Having made giant strides since the 1960s, Macao's real estate industry has become one of the four pillar industries in the local economy. The realty industry has played an increasing role in the regional economy and had an obvious impact on residents' lives in Macao. Small in size and dense in population, Macao has been developing into a modernized international city from a lagging fishing port. Ups and downs in the real estate industry resulted in corresponding oscillations in Macao's overall economy. Since the latter half of 1993, Macao's real estate industry has been in continuous slack and decline due to a depressed overall economic environment. How to help the sector get out of this tight corner, restart and resuscitate the realty market, and how to promote and plan its mid- and long-term development by using opportunities presented with the turn of the century and Macao’s return to the motherland are not only tests which real estate developers have to face, but also problems which people from all walks of life and administrative authorities show solicitude for.

1. Looking back on the history of Macao's realty industry

Since the 1960s when Macao's modern real estate industry took shape, it has become a "barometer", reflecting the ups and downs of the local economy. After entering the 1990s, the economy's periodic changes were mainly affected by the real estate industry's fast growth and sharp decline.

From the 1960s to 1993, Macao's real estate industry, which was closely related with the overall economy, experienced five periodic rises and falls. (See table 1)

Macao's real estate industry was a "barometer" for the overall economy as it oscillated. On the one hand, the development of the real estate industry relies on stimulation and support from the overall economic development and stimulates economic development in turn. On the other hand, downswing in the expected economic development would produce a reduction in investment in the real estate sector and the reduction and backlogged funds would result in an actual slide of the whole economy. The oscillations of Macao's economic development basically tallied with the ups and downs of the real estate industry. Macao's economy developed vigorously in the early 1960s and by leaps and bounds in the 1970s. The annual growth rate of Macao's GDP averaged 16.7 per cent in the 1971-81 period. The 1980s saw sustainable economic growth, despite undulation during that time. Macao's annual gross production increased by 7 per cent in the 1982-95 period. The GDP was more than 34.9 billion Macao dollars in 1995 and exports stood at 29.3 billion Macao dollars. However, its GDP growth rate declined yearly during the 1992-98 period. The growth rates were 13.3 per cent in 1992, 5.2 per cent in 1993, 4.6 per cent in 1994, 3.6 per cent in 1995, -0.5 per cent in 1996, -0.1 per cent in 1997 and -6.8 per cent in 1998. Presently, both Macao's real estate industry and economic development are at an all time low.

2. Factors contributing to the six-year depression in the realty industry

Since the second half of 1993, Macao's realty industry has declined sharply. Its recession has the following features:

A. The number of newly-begun construction and land projects decreased and the area of land left idle increased.

Source: 1998 "Construction Statistics" compiled by Statistical and General Survey Bureau of Macao Government

B. Newly-finished buildings floor space reduced and the number of vacant buildings rose. Although realty developers and dealers took various promotional measures, the number of vacant buildings currently stands at 38,000 units, according to materials from the local government.

C. Investment in fixed assets declined by a large margin. The growth rate of Macao's fixed asset investment was 36.9 per cent in 1992 (at a constant price), hitting a record high. However, the figures sunk to -8.8 per cent in 1995, -16.9 in 1996, 2.7 per cent in 1997 and -16.2 per cent in 1998. As half of the fixed asset investment was, as a rule, used in the real estate industry, with the drop in total fixed asset investment, investment in the realty industry decreased correspondingly

D. Developers' huge funds were occupied and used by the unsold buildings due to a reduction in building sales.

Although many reasons led to the sustained recession of Macao's real estate industry, there are two main reasons:

First, the local government offered a great quantity of land without control, causing oversupply in the realty market. The situation will change little within a short period of time. It needs time to sell the empty buildings. Only when the vacant buildings are digested by the market, can the normal relation between supply and demand for buildings be resumed years later.

Second, the real estate industry was affected by outside economic environment due to an inundation of outside capital. Huge funds flooded into Macao when the market expectation of Hong Kong investors was optimistic. Spurred by Deng Xiaoping's speech during his South China tour in 1992, the real estate industry on the mainland became suddenly much hotter. Investors in the Pearl River Delta and inland provinces and regions came to Macao and invested in real estate industry. When the central government adopted a macro-control policy with limited credit and rectification of financial order as its main measures in 1993, a large amount of capital was withdrawn from Macao. Thus was the carpet pulled out from under Macao's real estate industry and the situation took a sudden turn. Before Macao had a chance to catch its breath, the Asian financial crisis at the end of 1997 caused Hong Kong's economy suffer a setback. Hong Kong firms and mainland-funded companies withdrew or reduced their investment in Macao one after another. The price of buildings fell, Tourim reduced and unemployment rose. Declining business and economic recession even affected the local residents' desire to purchase buildings for their own dwelling.

Rampant switching and scalping on the building market, an irrational building investment structure on the behalf of developers and weakness in Macao's domestic consumption had more or less impact on the sustainable recession of Macao's real estate industry.

3. Adjustment of policy and talking briefly on rules and regulations of land property

Macao's land can be classified into six categories on the basis of usage: land for agriculture, storage, commerce, residential quarters, industry and miscellaneous. The land can also be classified into eight categories on the basis of characteristics: private, government leased (permanent lease), government leasehold (with a limited duration), government-owned land for public use, temporary occupation, paper of sa chi kai (peculiar to Macao) and private lease.

In accordance with the Sino-Portuguese joint statement, the Macao-Portuguese government has the right to approve the use of 20 hectares of land each year. In the light of suggestions from the Macao-Portuguese government, the land team will examine and determine any changes in the above quota. Currently, most land is approved for leasing; i.e. the approved land for leasing is restricted as to number of years and purposes, and ground rent should be paid annually. After approval, the approvee has to deliver a premium to the government according to law and develop the land in accordance with the clauses of the approved land contract.

