Earlier this week, Las Vegas Sands’ (NYSE:LVS) Chinese company received a long awaited approval from Macau officials to sell apartments at the Four Seasons Macau. The residential unit is a 30-story building located next to the Venetian Macau on the Cotai Strip. Sands China will be able to raise millions of dollars by selling these co-operative style apartments. Macau residential housing prices have been rising due to the higher investment demand and limited supply. We expect this situation to remain unchanged in the near future, leading to continued uptrend in the housing prices.
Four Seasons Macau
In 2008, the hotel tower was legally separated, which allowed the company to transfer the apartment hotel building into a separate co-operative holding company and to sell co-operative interests in the tower. The company had already started taking reservations for the apartments and towards the end of 2008, the company had 22% reservations at an average price of $1,700 per sq. ft. 
However, until this week the government had not given approval to selling usage rights to other people. These apartments were built in 2009 and have been empty since. The government has now authorized an entity called Cotai Strip Lote 2 Apart Hotel (Macau), which is a Venetian Cotai subsidiary, to sell the usage of the Four Seasons apartment tower through a cooperative plan. Under this design, buyers will hold shares in a legal entity that controls the property and each sale of shares for each apartment unit will be subject to government approval.  The company is refurbishing the apartments before marketing kicks in. The company can raise around $775 million from sales proceeds of 300 apartments.  To the advantage of Sands China, this development is the only residential project in Cotai, which will help the company gain more pricing power. 
Macau Residential Market
Macau’s residential prices continue to surge due to the rising demand and support of long-term investments. In 2012, capital values rose by 26% in the high-end residential sector and 52% in the mass and medium residential sector as compared to 2011. 
According to the Government of Macau Special Administrative Region Statistics and Census Service, a total of about 17,500 units were sold in 2012. Transactions during the first 11 months of 2012, showed only 10% of buyers and 18% of sellers as foreigners.  This indicates that the residential market remains mainly locally driven in Macau.
Supply in the residential sector remained limited. A total of 2,400 residential units were delivered in 2012, while another 1,000 units are expected to come to the market in 2013.  While the property prices continue to surge, the Macau government is busy taking austerity measures to control the prices. In Q4 2012 a Special Stamp Duty (SSD) was extended to office, retail and car park sectors. A Buyer Stamp Duty (BSD) was introduced at 10% of the residential price paid by non-local residents or anyone purchasing through a company. The government also tightened the loan-to-value ratio for the pre-sale/completed units for both, local residents and foreign investors. 
These measures will help to some extent, but it is clear that prices will not cool down if the supply remains limited and the gaming destination continues to draw huge interest from Chinese visitors. Going forward, strong investment demand will rather lead to even higher property prices.
Our price estimate for Las Vegas Sands stands at $48, implying a discount of around 15% to the market price.Notes:
- Action Paves Way for Sales of Four Seasons Serviced-Vacation Suites, Sands China Press Release, Oct 22, 2008 [↩]
- Govt approves co-op rights at Four Seasons, Business Daily, Jun 06, 2013 [↩] [↩]
- Sands gets OK to sell Macau apartments, Yahoo News, June 5, 2013 [↩]
- Macau’s Property Market Expects Stable Growth across all Sectors in 2013 under the Austerity Policy Measures, Jones Lang LaSalle, January 17, 2013 [↩]
- ref:2 [↩] [↩]
- Revised special stamp duty as a remedy for real estate speculation, International Law Office, Jan 12, 2013 [↩]