Since its launch in June 2006, Sniper Capital’s fund has invested $226.7m in Macau, the Las Vegas of Asia. It specializes in luxury and affordable residential developments.
Macau has already surpassed the Las Vegas strip in terms of gaming revenues, and closed-ended listed vehicle Macau Property Opportunities Fund is betting that residential and mixed-use investments in the former Portuguese colony will benefit from the gambling boom.
The fund, launched and externally managed by Sniper Capital, floated on the UK Alternative Investment Market in June 2006, raising £105m. It has since invested $226.7m in four major assets and a number of other smaller properties in Macau.
Tom Ashworth, co-founder of Sniper Capital, says: "In the first two months of this year, Macau gaming revenues were a quarter of those achieved in the whole of 2007, and 2007 revenues were up 46% on the previous year." Last year five major casino resorts opened, at a cost of $5.1bn, but this is still only a small slice of the $37bn of overseas capital committed to Macau since its gaming monopoly was broken in 2004.
Macau's success as a gaming location is reflected in its levels of population influx: immigrant workers exceeded 85,000 in 2007, representing a 25% year-on-year growth rate, compared with a 5% growth in the overall population of Macau.
Incomes are rising as new casinos and related retail and hospitality businesses demand new staff. There is rapid household formation as local inhabitants capitalise on their new-found disposable incomes, says Ashworth.
Property taxes reduced
The Macau government has also moved to appease local disquiet over escalating property prices and rising costs of living for lower-income earners by reducing property taxes and waiving stamp duty for first-time buyers, which Ashworth says will boost MPO's affordable housing projects.
The investment pipeline now being negotiated by MPO consists of II sites with a combined acquisition value of $550m, although not all will be acquired - with 60% gearing the fund can spend another $200m.
Ashworth says the fund is targeting "premium luxury" residential schemes in prime locations, entry-level residential accommodation, retail space in popular areas, leisure and commercial facilities, hotel and serviced apartments, and industrial and warehouse space. He expects the fund to be fully invested by the end of the year.
The fund owns a 100% interest in a residential redevelopment project in the south west of Macau, where it plans to develop flats targeted at local middle income residents.
"MACAU GDP PER HEAD IS HIGHERTHAN HONG KONG AND ONLY LIGHTLY LOWER THAN SINGAPORE, YET HOUSE PRICES ARE A FRACTION OF THOSE IN EITHER OF THOSE CITIES. THIS USEDTO BE DOWN TO NARROW WEALTH DISTRIBUTION, BUT BUSINESSES ARE NOW DISTRIBUTING WEALTH MORE WIDELY" Tom Ashworth, Sniper Capital
Government approval for this scheme has been received and completion is scheduled for the end of 2009. MPO plans to pre-sell some units and sell others after completion.
MPO also owns 18,500m2 of residential space in One Central Residences, the residential portion of the One Central premium mixed-use development. MPO's investment comprises a 40-storey luxury residential tower (Tower 6), bought in November 2006, and 24 units in other towers, which were purchased in a series of individual deals in the second half of 2007.
One Central is being jointly developed by Hongkong Land and Shun Tak Holdings and consists of a shopping complex, a 210-room Mandarin Oriental Hotel, a clubhouse and health spa.
High-rise plan for northern Macau
The fund also owns a site in the northern part of the Macau Peninsula, which it will redevelop to provide affordable high-rise apartments. MPO is looking to acquire further land around the site before embarking on the planning process.
In October, MPO bought a 1,000m2 site adjacent to Senado Square, one of the most popular tourist destinations in Macau, which is part of a World Heritage district. The fund plans to build a mixed-use retail and leisure scheme on the land. The acquisition took two and a half years and involved negotiations with 20 families.
Ashworth says: "Residential prices tend to rise in tandem with average incomes. Macau GDP per head is higher than Hong Kong and only slightly lower than Singapore, yet house prices are a fraction of those in either of those cities. Historically, this was due to the narrow wealth distribution, but new businesses are distributing wealth more widely."
Ashworth and co-founder Martin Tacon have built up a wide network of contacts in Macau and all negotiations are carried out by locals who have access to the wealthy families that control much of the peninsula's property. Tacon says: "We don't get directly involved - prices double the moment a westerner steps in the room."
As well as MPO, Sniper Capital also manages the South China Sniper Fund, a private, closed-ended opportunistic investment company with $10m of equity. The fund, which was raised in 2005, invests in small shophouses - traditional buildings with shops below and residential space above - in Macau, with a focus on gaining change of use and refurbishing the assets.