Young Macau locals, the 20 to 30-somethings, who are yet to buy their own home, look enviously at many of their overseas friends who have already joined the ranks of property owners. They’ve seen over the past ten years or so how well these friends have done. As one young man put it to me, “capital gain on a property is the shortcut to getting a personal fortune”.
In the old days perhaps it was more acceptable for a newly married couple to continue living with parents. It was understandable; there was just no way they could possibly afford a place of their own. But there’s been a gradual cultural shift and today it’s a must that once married, they get their own home.
The government is empathetic towards the plight of young Macau locals earlier this year implemented a policy to give some support. But is it enough? Under the “Young Entrepreneurs Aid Scheme”,21-44-year-olds who are first-time home-buyers are able to get a maximum of 90% loan to value mortgage but only if the property is under MOP $3.3 million (subject to a cap of MOP $2.64 million, ie. 80% of the MOP3.3M).
But is there a property in the current market under MOP $3.3 million?
Maybe a car park. For more expensive properties in the next band upwards of MOP $3.3-6 million, government guidelines stated that banks can give a maximum loan of 70%, and for the next band up, MOP $6-8 million, it was 60%. From February 2018 the maximum loan to value limit for both bands, for young Macau residents who are first-time buyers, has been increased to 80%.
So has it really helped?
Ambiente has a property for sale in a 30-year-old, 5-story walk-up building, sandwiched between the Barra’s Yellow Market area and the beautiful 400-year-old San Lourenco church. Fit within the 1,000 square feet duplex space are 3 bedrooms, 1 bathroom, an open kitchen-living area, open views and access to the rooftop.
A bank valuation for this property is MOP $4.5 million (based on building age, size, and location) but given some environmental factors that the banks don’t take into consideration, we anticipate that a sale price of MOP $4.2 million can be achieved.
Let’s use this property to examine a before and after scenario for a supposedly, soon to be married 32-year-old Macau resident and first-time buyer.
Before the February announcements, the maximum loan he could expect was 70% (MOP $2.94 million). Down payment would then be MOP $1.26 million, plus his purchase expenses of MOP $130,000 (stamp duty, legal and agency fees) – so he’d need approximately MOP $1.4 million upfront in cash. With a 20 year mortgage at 2.5%, he would need to pay MOP $15,580 per month as principal and interest.
Today with the increase to 80% loan for this demographic our young man can, therefore, adjust his figures accordingly; with a bank loan of MOP $3.36 million the amount of cash he needs for this same purchase will be MOP $980,000. That’s a whopping 30% or MOP $420,000 lesser than before thus encouraging him to buy. But for a 20-year mortgage, his monthly outgoings will increase to MOP $17,800, which is a quite a big commitment to keep up for the next two decades. Heaven forbid he loses his job and takes a month or so to find another.
But having said that transactions are steeply up on the properties priced at below MOP $8 million, and especially in the MOP $5-7 million range; our Macau youngsters are keen to buy because of the better borrowing and to do it now while they can still manage to scrape up the down payment.
Emotionally, the new 80% bank loan has reopened the window for the young to seize the opportunity and jump on the real estate bandwagon. Worried that in the future restrictive policies will come into effect and that prices will continue to rise they tell us that, “If we can afford the down payment now, we need to grab a property before the chance is lost.”
Suzanne Watkinson would like to acknowledge and thank Dr. Carlos D. Simoes, Property Partner of DSL Lawyers, for his input on this article.
For any real estate-related inquiries, don’t hesitate to contact Suzanne Watkinson:
*All views expressed views are the author’s alone