Macau's casino problems and Singapore's housing system
Both cities have uncertainty in their future but of different kinds
Hello,
It’s a new year and the start of a new set of posts for Filtered Kapi.
This week there were two developments which caught my eye and I decided to delve deeper into both.
Macau unveiled a draft gambling law which has widespread ramifications for the economy.
Next up we look at the how Singaporeans are putting all their retirement eggs into the real estate basket.
Macau’s casino woes
In January 2022, Macau released a draft law to slash the duration of new gaming licenses from 20 years to a maximum of 10 years. The reason given by Macau’s Executive Council was that gaming must not undermine China’s “national security”.
The phrase “threat to national security” loosely translated, means, any action which endangers Chinese interests.
Macau is the only place in China where casino gambling is legally permitted. Before the pandemic, it raked in more revenue in a single week than Las Vegas makes in a month.
This has made the region extremely rich. In 2019, it’s GDP per capita was $86,197, higher than both Hong Kong and Singapore.
Sonny Lo, author of Casino Capitalism, Society and Politics in China’s Macau, says Beijing’s moves are driven by concerns around the use of casinos for capital flight by high rollers.
“In Beijing’s eyes, casinos should not be used as a conduit for money laundering or used to channel treasures out of Macau,” Lo says. To strengthen supervision over gambling activities, Macau’s gaming regulator has also undergone organizational changes over the past few years, with an influx of staff with a national security background.
The VIP gaming rooms in Macau, are seen by Beijing as a massive leakage of capital from the economy. A large part of the money being gambled by these VIPs is perceived as the proceeds of corruption and bribery on the mainland. The government believed VIPs were using this route to launder money out of China.
In 2019, Economic Information Daily alleged that Suncity was running an online gambling platform targeting mainland citizens.
In December 2021, Suncity CEO Alvin Chau was arrested on suspicion of cross-border gambling and money-laundering, following which the casino operator shut down its VIP rooms.
The yearly bets amounted to more than $156 billion. The report criticized the platforms for posing a danger to China’s socio-economic order and financial security.
Another reason for stricter laws is to exert more control over where gambling profits go.
“They [China] want casinos to help the economy, and small to medium-sized businesses, rather than stripping the money out [and sending it] back to the United States,” a senior casino executive says. “They want to take a greater interest ... have greater control.”
“China has already made it abundantly clear that gambling is a vice through a series of anti-gambling edicts,” says Ben Lee, an Asian gaming expert at Igamix Management and Consulting. “In terms of easy money for the foreign operators, it seems that Beijing is looking at controlling the previously unconstrained ability to repatriate profit and funds.”
Given the crackdown on corruption and stricter gambling restrictions, Macau authorities in recent years have tried to diversify away from the gaming sector.
But gambling operations account for ~80% of Macau's government revenue and more than half its gross domestic product, with almost a fifth of the city's working population working in the industry.
Will Macau be able to diversify fast enough? That remains to be seen.
Singaporeans big bet on housing
In the past four decades, home ownership for Singaporeans aged 25-34 has climbed from 60% to 88%, one of the highest in the world. Today, more than 80% of Singaporeans live in public housing.
Founded in 1960, the Housing Development Board (HDB) builds on public and reclaimed land, acts as a lender, and provides easy access to public amenities such as parks and transport services.
In 2021, HDB incurred a deficit of SGD1.95 billion on its homeownership programme. Meaning the costs of developing the flats was more than the revenue generated from selling them. Due to deficits like these, the HDB relies on grants from the government to keep it going.
This subsidised cost is recuperated through taxes levied via progressive slab rates on wealth and income. This redistribution of wealth ensures that citizens of all social standings have access to housing. Higher home ownership means many Singaporeans have an asset that appreciates along with the nation’s economy.
Financing for the flat can come from a bank loan, loan from HDB or savings from central provident fund (CPF). Being able to withdraw from the CPF means that savings for retirement can be redeployed into property.
Some Singaporeans assume the flat they purchase will provide for their retirement. With time the price will appreciate as demand for flats increases and supply is constrained. They can resell the flat at a higher price and shift to a smaller home to meet expenses after retirement.
To prevent hoarding, Singaporeans are allowed to own one HDB flat at any one time.
Homes are issued by the state on 99-year leaseholds. The leasehold system means buyers have bought only the right to use the flat – the property title will revert to HDB at the end of 99 years.
Thus, the resale value of a flat could deteriorate significantly as the lease end date approaches; that is when the lease drops below 30 years.
But, it isn’t certain that house prices will keep rising vs standard of living costs.
42% of Singapore’s household sector assets lie in property, with securities making up a mere 9%. This overexposure means investors will be highly impacted if their bet on rising house prices doesn’t pay off.
Since 2009, for every S$100 invested, one could have seen returns of S$635 from the S&P 500 and S$486 from Singapore-Reits, compared to S$339 from an HDB flat.
With an aging population and rising healthcare costs, Singaporeans will have to judge the trade-off between safe investments in property vs bets in more riskier asset class.
It feels good to be hitting publish on the newsletter again. There is a lot to come this year so stay tuned.
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