In the light of related rules and regulations, and local practices in Macao, some basic formalities should be gone through and fees be handed in when realty trading is conducted. Buyers and sellers need to sign a formal sales contract at a law office and go through procedures for reporting property transfer tax. Then, both sides ink contract and go to the registration bureau for re-registration. If the building is newly built, the contract should be concluded after registering procedures for each storey are complete. Before these procedures are finished, the developer should go through procedures for the transfer of names.

Investment and development of real estate and construction industries should be carried out in accordance with some procedures and administrative formalities. For example, registered professional people should be entrusted to handle property development planning, project guidance and implementation; project licences will be obtained from the Land Project Affairs and Transportation Bureau and construction will be carried out according to construction regulations. Before licenses for newly-built buildings may be issued, temporary registration of each storey should be undertaken. Before the new occupants can move in, applications for door numbers and permanent registration for each storey must be carried out.

When the land is developed into available properties, the developers can put them on the market or use them themselves. The realty agents play the intermediate role in sales. Macao's two large trade chambers of commerce, Macao Property Chamber of Commerce and Real Estate United Chamber of Commerce, have formulated regulations for proxy deals. All members must abide by those regulations.

As for real estate leasing, the Macao government drafted "The Leasing System on Metropolis Real Property", which was put into effect on January 1, 1996. The system, consisting of five chapters and 120 articles, is suitable for leasing residential, industrial and commercial buildings. It can also standardize the duties and obligations of both lessors and lessees.

Whether or not the real estate industry develops smoothly depends to great extent on the policies of the administrative authorities, as the government's policies have the role of adjustment in the realty industry.

At present, the Macao government can implement the following preferential policies and measures:

A. Reduction and exemption of tax. To start up the real estate market, the government might cut property transfer tax by a large margin if residents purchase housing for themselves. This policy can reduce residents' costs in purchasing buildings and stimulate their desire to purchase. In a stagnant situation, the government's revenues might reduce. However, in a dynamic situation, if internal consumption is stimulated and sales increase, the real estate market can be started and the overall economy be developed.

B. The policy of a "4 per cent interest rate subsidy" can be continuously implemented. The government began to practise this preferential policy from August 1, 1996 to promote real estate industry. The people who firstly purchase properties worth below 750,000 Macao dollars are given a 4 per cent loan interest subsidy by the government. This policy, to some extent, has stimulated the quiet building market.

C. Increased investment in public facilities. The government should increase investment in capital construction involving medical treatment, education, communication, parks, cultural and entertainment activities so as to help rejuvenate the real estate market. In the early 1990s, several government-funded infrastructure projects, such as the International Airport and Friendship Bridge, boosted an upsurge in the realty industry.

D. Appropriately increasing population to strengthen purchasing power. Some scholars pointed out, presently the supply of Macao's housing far exceeds the growth rate of population and basic demand for housing. It is necessary to review the government's population policy and properly speed up the growth rate of population.

E. Improving public order and cracking down on crime. This problem is a hot topic the land property circle and something which all Macao residents pay attention to. People can not live and work in peace and contentment without good public order. Overseas people dare not tour and invest in Macao and Macao's economy; people's livelihood and real estate industry can not take a turn for the better without good public order. The Macao government should be conscientiously held responsible for public security.

F. The government departments should improve service. Macao's realty trading system lags behind and government departments have low service efficiency. Though the real estate circle has appealed to the Macao government several times, service efficiency is still low. Practical measures for improving service should be taken.

4. Taking the opportunity to make glorious achievements again

Although Macao's real estate industry has been mired, traders should not be pessimistic after a setback. They should take initiative to explore new ways for the sector's long-term development.

A. Making efforts to enhance publicity. Macao Construction and Property Chamber of Commerce, Macao Land Property Chamber of Commerce and Macao Real Estate United Chamber of Commerce should continue to hold real estate sales exhibitions and put on a large Macao real estate display in Hong Kong or Taiwan. The price of buildings is much lower in Macao than in Hong Kong and Taiwan. The price of some buildings in Macao is only one tenth of that in Hong Kong. Macao is separated from Hong Kong and Taiwan by the sea, but with communication facilities and a good living environment in Macao, low- and medium-grade buildings have strong appeal to the people in Hong Kong and Taiwan. It is not a bad idea to develop some luxury residential buildings and villas in Macao.

B. Taking low-price sales tactics to digest vacant buildings. Only if circulating funds are available to launch other better realty projects and related industries, will the real estate market become naturally brisk again.

C. Adopting measures to provide various kinds of services to the real estate business. The measures can foster residents' purchasing intentions and help increase effective demand for properties. Besides, these services are, no doubt, a way to gain wealth and bring in economic returns.

D. Using the advantages of Macao's economic development to promote its overall economic progress. As Macao has an advantageous geographic position, stable free-port status and comprehensive basic facilities, the investment costs are lower than in Taiwan and Hong Kong. Macao is a bridge to the European Union and the countries speaking Portuguese and Latin languages. The banks offer preferential treatment to the real estate industry. The government also adopts measures to support the recovery of the real estate sector. Rational planning and layout, carefully selected projects and new equipment will give a push to the recovery and development of the overall economy.

E. To accomplish glorious achievements in the real estate industry by using the "returning effect." Macao will be returned to the motherland on December 20, 1999. People all over the world will be watching Macao as it is returned. This is the best opportunity for Macao people to rebuild confidence, make the region prosperous and turn over a new leaf.

After China resumes its sovereignty over Macao, adoption of the policies of "one country, two systems," "Macao people governing Macao," and a "high level of autonomy" will surely inject strong confidence and motivate investment in Macao. It is believed that the real estate industry will grasp this historical opportunity to make brilliant achievements.