Earlier this month the 33-member general Legislative Assembly approved the following, to come into effect in six months time:
a) all property leases, (residential, commercial, industrial and car parks) are to be for a minimum of three years (until now they have been a minimum of two years),
b) it will be mandatory that all tenancy agreements are notarized (previously this was optional)
What was not passed was the proposal to impose a cap on rental increases.
Much to the consternation of many – and not only property agencies but also local property owners, and anyone who is hiring employees from overseas or bringing in exchange students – the belief is that there are no benefits whatsoever to these changes.
Word has it that the rationale behind them is the control of illegal inns, further protection of the interests of tenants and an attempt to cool the rental market. But those who dispute the changes argue that amending the law is akin to using a sledgehammer to crack a nut.
Some of the arguments are as follows:
1. The rental market is cooled already. Rent is driven by supply and demand. With so much more new supply of apartments, rents have naturally adjusted downwards. Over the past couple of years, mid-market residential rents have dropped 25%, luxury 35% and commercial down between 30-60%.
2. Making residential leases a minimum of three years is not feasible for expatriate blue card (employment) holders or students on study visas – who amount to 90% of the 180,000 or so tenants in Macau. As I understand it, these days, blue cards are being given for only one year. How, then, can an expatriate be expected to commit to a three-year lease? Likewise, the same for students who may be here on a one-year exchange programme. Yes, it’s understood that a tenant can always give 90 days’ notice to terminate at any time within a lease, but if the full lease term is not fulfilled the landlord has the right to keep part, if not all, of the two-month’s security deposit. Very often, an expatriate won’t know 90 days in advance if they their blue card will be renewed or not – and if the required notice is not given, the landlord will keep the whole of the security deposit. How ridiculously unfair and unnecessarily confusing it is to our overseas workers – and what an unwelcoming, negative message it sends to them.
3. Local tenants (10% of the residential rental market) and university students from overseas, tend to be young people, who want more flexibility in leasing, not less. If they are expected to sign a three-year lease and do not fulfill the whole term, they risk losing some, if not all, of their security deposit – UNFAIR.
4. Making leases a minimum of three years will have a negative impact on property owners, predominantly locals, who may need to sell their property, but they’re stuck with a tenant on a three-year lease. Landlords will have to sell with tenancy – and potential buyers, most of whom are end users, will be put off by having to wait to take possession of the property until the end of three years.
5. Having to have every tenancy agreement notarized is just an unnecessarily burdensome workload for both the government and the property industry. Imagine the queues! Of the 24 notaries currently in Macau only five can read Chinese I gather, and besides, they work Monday to Friday. I’m told that over the next six months, more notaries will be trained, but again, is this not another example of trying to fix a problem that isn’t there? What about all the tenancy agreements that are signed on weekends? Are landlords and tenants really expected to take time off work during the week to queue up at a notary just to have their signatures verified? And what about landlords living overseas? Or tenants who wish to sign a tenancy agreement before arriving in Macau so that they can move straight in?
6. The notarization requirement simply does not help ensure legal leasing. In Macau there are thousands of car parks without legal title as well as many old buildings, apartments and shop spaces. How can their leases be notarised?
7. With so much inconvenience added to renting their properties, landlords will simply withdraw them from the market. A decrease in supply of apartments available – guess what, the rent for those remaining will go up. We already have examples of this in One Oasis and One Grantai where landlords choose to hold back whole towers, whole floors of properties from the market. Let’s face it, compared to the cost of buying an apartment in either of these complexes, the return on investment through the small amount of rent earned is just not worth the effort and so there’s no doubt many owners will prefer to keep their properties empty.
8. Without a proper, functioning arbitration body specialized in real estate matters that is given sufficient teeth to be effective – currently sorely lacking in Macau – landlords have little protection against delinquent tenants who occupy their apartments without paying rent, or who cause damage or nuisance to other residents. Increasing the lease term to three years just exacerbates the problems as the tenant has the right to remain for the full lease period. Again owners will prefer to keep their property empty, altogether less hassle.
If the government really wants to catch out owners renting their properties on a short term basis then they should give them the opportunity to apply for a license to do so. This works in other countries, so there's no reason why it shouldn’t work here. Or if they really need the money and want to get more owners to pay tax on their leases, then they should reduce the tax or impose greater penalties.
All in all, these new rules don’t make sense. Manipulating a market that operates smoothly and handicapping the industry with time-wasting bureaucratic red tape is surely not the most sensible way forward.
