Outbreak with severe impact on property market sentiment – Macau Property Opportunities Fund

Macau Property Opportunities Fund Limited (MPO) reported that although the local community’s response to the outbreak between July and August had a ‘severe impact on property market sentiment’, there are signs that people more affluent are seeking to enter the prime luxury segment for the ‘first time in several years’.

“Macau’s zero COVID strategy, which had already led to a deep economic recession and high unemployment, culminated in the start of a citywide lockdown in June, which included the closure of all casinos” , said the real estate investment fund in its dispatch. .

According to the fund, the number of residential real estate transactions fell 50.4% year-on-year, from 3,243 to 1,607 units in the first half.

Meanwhile, in the first three months of the year, the overall average price of residential units fell 8.4% quarter over quarter to MOP 8,926 ($1,106) per foot. square, market conditions that were maintained until June.

“Restrictions on travelers from outside of China will continue to limit the number of potential buyers in Macau and will therefore impact the timing of the plan to divest the business”

MPO is currently pursuing an active divestiture of its remaining assets on “terms acceptable under current market conditions”, with a focus on debt repayment and debt reduction through sales, as well as return of capital for
shareholders within the “shortest possible time”.

The fund is a Guernsey-registered closed-end investment company and the only listed real estate fund dedicated to investing in Macau, with an investment portfolio of approximately US$251.5 million as of March 31, 2022.

MPO is managed by Sniper Capital Limited, an Asia-based real estate investment manager with an unaudited adjusted net asset value of US$103.4 million as of June 30, 2022

MPO’s disposal program was expanded in late 2021 to include strata sales of all 59 apartments located at The Waterside, with four apartments located in this complex being agreed for a combined amount of US$14.4 million in July and two units remaining for US$5.4 million in August.

“These sales have been driven by the re-emergence of cash-rich buyers looking for very high quality homes in the city and mark an important first step towards orderly strata sales of the remaining 55 apartments at The Waterside”

The fund has also completed the disposal of the 36 standard units of The Fountainside residential development in Penha Hill in 2021, with efforts underway to sell its colonial-style Penha Heights villa at the top of the same area.

The Fountainside included 42 homes and 30 parking spaces, with the reconfiguration of two duplexes into three smaller units largely completed in the second quarter of 2022, with marketing efforts expected to begin in the last quarter of the year after Land, Public Works and Transport Directorate Control (DSSOPT).

“Several interested buyers from Macao and Hong Kong have been identified for the four villas. Counter-offers have been made, but negotiations have been hampered by the recent COVID-related lockdown,” the fund added.

According to MPO, the luxury market has seen new lows in
transaction prices, albeit mainly from “distressed sellers of below-average properties”.

‘Local real estate agent Centaline Macau cited a transaction involving a relatively large 3,000 square foot residential unit that hit a 10-year low of 5,500 HKD
(US$700) per square foot, or about 40% of the 2007 market price,” included the dispatch.

“Another transaction involving a two-bedroom apartment was completed at a price 15% below its pre-COVID levels. Although some of the transactions were forced
sales following the recent collapse of the casino industry, these units are generally not considered premier luxury properties and are not strictly comparable to
properties of the company’s portfolio”.

The fund also pointed out that Centaline predicts that the average price
residential properties will likely increase by up to 5% as market conditions improve and more cash-rich local families consider switching from renting to owning or renovating their current homes.

MPO is expected to publish its annual results at the end of September.