property popular, for now."

International Finance the Wall Street Journal. pg.

Could Macau be the next example of a real estate bubble? Although the international economy looks grim in many sectors, one area is continuing to do well -- that of the gaming industry. According to the Wall Street Journal, in a small Chinese town west of Hong Kong known as Macau, the economy is booming because of the casino "bonanza" in the area (Cheng 2008: C5). As a result, demand for housing is skyrocketing. The limited supply of housing, and very low mortgage rates in the local residential market have made housing prices soar. The spike in demand for residential housing is largely due to the needs of casino workers and other individuals who have moved their businesses to the newly expanding economy in the region.

But, Jonathan Cheng cautions, "investors looking at an equity play on Macau's property sector need to look at the whole picture" (Cheng 2008: C5). Supply is increasing in cheaper nearby areas already, much to the dismay of Hong Kong- listed companies receiving most of their income from Macau property development. Also, the slower GDP growth in the Chinese mainland may mean fewer visitors willing to gamble.

But although the housing demand may cool, the expansion of the Macau economy does not seem like a parallel to the U.S. housing bubble. First of all, the presence of gambling means that housing will likely always be at a premium in the region, as it is the only place where the Chinese government allows gambling. There will always be a demand for workers to staff the venues that allow people to gamble, eat, sleep, and be entertained.