Backed by its booming gaming sector, Macau has been the region’s best performer in terms of economic growth.  With the liberalisation of the gaming monopoly, Macau’s gaming and construction sectors have been growing fast and contributed over 80% of Macau’s total GDP in 2007.  The government’s announcement shocked the market when everybody believed that Macau should rev up efforts in the gaming industry to enhance its leading position.

In fact, it is rational for the Macau government to suspend the casino development as gaming tables were already at the brink of oversupply prior to the policy change and Macau should also start revving up the fringe sectors to pursue a more sustainable growth model.

Macau has outstripped Las Vegas in revenue generation but its gaming sector has been facing challenges.  First, the rapid growth of gaming tables has led to a decline in daily table revenues.  In 2007, table revenues declined to around USD 6,700 from around USD 23,600 in 2003.  Second, the level of table utilisation in Macau is relatively low versus that in Las Vegas – on average, one table served 14,512 guests in Las Vegas while one table served only 6,169 guests in Macau in 2007.  Third, Macau’s gaming industry is dominated by VIP gaming and lacks diversification.  In 2007, VIP Baccarat made up 66.5% of Macau’s total gaming revenue.

However, with China’s implementation of restrictive policies to curb its high rollers from betting in Macau, some early signs of cooling were seen and the y-o-y growth for VIP Baccarat slowed from 73% in 1Q08 to 52% in 2Q08.  As property developers and casino operators may reassess their long-term business plans in Macau, it may slow the growth in gaming and highlight the importance of the vitalisation of the fringe sectors.  Macau should consider deviating its economy from the current tight connection with the dominating VIP gaming sector to pursue a more sustainable model for Macau’s gaming industry and long-term growth.

Apart from giving tourists more attractions outside casinos, Macau should also rev up its efforts in the MICE sector.  In comparison, Las Vegas hosted about 23,800 events with 6.2 million attendees in 2007, while Macau held only 391 events with 75,723 attendees, which was only 1.2% of that of Las Vegas.  It is important to note that the MICE sector generated for Las Vegas a revenue of USD 8.48 billion or USD 1,361 per attendee in 2007, which was much higher than the city’s gaming revenue of USD 277 per head.

‘With the existing casino facilities Macau is able to serve a much larger number of visitors.  Therefore, the impact of the recent restrictive measures on the gaming sector will be more on the psychological side than on the economic side,’ says Marcos Chan, Jones Lang LaSalle’s Head of Research, Hong Kong and Macau.

‘The construction sector will probably be the hardest hit among all the major GDP components but the impact will be mild as a slowing construction sector has been anticipated by the market following a contraction in 4Q07 and most of the previously approved projects are unaffected by the new measures.  For the property sector, the high-end residential market will maintain its good shape with the ongoing housing demand from expatiates working for the casinos.  The mass market will face some consolidation pressure after the completion of the current construction projects but a sizable price correction is unlikely with the current tight supply,’ adds Chan.

‘In general, the restrictive measures on the gaming industry will cause little impact to the property market.  On the bright side, it can help prevent excessive competition among casinos and incite the city to reallocate its resources to improve the other sectors outside gaming, leading to a more sustainable economic growth model for Macau,’ concludes Chan.