Tourist arrivals in Macao SAR in June plunged 25 percent from May. This is largely because of the SAR government's measures, including limiting travelers via Individual Visit Scheme, to reduce the number of tourists in the gambling hub.

The move has reduced casino visitors, but has not lowered high-end casino play. The SAR government said in April that it would not grant any new gaming license before 2010.

Some people are optimistic about its near-term growth, with gaming revenue expected to surpass HK$100 billion by the end of this year. But, given the government's signal to restrain the gambling craze, casino operators will have to adjust their expectations next year.

The gaming industry is not immune to economic hardships, either.

Even US firms Las Vegas Sands and Wynn Resorts, which opened the glitzy new casinos after SJM founder Stanley Ho's monopoly expired in 2002, have seen their share prices down by more than 50 percent since November last year.

Tighter credit conditions have also delayed financing for a massive casino, hotel and retail project planned for the city, according to news sources.

All of a sudden, the city's dominant industry has lost the upper hand due to political and economic uncertainties. What are the odds of its housing property market then?

Macao's property market has ridden the wave of its booming gaming sector over the last few years with transaction volume marking seven-fold increase in value since 2003, from HK$5.3 billion to HK$42 billion recorded in 2007.

A slowdown, however, has emerged, as reflected by latest transaction records. Accordingly, 7,673 sales were registered in May, down 34.3 percent over the same period of last year. Sales volume was valued at HK$3 billion, down by 33.8 percent month-on-month in May.

On the supply side, 2,500 flats are yet to be released in the second half of this year, and further 10,000 flats will also be marketed in 2009 and 2010 combined.

It is projected that housing prices will fall by 10-20 percent by the fourth quarter of this year, going back to where it was in the last quarter of 2007. Yet, prime residential properties will stay firm and are likely to see a mild growth of 3-5 percent in both investment and rental values.

Under the current circumstances, most landlords would be inclined to rent out their properties rather than selling. The simple philosophy is that it is not always necessary to sell real estate as an investment vehicle, especially when the price is not good. Indeed, when rental return justifies, it would be wiser for landlords to hold and rent.

Such strong rental demand is best explained by Macao's unique workforce demographics. The city has only 531,400 residents, but now over 60,000 foreign workers, primarily employed by casinos and hospitality companies, are staying in this tiny, supply-constrained economy.

Compared with Hong Kong, Macao is sill relatively cheap as far as living expenses are concerned. Expatriate workers, many of whom have lived and worked in Hong Kong, will find themselves better off earning the same level of salary as in Hong Kong but renting a much cheaper place in Macao.

If the demand for rental apartments, particularly prime properties catering to expatriates, continues to be strong, the housing market will soon find its level of support, when non-speculative buyers will come back for a high rental yield and invest for a capital growth over a longer run.

The author is deputy managing director of Vigers Asia Pacific Holdings.

(HK Edition 07/30/2008 page3)